Capital Markets & Stock Exchanges
Primary market (IPO/FPO/rights/bonus issues) vs Secondary market (BSE/NSE trading), equity shares, preference shares, debentures, bonds, book building, ASBA, QIP, SEBI regulations, and key capital market terms.
Banky Enters the Stock Market! 📈
Capital markets are where companies raise long-term money and investors build wealth. Your bank participates as banker to issues, underwriter, and demat/trading account provider. This chapter is capital markets 101.
Why Read This Chapter?
Your bank earns fees from IPOs, demat, and trading accounts — know the product
Exam Marks
3-5 questions — primary vs secondary, BSE 1875/NSE 1992, demutualisation, IPO book building 35% retail, retail investor ₹2 lakh, ASBA, security auction = secondary. High weightage!
Career Growth
Officers who understand capital markets get posted to investment banking, treasury, and wealth management divisions
Real Life
You’ll understand IPOs, mutual funds, demat accounts, and stock trading — essential personal finance knowledge
How Will It Benefit You?
Real career advantages
What Is This Chapter About?
30-second summary
Key Definitions — Banky Asks, Mentor Explains
Every term explained like you’re 10
Banky’s Understanding: Market for long-term funds — equity and debt. Includes primary market (new issues — IPO/FPO) and secondary market (trading existing securities — BSE/NSE). Banks participate as bankers to issues, underwriters, demat providers, and lenders against securities. Capital market = long-term (vs money market = short-term).
Banky’s Understanding: Primary Market: Companies raise FRESH capital — public issues (IPO, FPO) + private placements. Subject to SEBI pre-issue guidelines + Companies Act. Secondary Market: Already-issued securities are traded. Two types: auction market (stock exchanges — BSE/NSE) and dealer market (OTC). Provides price discovery + liquidity for investors. Security AUCTION market = component of secondary market (exam PYQ!).
Banky’s Understanding: BSE (Bombay Stock Exchange): Set up in 1875 — oldest in Asia, first to get SEBI permanent recognition. Index: Sensex (30 stocks). NSE (National Stock Exchange): Established 1992 — other major exchange, permanent SEBI recognition. Index: Nifty (50 stocks). CSE (Calcutta): 1908, now inactive. Metropolitan SE: Dec 2012. Demutualisation: process where exchange converts from member-owned to shareholder-owned company.
Banky’s Understanding: Equity Shares: Holders are company MEMBERS with voting rights. Can have differential voting/dividend rights. Types: rights issue (new shares to existing holders), bonus shares (free from profits/reserves). Preference Shares: NO voting rights. Fixed dividend paid BEFORE equity dividend. Priority during liquidation (after creditors but before equity). Types: cumulative (dividend accumulates), convertible (becomes equity later), participating (extra profit share). Redeemable: max 20 years (except infrastructure).
Banky’s Understanding: Bonds: Negotiable certificate of indebtedness — usually unsecured. Types: coupon (regular interest), zero-coupon (buy at discount, no periodic interest, bullet payment at maturity), convertible (can convert to equity). Debentures: Issued by companies — secured/charged against company assets. Debenture Trustee creates the charge. Attract stamp duty. G-Secs: sovereign (credit-risk free), coupon-bearing, half-yearly interest, issued by RBI for Central Govt, maturity up to 40+ years. All bonds demat since June 2002.
Banky’s Understanding: IPO (Initial Public Offering): First time a company offers shares to public. Eligibility: net tangible assets ≥₹3 Cr (3 years), avg operating profit ≥₹15 Cr, net worth ≥₹1 Cr. Book Building: Price discovered through investor bids within a price band. Allocation: 35% retail, 50% QIBs, 15% NIIs (in voluntary book building). Retail investor: applies for ≤₹2,00,000. Anchor investor: QIB applying for ≥₹10 crore.
Banky’s Understanding: ASBA (Applications Supported by Blocked Amount): When applying for IPO, your money stays in YOUR account — only blocked, not debited. Debited only IF allotted. If not allotted → block released automatically. Mandatory for all investors since 2010. QIP (Qualified Institutional Placement): Quick way for LISTED companies to raise money from QIBs. No pre-issue SEBI filing. Faster than IPO. Reduces dependence on foreign capital (FCCBs/GDRs).
Banky’s Understanding: STT: Securities Transaction Tax — 0.1% on cash delivery. Rolling Settlement: T+1 (trades settled next working day). Demutualisation: exchange converts from member-owned to shareholder-owned. Cut-Off Price: actual discovered issue price in book building — only retail can bid at cut-off. Green Shoe Option: allot excess shares for post-listing price stabilisation. SCSB: Self-Certified Syndicate Bank offering ASBA. NSDL and CDSL = two central depositories.
Chapter Explained in Simple Stories
So easy even Banky’s nephew understands
📈 Block 1: Primary vs Secondary — New Issues vs Trading
Capital market has two halves:
🆕 Primary Market (New Issues): Companies raise FRESH capital. Two types: (1) Public Issue (IPO/FPO — offered to everyone) and (2) Private Placement (offered to select investors). Banks participate as bankers to the issue, ASBA providers, underwriters.
🔄 Secondary Market (Trading): Already-issued securities traded between investors. Two types: (1) Auction Market (stock exchanges — BSE/NSE) and (2) Dealer Market (Over-the-Counter/OTC). Provides liquidity + price discovery.
⚠️ Security auction market = SECONDARY market (exam trap! Not primary!). IPO market = PRIMARY. Private placement = PRIMARY.
🏦 Block 2: Instruments — Equity, Preference, Bonds, Debentures
📊 Equity Shares: Ownership + voting rights. Types: rights issue (to existing holders), bonus shares (free from profits). Can have differential voting rights.
⭐ Preference Shares: Fixed dividend BEFORE equity. Priority in liquidation. NO voting. Types: cumulative, convertible, participating. Max 20 years (infra: longer).
📜 Bonds: Usually UNSECURED. Coupon bonds (regular interest), zero-coupon (discount, bullet payment), convertible (can become equity). Demat since June 2002.
🔒 Debentures: SECURED against company assets. Debenture Trustee creates charge. Attract stamp duty.
🏛️ G-Secs: Sovereign, credit-risk FREE, coupon-bearing, half-yearly interest, maturity up to 40+ years. Issued by RBI for Central Govt.
🎯 Block 3: IPO, ASBA & Book Building — How Companies Raise Money
IPO Process: Company decides to go public → appoints BRLM (Book Running Lead Manager) → files Red Herring Prospectus → sets price band → investors bid → cut-off price discovered → allotment.
Book Building Allocation: 35% Retail (≤₹2 lakh), 50% QIBs, 15% NIIs. Anchor investor: QIB bidding ≥₹10 crore.
ASBA: Your money stays in YOUR account — only blocked. Debited only on allotment. Mandatory since May 2010 for all investors.
IPO Eligibility: Net tangible assets ≥₹3 Cr (3 years), Avg operating profit ≥₹15 Cr, Net worth ≥₹1 Cr. OR: book building with 75% to QIBs.
QIP: Listed companies raise money quickly from QIBs. No SEBI pre-filing. Reduces foreign capital dependence.
Exam Angle — Every Testable Point
All facts, numbers, definitions JAIIB tests
✅ Must-Know Facts — Highest Probability
- Capital market: long-term equity + debt — primary (new issues) + secondary (trading)
- Primary market: public issues (IPO/FPO) + private placements — FRESH capital raised
- Secondary market: trading existing securities — auction (stock exchanges) + dealer (OTC)
- Security auction market = SECONDARY market component (NOT primary!) — exam trap!
- BSE: 1875 — oldest in Asia, first SEBI recognition | NSE: 1992 — Nifty 50
- Demutualisation: member-owned → shareholder-owned company (BSE/NSE both demutualised)
- Equity shares: ownership + voting rights | Can have differential voting/dividend rights
- Rights issue: new shares to existing shareholders | Bonus shares: free from profits/reserves
- Preference shares: fixed dividend, no voting, priority in liquidation, max 20 years (infra: longer)
- Cumulative preference: unpaid dividend accumulates | Convertible: becomes equity later
- Bonds: usually UNSECURED | Debentures: SECURED against assets | G-Secs: sovereign, risk-free
- Zero-coupon bond: no periodic interest — buy at discount, bullet payment at maturity
- All bonds demat since June 2002 — NSDL and CDSL = two central depositories
- IPO book building: 35% retail + 50% QIBs + 15% NIIs (voluntary book building)
- Retail investor: applies for ≤ ₹2,00,000 | Anchor investor: QIB ≥ ₹10 crore
- IPO eligibility: net tangible assets ≥₹3 Cr + avg operating profit ≥₹15 Cr + net worth ≥₹1 Cr
- ASBA: money blocked (not debited) — debited only on allotment — mandatory since May 2010
- QIP: listed companies raise money quickly from QIBs — no SEBI pre-filing
- STT: 0.1% on cash delivery (since Oct 2004) | Rolling settlement: T+1
- CP minimum tenure: 7 days (exam trap — NOT 1 month!)
- Green Shoe Option: allot excess shares for post-listing price stabilisation
📝 Previous Year Questions
Memory Tricks That STICK
Lock every fact permanently
🧠 Trick 1 — Primary vs Secondary
🧠 Trick 2 — BSE & NSE Years
🧠 Trick 3 — Book Building Split
🧠 Trick 4 — ASBA = Blocked
🧠 Trick 5 — Bond vs Debenture
🧠 Trick 6 — Retail = ₹2 Lakh
🧠 Trick 7 — Demutualisation
🧠 Trick 8 — IPO Eligibility
Visual Summary — Chapter Map
Entire chapter in one diagram
Flash Revision — Last-Minute Cards
Read these 10 minutes before exam
⚡ Chapter 31 Complete — Capital Markets and Stock Exchanges
- Capital market: long-term equity + debt | Primary (IPO/FPO) vs Secondary (BSE/NSE trading)
- Security auction market = SECONDARY (not primary!) — top exam trap
- BSE (1875): oldest in Asia | NSE (1992) | Demutualisation = member→shareholder-owned
- Equity: ownership + voting | Preference: fixed dividend, no voting | Bond: unsecured | Debenture: secured
- Book building: 35% retail + 50% QIB + 15% NII | Retail ≤₹2L | Anchor ≥₹10 Cr
- ASBA: money blocked not debited — mandatory since May 2010 | IPO: 3-15-1 eligibility
- STT: 0.1% | Rolling settlement: T+1 | All bonds demat since June 2002
Banky says: “Primary=new, Secondary=trading, BSE=1875, retail=₹2L, ASBA=blocked not debited!” 🎉📈
You now understand India’s capital markets — from IPOs to stock exchanges to bond types. When a customer asks about IPOs or demat accounts, you’ll answer like a capital market expert! 💪