Money Market deals with claims, assets and securities which have a maturity period of upto one year
on the other hand
Capital Market deals in long term securities with maturity period more than one years.
It is broadly divided into two segments –
1)Primary (or New Issue) Market
2)Secondary Market.
Primary/New Issue Market and Secondary/Stock Market
Primary market deals in new securities, i.e., fresh issue by the company to the ultimate investors, while, secondary markets deals in existing securities which have already been issued and are already outstanding.
Major differences between primary and secondary markets are
Now,
Relationship Between Primary and Secondary Market
Securities first pass through primary market and thereafter enter the secondary market.
In the issuing prospectus (CALLED AS The Red Herring Prospectus) the issuing company made it clear that the scrip will be listed in the stock exchange.
Stock exchange exercise significant control over NIM also.
SEs (Stock Exchanges) provide liquidity to the securities which have passed through NIM, thus help in expanding NIM.
A period of rising activity in SEs is accompanied with higher activities in NIM resulting in large number of successful issues and vice versa.
SEs will not exist in absence of NIM and NIM will remain narrow and inefficient in the absence of SEs.
Therefore these two complement each other.
Functions of NIM
Three functions (also called as triple-service function) –
Origination
Underwriting and
Distribution
We will see them one by one
1. Origination: Refers to the work of investigation, analysis and review, rendering relevant consultative services, authenticating and processing of new issue proposals.
Broadly these services can be categorized into two:
- Preliminary investigation into technical, economic, financial, legal and environmental aspects of the present and /or proposed activities of the issuing company regarding quality of issue, intent of the company, market prospects and listing on SEs.
- Sponsoring institutions also provide different types of services like security mix to be issued, issue price of the security, size and timing of the issue, methods of floatation and so on.
2. Underwriting: Although sound origination is essential but it do not guarantee the issue will be successful.
Unsuccessful issue not only hurt the future plans of the company but also money invested for origination services will get wasted.
Therefore to ensure success of the issue the company/promoters get the issue underwritten.
Underwriter guarantees that he would buy the portion of the issue not subscribed by the public.
But to avail the service, minimum 90 percent of the issue have to be subscribed.
The service is rendered for a commission.
3. Distribution: Sale of securities to ultimate investors is called as distribution.
It is a specialized activity rendered by brokers, sub-brokers and dealers because they maintain close and continuous touch with the capital market and maintain regular and direct contact with the present and prospective ultimate investors.
Next Post will be a continuation of this on Issue Mechanism.
Till then keep visiting...
on the other hand
Capital Market deals in long term securities with maturity period more than one years.
It is broadly divided into two segments –
1)Primary (or New Issue) Market
2)Secondary Market.
Primary/New Issue Market and Secondary/Stock Market
Primary market deals in new securities, i.e., fresh issue by the company to the ultimate investors, while, secondary markets deals in existing securities which have already been issued and are already outstanding.
Major differences between primary and secondary markets are
Now,
Relationship Between Primary and Secondary Market
Securities first pass through primary market and thereafter enter the secondary market.
In the issuing prospectus (CALLED AS The Red Herring Prospectus) the issuing company made it clear that the scrip will be listed in the stock exchange.
Stock exchange exercise significant control over NIM also.
SEs (Stock Exchanges) provide liquidity to the securities which have passed through NIM, thus help in expanding NIM.
A period of rising activity in SEs is accompanied with higher activities in NIM resulting in large number of successful issues and vice versa.
SEs will not exist in absence of NIM and NIM will remain narrow and inefficient in the absence of SEs.
Therefore these two complement each other.
Functions of NIM
Three functions (also called as triple-service function) –
Origination
Underwriting and
Distribution
We will see them one by one
1. Origination: Refers to the work of investigation, analysis and review, rendering relevant consultative services, authenticating and processing of new issue proposals.
Broadly these services can be categorized into two:
- Preliminary investigation into technical, economic, financial, legal and environmental aspects of the present and /or proposed activities of the issuing company regarding quality of issue, intent of the company, market prospects and listing on SEs.
- Sponsoring institutions also provide different types of services like security mix to be issued, issue price of the security, size and timing of the issue, methods of floatation and so on.
2. Underwriting: Although sound origination is essential but it do not guarantee the issue will be successful.
Unsuccessful issue not only hurt the future plans of the company but also money invested for origination services will get wasted.
Therefore to ensure success of the issue the company/promoters get the issue underwritten.
Underwriter guarantees that he would buy the portion of the issue not subscribed by the public.
But to avail the service, minimum 90 percent of the issue have to be subscribed.
The service is rendered for a commission.
3. Distribution: Sale of securities to ultimate investors is called as distribution.
It is a specialized activity rendered by brokers, sub-brokers and dealers because they maintain close and continuous touch with the capital market and maintain regular and direct contact with the present and prospective ultimate investors.
Next Post will be a continuation of this on Issue Mechanism.
Till then keep visiting...
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