Trading and Settlement

What is the procedure for selling dematerialized securities?
The procedure for buying and selling dematerialized securities is similar to the procedure for buying and selling shares. The difference lies in the process of settlement of shares i.e. delivery (in case of sale) and receipt (in case of purchase) of securities.
Following procedure is followed for settlement:
 

In case of purchase:-
·  The broker will receive the securities in his account on the payout day from the     clearing corporation of the stock exchange.
·  The broker will give instruction to its DP to debit his account and credit investor’s     account who has bough the shares.
·  Investor will give ‘Receipt Instruction to DP for receiving credit by filling appropriate     form. However one can also give standing instruction for credit of securities in his     account, which is convenient way of receiving shares as that will obviate the need of     giving Receipt Instruction every time.
In case of sale:-
The investor will give delivery instruction to DP to debit his account and credit the broker’s account with correct ISIN of the number of securities sold by him. Such instruction should reach the DP’s office at least 24 hours before the pay-in as other wise DP will accept the instruction only at the investor’s risk. DP will debit his account and credit the account of the broker through whom shares have been sold. The broker would then transfer the shares to the clearing corporation of the exchange where shares have been sold.

What is ‘Standing Instruction’ given in the account opening form?
In a bank account, credit to the account is given only when a ‘pay in’ slip is submitted together with cash/cheque. Similarly, in a depository account ‘Receipt in’ form has to be submitted to receive securities in the account. However, for the convenience of investors, facility of ‘standing instruction’ is given. If you say ‘Yes’ for standing instruction, you need not submit ‘Receipt in’ slip every time you buy securities. Hence all credits to your account would be automatically facilitated for your convenience.

An initial public offering (IPO): basic terminologies

What is IPO
It is the process of selling shares that were so far privately held to new investors for the first time IPO. It is the process for an unlisted company (called issuer) to go public and offer shares to general public investors. The main purpose of an IPO is to raise capital for the company. The IPOs are very effective at raising capital.

Primary market
The market in which investors have the first opportunity to buy a newly issued security like in an IPO.

Prospectus
A formal legal document describing the details of the company is created for a proposed IPO. It is the document that makes investors aware of the risks of an investment.
Underwriting
It is the process by which investment bankers (appointed for the issue) raise investment capital from general investors on behalf of the issuer. The word “underwriter” is also called risk taker as new issues are brought to market by an underwriters in which they take the responsibility (and risk) of selling its specific allotment.

Book Building
The process by which an the attempt is being made to determine at what price the securities to be offered based on demand from investors. An electronic book is being built by accepting orders from the investors who indicate the number of shares they desire and the price they are willing to pay.
Over subscription
A situation in which the demand for shares offered in an IPO exceeds the number of shares issued.

Green shoe option
It is referred to as an over-allotment option. It is a provision contained in an underwriting agreement whereby the underwriter gets the right to sell investors more shares than originally planned by the issuer in case the demand for a security issue proves higher than expected.

Procedure of IPO:
An IPO is usually underwritten by one or more underwriters called as a “syndicate” of investment banks. The company offering its shares enters a contract with a lead underwriter to sell shares to the public by book building process. The underwriter then approaches investors with offers to sell these shares. Upon selling the shares, the underwriters keep a commission based on a percentage of the value of the shares sold.