The security-related problems in the business sector of India are as old as the British government’s introduction of joint stock enterprises. In India, several industries like cotton and jute textiles, tea, and other plantation industries started emerging in the 18th and 19th centuries. Several industries were established as joint-stock enterprises with shares limiting liability. A large number of entrepreneurs having great business spirit started purchasing shares in big cities and began trading in them in the early nineteenth century. During British rule, however, most of the corporations were facing the problems of public shares, as these firms were relying on the British banks in India concerning joint stocks and borrowed finances from abroad. Enterprise securities require a market first. Now the government securities were borrowed mostly in London by the British Indian government. Then later on in the nineteenth century, the government allowed treasury bills and government securities in the rupee. All of this contributed a lot to the emergence of the government securities market in India.
MEANING OF SECURITIES
The word security means assets which are interchangeable and financial assets that hold some sort of fiscal value. The term security shows the ownership position of a company where trade is done publicly through stock. Security also represents the creditor relationship with some government-related organization or a firm which is represented by the owner of that entity’s bond, or the authority of ownership constituted by an option. Securities serve as funds to business firms, semi-government, or government bodies. Broadly securities are divided into two different types: debt and equity and the funds have two sources: internal and external. Securities emerge from the funds which are raised by external sources. The three major types of securities are the following:
- Equity securities – it is an upgraded name representing stocks. When a person buys shares then that person is the owner of a part of the company.
- Debt securities – fixed-income securities, also called bonds. Buying bonds means lending money to a company.
- Derivative securities – these securities give the right to trade financial securities rather than granting the ownership of shares.
WHAT IS MEANT BY THE SECURITIES MARKET?
The place where the exchange of securities like stocks and bonds occurs by considering the demand and supply as the basis of trade is known as the securities market. These markets regulate the cost and are open to both types of buyers and sellers: professionals and non-professionals. The securities markets are responsible for providing a regulated body for the systematic flow of capital i.e. equity and debt from investors to businesses in the financial market sector. Securities markets in fiscal terms are represented as IOUs which means ‘I owe you and more importantly this market deals with financial assets. The central or state government, business firms, and the corporate sector are responsible for issuing the securities and the public sector undertakings also issue the same. These issued securities provide financial support for investments and expenditures. These markets play a vital role as a platform that allocates savings to investments. Securities markets are very capable and have a lot of potential as they can channel the savings of government, households, and business firms to provide funds for capital needs concerning a business enterprise.
TYPES OF SECURITIES MARKETS
Securities markets can be categorized into two segments namely primary market and secondary market.
- Primary market: It deals with the public trading of new securities through investment brokers. In this market, the person who issues the securities is granted them to proceed with the transaction. Security is sold once in the primary market i.e. when the corporation issues it. Equity and debt both have a market where they are first issued.
- Secondary market: rest of the transaction happens in this market. The securities which have already been issued are bought, traded, and sold here. The absolute transaction of securities takes place. The actual trade of securities is done in the secondary market.
FUNCTIONS OF SECURITY MARKETS
The major functions of securities markets are briefly mentioned below:
- It allows allocating the financial capital and brings investors, savers, and issuers together.
- It channelizes the savings of small investors into long-term plans.
- It provides liquidity to stocks and bonds.
- These markets help in discovering the prices of equities.
SECURITIES MARKET AND FUNDRAISING
In India, there are various kinds of business corporations like partnership companies, private and public limited firms, cooperative societies, joint, and public sector institutions, etc. The very often regulated way is the companies, registered under the Indian Companies Act of 1956. According to this act, companies are categorized into three kinds: (1) companies limited by guarantee, (2) private limited companies, bounded by shares that are paid, and (3) public limited companies, limited by shares paid up. The companies which are limited by guarantee are not allowed to enter the market. The private limited companies cannot transfer their shares freely and can only have fifty (50) members. These companies have the authority to deny the transfer of shares as a result doing trade with them is confined. Because of this restrained character these companies face difficulty in getting access to securities markets. But the public limited companies are quite famous due to their power of raising funds by issuing shares, from the public.
Securities markets are the markets where the exchange of securities takes place. Securities mean financial assets, stocks, and bonds. These securities are issued, bought, and sold. All of this happens in the securities markets namely the primary market where securities are issued and the secondary market where absolute trade happens. The securities provided by the market are not easily accessible by every corporate unit for example public limited companies are the ones that enjoy all the securities whereas private ltd. firms face problems. These markets allow channelizing the savings into funds for the companies. The securities market also provides liquidity to the securities and acts as a barometer of the health of the economy.
Author’s Name: Umra Siddiqui (Aligarh Muslim University, Aligarh)