1.1.10 Trading in Equities

This topic describes the Trading in Equities.

Selling stock to the public - When corporations issue stock (or other securities), they are referred to as Issuers. Stock can be issued for sale to the public or for private placement. When issuers prepare to sell securities to the public, they usually call upon investment bankers to act as underwriters.

Most corporations come out with the new issue of shares through Initial Public Offerings (IPO), which is called the primary market offering. The equity shares then get listed on the stock exchange. The stock exchange is the market place for buying and selling of equity shares.

The stock exchange offers the common trading floor for trading on stocks. They offer liquidity to investors. Every stock exchange has its own rules and regulations under which the securities get traded. Investors can offer to buy or offer to sell stocks of certain corporations through financial intermediaries on the stock exchange. The stock exchange publishes the various price quotes for stocks listed on their stock exchange on a daily basis. Stock exchanges also allow for settlement for trades.

Typical settlement periods that stock exchanges follow are:

• Fixed Settlement - Stocks traded during a specific period would get settled on a specific date. All securities traded between Monday and Friday of every week would get settled on the Tuesday of the next week. If Tuesday happens to be a holiday, then the same would be either settled on Monday or on Wednesday as the case may be.
• Rolling Settlement – Stocks traded on any day would get settled after a defined period. For example, if the stock exchange has a rolling settlement of 3 days, then all deals done on June 01 will be settled on June 04 and all deals done on June 02 will be settled on June 05 and so on.

The investors can hold securities in any of the following forms:

• Scrip based – Certificates mentioning the details of the investor holding on the securities will be provided to every investor. In this scenario, the securities in physical form are typically held in the Safekeeping locations for the customer which can typically be a custodian, broking house or a bank.
• Dematerialized – No paper form holding of securities. The security positions at each investor level are held electronically at the depository. Any buy or sell by the investors in a dematerialized form will increase the holdings of the customer in an electronic format. Securities never exist in physical form.
• Immobilized – Very similar to Dematerialized. But, the physical forms of the certificates are available with the central depository.