Life Cycle of Security

THE LIFE CYCLE OF A SECURITY IN CAPITAL MARKET

Table of contents

Introduction 2

The life cycle of a security 2

1. A. Initial Public Offer 3

2. B. Listing of securities 3

3. C. Trading of securities 3

i) Order management: 4

ii) Trade management: 4

4. D. Clearing and Settlement 5

5. E. De-listing of securities 6

Security Protection Mechanisms 6

Securities in other markets 6

Conclusion 7

References 7

Submitted By

Aravind Kumar Arumugam

TCS

Introduction

The life cycle of a security in capital market! Have you ever given life to a security instrument? Well let us give it life and see how it grows. We shall also explore the environment in which our security grows.

Security is an instrument by which investing in capital markets takes place. According to the securities contracts regulation act (1956), securities include Shares, Scrips, Stocks, bonds, debenture stock or any other marketable securities. Securities can be broadly classified into bonds, common stocks, preferred stocks and derived securities. Companies and other organizations use the capital markets to meet their requirements of investment by issues securities, more commonly stocks.

The life cycle of a security

The life of a security in capital markets starts when companies float Initial Public offerings (IPO). After IPOs, the security gets listed in a stock exchange. Then the securities are traded on a day to day basis. Clearing and settlement process takes place on the traded securities. The securities ceases to exist when the securities is de-listed from the stock exchange.

Figure1: The Stages in the life cycle of a security in capital market

Let us take a detailed look on each of the stages in the life cycle of a security.

A. Initial Public Offer

Companies can make public issue of equity shares either through fixed price basis or book building process. Fixed price basis is the way in which the price is known in advance to the investor...