1. Introduction

Financial markets comprise both capital and money markets. Capital markets refer to markets that trade financial instruments with maturities longer than one year. Money markets trade debt securities or instruments of maturities of a year or less.

In the simplest terms, capital markets can be defined as a marketplace where buyers and sellers can engage in the trade of long term financial securities. Long term here means for a period greater than one year.

Markets are further segregated by the type of instrument—debt or equity—used to raise capital, i.e. debt market or stock market, and the derivatives market, which is used to manage risk. Capital markets are also distinguished as either primary or secondary. Borrowers raise funds in primary markets via primary issuances of stocks or bonds. Once these instruments are issued, they can be traded in secondary markets.

1.1. Primary Markets

The primary capital market is a market for new or fresh issues. This new or fresh issue of shares are called Initial Public Offerings. Primary market deals in the long-term flow of fund from the surplus sector to the government and corporate sector through primary issues and to banks and non-bank financial intermediary. Primary issues of the corporate sector lead to capital formation.

1.2. Secondary Markets

The secondary market also called "aftermarket” is the financial market for trading of securities that have already been issued in its initial private or public offering. Secondary market is also called share market. Share market includes exchange of those securities which are already sold and listed in the Primary market. Any transaction in the share market can be executed by the members of the exchange keeping in mind the rules and regulations of the SEBI.