Capital Market Instruments For Banking Negotiable Instrument SBI Clerk

EQUIPREF

1. They are fully convertible cumulative preference shares. 
2. This instrument is divided into 2 parts namely Part A & Part B. Part A is convertible into equity shares automatically/compulsorily on date of allotment without any application by the allottee. 
3. Part B is redeemed at par or converted into equity after a lock in period at the option of the investor, at a price 30% lower than the average market price.

SWEAT EQUITY SHARES

1. The phrase `sweat equity' refers to equity shares given to the company's employees on favorable terms, in recognition of their work. 
2. Sweat equity usually takes the form of giving options to employees to buy shares of the company, so they become part owners and participate in the profits, apart from earning salary. 

SECURED PREMIUM NOTES

1. SPN is a secured debenture redeemable at premium issued along with a detachable warrant, redeemable after a notice period, say four to seven years.
2. The warrants attached to SPN gives the holder the right to apply and get allotted equity shares; provided the SPN is fully paid. 
3. Example: TISCO issued warrants for the first time in India in the year 1992 to raise 1212 crore.

DEEP DISCOUNT BONDS

1. A bond that sells at a significant discount from par value and has no coupon rate or lower coupon rate than the prevailing rates of fixed-income securities with a similar risk profile. 
2. They are designed to meet the long term funds requirements of the issuer and investors who are not looking for immediate return and can be sold with a long maturity of 25-30 years at a deep discount on the face value of debentures.
3. Example: IDBI deep discount bonds for Rs 1 lac repayable after 25 years were sold at a discount price of Rs. 2,700.

EQUITY SHARES WITH DETACHABLE WARRANTS

1. A warrant is a security issued by company entitling the holder to buy a given number of shares of stock at a stipulated price during a specified period. 
2. These warrants are separately registered with the stock exchanges and traded separately. Example: Essar Gujarat, Ranbaxy, Reliance issue this type of instrument.

FULLY CONVERTIBLE DEBENTURES WITH INTEREST

This is a debt instrument that is fully converted over a specified period into equity shares.
The conversion can be in one or several phases.
When the instrument is a pure debt instrument, interest is paid to the investor. After conversion, interest payments cease on the portion that is converted.

TRACKING STOCKS

A tracking stock is a security issued by a parent company to track the results of one of its subsidiaries or lines of business; without having claim on the assets of the division or the parent company. It is also known as "designer stock". When a parent company issues a tracking stock, all revenues and expenses of the applicable division are separated from the parent company's financial statements and bound to the tracking stock. Oftentimes, this is done to separate a subsidiary's high-growth division from a larger parent company that is presenting losses. The parent company and its shareholders, however, still control the operations of the subsidiary.

DISASTER BONDS

Also known as Catastrophe or CAT Bonds, Disaster Bond is a high-yield debt instrument that is usually insurance linked and meant to raise money in case of a catastrophe. It has a special condition that states that if the issuer (insurance or Reinsurance Company) suffers a loss from a particular pre-defined catastrophe, then the issuer's obligation to pay interest and/or repay the principal is either deferred or completely forgiven.

FOREIGN CURRENCY CONVERTIBLE BONDS(FCCBs)

A convertible bond is a mix between a debt and equity instrument. It is a bond having regular coupon and principal payments, but these bonds also give the bondholder the option to convert the bond into stock. FCCB is issued in a currency different than the issuer's domestic currency. The investors receive the safety of guaranteed payments on the bond and are also able to take advantage of any large price appreciation in the company's stock. Due to the equity side of the bond, which adds value, the coupon payments on the bond are lower for the company, thereby reducing its debt-financing costs.

 PARTICIPATORY NOTES

Also referred to as "P-Notes" Financial instruments used by investors or hedge funds that are not registered with the Securities and Exchange Board of India to invest in Indian securities.

Indian-based brokerages buy India-based securities and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors. These are issued by FIIs to entities that want to invest in the Indian stock market but do not want to register themselves with the SEBI.