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ONLINE TRADING STARTED IN INDIA AFTER 2001. SO THERE IS LOT OF DEVELOPMENT IN FINANCIAL MARKETS JUST BECAUSE OF ONLINE TRADING. IF YOU STUDIED THIS YOU WOULD BE ABLE TO DO ONLINE TRADING BY YOURSELF IN YOUR HOME AND CAN EARN A LOT OF MONEY.
CHAPTER-1 INTRODUCTION 1 INTRODUCTION TO THE STUDY Stock exchange is an organized market place where securities are traded. These securities are issued by the government, semi-government bodies, public sector undertakings and companies for borrowing funds and raising resources. Securities are defined as any monetary claims (promissory notes or I.O.U) and also include shares, debentures, bonds and etc., if these securities are marketable as in the case of the government stock, they are transferable by endorsement and alike movable property. They are tradeable on the stock exchange. So are the case shares of companies. Under the Securities Contract Regulation Act of 1956, securities’ trading is regulated by the Central Government and such trading can take place only in stock exchanges recognized by the government under this Act. As referred to earlier there are at present 23 such recognized stock exchanges in India. Of these, major stock exchanges, like Bombay Stock Exchange, National Stock Exchange, Inter- Connected Stock Exchange, Culcutta, Delhi, Chennai, Hyderabad and Bangalore etc. are permanently recognized while a few are temporarily recognized. The above act has also laid down that trading in approved contract should be done through registered members of the exchange. As per the rules made under the above act, trading in securities permitted to be traded would be in the normal trading hours (10 A.M to 3.30 P.M) on working days in the Trading ring, as spssecified for trading purpose. Contracts approved to be traded are the following: Spot delivery deals are for deliveries of shares on the same day or the next day as the payment is made. Hand deliveries deals for delivering shares within a period of 7 to 14 days from the date of contract. Delivery through clearing for delivering shares with in a period of two months from the date of the contract, which is now reduce to 15 days.(Reduced to 2 days in demat trading)Special Delivery deals for delivering of shares for specified longer periods as may be approved by the governing board of the stock exchange. Except in those deals meant for delivery on spot basis, all the rest are to be put through by the registered brokers of a stock exchange. The securities contracts (Regulation) rules of 1957 laid down the condition for such trading, the trading hours, rules of trading, settlement of disputes, etc. as between the members and of the members with reference to their clients. 2 OBJECTIVES OF THE STUDY To analyze the changes in trading after the exchange shifted from outcry to online trading system. To study the functions of SHAREKHAN through various departments. To know the online screen based trading system adopted by SHAREKHAN and about its communication facilities. The appropriate configuration to set the network, which would link the SHAREKHAN to individual / members. To know about the latest and future development in the stock exchange trading system. 3 NEED, SCOPE AND IMPORTANCE 4 NEED FOR THE STUDY: Online trading denotes buying and selling securities on the Internet through provided by financial brokers like SIM s and banks online trading is the easy way to buy and sell shares from the comfort of one’s home. Finding a company that provides with an online trading account can be difficult. There are many companies that will offer excellent services for online trading, but one needs to find out one that meets their needs and requirements. The present study to review the online trading procedure a case study of ONLINE TRADING at SHAREKHAN, as the exchange has changed it’s trading from the outcry mode to online trading on 20th February 1997, there is need to assess the performance of the capital market. Trading financial markets is like any other discipline; the more you study it and become an expert in it, the better you get. Too many people want to jump into online trading and blow their money before they even know what they are doing. They perceive forex trading or stock market trading as a quick and easy way to riches and figure they can jump in with minimal preparation. This is why beginner traders are susceptible to the latest forex trading or commodity trading “sure-fire” system that some guru out there is selling. After all, what could be easier than forking out some cash and buying a trading system “guaranteed” to make you big profits? It would be nice if the world worked that way. It would be nice if money grew on trees too. As with any other major skill, success in trading takes time, study, a fair degree of frustration, and a lot of hard work to master. Whether it be trading forex, stocks, bonds or commodities, you are going to have to invest some serious time really studying your market and getting to know it as well as you do your wife, your children, or your parents! There are really no shortcuts. 5 SCOPE OF THE STUDY : The study is confined to the past 2-3 years and the present system of trading procedure in share khan stock exchange. (Also a comparative study is done for SKSE with HDFC securities, Icici direct, India bulls, Kotak Street, 5 Paisa.) Online Trading is an internet based investment activity which eliminates the association of a broker. Anyone who has a computer, enough money to open an account and reasonable financial history has the ability to invest in the market. Nowadays there are many online trading companies working as portals for the biggest stock houses like the National stock exchange and the Bombay Stock Exchange. The person has to get registered with the online trading portal and get into into an agreement with the company to trade in different kinds of securities by accepting the terms and conditions. The online trading portals are connected to the stock exchanges and the assigned banks. Such online portals offer the trader an opportunity to check live online stock prices which they can either check through mail or the interface. Also ample amount of research data is provided which helps the user make their own decisions as to whether to invest in a particular stock or not. The online trading companies allow the users to invest in a number of financial products and services like equities, mutual funds, life insurance, loans, share trading, commodities trading institutional trading, general insurance and financial planning.Due to this invent, the market has become more accessible, but that doesn’t mean that it should be taken lightly When you trade online, you use the services of an online broker. You use actual money, but instead of talking to the broker about which investments to make, you yourself decide which stock to buy since you have resource to the online stock prices. Thus online stock company not only acts as a portal, but also as a broker and offers you to maximize your returns in the most efficient manner. 6 IMPORTANCE OF THE STUDY: Online of the trading is no different than offline trading. It requires the same amount of risk plus the same amount of skill. One needs to be well-disciplined and goal oriented as these are the main skills that separate winners and losers in the trading world. Trading especially online trading-requires any one to put limits on what they spend and their number of transactions. Also research is vital if one wants to uncover important tips to greatly improve the quality of their online trading portfolio and also to avoid getting bogged by purchasing shares from companies in the midst of a lawsuit or poor management. Online trading can be a good way to make a lot of money or to bring a small residual income to supplement regular income. Of course, one needs money to get started and even after getting started, it will still be a dangerous game loaded with risks. If one is determined and goal oriented, then they can succeed at online trading. If one trades emotionally and fail to be patient and analytical, they are almost guaranteed to fail, even if they get lucky a couple of times. Trading at different exchanges has never been without glitches. It has made a lot of billionaires, as well as bringing many rich people onto roads. It used to be much more difficult in past, one of the most challenging problems was inability of the stock traders to make up something useful of the information generated on per second basis from the ongoing trade. This not only slowed down the trading activity, but also resulted into huge losses. Not all the traders were in a position to make the right decisions at the right time. Online trading tools have revolutionized the industry; it has made a real difference in the investors earning ability. At the beginning when these tools came into existence, many critics were concerned about their ability to make any impact on the way online trade was carried out. The most important challenge to tackle was that these trading tools were fed into and they didn’t do any real time processing. It compromised the ability to make contributions in active trades by the traders. Now, the new tools have changed the trend for good. These tools are connected with the stock exchange. 7 CHAPTER-2 RESEARCH AND METHODOLOGY 8 RESEARCH METHODOLOGY Research design:- Research design is some statement or specification of procedure for collecting and analyzing the information required for the solution of some specific problem. Exploratory Research has been used in this study. Data source: - The data source utilized to undertake the project is both primary and secondary data. The data collection methods include both primary and secondary collection methods. Primary data: This method includes the data collected from the personal interaction with authorized members of Share khan Securities limited. Secondary data: The various sources of secondary data include: The lecturers delivered by the superintendents of respective departments. The brochures and material provided by Share khan Securities limited. The data collected from the magazines of the NSE, economic times, etc. Various books relating to the investments, capital market and other related topics. 9 LIMITATIONS OF THE STUDY o The study is confined to online trading procedure only. o Problems of listing are not covered due to limited time and to keep the study in manageable limits. o The study confined to the past 2-3 years and present system of the trading procedure in the SHARE KHAN STOCK EXCHANGE and the study is confined to the coverage of all the related issues in brief. o The data is collected from the primary and secondary sources and thus is subject to slight variation than what the study includes in reality. 10 CHAPTER-3 INDUSTRY PROFILE 11 INDUSTRY PROFILE The following diagram gives the structure of Indian Financial System: INDIAN FINANCIA- L SYSTEM MONEY CAPITAL MARKET MARKET Organized Unorga- Sub-market Gilt-edged Industrial Develop- Financial Sector nized Securities Securities ment Services Ssector Market Market Banks Call money Primary IFCI Merchant Market New issue Banking Market Treasury Secondary IDBI Leasing Bill Market Market Commer ICICI Factoring -cial Market Commer- UTI Venture cial Capital Paper Certificate LIC Mutual Of Funds Deposits 12 FINANCIAL MARKET: Financial markets are helpful to provide liquidity in the system and for smooth functioning of the system. These markets are the centers that provide facilities for buying and selling of financial claims and services. The financial markets match the demands of investment with the supply of capital from various sources. According to functional basis financial markets are classified into two types. They are: Money markets (short-term) Capital markets (long-term) According to institutional basis again classified in to two types. They are Organized financial market Non-organized financial market. The organized market comprises of official market represented by recognized institutions, bank and government (SEBI) registered/controlled activities and intermediaries. The unorganized market is composed of indigenous bankers, moneylenders, individual professional and non- professionals. MONEY MARKET: Money market is a place where we can raise short-term capital. Again the money market is classified in to Inter bank call money market Bill market and Bank loan market Etc. E.g.; treasury bills, commercial papers, CD's etc. 13 CAPITAL MARKET: Capital market is a place where we can raise long-term capital. Again the capital market is classified in to two types and they are Primary market and Secondary market. E.g.: Shares, Debentures, and Loans etc. PRIMARY MARKET: Primary market is generally referred to the market of new issues or market for mobilization of resources by the companies and government undertakings, for new projects as also for expansion, modernization, addition, and diversification and up gradation. Primary market is also referred to as New Issue Market. Primary market operations include new issues of shares by new and existing companies, further and right issues to existing shareholders, public offers, and issue of debt instruments such as debentures, bonds, etc. The primary market is regulated by the Securities and Exchange Board of India (SEBI a government regulated authority). Function: The main services of the primary market are origination, underwriting, and distribution . Origination deals with the origin of the new issue.Underwriting contract make the shares predictable and remove the element of uncertainty in the subscription. Distribution refers to the sale of securities to the investors. The following are the intermediaries associated with the money market: 1. Merchant banker/book building lead manager 2. Registrar and transfer agent 3. Underwriter/broker to the issue 4. Adviser to the issue 5. Banker to the issue 6. Depository 7. Depository participant 14 Investors’ protection in the primary market: To ensure healthy growth of primary market, the investing public should be protected. The term investor protection has a wider meaning in the primary market. The principal ingredients of investors’ protection are: Provision of all the relevant information Provision of accurate information and Transparent allotment procedures without any bias. SECONDARY MARKET: The primary market deals with the new issues of securities. Outstanding securities are traded in the secondary market, which is commonly known as stock market or stock exchange. “The secondary market is a market where scrip’s are traded”. It is a market place which provides liquidity to the scrip’s issued in the primary market. Thus, the growth of secondary market depends on the primary market. More the number of companies entering the primary market, the greater are the volume of trade at the secondary market. Trading activities in the secondary market are done through the recognized stock exchanges which are 23 in number including Over the Counter Exchange of India (OTCE), National Stock Exchange of India and Interconnected Stock Exchange of India.Secondary market operations involve buying and selling of securities on the stock exchange through its members. The companies hitting the primary market are mandatory to list their shares on one or more stock exchanges in India. Listing of scrip’s provides liquidity and offers an opportunity to the investors to buy or sell the scrip’s. The following are the intermediaries in the secondary market: 1. Broker/member of stock exchange – buyers broker and sellers broker 2. Portfolio Manager 3. Investment advisor 4. Share transfer agent 5. Depository 6. Depository participants. 15 FUNCTION OF CAPITAL MARKET: It acts as a link between investors and savers. Encouragement to savings Promotes economic growth Encouragement to investment Stability in security prices Benefits to investors STOCK MARKETS IN INDIA: Stock exchanges are the perfect type of market for securities whether of government and semi-govt bodies or other public bodies as also for shares and debentures issued by the joint-stock companies. In the stock market, purchases and sales of shares are affected in conditions of free competition. Government securities are traded outside the trading ring in the form of over the counter sales or purchase. The bargains that are struck in the trading ring by the members of the stock exchanges are at the fairest prices determined by the basic laws of supply and demand. Definition of a stock exchange: “Stock exchange means any body or individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.” The securities include: Shares of public company. Government securities. Bonds History of Stock Exchanges: The only stock exchanges operating in the 19th century were those of Mumbai setup in 1875 and Ahmedabad set up in 1894. These were organized as voluntary non- profit-marking associations of brokers to regulate and protect their interests. Before the control on securities under the constitution in 1950, it was a state subject and the Bombay securities contracts (control) act of 1925 used to regulate trading in securities. Under this act, the Mumbai stock exchange was recognized in 1927 and 16 Ahmedabad in 1937. During the war boom, a number of stock exchanges were organized. Soon after it became a central subject, central legislation was proposed and a committee headed by A.D.Gorwala went into the bill for securities regulation. On the basis of the committee’s recommendations and public discussion, the securities contract (regulation) act became law in 1956. Functions of Stock Exchanges: Stock exchanges provide liquidity to the listed companies. By giving quotations to the listed companies, they help trading and raise funds from the market. Over the hundred and twenty years during which the stock exchanges have existed in this country and through their medium, the central and state government have raised crores of rupees by floating public loans. Municipal corporations, trust and local bodies have obtained from the public their financial requirements, and industry, trade and commerce- the backbone of the country’s economy-have secured capital of crores or rupees through the issue of stocks, shares and debentures for financing their day-to-day activities, organizing new ventures and completing projects of expansion, diversification and modernization. By obtaining the listing and trading facilities, public investment is increased and companies were able to raise more funds. The quoted companies with wide public interest have enjoyed some benefits and assets valuation has become easier for tax and other purposes. Various Stock Exchanges in India: At present there are 23 stock exchanges recognized under the securities contracts (regulation), Act, 1956. Those are: Ahmedabad Stock Exchange Association Ltd. Bangalore Stock Exchange Bhubaneshwar Stock Exchange Association Calcutta Stock Exchange Cochin Stock Exchange Ltd. Coimbatore Stock Exchange Delhi Stock Exchange Association 17 Guwahati Stock Exchange Ltd Hyderabad Stock Exchange Ltd. Jaipur Stock Exchange Ltd Kanara Stock Exchange Ltd Ludhiana Stock Exchange Association Ltd Madras Stock Exchange Madhya Pradesh Stock Exchange Ltd. Magadh Stock Exchange Limited Meerut Stock Exchange Ltd. Mumbai Stock Exchange National Stock Exchange of India OTC Exchange of India Pune Stock Exchange Ltd. Saurashtra Kutch Stock Exchange Ltd. Uttar Pradesh Stock Exchange Association Vadodara Stock Exchange Ltd. Out of these major stock EXCHANGES WERE: 18 NSE: The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FI’s) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000 NSE's mission is setting the agenda for change in the securities markets in India. The NSE was set-up with the main objectives of: Establishing a nation-wide trading facility for equities and debt instruments. Ensuring equal access to investors all over the country through an appropriate communication network. Providing a fair, efficient and transparent securities market to investors using electronic trading systems. Enabling shorter settlement cycles and book entry settlements systems, and Meeting the current international standards of securities markets. The standards set by NSE in terms of market practices and technology, have become industry benchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. It's that force which is guiding the industry towards new horizons and greater opportunities. BSE: The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association". It is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in 1878. It is a voluntary non-profit making Association of Persons (AOP) and is currently engaged in the process of converting itself into demutualised and corporate entity. It has 19 evolved over the years into its present status as the premier Stock Exchange in the country. It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts (Regulation) Act 1956.The Exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the investors and ensures redresses of their grievances whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by conducting investor education programmers and making available to them necessary informative inputs. A Governing Board having 20 directors is the apex body, which decides the policies and regulates the affairs of the Exchange. The Governing Board consists of 9 elected directors, who are from the broking community (one third of them retire ever year by rotation), three SEBI nominees, six public representatives and an Executive Director & Chief Executive Officer and a Chief Operating Officer. The Executive Director as the Chief Executive Officer is responsible for the day-to- day administration of the Exchange and the Chief Operating Officer and other Heads of Department assist him. The Exchange has inserted new Rule No.126 A in its Rules, Byelaws pertaining to constitution of the Executive Committee of the Exchange. Accordingly, an Executive Committee, consisting of three elected directors, three SEBI nominees or public representatives, Executive Director & CEO and Chief Operating Officer has been constituted. The Committee considers judicial & quasi matters in which the Governing Board has powers as an Appellate Authority, matters regarding annulment of transactions, admission, continuance and suspension of member- brokers, declaration of a member-broker as defaulter, norms, procedures and other matters relating to arbitration, fees, deposits, margins and other monies payable by the member-brokers to the Exchange, etc. REGULATORY FRAME WORK OF STOCK EXCHANGE A comprehensive legal framework was provided by the “Securities Contract Regulation Act, 1956” and “Securities Exchange Board of India 1952”. Three tier regulatory structure comprising Ministry of finance The Securities And Exchange Board of India Governing body 20 Members of the stock exchange: The securities contract regulation act 1956 has provided uniform regulation for the admission of members in the stock exchanges. The qualifications for becoming a member of a recognized stock exchange are given below: o The minimum age prescribed for the members is 21 years. o He should be an Indian citizen. o He should be neither a bankrupt nor compound with the creditors. o He should not be convicted for fraud or dishonesty. o He should not be engaged in any other business connected with a company. o He should not be a defaulter of any other stock exchange. o The minimum required education is a pass in 12th standard examination. SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) The securities and exchange board of India was constituted in 1988 under a resolution of government of India. It was later made statutory body by the SEBI act 1992.according to this act, the SEBI shall constitute of a chairman and four other members appointed by the central government. With the coming into effect of the securities and exchange board of India act, 1992 some of the powers and functions exercised by the central government, in respect of the regulation of stock exchange were transferred to the SEBI. OBJECTIVES AND FUNCTIONS OF SEBI o To protect the interest of investors in securities. o Regulating the business in stock exchanges and any other securities market. o Registering and regulating the working of intermediaries associated with securities market as well as working of mutual funds. o Promoting and regulating self-regulatory organizations. o Prohibiting insider trading in securities. 21 o Regulating substantial acquisition of shares and take over of companies. o Performing such functions and exercising such powers under the provisions of capital issues (control) act, 1947and the securities to it by the central government. SEBI GUIDELINES TO SECONDARY MARKETS: (STOCK EXCHANGES): Board of Directors of Stock Exchange has to be reconstituted so as to include non-members, public representatives and government representatives to the extent of 50% of total number of members. Capital adequacy norms have been laid down for the members of various stock exchanges depending upon their turnover of trade and other factors. All recognized stock exchanges will have to inform about transactions within 24 hrs. TYPES OF ORDERS: Buy and sell orders placed with members of the stock exchange by the investors. The orders are of different types. Limit orders: Orders are limited by a fixed price. E.g. ‘buy Reliance Petroleum at Rs.50.’Here, the order has clearly indicated the price at which it has to be bought and the investor is not willing to give more than Rs.50. Best rate order: Here, the buyer or seller gives the freedom to the broker to execute the order at the best possible rate quoted on the particular date for buying. It may be lowest rate for buying and highest rate for selling. Discretionary order: The investor gives the range of price for purchase and sale. The broker can use his discretion to buy within the specified limit. Generally the approximation price is fixed. The order stands as this “buy BRC 100 shares around Rs.40”. Stop loss order: The orders are given to limit the loss due to unfavorable price movement in the market. A particular limit is given for waiting. If the price falls below the limit, the broker is authorized to sell the shares to prevent further loss. E.g. Sell BRC limited at Rs.24, stop loss at Rs.22. 22 Buying and selling shares: To buy and sell the shares the investor has to locate register broker or sub broker who render prompt and efficient service to him. The order to buy or sell specifying the number of shares of the company of investors’ choice is placed with the broker. The order may be of any type. After receiving the order the broker tries to execute the order in his computer terminal. Once matching order is found, the order is executed. The broker then delivers the contract note to the investor. It gives the details regarding the name of the company, number of shares bought, price, brokerage, and the date of delivery of share. In this physical trading form, once the broker gets the share certificate through the clearing houses he delivers the share certificate along with transfer deed to the investor. The investor has to fill the transfer deed and stamp it. The stamp duty is one of the percentage considerations, the investor should lodge the share certificate and transfer deed to the register or transfer agent of the company. If it is bought in the DEMAT form, the broker has to give a matching instruction to his depository participant to transfer shares bought to the investors account. The investor should be account holder in any of the depository participant. In the case of sale of shares on receiving payment from the purchasing broker, the broker effects the payment to the investor. Share groups: The scrips traded on the BSE have been classified into ‘A’,’B1’,’B2’,’C’,’F’ and ‘Z’ groups. The ‘A’ group represents those, which are in the carry forward system. The ‘F’ group represents the debt market segment (fixed income securities). The Z group scrips are of the blacklisted companies. The ‘C’ group covers the odd lot securities in ‘A’, ‘B1’&’B2’ groups. ROLLING SETTLEMENT SYSTEM: Limit and the additional changes for the exception window are dedicated by the exchange. The exchanges/clearing house/ clearing corporation would process and download the obligation files to the broker’s terminals Under rolling settlement system, the settlement takes place n days (usually 1, 2, 3 or 5days) after the trading day. The shares bought and sold are paid in for n days after the trading day of the particular transaction. Share settlement is likely to be completed much sooner after the transaction than under the fixed settlement system. The rolling settlement system is noted by T+N i.e. the settlement period is n days after the trading day. A rolling period which offers a large number of days negates the advantages of the system. Generally longer settlement periods are shortened gradually. 23 SEBI made RS compulsory for trading in 10 securities selected on the basis of the criteria that they were in compulsory demat list and had daily turnover of about Rs.1 crore or more. Then it was extended to “A” stocks in Modified Carry Forward Scheme, Automated Lending and Borrowing Mechanism (ALBM) and Borrowing and lending Securities Scheme (BELSS) with effect from Dec 31, 2001. SEBI has introduced T+5 rolling settlement in equity market from July 2001 and subsequently shortened the cycle to T+3 from April 2002. After the T+3 rolling settlement experience it was further reduced to T+2 to reduce the risk in the market and to protect the interest of the investors from 1st April 2003. Activities on T+1: conformation of the institutional trades by the custodian is sent to the stock exchange by 11.00 am. A provision of an exception window would be available for late confirmation. The time late by 1.30 p.m on T+1. Depository participants accept the instructions for pay in securities by investors in physical form upto 4 p.m and in electronic form upto 6 p.m. the depositories accept from other DPs till 8p.m for same day processing. Activities on T+2: The depository permits the download of the paying in files of securities and funds till 10.30 a.m on T+2 from the brokers’ pool accounts. The depository processes the pay in requests and transfers the consolidated pay in files to clearing House/clearing Corporation by 11.00am/on T+2. The exchange/clearing house/clearing corporation executes the pay-out of securities and funds latest by 1.30 p.m on T+2 to the depositories and clearing banks. In the demat mode net basis settlement is allowed. The buy and sale positions in the same scrip can be settled and net quantity has to be settled. 24 SHAREKHAN SHARE KHAN, a professionally managed Investment advisory services company, developed in the year 1985 by three young entrepreneurs with an intension to Minimization of Risk and Maximization of Return in the field of Indian Capital markets by extensive research work. As a sub member of NSE, BSE, MCX, NCDEX, NSDL and CDSL, which are pioneers in the respective operations, SHARE KHAN is having more than 500 branches in all over India. Share khan, India’s leading stock broker is the retail arm of SSKI, an organization with over eighty years of experience in the stock market with more than 280 share shops in 120 cities and big towns, and premier online trading destination www.sharekhan.com. Share khan offers the trade execution facilities for cash as well as derivatives, on BSE and NSE, depository services, commodities trading on the MCX(Multi Commodity Exchange of India Ltd) and NCDEX (National Commodity and Derivative Exchange) and most importantly, investment advice tempered by eighty years of broking experience. Share khan provides the facility to trade in commodities through Share khan Commodities Pvt.Ltd-a wholly owned subsidiary of its parent SSKI. Share khan is the member of two major commodity exchanges MCX and NCDEX. SSKI : Apart from Share khan, the SSKI group also comprises of institutional broking and corporate finance. The institutional broking division caters to domestic and foreign institutional investors, while the corporate finance division focuses on niche areas such as infrastructure, telecom and media. SSKI owns 56% in Share khan and the balance ownership is HSBC, First Caryl and Intel Pacific. SSKI has been voted as the top domestic brokerage house in the research category, twice by Euro money survey and four times by Asia money survey. SHARE KHAN is on-par with the investor expectations in providing professional services, namely Online Trading in Equity, Commodities and F&O Framing of Derivative strategies Depository Services (D-MAT) Initial Public Offers (IPO) and Book Buildings Distribution of Mutual Funds Portfolio Management Service (PMS) etc., through its member 25 Corporate training for executives on NCFM (National Stock Exchange Certificate inn Financial Markets) SHARE KHAN is in market because of: o Investor care is of paramount importance at SHARE KHAN. o SHARE KHAN offers large avenues of investment solutions for all classes of investors under one roof. o SHARE KHAN experience is one of prized possession. SHARE KHAN has an experience of more than 20 years wherein grown phenomenally. o One of the most competitive brokerage structure. o Hassle free trading experience. o Timely advice along with research support to the clients through SMS and E-MAILS on EQUITIES, DERIVATIVES, COMMODITIES, IPOs and Mutual Funds. VALUE FOR INVESTOR'S TRUST INTEGRITY AND HONESTY SHARE KHAN approach: UN BIASED INVESTMENT ADVISORY PERSONALIZED ATTENTION RESEARCH BASED ADVISORY SERVICES Share khan won the award by the vote of consumers around the country, as part of India’s largest consumer study cover 7000 respondents – 21 products and services across 21 major cities. The study, initiated by Awaaz – India’s first dedicated Consumer Channel and member of the worldwide CNBC Network, and AC Nielsen – ORG Marg, was aimed at understanding the brand preferences of the consumers and to decipher what are the most important loyalty criteria for the consume in each vertical. In order to select the award recipient, spontaneous responses, rather than prompted responses were garnered, with an intention to glean unbiased preferences. Opinions were garnered from owners of each of the categories, to get experiential responses, which are likely to be more realistic and grounded in nature. Further, preference also indicates future intentions of repeat purchases. The reasons behind the preferences for brands were unveiled by examining the following: Tangible features of product / service 26 Softer, intangible features like imagery, equity driving preference Tactical measures such as promotional / pricing schemes “Share khan is honored to be voted as the Most Preferred Stock Broking Brand in India. Our focus has always been to demystify the stock market and empower the investors to take informed decisions,” said Jaideep Arora, Director, Share khan. “The Award increases Share khan’s responsibility to persistently delight our customers with user-friendly trading experience and we shall continue our focus to evolve business strategies that keep us aligned with our customers’ needs.” VISION:To Become Successful Investment Advisors by developing the strategies which are implement able and leads to provide better returns than Bench mark portfolios. 27 CHAPTER-4 THEORY FRAME WORK 28 INTRODUCTION TO ONLINE TRADING Gone are the days of trading on the floor. Technology has changed the landscape of the stock markets. The look of the stock exchanges has undergone metamorphic changes in the recent years. Prior to online trading, regional stock exchange was playing a very important role in capital markets, as they were local investors. Regional SE, which was unable to interact with other SEs started developing this own screen based trading and connecting to other scrip’s which were not available with them. This also helped in accessing the quotes and other market information from other stock exchange which proved vital in the functioning of the system as a whole. The trading network is depicted in given below NSE has main computer which is connected through Very Small Aperture Terminal (VSAT) installed at its office. The main computer runs on a fault tolerant STRATUS mainframe computer at the Exchange. Brokers have terminals (identified as the PCs in the given picture) installed at their premises which are connected through VSATs/ leased lines/modems. An investor informs a broker to place an order on his behalf. The broker enters the order through his PC, which runs under Windows NT and sends signal to the satellite via VSAT/leased line/modem. The signal is directed to mainframe computer at NSE via VSAT at NSE’s office. A message relating to the order activity is broadcast to the respective member. The order confirmation message is immediately displayed on the PC of the broker. This order matches with the existing passive order(S) otherwise it waits for the active orders to enter the system. On order matching, a message is broadcast to the respective member. TRADING: The operation of buying and selling securities on the market. On-line trading denotes buying and selling on the Internet through sites provided by financial brokers like SIMs and banks OUTCRY SYSTEM The broker has to buy or sell securities for which he has received the orders. For this, the broker or his authorized representatives goes to the stock exchange. This method is called the open outcry system. Basically the brokers shout while buying or selling the securities. The floor of the stock exchange is divided into a number of markets also known as ‘post pit’ or wing based on particular securities dealt there. In the post pit or wing, the broker using ‘open outcry’ method makes an offer or bid price. For making the necessary bargain, he quotes his purchase or sale price, also 29 known as offer or bid price. The dealer, to whom the price is quoted, quotes his own price when the quotation of the dealer suits the broker, he may loose the bargain. If he is not satisfied with the quote price, he may turn to some other dealer. On the close of the bargain, the dealer as well as the broker makes a brief note of the particulars of the deal. Such notes are made on some pad and on it the number of shares, the price agreed upon, the name of the party, what membership number etc., are noted. DISADVANTAGES OF OUTCRY SYSTEM: It lacks transparency. The scope of manipulation, speculation and mal practice is more. Signal were more important in the outcry system any member who could not interpret the buy/sell signal correctly often landed himself in disaster situation. In audibility was another disadvantage of the outcry system. Due to the above disadvantages of the outcry system the SHAREKHAN has shifted from outcry system to online trading from February 29th 1997. MANUAL TRADING Trading procedure before introduction TO online trading Trading on stock exchanges is officially done in the trading ring. In the trading ring the space is provided for specified and non-specified sections, the members and their authorized assistants have to wear a badge or carry with them an identity card given by the exchange to enter the trading ring. They carry a sauda book or confirmation memos, duly authorized by the exchange and carry a pen with them. The stock exchanges operations are floor level are technical in nature .Non- members are not permitted to enter in to stock market. Hence various stages have to be completed in executing a transaction at a stock exchange. The steps involved in this method of trading have given below: 30 Choice of broker: Sell shares and transact business, have to act through member brokers only. They can also appoint their bankers for this purpose as per the present regulations. Placement of order: The next step is the prospective investor who wants to buy shares or the investors, who wants to placing order for the purchase or sale of securities with a broker. The order is usually placed by telegram, telephone, letter, fax etc or in person. To avoid delay, it is placed generally over the phone. The orders may take any one of the forms such as At Best Orders, Limit Order, Immediate or Cancel Order, Limited Discretionary Order, and Open Order, Stop Loss Order. Execution of order or contract: Orders are executed in the trading ring of the BSE. This works from 11:30 to 2.30 P.M on all working days Monday to Friday, and a special one-hour session on Saturday. The members or the authorized assistants have to wear a badge given by the exchange to enter into the trading ring. They carry a sauda Block Book or conformation memos, which are duly authorized by the exchange when the deal is struck; both broker and jobber make a note in their sauda block books. From the sauda book, the contract notes are drawn up and posted to the client. A contract note is written agreement between the broker and his clients for the transaction executed. Drawing Up and Bills: Both sale and purchase bills are prepared along with the contract note and it is posted on the same day or the next day. This in a purchase transaction, once the shares are delivered to the client effects payment for the purchases and pays the stamp fees for transfer, a bill is made out giving the total cost of purchase, including other expenses incurred by the broker in the price itself. With this, the process ends. DEMATERLIZATION: Dematerialization is the process by which physical certificates of an investor are converted to an equipment number of securities in electronic from and credited in the investor account with his DP. In order to dematerialize the certificates, an investor has to first open an account with a DP and then request for the Dematerialization Request Form, which is DP and submit the same along with the 31 share certificates. The investor has to ensure that he marks “Submitted for Dematerialization” on the certificates before the shares are handed over to the DP for demat. Dematerialization can only be done to those certificates, which are already registered in your name and belong to the list of securities admitted for Dematerialization at NSDL. Most of the active scrip’s in the market including all the scrip’s of S&P CNX NIFTY and BSE SENSEX have already joined NSDL. This list is steadily increasing. Briefly, the process is as follows: after completion of transfer, the investor gets the option to dematerialize such shares. Investor’s willing to exercise this option sends a Demat request along with the option letter sent by the company to his DP. The company or its R&T agent would confirm the Demat request on its receipt from the DP to reduce risk of loss in transit. Dematerialized shares do not have any distinctive or certificate numbers. These shares are fungible-which means that 100 shares of a security are the same as any other 100 shares of the security. Odd lot shares certificates can also be dematerialized. Dematerialization normally takes about fifteen to thirty days. To get back dematerialized securities in the physical form, request DP for Rematerialization of the same is made.Rematerialization is the process of converting electronic shares in to physical shares. Benefits of Demat: o It reduces the risk of bad deliveries, in turn saving the cost and wastage of time associated with follow up for rectification. This has lead to reduction in brokerage to the extent of 0.5% by quite a few brokerage firms. o In case of transfer of electronic shares, you save 0.5% in stamp duty. You avoid the cost of courier / notarization. o You can receive your bonuses and rights issues into your DA as a direct credit, this eliminating risk of loss in transit. o You can also expect a lower interest charge for loans taken against Demat shares as compared to loans against physical shares. o There is no lost in transit, thus the overheads of getting a duplicate copy in such circumstances is reduced. 32 o RBI has also reduced the minimum margin to 25% for loans against dematerialized securities as against 50% for loans against physical securities. We should know some things about the internet, e-commerce and etc. What is Internet? Internet is a worldwide, self-governed network connecting several other smaller networks and millions of computers and persons, to mega sources of information. This technology shrinks vast distances, accelerating the pace of business reforms and revolutionizing the way companies are managed. It allows direct, ubiquitous links to anyone anywhere and anytime to build up interactive relationships. A combination of time and space, called the Internet promises to bring unprecedented changes in our lives and business. Internet or net is an inter- connection of computer communication networks spanning the entire globe, crossing all geographical boundaries. It has re-defined the methods of communication, work study, education, business, leisure, health, trade, banking, commerce and what not it is virtually changing every thing and we are living in dot.com age. Net being an interactive two way medium, through various websites, enables participation by individuals in business to business and business to consumer commerce, visit to shopping arcades, games, etc. in cyber space even the information can be copied, downloaded and retransmitted. The use of Internet has grown 2000 percent in last decade and is currently growing at 10 percent per month. In India, growth of Internet is of recent times. It is expected to bring changes in every functional area of business activity including management and financial services. It offers stock trading at a lower cost. Internet can change the nature and capacity of stock broking business in India. E-commerce: Electronic commerce is associated with buying and selling over computer communication networks. It helps conduct traditional commerce through new way of transferring and processing of information. Information is electronically transferred from computer to computer in an automated way. E-commerce refers to 33 the paperless exchange of business information using electronic data inter change, electronic technologies. It not only reduces manual processes and paper transactions but also helps organization move to a fully electronic environment and change the way they operated. PC’s and networking attempts to introduce banks of the tools and technologies required for electronic commerce. The computers are either workstations of individual office works or serves where large databases and information reside. Network connects both categories of computers; the various operating systems are the most basis program within a computer. It manages the resources of the computer system in a fair and efficient manner. Now we can enter in to the concept known as online trading. In the past, investors had no option but to contact their broker to get real time access to market data. The net brings data to the investor on-line and net broking enables him to trade on a click of mouse. Now information has become easily accessible to both retail as well as big investor. EVOLUTION OF BROKING IN INDIA: The evolution of a broking in India can be categorized in three phases - o Stockbrokers will offer on their sites features such as live portfolio manager, live quotes, market research and news, etc. to attract more investors. o Brokers will offer online broking and relationship management by providing and offering analysis and information to investors during broking and non-broking hours based on their profile and needs, i.e. customized services. o Brokers (now e-brokers) will offer value management or services like initial public offering online, on-line asset allocation, portfolio management, financial planning, tax planning, insurance services, etc. and enables the investors to take better and well considered decisions. 34 The actual definition of “Online Trading” is as explained below: “Online trading is a service offered on the internet for purchase and sale of shares. In the real world you place orders on your stockbroker either verbally (personally or telephonically) or in a written form (fax).” In online trading, you will access a stockbroker’s website through your internet enabled PC and place orders through the broker’s internet based trading engine. These orders are routed to the stock exchange without manual intervention and executed thereon in a matter of a few seconds. The net is used as a mode of trading in internet trading. Orders are communicated to the stock exchange through website. In India: Internet trading started in India on 1st April 2000 with 79 members seeking permission for online trading. The SEBI committees on internet based securities trading services has allowed the net to be used as an Order Routing System (ORS) through registered stock brokers on behalf of their clients for execution of transaction. Under the ORS the client enters his requirements (security, quantity, price buy/sell) on broker’s site. Objectives: Internet trading is expected to o Increase transparency in the markets, o Enhance market quality through improved liquidity, by increasing quote continuity and market depth, o Reduce settlement risks due to open trades, by elimination of mismatches, o Provide management information system, o Introduce flexibility in system, so as to handle growing volumes easily and to support nationwide expansion of market activity. Besides, through internet trading three fundamental objectives of securities regulation can be easily achieved, these are: 35 o Investor protection o Creation of a fair and efficient market, and o Reduction of the systematic risks. Some of the brokers offering net trading include ICICI direct, kotakstreet, etc. Requirements for net trading: For investors: 1. Installation of a computer with required specification 2. Installation of a modem 3. Telephone connection 4. Registration for on-line trading with broker 5. A bank account 6. Depository account 7. Compliance with SEBI guidelines for net trading The following should be produced to get a demat account and online trading account: As identity proof & address proof any one of the following: Voter ID card Driving license PAN card( in case of to trade more than 50000) Ration card Bank pass book Telephone bill 36 Other requirements, which are necessary First page of the bank pass book and last 6 months statement. Bank manager’s signature along with bank’s seal, manager registration code on photograph. For stock brokers: 1. Permission from stock exchange for net trading 2. Net worth of Rs. 50 lac 3. Adequate back-up system 4. Secured and reliable software system 5. Adequate, experienced and trained staff 6. Communication of order (trade confirmation to investor by e-mail) 7. Use of authentication technologies 8. Issue of contract notes within 24 hours of the trade execution 9. Setting up a website. The net is used as a medium of trading in internet trading. Orders are communicated to the stock exchange through website. Internet trading started in India on 1st April 2000 with 79 members seeking permission for online trading. The SEBI committees on internet based securities trading services has allowed the net to be used as an Order Routing System (ORS) through registered stock brokers on behalf of their clients for execution of transaction. Under the Order Routing System the client enters his requirements (security, quantity, price, and buy/sell) in broker's site. They are checked electronically against the clients account and routed electronically to the appropriate exchange for execution by the broker. The client receives a confirmation on execution of the order. The customer's portfolio and ledger accounts get updated to reflect the transaction. The user should have the user id and password to enter into the electronic ring. He should also have demat account and bank account. The system permits only a registered client to log in using user id and password. Order can be placed using place order window of the website. 37 Procedure for net trading Step 1: Those investors, who are interested in doing the trading over internet system i.e. NEAT-IXS, should approach the brokers and get them self registered with the Stock Broker. Step 2: After registration, the broker will provide to them a Login name, Password and personal identification number (PIN). Step 3: Actual placement of an order. An order can then be placed by using the place order window as under: (a) First by entering the symbol and series of stock and other parameters like quantity and price of the scrip on the place order window. (b) Second, fill in the symbol, series and the default quantity. Step 4: It is the process of review. Thus, the investor has to review the order placed by clicking the review option. He may also re-set to clear the values. Step 5: After the review has been satisfactory, the order has to be sent by clicking on the send option. Step 6: The investor will receive an "Order Confirmation" message along with the order number and the value of the order. Step 7: In case the order is rejected by the Broker or the Stock Exchange for certain reasons such as invalid price limit, an appropriate message will appear at the bottom of the screen. At present, a time lag of about 10 seconds is there in executing the trade. Step 8: It is regarding charging payment, for which there are different mode. Some brokers will take some advance payment from the investor and will fix their trading limits. When the trade is executed, the broker will ask the investor for transfer of funds to his account. Internet trading provides total transparency between a broker and an investor in the secondary market. In the open outcry system, only the broker knew the actually transacted price. Screen based trading provides more transparency. With online trading investors can see themselves the price at which the deal takes place. 38 The time gap has narrowed in every stage of operation. Confirmation and execution of trade reaches the investor within the least possible time, mostly within 30 seconds. Instant feedback is available about the execution. Some of the websites also offer; News and research report BSE and NSE movements Stock analysis IPO and mutual fund centers Step by step procedure in online trading: Following steps explain the step by step approach to on-line trading: Log on to the stock broker's website Register as client/investor Fill the application form and client broker agreement form on the requisite value stamp paper Obtain user ID and pass word Log on to the broker's site using secure user ID and password Market watch page will show real time on-line market data Trade shares directly by entering the symbol or number of the security Brokers server will check your limit in the on-line account and demat account for the number of shares and execute the trade Order is executed instantly (10-30 seconds) and confirmation can be obtained. Confirmation is e-mailed to investor by broker Contract note is printed and mailed in 24 hours Settlement will take place automatically on the settlement day Demat account and the bank account will get debited and credited by electronic means. ONLINE TRADING HAS LED TO ADDITIONAL FEATURES SUCH AS: Limit / stop orders: orders that can be go unfilled, but there is an extra Charge for this leeway facility since one need to hold a price. Market orders: orders can be filled at unexpected prices, but this type is much more risky, since you have to buy stock at the given price. Cash account: where funds have to be available prior to placing the order. 39 Margin account: where orders can be placed against stocks, to increase Purchasing power. ADVANTAGES OF ONLINE TRADING: Online trading has made it possible for anyone to have easy and efficient access to more reports and charts than it was previously possible if one went to any brokers' office. Thus we have access to a lot more information online. Online trading has let room for smaller organizations to compete with multinational organizations since it is no longer a leg it issue. Being online does not identify the size of any particular organization, therefore, this additional power to the underdogs. Online trading has allowed companies to locate themselves where they want as physical location is not an issue anymore. Companies can establish themselves according to their gains and losses, for instance where tax (sales and value added taxes) is best suited to them. Online trading gives control to individuals and they can exercise it over accounts thus comprehend what is going on when they trade. It is like going back to school and re-educating oneself on how to trade online. Individuals’ benefit by saving comparatively a lot more when trading online as the cost per trade is less. Individuals can invest in a variety of products, unlike earlier when people bought bonds, mutual funds, and stock for long-term basis and sat on them. Now they can invest in stocks, stock and index options mutual funds, government, and even insurance. INVESTORS REASONS TO TRADE ONLINE: They have control over their accounts, can make their own decisions and don’t have to give reasons for their actions. They are independent. They have a reason to participate in the market and learn about it. It is interesting, cheap, easy, fast, and convenient. A lot of information is online so they can keep up-to-date with what is happening in the trading world. It will give investors a greater choice and better realization. The immediate impact will be competition and benefits will accrue to the investors. It will lead to brokerage commissions going down and brokers striving to increase business afloat. 40 Investors will now go to place, which have better trading conditions and also members to offer them better facilities. They have access to numerous tools to invest, and can create their own portfolio. HERE ARE THE POSSIBLE DISADVANTAGES: When network crashes, there will be problems and delays due to a large influx of rapid online trading criteria. Individuals are restricted to first-hand financial guidance. This simply means that the individual is himself / herself alone to. A tax (sales tax and value added tax) evaluation becomes an issue, especially when you are trading internationally. One has no idea with whom he is dealing with on the other end. According to a study conducted by Mary Rowland, careful investor: is online trading bad for your portfolio, the more one trades the less returns one gets, meaning that an addicted trader gets, carried away online and begins to trade for too much which causes losses for him / her. Individuals think that they are trading with the market directly and know what they are doing, but the truth is that even though technology has taken over, the basic rules of trading are the same. It seems that the middleman has been removed, but that is not so. When the individuals click on the mouse, his trade goes through a broker. The commissions online pertain to the intermediary. There is a need for more effective communication links over the Internet and the ability of the server to deal with a large volume of visitors. TRADING AND SETTLEMENT AT SHARE KHAN The NSE first introduced online trading in India. The Online trading system imparted a greater level of transparency and investors preferred exchanges that offered Online trading because of the following factors: The ease of operation from the view of the both members and the investors. Increase in the confidence of the investors because of higher level of transparency. Facilities better monitoring of the market by the exchange. The best price achieved in buying and selling. 41 All these resulted in ever-increasing volumes on the exchanges offering the online trading. TRADING PROCEDURE AT SHARE KHAN STOCK BROCKING Share Khan deals in buying and selling equity shares and debentures on the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE) and the Over- The-Counter Exchange of India (OTCEI). Share Khan is provided with a computer and required software from their registered stock exchanges. These centers are called “Broker Work Stations”. These computers are connected to the server at the stock exchanges through cable. The member or broker sitting in his office can send the quotations, orders, negotiations, deals, in-house deals, auction orders etc., through the computer. The Central trading system (CTS) will accept these orders and send it for match. If there is any mistake in the order, CTS will reject the orders and send respective error message to the member concern. All these operations are in built. The main objective of CTS is to monitor the Stock Exchanges operations. Order placed by the broker will be sent for a match and if the match is found suitable, the transaction will be executed. Otherwise, the order will be deleted automatically after completion of trading time. The carry forward transactions (Good Till cancellation) are forwarded to the next day. Even if the match is not found with in the prescribed period, the order will not cancel. TRADING SESSION Trading timings are from 9:55 A.M. to 3:30 P.M. on all 5 days of the trading period. Monday to Friday is the trading period in all the stock exchanges. SEBI has stipulated that all the stock exchanges in India must have same trading period. 42 BROKER WORK STATION: At the broker workstation the BBO’s, the last traded price, the day‘s opening price, previous day’s closing price, highest and lowest prices, the weighted average price and total trade value will be available continuously, as the BBO for each scrip. Other information will be available on query from the BWS. These include top gainers /losers of the day. Trader-wise, scrip wise net position, client wise net position, top scrip by the volume/value, market summary etc. Brokers are also provided with information relating to the companies in the matter of Book closure, Dividend declarations, resolutions in board meeting, information about liquidated companies, company report etc. ORDERS: Orders can be done one at a time or in a batch mode. The submitted order will be accepted at the CTS, after validation if it finds any invalid reason the order is return back to the BWS, with the appropriate error message. If Accepted at the CTS it will be added to the local pending order book. The order will then be taken up for matching, if it is a buy order the system tries to find a sell order, which fits the requirement of the buy order, when such match is found a trade gets executed. Each trade involves two brokers and respective traders who sent the order. Both these traders are informed of the trade being executed at their respective BWS. At the BWS the trade is added to the local trade book. Orders sent by the brokers are two types: Good for the day (GFD) Good till cancellation(GTC) 43 Good for the day: This is also called as “market order”. For an order if the member selects the deal as good for the day, the order is treated as market order. If a “best bid” founds match with “best order” then the transaction gets executed. If the match is not found then after trade time the order gets cancelled that day. Next day he has to place a new order.For example if a member wants to purchase 1000 shares of satyam info @ 400 each through Good for Day order. If the correct match is not found, order gets cancelled automatically and new quotation has to be placed the next day. Good till cancellation: This order is forwarded to the last trading day of that settlement period. This is also called as carry forward order like GFD; broker has to select the option of GTC for the order. If the order finds match with in the trading settlement period, the order is executed. If no match is found, the order is cancelled on the last day of settlement period. This order is not carried forward to the next settlement period. For example, if a member a place purchase order of 500 shares of SBI @ 690 per share and selects the order as GTC and place an order. If the match is not found on that day it will be forwarded to the next day until trading settlement period day. SETTLEMENT OF TRANSACTIONS: Clearing of transaction in the form of shares and cash is called settlement. Buyers will take the delivery of shares through the depository participants like SHARE KHAN and others. Finally, the settlement is made by means of delivering the share certificates along with the transfer deeds. The transferor (or the seller) duly signed transfer deed. It bears a stamp of the selling broker. The buyer then fills up the certificates fills up the particulars in the transfer deed. Settlement can be done in the following way. Spot settlement: under this method, the delivery of securities and payment for them are affected on the day of the contract itself. Rolling settlement: Under this rolling settlement the trading is on “T+2”,basis i.e. if Monday is trading day then Wednesday is the paying day . In case on non-delivery, the securities will go for auction. 44 DETAILS OF PROCEDURES: Delivery in : The members who are in pay-out position delivers share certificates in to clearing house within the settlement period along with the delivery Chelan filled in with the details of share certificates which has folio numbers or distinctive numbers etc Delivery out: The buyer of shares who made pay in position will take delivery of shares from the clearing house. Pay-in: The member who is in paying position shall pay for value of shares with in the trading settlement period (T+2). Payout: The cheques paid in the clearinghouse will be paid to members who are in paying position. All disputes arising between members regarding non-deliveries, non-payments, good and bad deliveries pertaining to the settlement will be settled by the settlement committee of the exchange. 45 The given flow chart clearly explains the process of online trading: Login Buy transcation Sell transcation The system will check your The system will check buying dp account quantity limits Orders accepted Rejected orders would be orders accepted communicated along with reasons your order is transmitted to exchange for execution pending buy orders on execution pending sell orders would be displayed of your orders would be displayed on your screen on your screen you may edit your you may delete you may edit your you may delete your pending order your pending order pending order pending order flashed on your conformationcoul contract note would screen immediately d be send to your be sent to by mail on execution e-mail and mobile or hand delivery 46 CHAPTER-5 COMPARATIVE ANALYSIS 47 THE MAJOR PLAYERS IN ONLINE TRADING: SHAREKHAN.COM 5PAISA.COM KOTAKSTREET.COM INDIABULLS.COM ICICIDIRECT.COM HDFCSEC.COM HDFC SECURITIES: Company Background: HDFC Securities Ltd is promoted by the HDFC Bank, HDFC and Chase Capital Partners and their associates. Pioneers in setting up Dial-a-share service with the largest team of Tele-brokers. Online Account Type: HDFC Online Trading A/c: Plain Vanilla Account with focus on 3 in 1 advantage. Pricing of HDFC Account Account Opening: Rs 750 Demat: NIL, 1st year charges included in Account Opening Initial Margin : Rs 5000/- for non HDFC Bank Customers (AQB) Brokerage: Trading 0.15%* each side + ST Delivery 0.50%** each side + ST *Rs 25 Min Brokerage per transaction **Rs 8 Min Brokerage per transaction 48 ICICI Direct: Account Opening: Rs 750 Schemes: For short periods Rs 750 is refundable against brokerage generated in a qtr. These schemes are introduced 3-4 times a year. Demat: NIL, 1st year charges included in Account Opening Plus a facility to open additional 4 DP’s without 1st yr AMC. Only Rs 100 as linking charges per DP Initial Margin : Nil Brokerage: ICICI’s brokerage rates are inclusive of Stamp duty (0.002%) for trading and 0.010% for delivery while service tax (10.2%) on BROKERAGE land turnover tax is EXTRA. Delivery Vol per QTR Brokerage Square Vol P.M. Brokerage < 10 lakhs 0.75% < 50 lakhs .10% Both Sides 10 – 25 lakhs 0.70% 50 lakhs – 2 Cr .08% Both Sides 25 – 50 lakhs 0.55% 2Cr-5Cr .05% Both Sides 50 lakhs - 1 Cr 0.45% 5Cr- 10 Cr .04% Both Sides 1 Cr – 2 Cr 0.35% 10Cr -20 Cr .035 Both Sides 2 Cr – 5 Cr 0.30% > 20 Cr .03 Both Sides > 5 Cr 0.25% ---- -------- 49 INDIABULLS: Company Background: India Bulls is a retail financial services company present in 70 locations covering 62 cities. It offers a full range of financial services and products ranging from Equities to Insurance. 450 + Relationship Managers who act as personal financial advisors. Online Account Type: Signature Account: Plain Vanilla Account with focus on Equity Analysis. The equity analysis is a paid service even for A/c holders. Power India bulls: Account with sophisticated trading tools, low commissions and priority access to R.M. Pricing of IB Accounts: Signature Account Power India Bulls * Account Opening: Rs 250 * Account Opening: Rs 750 * Demat: Rs 200 if POA is signed, * Demat: Rs.200 if POA is signed, No AMC for this DP No AMC for this DP * Initial Margin: NIL * Initial Margin: NIL * Brokerage: Negotiable * Brokerage: Negotiable 50 PAID Research: SCHEME FACILITY WebBased-1-Month-500: View & Print on Website WebBased-1-Month-6000: View & Print on Website PrintReport-1-Month-750: View & Print on Website + 10 Reports Delivered PrintReport-1-Month-9000: View & Print on Website + 10 Reports Delivered Kotakstreet: Company Background: Kotakstreet is the retail arm of Kotak Securities. Kotak Securities limited is a joint venture between Kotak Mahindra Bank and Goldman Sachs. Online Account Type Twin Advantage / Green Channel : 2 DP’s, Limit against shares Free Way: Flat Rs 999 Cover Charge p.m, 0.03% per transaction High Trader : 6 Times Exposure Cash & Derivatives, Auto sq off 2:55 Cash Expressway : Spot payment, additional 0.5% charges For Kotak Fast Lane / Keat Lite / Keat Desktop are trading interfaces. Keat Desktop with advanced tools comes at a charge of Rs 500 p.m, Non refundable. 51 PRICING OF KOTAK Account Opening : Rs 500 Demat: Rs 22.5 p.m Initial Margin : Rs 5000(Compulsory) Min Margin Retainable : Rs 1000 Brokerage Slab wise: Higher the volume, lower the brokerage. Even older customers (on 0.25% & 0.40%) have been moved to the slab wise structure w.e.f 1/4/2004 Slab structure of Kotak Delivery Vol p m Brokerage * Square Vol P.M. Brokerage ** < 1 lakhs 0.65% < 10 lakhs 0.10% Both Sides 1 lakhs – 5 lakhs 0.60% 10 lakhs – 25 lakhs 0.08% Both Sides 5 lakhs – 10 lakhs 0.50% 25 lakhs - 2 Cr 0.05% Both Sides 10 lakhs - 20 lakhs 0.40% 2 Cr - 5 Cr 0.04% Both Sides 20 lakhs – 60 lakhs 0.30% > 5 Cr 0.035% Both Sides 60 lakhs - 2 Cr 0.25% ---do--- 0.03% Both Sides >2 0.20% ---- -------- * Brokerage is inclusive of All Taxes * Brokerage is inclusive of All Taxes * DP Charges Extra * Min Brokerage of Rs 0.05 per share * Min Brokerage of Rs 0.01 per share 52 Derivatives Vol off p m Brokerage < 2 Cr 0.07% Both Sides 2 Cr - 5.5 Cr 0.05% Both Sides 5.5 Cr – 10 Cr 0.04% Both Sides > 10 Cr 0.03% Both Sides * Brokerage is inclusive of All Taxes. 5paisa: Company Background: Indiainfoline was founded in 1995 and was positioned as a research firm In 2000 e-broking was started under the brand name of 5paisa.com. Apart from offering online trading in stock market the company offers mutual funds online. It also acts as a distributor of various financial services i.e. GOI securities, Company Fixed Deposits, Insurance. Limited ground network, present in 20 cities Online Account Types Investor Terminal : Investors / Students Trader Terminal : Day Traders / HNI’s 53 PRICING FOR RETAIL CLIENTS Investor Terminal Account Opening : Rs 500 Demat 1st Yr : Rs 250 Initial Margin : Rs 2500 (Compulsory) Min Margin Retainable : Rs 1000 Brokerage : Trading 0.10% each side + ST Delivery 0.50% each side + ST PRICING FOR HNI CLIENTS Trader Terminal Account Opening : Rs 500 Demat 1st Yr : Rs 250 Initial Margin : Rs 5000(Compulsory) Min Margin Retainable : Rs 1000 Brokerage : Trading 0.10% each side + ST Delivery 0.50% each side + ST (Negotiable to 0.05% each side & 0.25%) Account Access Charges Monthly Rs 800, adjustable against Brokerage Yearly Rs 8000, adjustable against brokerage 54 Share khan: Company Background : Share khan is the retail broking arm of SSKI Securities Pvt Ltd. SSKI owns 56% in Share khan, balance ownership is HSBC, First Caryle, and Intel Pacific Into broking since 80 years Focused on providing equity solutions to every segment Largest ground network of 210 Branded Share shops in 90 cities Online Account Types Classis Account / Applet : Investor in equities Speed Trade : Trader in equities & derivatives PRICING FOR HNI CLIENTS Speed Trade Account Opening : Rs 1000 ( Refundable against brokerage in Month + 1) Demat 1st Yr : Incl in Account Opening Initial Margin : Nil Min Margin Retainable : NIL Brokerage : Trading 0.10% each side + All Taxes Delivery 0.50% each side + All Taxes (Negotiable based on volume) Account Access Charges 55 Monthly Rs 500, adjustable qtrly against brokerage of Rs 9000/- for qtr. No access charges for gold customers (Above 1 lac brokerage p.a) Pricing for Retail Customers Classic / Applet Account Opening : Rs 750 Demat 1st Yr : NIL Initial Margin : NIL Min Margin Retainable : NIL Brokerage: Trading 0.10% each side + All Taxes Delivery 0.50% each side + All Taxes Share khan online Trading Interfaces The customer can choose the online trading interface that meets his requirement based on his trading habits and preferences CLASSIC / APPLET The website is meant for customers who Invests in Equities SPEEDTRADE The speed trade is meant for customers who trade in Equities DIAL-N-TRADE – Toll Free The DNT is a value added services meant for all customers who Want to transact but are not online. DNT – TOLL FREE FERTURES 56 Dedicated Toll – Free number for Order placements Automatic fund transfer with phone banking* Simple and secure IVR based system for authentication No wait time, on entry of Phone Id & TPIN, the call is transferred Trusted, professional advice of Tel-brokers who offer undiluted Sharekhan Research Inputs After-hours order placement facility ** Transfer of money using phone banking is available with Citibank only ** Between 9 a.m to 9.55 am and 3.30p.m to 6 p.m CLASSIC/WEBSITE FEATURES Facility to integrate choice of 4 Banks/DP/Trading Account Instant credit for shares sold from DP Automatic pick-up of shares from linked DP for pay – in Automatic deposit of shares into linked DP after pay-out 4 Times leverage on Margin Trades Margin Trading available for entire marker session Slab wise brokerage structure for delivery and margin trades, shortly Free calls for order placement on Toll-Free Trusted, Professional advice of Tele-brokers Facility to enter After Market Orders online & via Phone CLASSIC/WEBSITE FEATURES Daily Research newsletter (Investor Eye) Via e-mail Access to new IPO without any paperwork Advanced portfolio monitoring Tools Integrated DP account with trading account Option of linking additional 4 DP accounts to trading account Choice of linking 4 banks to trading a/c for online payments Cash and Derivatives trading in a single account E-mail confirmations for all transactions Choice of electronic/Physical contracts 57 SPEED TRADE EXE FEATURES ALL THE FEATURES OF CLASSIC *Real – time streaming quotes using 2 Marker Watches *Trade Execution in 2-3 seconds * Instant Order/trade confirmations in the same window *Hot keys similar to a Broker’s Terminal *MULTIPLE Tic-by-Tic Intra-day charts with multiple indicators * Availability of 2 ISP & 6 Servers ensuring maximum uptime * Customized alerts based on multiple parameters * Cancel All/Square Off All Facility * Window for Top Gainers, Top Losers, and Most Active updated Live SWOT ANALYSIS STRENGTH: Strong credibility among investors because of its heritage. Excellent reputation among the business society. Capability of providing superior customer service. Quality research team. Easier access to the customer due to largest ground network of 280 branded share shops in 120 cities. Abundant information about economy and companies. Ability to attract and retain superior and quality personnel. Highly sophisticated infrastructure. Efficient research and analysis team, which by interpreting the economy and company’s performance accurately is enhancing the profitability of the clientele. 58 WEAKNESS: Limited customer appeal as the company product line does not include mutual funds which is increasingly becoming a preferred customer investment option. Inadequate product awareness among the retail investors. Limited customer appeal as the company does not have access to the BSE online space. Brand awareness is low in the financial market. Promotional activities conducted by the company are not at par with the other firms. OPPORTUNITIES: Hyderabad covers only 2% of investors which gives huge potential for the market penetration. Bullish phase of the market attracts investing public. Access to the BSE online space for the retail investors creates opportunity to increase clientele base. Awareness campaigns about online trading create new market. THREATS: Availability of Unit Linked Insurance Policies (ULIP’s) and mutual funds in the market. Threat of entry is high in this industry as the manpower required is less and capital requirement is medium. 59 STATEMENT SHOWING COMPARISION OF ACCOUNT OPENING COMPANY NAME ACCOUNT OPENING FEES SHAREKHAN 1000 5 PAISA.COM 500 KOTAK STREET 500 INDIA BULLS 750 ICICI DIRECT.COM 750 HDFC SEC.COM 750 60 STATEMENT SHOWING COMPARISION OF DEEMAT FEES COMPANY NAME DEEMAT FEES SHAREKHAN 0 5 PAISA.COM 250 KOTAK STREET 270 INDIA BULLS 200 ICICI DIRECT.COM 0 HDFC SEC.COM 0 61 STATEMENT SHOWING COMPARISION OF COMPANY NAME TRADING CHARGES SHAREKHAN 0.10% 5 PAISA.COM 0.10% KOTAK STREET 0.10% INDIA BULLS 0.10% ICICI DIRECT.COM 0.01% HDFC SEC.COM 0.15% 62 STATEMENT SHOWING COMPARISION OF COMPANY NAME DELIVERY CHARGES SHAREKHAN 0.50% 5 PAISA.COM 0.50% KOTAK STREET 0.50% INDIA BULLS 0.50% ICICI DIRECT.COM 0.75% HDFC SEC.COM 0.50% 63 STATEMENT SHOWING COMPARISION OF COMPANY NAME INITIAL MARGIN SHAREKHAN 0 5 PAISA.COM 2500 KOTAK STREET 5000 INDIA BULLS 0 ICICI DIRECT.COM 0 HDFC SEC.COM 5000 64 CHAPTER-6 FINDINGS AND CONCLUSIONS FINDINGS: 65 Information plays a vital role in the secondary market. There are more speculators than investors. Previously rolling settlement is T+5 days, now it changed to T+2 days and further it will be changing to T+1 day. The number of players is increasing at a steady rate and today there are over a dozen of brokerage houses who have opted to offer net trading to their customers and prominent among them are SHARE KHAN, India bulls, kotakstreet, ICICI direct and geojit. With the computerization of the trading activity, the number of transaction and the volume of trading have increased to a great extent. SKSE is dealing in both BSE and NSE. Earlier, SKSE was not taking orders on phone. But today due to competation even SKSE has started taking orders on phone call like other stock exchanges. Bank account for instant transfer was not available earlier, but today, SKSE is providing the facility of giving instant bank account. The Depository system has reduced the time lag in delivering and settlement of securities and also supported the cause of providing more liquidity to the security holder. The need for setting up of a depository, paper less trading through online trading system and settlement became in evitable and unavoidable for the smooth and efficient functioning of the capital market. CONCLUSION: 66 Things have changed for the better with the SHAREKHAN going on-line coupled with endeavor to stream line the whole trading system, things have changed dramatically over the last 3 to 4 years. New and advanced technologies have breached geographical and cultural barriers, and have brought the countrywide market to doorstep. Due to invention of online trading there has been greater benefit to the investors as they could sell / buy shares as and when required and that to with online trading. The broker’s has a greater scope than compared to the earlier times because of invention of online trading. The introduction of on-line trading would influence the investors resulting in an increase in the business of the exchange. It has helped the brokers to handling a vast amount of transactions which led to efficient trading, delivering, settlement system with adequate protection to investors The concept of business has changed today, this is a service oriented industry hence the survival would require them to provide the best possible service to the clients. 67 CHAPTER-7 SUGGESTIONS SUGGESTIONS: 68 The exchange authorities have to take steps to educate Investors and increase their confidences. Genuine investors are not at all interested in the speculative gain as their investment is based on the future profits, therefore the authorities of the exchange should be more vigilant to curb the speculation. o Volume of paper work is small but it is very complicated to maintain data in system. Hence the complexity should be reduced by regular audit and updating data. o The pool a/c does not know the true owner of the shares and hence dividends are paid to the broker instead of owners, by this broker can do any manipulations or. o The online trading is easy to work but it is costly to maintain and difficult to learn. It should increase the speed of executing the orders. o Mutual funds trading for other companies have to be encouraged. If phone orders are encouraged, trading in z securities are allowed, bank account for instant transfer are provided and offline option are given then SKSE would be definitely improving in the turnover. o In skse, the investors should be provided web trading facility so that they can do their own trading by sitting infront of internet rather than consulting DP members. o SKSE has to give advertisement through the media stating the advantages to the investors for using SKSE. BIBILOGRAPHY 69 BOOKS: Investment management -V.K.Bhalla Investment management -Preethi Singh Security Analysis And Portfolio Management -V.A.Avadhani Marketing of Financial Services -V.A.Avadhani Indian Financial System -M.Y.Khan WEBSITES: www.Share Khan.com www.bseindia.com www.sebi.com www.moneycontrol.com www.economictimes.com www.nseindia.com 70
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