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					Business plan for Setting up a Share Financing Company

Objective/Purpose: There're many pickings in the market today as a result of High Inflation rates above 12% and the gloomy economic climate. Market values have been shaved off more than 50% for certain sectors. So investors who do their homework will certainly find bargains. Share financing accounts of Share Financing Company shall offer the power to take advantage of those buying opportunities. Share Margin Trading through such account provides a credit line to investor to invest in stocks and shares using cash and/or marginable shares as collateral. It provides him with the benefit to increase his share purchasing power as it leverages on his existing portfolio of shares Share Financing Account allows a client to maximize his purchasing power. To open a Share Financing Account, one only needs to place a minimum cash deposit of fixed sum say Rs 25000/- or deposit of equivalent worth of margin able securities and thereafter he can enjoy the following benefits:          Attractive financing margin of - up to 60% for marginable stocks and shares A wide range of marginable stocks and shares quoted on the NSE/BSE Exchange Financing based on the current market value of marginable stocks and shares Comprehensive monthly statements with details of securities held and transactions done Total convenience as all settlements are handled for him Increase in investment power of up to 3.5 times Competitive interest rate of 1% above Bank Prime rate at daily rest Earn interest on unutilized credit balances Convenience of using the account via internet or mobile phone

The requirements    One must be a Indian Citizen or Permanent Resident and at least 21 years old and qualify to enter into agreement as per the Indian Contract Act. A minimum annual income of Rs 300000/-(Variable and advisable ) A minimum initial deposit of Rs 250000/- in cash, stocks and shares or a combination of both

Procedure 1. Open a Share Financing Account 2. sign and submit the , Individual or corporate account opening forms ( Format already available with MSB) with supporting documents 3. Submit Transfer of Securities form - for pledging of securities as collateral ( If Required)Submit Additional supporting document.  A copy of your latest BSE/NSE Statement of Securities Holdings (if any)  A copy of your annual income tax assessment generated by Income Tax Department or half-yearly Bank statement generated by Bank or statements generated by a financial institution 4. Corporate Accounts For Corporate account following extra documents may be needed:  Certificate of Incorporation  Certified True Extract of Directors Resolutions of the Company

Setting up a Share Financing Company : Dr Rakesh Saxena Advocate, Wednesday, July 30, 2008

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 Memorandum and Articles of Association  RC instant information print-out dated less than 2 weeks Others (as requested by our Company where applicable) All documents have to be certified true copy by: (i) (ii) (iii) (iv) 2 Directors of the company; or A Director and Secretary of the company; or Notary Public Commissioner for Oath

5. Trading One can start trading when he has put up the initial collateral with the Company. He can put up either cash or marginable securities as collateral. If the initial collateral is in the form of marginable securities, the he has to wait until his shares are transferred to Company account . This normally may take about 2 to 3 days. 6. Deposit of cash or securities as collateral in the Share Financing Account

Type of Collateral Cash Share

Collateral Value Rs 25000 Rs 200000

Available Fund For Purchasing Rs 87500 Rs500000

Number of times of Collateral 3.5 Times 2.5 Times

a) Cash as Collateral: Illustrative example:Assumption: The client provides a cash deposit of Rs 5,000 and buys Rs17,500 worth of shares The market value of the purchased shares equals to total cost of the purchases (unit price per share is the same) Total market value of shares purchased) / Cost of shares purchased - Cash collateral) Margin % = Rs17, 500 / (Rs 17,500 – Rs 5,000) = 140% b) Securities as Collateral: Illustrative example: Assuming that client deposited share collateral valued at Rs 20,000 and the market value of the purchased shares is equal to the total cost of purchases at Rs 50,000 Total market value of share portfolio (including collateral) / Amount Owing in Share Financing Account) Margin % = (Rs 20,000 + Rs 50,000) / Rs 50,00 = 140% 7. Margin Calls when the market value of the portfolio of shares in my Share Financing Account falls. If the margin % falls below 140%, you will face a Margin Call.

Setting up a Share Financing Company : Dr Rakesh Saxena Advocate, Wednesday, July 30, 2008

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When the margin % falls below 140%, you will be requested to deposit additional cash, marginable securities or sell shares in the existing portfolio within 2 days to bring the margin % back to at least 140%. When the margin % falls below 130%, you are required to deposit additional cash, marginable securities on the same day of notification and bring margin % back to at least 140%. Failing that, the Company will have to liquidate your margin shares immediately to bring the margin % to at least 140%. The Company may do so in compliance of the covenants of the agreement and form executed by you, without notifying you. 8. Meeting The Margin Call When a client receives a margin Call he can either deposit additional cash, marginable securities or sell shares in his existing portfolio to meet any margin call. 9. Calculating margin Call amount

For instance: Total market value of share portfolio = Rs 70,000 Amount Owing in Share Financing Account = Rs 50,000 Margin Percentage = 140% Assuming that the market value of shares drops from Rs 70,000 to Rs 65,000, the margin percentage will become 130% (i.e. Rs 65,000 / Rs 50,000). The amount to top up is calculated below: Cash top up = 1.4 Loan – Share Value / Margin % = Rs 65,000 x 100 % / 1.4 = Rs 70,000 – Rs 65,000/1.4 = Rs 3,571

Rs 50,000 – Rs 3,571 = 140%

The amount of top up using share collateral: Cash top up x 1.4 = Rs 5,000 The value of shares that needs to be liquidated: Cash top up x 3.5 = Rs 12,500
10. Statements on transactions

Every client is sent monthly statements showing his share transactions, shareholdings and net interest payable 11. Charges for the Share Financing Account The Share financing company may charge for the various services provide as per lis below which is not exhaustive but suggestive       
Deposit of securities as collateral into Company’s Account Withdrawal of securities from Company’s Account into customer's securities account. Withdrawal of securities from Company’s Account to other financial institutions

Dividend Processing Fee
Rights Issue Processing Fee Maintenance Fee Custodian Fee for foreign securities held with Company’s

Setting up a Share Financing Company : Dr Rakesh Saxena Advocate, Wednesday, July 30, 2008

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Shares Trading in the Company’s Share Financing Account

One can buy all securities quoted on the NSE/BSE Exchange and selected securities quoted on other Exchanges around the world . However, certain risk securities shall be given zero value or a value lower than its full market value. 14. Charged interest rate The interest rate payable starts from as low as 1% above RBI Prime Lending Rate and charged on due date of your purchase on a daily basis
15. Interest on unutilized funds in the Share Financing Account

The interest (as agreed) will be computed based on a rate determined at the beginning of each month at daily rest. 16.Closure or withdraw of shares or cash from the Share Financing Account One can withdraw shares from his Share Financing account when his margin % is greater than 140%. The value of the shares that can be withdrawn is determined as follows: -

Illustrative example 1 Lest us say that sample loan portfolio details are as follows: Collateral Shares (a) Market value of shares traded ( b ) Total market value of share portfolio ( a ) + ( b ) Amount Owing in Share Financing Account = RS.100,000 = RS.230,000 = RS.330,000 = RS.200,00

Value of withdrawn shares = Market value of shares-1.4(amount owing) = RS.330,000 – 1.4 (RS.200,000 ) = RS.62,000 Alternatively, one can withdraw the net proceeds when he sell shares, day following the due date of the sale transactions. However, one must maintain a margin % of at least 140% after the cash withdrawal. Illustrative example 2: Assuming that a sale of Rs 30,000 has been executed and one had also toped up his account with cash of Rs 14,000 2 days ago to meet margin requirements. The market value of his portfolio remains unchanged, his margin percentage one-day following the due date of the sale will be as follows:Market value of portfolio / (Amounting owing + sales proceeds + earlier cash top up) Margin % after withdrawal = Rs.300,000 / (Rs.170,000 + 30,000 + 14,000)= 140%

Setting up a Share Financing Company : Dr Rakesh Saxena Advocate, Wednesday, July 30, 2008

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One can also withdraw cash when there is credit balance in your account. Your account will have a credit balance when the value of your sales proceeds exceeds your loan amount and the accrued interest.

Setting up a Share Financing Company : Dr Rakesh Saxena Advocate, Wednesday, July 30, 2008

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