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  1. 1. -1- Chapter-11.1 INTRODUCTIONThe uncertainty and the rapid fluctuations in the Indian capital market made manyinvestors at home and foreign wary about the future of their investments. So inorder to lessen this uncertainty in the market, SEBI introduced many new trends bymaking changes in the way the capital market functions by introducing onlinetrading, rolling settlement, dematerialization of shares, etc. This project is only anattempt to find the effect of these trends on the Indian market. This study is donewith reference of S.S.KANTILAL ISHWARLAL SECURITIES&INVESTORS Pvt.Ltd. (SSKI), so its scope is limited to SSKI.Stock exchanges are an integral part of the capital market. It is the perfect type ofmarket for securities whether of govt. or semi govt. bodies or other bodies as forshare and debentures issued by the joint stock enterprises.Stock exchanges provide liquidity to the listed companies; they give quotations tothe listed companies and help in trading and raising funds from the market.An exchange provides ready market for the sale and purchase of securities.Stock market in India is more than century old and has been functioning effectivelythrough the medium of recognized stock exchanges. The stock market, which isintegral part of the capital, has a major impact on the functioning of the corporatesector in particular. Since the capital market is playing, major role in the Indianeconomy from the past several years there is an essential need to study the overallfunctioning of stock exchange.But before going to stock exchange we need to understand The Indian FinancialSystem.Govt.RC.College Commerce & Management
  2. 2. -2-1.2 Following diagram gives the structure of Indian financial system:Govt.RC.College Commerce & Management
  3. 3. -3-FINANCIAL MARKETS:Financial markets are helpful to provide liquidity in the system and for smoothfunctioning of the system. These markets are the centers that provide facilities forbuying and selling of financial claims and services. The financial markets match thedemands 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 recognizedinstitutions, bank and government (SEBI) registered/controlled activities andintermediaries. 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, CDs etc.Govt.RC.College Commerce & Management
  4. 4. -4-CAPITAL MARKET:Capital market is a place where we can raise long-term capital.Again the capital market is classified in to 2 types and they are • Primary market • Secondary market.E.g.: Shares, Debentures, and Loans etc.My emphasis is more on capital market.PRIMARY MARKETPrimary market is generally referred to the market of new issues or market formobilization of resources by the companies and government undertakings, for newprojects as also for expansion, modernization, addition, diversification and upgradation. Primary market is also referred to as New Issue Market. Primary marketoperations include new issues of shares by new and existing companies, furtherand right issues to existing shareholders, public offers, and issue of debtinstruments such as debentures, bonds, etc.The primary market is regulated by the Securities and Exchange Board of India(SEBI a government regulated authority).FUNCTIONS:-The main services of the primary market are origination, underwriting, anddistribution. Origination deals with the origin of the new issue. Underwriting contractmake the shares predictable and remove the element of uncertainty in thesubscription. Distribution refers to the sale of securities to the investors.The following are the market intermediaries associated with the market: • Merchant banker/book building lead manager • Registrar and transfer agent • Underwriter/broker to the issueGovt.RC.College Commerce & Management
  5. 5. -5- • Adviser to the issue • Banker to the issue • Depository • Depository participantINVESTORS PROTECTION IN PRIMARY MARKETS:-To ensure healthy growth of primary market, the investing public should beprotected. The term investor protection as 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 securitiesare traded in the secondary market, which is commonly known as stock market orstock exchange. “The secondary market is a market where scrips are traded”. It is amarket place which provides liquidity to the scrips issued in the primary market.Thus, the growth of secondary market depend on the primary market. More thenumber of companies entering the primary market, the greater is the volume oftrade at the secondary market. Trading activities in the secondary market are donethrough the recognized stock exchanges which are 23 in number including OverThe Counter Exchange of India, National Stock Exchange of India andInterconnected Stock Exchange of India.Secondary market operations involve buying and selling of securities on the stockexchange through its members. The companies hitting the primary market aremandatorily required to list their shares on one or more stock exchanges in IndiaGovt.RC.College Commerce & Management
  6. 6. -6-including stock exchanges. Listing of scrips provides liquidity and offers anopportunity to the investors to buy or sell the scrips.The following intermediaries in the secondary market: • Broker/member of stock exchange – buyers broker and sellers broker • Portfolio Manager • Investment advisor • Share transfer agent • Depository • Depository participants.1.3 STOCK EXCHANGEStock exchanges are the perfect type of market for securities whether ofgovernment and semi-govt bodies or other public bodies as also for shares anddebentures issued by the joint-stock companies. In the stock market, purchasesand sales of shares are affected in conditions of free competition. Governmentsecurities are traded outside the trading ring in the form of over the counter sales orpurchase. The bargains that are struck in the trading ring by the members of thestock exchanges re at the fairest prices determined by the basic laws of supply anddemand.DEFINITION OF STOCK EXCHANGE:-“Stock exchange means any body or individuals whether incorporated or not,constituted for the purpose of assisting, regulating or controlling the business ofbuying, selling or dealing in securities.”The securities include:Shares, scrip, stocks, bonds, Debentures stock or other marketable securities of alike nature in or of any incorporated company or other body corporate;Government securities; and Rights or interest in securities.Govt.RC.College Commerce & Management
  7. 7. -7-HISTORY OF STOCK EXCHANGE:-The only stock exchanges operating in the 19th century were those of Mumbaisetup in 1875 and Ahmedabad set up in 1894. These were organized as voluntarynon-profit-marking associations of brokers to regulate and protect their interests.Before the control on securities under the constitution in 1950, it was a statesubject and the Bombay securities contracts (control) act of 1925 used to regulatetrading in securities. Under this act, the Mumbai stock exchange was recognized in1927 and ahemedabad in 1937. During the war boom, a number of stockexchanges were organized. Soon after it became a central subject, centrallegislation was proposed and a committee headed by A.D.Gorwala went into the billfor securities regulation. On the basis of the basis of the committee’srecommendations and public discussion, the securities contract (regulation) actbecame law in 1956.FUNCTIONS OF STOCK EXCHANGE:-Stock exchanges provide liquidity to the listed companies. By giving quotations tothe listed companies, they help trading and raise funds from the market, savings ofinvestors flow into public loans and to joint-stock enterprises because of this readymarketability and unequalled facility for transfer of ownership of stocks, shares andsecurities provided by the recognized stock exchanges as a result, over thehundred and twenty years during which the stock exchanges have existed in thiscountry and through their medium, the central and state government have raisedcrores of rupees by floating public loans; municipal corporations, improvementtrust, local bodies and state finance corporations have obtained from the publictheir financial requirements, and industry, trade an commerce- the backbone of thecountry’s economy-have secured capital of crores of rupees through the issue ofstocks, shares and debentures for financing their day-to-day activities, organizingnew ventures and completing projects of expansion, diversification andmodernization. By obtaining the listing and trading facilities, public investment isincreased and companies were able to raise more funds. The quoted companiesGovt.RC.College Commerce & Management
  8. 8. -8-with wide public interest have enjoyed some benefits and assets valuation hasbecome 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 areRegion Exchange CityNorthern Ludhiana Stock Exchange LudhianaRegion Delhi Stock Exchange Delhi Jaipur Stock Exchange Jaipur U.P. Stock Exchange KanpurSouthern Hyderabad Stock Exchange HyderabadRegion Bangalore Stock Exchange Bangalore Mangalore Stock Exchange Mangalore Madras Stock Exchange Chennai Coimbatore Stock Exchange Coimbatore Cochin Stock Exchange CochinEastern Calcutta Stock Exchange CalcuttaRegion Gauhati Stock Exchange Gauhati Magadh Stock Exchange Patna Bhubaneswar Stock Exchange BhubaneswarWestern Bombay Stock Exchange MumbaiRegion National Stock Exchange Mumbai OTCEI Stock Exchange Mumbai M.P. Stock Exchange Indore Pune Stock Exchange Pune Vadodara Stock Exchange VadodaraGovt.RC.College Commerce & Management
  9. 9. -9- Ahmedabad Stock Exchange Ahmedabad Saurashtra Stock Exchange RajkotOUT OF THESE MAJOR STOCK EXCHANGES ARE:-NSEThe OrganizationThe National Stock Exchange (NSE) of India Limited has genesis in the report ofthe High Powered Study Group on Establishment of New Stock Exchanges, whichrecommended promotion of a National Stock Exchange by financial institutions(FIs) to provide access to investors from all across the country on an equal footing.Based on the recommendations, NSE was promoted by leading FinancialInstitutions at the behest of the Government of India and was incorporated inNovember 1992 as a tax-paying company unlike other stock exchanges in thecountry.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 commencedoperations in November 1994 and operations in Derivatives segment commencedin June 2000.NSEs 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, debt instruments and hybrids, • 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,Govt.RC.College Commerce & Management
  10. 10. - 10 - • 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 has become industry benchmarks and is being emulated by other market participants. NSE is more than a mere market facilitator. Its that force which is guiding the industry towards new horizons and greater opportunities.BSEINTRODUCTION:The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875as "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 avoluntary non-profit making Association of Persons (AOP) and is currently engagedin the process of converting itself into demutualised and corporate entity. It hasevolved over the years into its present status as the premier Stock Exchange in thecountry. It is the first Stock Exchange in the Country to have obtained permanentrecognition 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 insecurities, debt and derivatives upholds the interests of the investors and ensuresredresses of their grievances whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by conductinginvestor education programmers and making available to them necessaryinformative inputs.A Governing Board having 20 directors is the apex body, which decides the policiesand regulates the affairs of the Exchange. The Governing Board consists of nineelected directors, who are from the broking community (one third of them retire everyear by rotation), three SEBI nominees, six public representatives and an ExecutiveGovt.RC.College Commerce & Management
  11. 11. - 11 -Director & Chief Executive Officer (CEO) & a Chief Operating Officer (COO).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 otherHeads of Departments assist him.The Exchange has inserted new Rule No.126 A in its Rules, Byelaws pertaining toconstitution of the Executive Committee of the Exchange. Accordingly, anExecutive Committee, consisting of three elected directors, three SEBI nominees orpublic representatives, Executive Director & CEO and Chief Operating Officer hasbeen constituted. The Committee considers judicial & quasi matters in which theGoverning Board has powers as an Appellate Authority, matters regardingannulment of transactions, admission, continuance and suspension of member-brokers, declaration of a member-broker as defaulter, norms, procedures and othermatters relating to arbitration, fees, deposits, margins and other monies payable bythe member-brokers to the Exchange, etc.REGULATORY FRAME WORK OF STOCK EXCHANGE:The “Securities Contract Regulation Act, 1956” and “Securities Exchange Board ofIndia 1952” provided a comprehensive legal framework. Three tier regulatorystructure comprising • Ministry of finance • The Securities And Exchange Board of India • Governing bodyMEMBERS OF STOCK EXCHANGE:-The securities contract regulation act 1956 has provided uniform regulation for theadmission of members in the stock exchanges. The qualifications for becoming amember of a recognized stock exchange are given below:The minimum age prescribed for the members is 21 years. • He should be an Indian citizen.Govt.RC.College Commerce & Management
  12. 12. - 12 - • He should be neither a bankrupt nor compound with the creditors. • He should not be convicted for fraud or dishonesty. • He should not be engaged in any other business connected with a company. • He should not be a defaulter of any other stock exchange. • The minimum required educational is a pass in 12th standard examination.SECURITIES AND EXCHANGE BOARD OF INDIA {SEBI}The securities and exchange board of India was constituted in 1998 under aresolution of government of India. It was later made statutory body by the SEBI act1992.according to this act, the SEBI shall constitute of a chairman and five othermembers appointed by the central government.With the coming into effect of the securities and exchange board of India act, 1992some of the powers and functions exercised by the central government, in respectof the regulation of stock exchange were transferred to the SEBI.OBJECTIVES AND FUNCTIONS OF SEBI • To protect the interest of investors in securities. • Regulating the business in stock exchanges and any other securities market. • Registering and regulating the working of intermediaries associated with securities market as well as working of mutual funds. • Promoting and regulating self-regulatory organizations. • Prohibiting insider trading in securities. • Regulating substantial acquisition of shares and take over of companies. • Performing such functions and exercising such powers under the provisions of capital issues (control) act, 1947and the securities to it by the central government.Govt.RC.College Commerce & Management
  13. 13. - 13 -SEBI GUIDELINES TO SECONDARY MARKETS: (STOCK EXCHANGES):Board of Directors of Stock Exchange has to be reconstituted so as include non-members, public representatives and government representatives to the extent of50% of total number of members.Capital adequacy norms have been laid down for the members of various stockexchanges 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’ buy Reliance Petroleum at Rs.50.Here, the orders 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 toGovt.RC.College Commerce & Management
  14. 14. - 14 - prevent further loss. E.g., Sell ANDHRABANK at Rs.105 stops loss at Rs.100.Buying and selling shares: To buy and sell the share the investor has to locateregister broker or sub broker who render prompt and efficient to service to him. Theorder to buy or sell specified number of shares of the company of investor’s choiceare placed with the broker. The order may be of any of the above any mentionedtype. After receiving the order the broker tries to execute the order in his computerterminal. Once matching order is found, the order is executed. The broker thedelivers the contract noteTo the investor it gives the details regarding the name of the company, number ofshares bought, price, brokerage, and the date of delivery of share. In this physicaltrading form, once the broker gets the share certificate through the clearing houseshe delivers the share certificate along with transfer deed to the investor. Theinvestor has to fill the transfer deed and stamp it. The stamp duty is one of thepercentage considerations, the investor should lodge the share certificate andtransfer deed to the register or transfer agent of the company. If it is bought in theDEMAT form, the broker has to give a matching instruction to his depositoryparticipant to transfer shares bought to the investors account. The investor shouldbe account holder in any of the depository participant. In the case of sale of shareson receiving payment from the purchasing broker, the broker effects the payment tothe investor.Share groups: The listed shares are divided into 3 categories:Group A shares, B1 shares, B shares. The last 2 groups are referred to clearedsecurities or non specified shares. The shares that come under the specified groupcan avail the carry forward transaction. In ‘A’ group, shares are selected on thebasis of equity, market capitalization and public holding. Further it should havegood track record and dividend paying company. It should have good growthpotential too. The trading volumes and the investor’s base are high in ‘A’ groupGovt.RC.College Commerce & Management
  15. 15. - 15 -shares. Any company when it satisfies these criteria would be shifted from ‘B’ groupto ‘A’ group.In the B1 group actively traded share are included. Carry forward transactions arenot allowed in this group. Settlement takes place through the clearinghouse alongwith the ‘A’ group shares. The settlement cycle and the procedure are identical to‘A’ group security. The rest of the company shares listed from the ‘B’ group.Rolling settlement system:Under rolling settlement system, the settlement takes place n days (usually 1, 2, 3or 5days) after the trading day. The shares bought and sold are paid in for n daysafter the trading day of the particular transaction. Share settlement is likely to becompleted much sooner after the transaction than under the fixed settlementsystem. • 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. • 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 Re.1cr 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 sentto the stock exchange by 11.00 am. A provision of an exception window would beGovt.RC.College Commerce & Management
  16. 16. - 16 -available for late confirmation. The time limit and the additional changes for theexception window are dedicated by the exchange.The exchanges/clearing house/ clearing corporation would process and downloadthe obligation files to the broker’s terminals late by 1.30 p.m on T+1. Depositoryparticipants accept the instructions for pay in securities by investors in physicalform up to 4p.m and in electronic form up to 6 p.m. the depositories accept fromother DPs till 8p.m for same day processing.T+2 activities: The depository permits the download of the paying in files ofsecurities and funds until 10.30 am on T+2 from the brokers’ pool accounts. Thedepository processes the pay in requests and transfers the consolidated pay in filesto clearing House/clearing Corporation by 11.00am/on T+2. The exchange/clearinghouse/clearing corporation executes the pay-out of securities and funds latest by1.30p.m on T+2 to the depositories and clearing banks. In the demat mode netbasis settlement is allowed. The buy and sale positions in the same scrip can besettled and net quantity has to be settled.Govt.RC.College Commerce & Management
  17. 17. - 17 - Chapter-22.1 RESEARCH DESIGNDesigning of the research is done mainly to solve the problem of getting the variousstages of the research under control. This control factor is very important for theresearcher during any of the research operation. Preparation of the design for theresearch forms a very critical stage in the process of carrying out some researchwork or a research project.Research Design in general terms can be referred to asthe scheme of work to be done or performed by a researcher during the variousstages of a research project.SCOPE OF THE STUDY:The scope of the study analyses us to know how the On-line Trading activities arecarried out in SHAREKHAN.DATA COLLECTION METHODS: The data collection methods include both theprimary and secondary collection methods.Primary method: This method includes the data collected from the personalinteraction with authorized members, clerks of the SSKI.Secondary method: The secondary data collection method includes:• The lecturers delivered by the superintendents ofrespective departments.• The brochures and material provided by Share KhanSecurities limited.• The data collected from the magazines of the NSE,economic times, etc.• Various books relating to the investments, capital marketsand other related topics.Govt.RC.College Commerce & Management
  18. 18. - 18 -LIMITATIONS OF THE STUDY:The study is confined to the past 2-3 years and present system of the tradingprocedure in the SSKI and the study is confined to cover all the related issues inbrief. Online-trading procedure only exhaustive analysis, problems of listing,management of trade, SEBI guidelines relating there to be not covered due tolimited time and to keep the study in manageable limits.2.2 RESEARCH METHODOLOGYNON-PROBABILITYThe non –probability respondents have been researched by selecting the personswho does the stock trading. Those persons who do not trade in stocks have notbeen interviewed.Explorative & Descriptive ResearchThe research is primarily both exploratory and descriptive in nature. The sourcesof information are both primary and secondary. The secondary data has been takenby referring to various magazines, newspapers and journals online through the helpof the internet to get the figures required for the research purposes. TheObjective of the exploratory research is to gain insights and ideas. The objectiveof the descriptive research study is typically concerned with determining thefrequency with which something occurs. A well structured questionnaire wasprepared for the primary research and personal interviews were conducted tocollect the responses of the target population.Govt.RC.College Commerce & Management
  19. 19. - 19 -2.3 SAMPLING METHODOLOGYSampling Technique:Initially, a rough draft was prepared a pilot study was done to check to check theaccuracy of the Questionnaire and certain changes were done to prepare the finalquestionnaire to make it more judgmental.Sampling Unit:The respondents who were asked to fill out the questionnaire in the NationalCapital Region are the sampling units. These respondents comprise of the personsdealing in stock trading. The people have been interviewed in the open market, infront of the companies, telephonic interviews and through other sources also.Sample Size:The sample size was restricted to only 100 respondents.Sampling Area:The area of the research was National Capital Region (NCR).2.4 LIMITATIONSThe various limitations of the study are: • There is lack of awareness among people about investing in stock market. So the people who are aware of such things were found in specific areas for survey purposes.Govt.RC.College Commerce & Management
  20. 20. - 20 - • Most people are comfortable with traditional system in small towns and like to trade from their respective brokers, hence not providing a true opinion of theirs. • Most of the people they are not techno savvy. Though Internet penetration is growing still it is not at the required level. • Some of the respondents who did not do online trading were able to respond to only some questions.The survey was done from telephonic conversation and may not truly express theopinion of whole country2.5 Literature ReviewONLINE TRADING INFRASTRUCTUREThe emergence of online exchanges has facilitated faster transactions by providingonline trading portals and brokerage houses ease and flexibility. The Internethas indeed opened up new opportunities for conducting the business. Theworldwide stock exchanges has made a major shift from the traditional method oftrading and now conduct a bulk of its business online through its brokers andpartners. In the developed countries majorly all the exchange transactions areconducted online. The trend took off slowly in India and the National Stock Exchange(NSE) and the Bombay Stock Exchange (BSE) two of the largest exchanges in Indiahave been conducting online trade successfully for some time.WHY ONLINE TRADING ENTERED LATE IN INDIA?The Indian exchanges and brokering houses have been very slow in moving theirtransactions online and the major reason has been the lot government regulations.The initial delay was due to laying down the specifications for creating Closed UserGroups (CUGs). This issue was resolved between the Department ofTelecommunications (DoT) and the Finance Ministry around 1998 and after that sooncame the Online trading portals like,,Govt.RC.College Commerce & Management
  21. 21. - 21 and Connectivity related issue was perhaps the mostimportant technological factor. Traditionally the cost of leased lines and VSAT linkshas been very high and the reliability of the links was very low. To commission thelinks it took a long time as one had to make an application and wait for a few weeks forthe link to be up and running. Many other issues like security, backup and recoveryprocedural costs also acted as deterrents in the process. Now with the resolutionof regulatory issues India no longer have any pressing connectivity andbandwidth issues. The entry of private players into the broadband scenario andthe government opening up the telecom sector these issues have become almost non-existent. Security solutions and services available in the market have matured and itdoesnt cost a pretty packet anymore to put a simple backup solution in place.Though online trading everyday large volumes of data is being transacted. At BSE theaverage daily turnover in 2001-2002 (April-March) was Its 1244.10 crore and thenumber of average daily trades was Rs 5.17 lakhTo control Online Trading RBI made regulations making it mandatory for companies tostore at least 7 years of transactional and financial data. 1. Design needs to be always-on, secure; redundant, and have adequate backup and recovery processes. 2. For such high amounts of critical data its natural to deploy network-based storage like NAS or SAN. 3. Security is a viral and integral part of the design architecture. The hardware and software elements should be built around layered security architecture and should be held in place with a well-documented security policy. 3. Its difficult to deploy out-of-the-box applications at exchanges as each has a unique architecture based on factors like operations flow, trading volumes, number of members, number of Users and number of locations. 4. NSE has deployed NIBIS (NSE’s Internet Based Information System) for real- time dissemination of trading information over the Internet and NEAT a client- server-based application to help its operations. 5. BSE has deployed an Online Trading System (BOLT) on a tandem platformGovt.RC.College Commerce & Management
  22. 22. - 22 - which has a two-tier architecture. It claims to be able to support up to 2 million trades a day.Govt.RC.College Commerce & Management
  23. 23. - 23 - Chapter-3Organisation Profile3.1 BACKGROUND AND INCEPTION OF THE COMPANYOrigin and GrowthSharekhan is a retail broking arm of S.S. Kantilla Ishwarlal Investors Services Pvt.Ltd., An organization with more than 8 decades of trust and credibility in the stockmarket. Sharekhan Ltd (Formally SSKI Investors Services Pvt Ltd.) was promotedby Mr. Shripal. S. Morkharia and Mr. Shreyas. S. Morkhia. It is currently India’slargest broking house. It is a member of the stock exchange, Mumbai. It is adepository participant of the NSDL and CDSL. Its business includes stock broking,depository services, portfolio management and derivatives.The company’s core specialty lies in itsretail distribution with a large network of branches i.e. 510 share shops (retailshops) in 170 cities in India and sub-brokers/authorized persons. Its strengths liesin its investment research capabilities. Its research division has several analystscontinuously monitoring global, national and regional political, economic and socialsituations so as to assess their impact on the economy in general, the sectors soas to assess their impact on the economy in general, the sectors and companiesthey research which helps them if offering quality research and advice to clients.The SSKI Group Comprises of Institutional broking and Corporate Finance. TheGovt.RC.College Commerce & Management
  24. 24. - 24 -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 has been voted as the Top Domestic Brokerage House in the researchcategory by Euro Money Survey and by Asia Money Survey.For the derivates segment, to educate the potential investors towards the sharemarket they provide a study kit named the ‘Derivative Digest’. And for potentialinvestors wanted to start the trading in the share market also provided with thestudy kit ‘First Step to investing in the share market’, gives them a generalunderstanding about how the share market operates, and it also gives an idearegarding the role of share brokers in the Capital Market. These are the wide-ragingservices offered by the share khan to its customers and most importantly. ShareKhan is blessed with well-dedicated sales wings, who are looking after the variousneeds of the customers in a committed manner and which provide the customerswith tremendous amount of satisfaction and happiness about their investment.3.2 Nature of the Business CarriedSharekhan is a broking company. The company offers a complete range of pretrade, trade and post trade service on the BSE (Bombay Stock Exchange) and theNSE (National Stock Exchange). Whether the client come in to the company’sconventionally located officers and trade in a dedicated ambience or issueinstructions over the phone, our highly trained team and sophisticated equipmentensure smooth transactions and prompt service.•Investment Advisory Service•Facilitation Services to retail Investors, corporate.•Depository Services•Investment options includesi. Online trading (Includes equity, derivatives)ii. Commodities tradingiii. Mutual FundsGovt.RC.College Commerce & Management
  25. 25. - 25 -iv. Portfolio management ServicesSharekhan Branches are conceptualized to be place where investors can come incontact with investment opportunities in an atmosphere of convenience andcomfort. Our services are available throughout our network of 510 Share Shopsspanning 170 major towns and cities in the country. Professionals seeks to educateclients and end their confusion by custom an Investment Plan according to theneeds of clients and is also today a part of company’s induction program advisingemployees on how to plan their investments3.3 VISION, MISSION AND BELIEFSVISIONTo be the best retail broking brand in the Indian Equities market.MISSIONTo educate and empower the individual investor to make better investmentdecisions through quality advice and superior service.BELIEFS AND EXPECTATIONSSharekhan believe in and promote a culture that: • Stimulates the employees drive to excel • Nurture their entrepreneurial spirit by providing them exposure to challenging work opportunities and imparting autonomy to function effectively • Support the employees to deliver by incorporating practices aimed at • Employee development/skill acquisition • Enhancing transparency and trust, being non-discriminative to any practice/procedure/system • Establishing norms towards enforcing discipline in the organization as regards work etiquettesGovt.RC.College Commerce & Management
  27. 27. - 27 - GOVERNING BOARDSHAREHOLDERS SSKI - 55.5% HSBC – 18.5% (Morakhiafamily) INTEL – 10.5% CARLYES – 15.5%3.5 Products and servicesEquitiesSharekhan provided the prospect of researched investing to its clients, which wasrestricted only to the institutions. Research for the retail investor did not exit prior tosharekhan. Sharekhan leveraged technology to bring the convenience of trading tothe investor’s location of preference (residence or office) through computerizedGovt.RC.College Commerce & Management
  28. 28. - 28 -access. India sharekhan made it possible for clients to view transaction costs andledger updates in real time.DerivativesThe company also facilitates the trading system for trading in secondary marketunder future and options segment of NSE and BSE. The equity dealers in thecompany will be eager to give insights into the new sets introduction in the IndianCapital market futures and options.Mutual fund and IPO onlineMutual fund is an investment company that pools money from shareholders andinvests in a variety of securities, such as stock bonds and money marketinstruments.Initial public offering, the first sale of stock by a company to the public. Companiesoffering an IPO are sometimes new, young companies, or sometimes companieswhich have been around for many years but finally deciding to go public.Sharekhan’s online trading and demat account also facilitates investment in IPO’sand mutual fund. One can place orders by selecting IPO or Mutual fund.Advisory productSharekhan provide Advisory products by which customer can get proper advise forinvesting their money in proper way by which they can earn more profit.Need of advisory products:- • wide product range to meet diverse needs of clients • disciplined approach • dedicated product manager backed by research • performance track recordCommodities onlineGovt.RC.College Commerce & Management
  29. 29. - 29 -Commodities are agreements to buy and sell virtually anything except, for somereason. The primary commodities that are traded are oil, gold and agriculturalproducts. Commodity derivatives comprise of raw materials and products that canbe traded on special commodity exchanges across the country. Commoditiesexpands customer investing horizon from investing in a metal company to trading inthe metal itself. Trading in commodity derivative provides unique marketopportunities for a wider section of participants like: investor, hedgers, arbitragers,traders, manufactures planters, exporters and importers. While trading commoditiesthrough an exchange, there are no transportation charges, no insurance costs, nostorage charges and complete security when customer trade through an exchange.Customer can trade in commodities at nominal costs and carry the investment inpaper from as customer want. The fundamentals for commodities are quite simple:price is a function of demand and supply.Portfolio managementCompany’s portfolio management service is a product where in an equityinvestment portfolio is created to suit the investment objectives of a client. We atIndia invest the resources into stocks from different sectors, depending on yourrisk-return profile. This service is particularly advisable for investors who cannotafford to give time or don’t have that expertise for day-today management of theirequity portfolio. Sharekhan securities are a registered portfolio manager with SEBIto manage portfolios on behalf of clients with discretionary and anon discretionaryrights this service is a provision for those who may not have the right time tomanage their stocks investment or require the service of company’s highlyspecialized professional team.InsuranceInsurance is a policy from a large Financial Institutional that offers a person,company, or other entity reimbursement or financial protection against possiblefuture losses or damages. To ensure maximum reach to customers across India,we have employed a multi-pronged approach and reach out to customers via ourGovt.RC.College Commerce & Management
  30. 30. - 30 -network, direct and affiliate channels. Following the opening of the sector in 1999-2000, a number of private sector insurance service provides commencedoperations aggressively and helped grow the market.Fixed depositsFixed deposits are loan arrangements where a specific amount of funds is placedon deposit under the name of the account holder. The money placed on depositearns a fixed rate of interest, according to the terms and conditions that govern theaccount. The actual amount of the fixed rate can be influenced by such factors atthe type of currency where the deposit is made.Currency trading • Currency trading means to trade in currency of different countries and price varies because of supply and demand. • Currency trading is mostly done by large companies or by people who is import-export business. • In price of currency there is always fluctuation. So it can be dangerous for people who have import-export business. So they make reverse position or it is also known as hedging. • Currency trading is not much useful to individual investors. • Sharekhan is providing offline currency trading to interested customers. • Online currency trading is not given because individual investors still not prefer currency trading.Govt.RC.College Commerce & Management
  31. 31. - 31 -Dial’n’Trade:-You can now use our ‘Dial’n’Trade’ back up option. Sharekhan team will help youplace a trade after a security check right over the phone! Your account statementwill get updated with this information automatically. This service is available both inHindi and English. You can even use this service to place After-Market HourOrders.FEATURES OF Dial’n’Trade:- • Dedicated Toll-Free number for order placements. • Automatic fund transfer with phone banking. • Simple and secure IVR based system for authentication. • No waiting time. Enter your TPIN to be transferred to our telebrokers.Govt.RC.College Commerce & Management
  32. 32. - 32 - • Trusted, professional advice from our telebrokers. • After-hours order placement facility between 8 am & 9:30 am. • Reliable services wherever you are.SPEED TRADE:-Speed Trade is a next-generation online trading product that brings the power ofyour broker’s terminal to your PC. It provides on a single screen streaming quotes,online tic-by-tic charts, instant order placement and trade confirmations for equity /cash market. It is ideal for active traders and jobbers who transact frequently duringtrading session to capitalize on intra-day price movements.Unlike browser based trading applications that require moving from page to page toexecute a single transaction, SPEEDTRADE is a net-based executable applicationthat provides everything a trader needs on one screen, thereby, reducing themaximum time required to execute a trade by a huge margin.what you get with Speed Trade? • Instant order Execution and Confirmation. • Single screen trading terminal (cash and Derivatives). • Real-time streaming quotes, tic-by-tic charts. • Market summary (most traded scrip, highest value). • Hot keys similar to a brokers terminal. • Alerts and reminders.Back-up facility to place trades on Direct Phone lines3.6 Area of OperationsSharekhan is India’s leading online retail broking house. Launched on February 8,2000 as an online trading portal, sharekhan has today a pan-India presence withover 1,529 outlets serving 950,000 customers across 450 cities. It also hasGovt.RC.College Commerce & Management
  33. 33. - 33 -international presence through its branches in the UAE and Oman. Sharekhanoffers services like portfolio management, trade execution in equities, future andoption, commodities and distribution of mutual fund, insurance and structuredproducts. These services are backed by quality investment advice from anexperienced research team which offers investment and trading ideas based onfundamental and technical research respectively, market related news, statisticalinformation on equities, commodities, mutual funds, IPOs and much more.Sharekhan is a member of the Bombay Stock Exchange, the National StockExchange and the country’s two leading commodity exchanges, the NCDEX andMCX. Sharekhan is also registered as a depository participant with NationalSecurities Depository and Central Depository Services. Sharekhan has setcategory leadership through pioneering initiatives like Trade Tiger, an Internet-based executable application that emulates a broker terminal besides providinginformation and tools relevant to day traders. Its second initiative, First Step, istargeted at empowering the first-time investors. Sharekhan has also set its globalfootprint through the “India First” initiative, a series of seminars conducted bysharekhan to help the non-resident Indians participate and benefit from the hugeinvestment opportunities in India.Govt.RC.College Commerce & Management
  35. 35. - 35 -3.8 COMPETITORS INFORMATIONReligare Securities:Religare is a global financial services group with a presence across Asia, Africa,Middle East, Europe and the Americas. In India, Religare’s largest market, thegroup offers a wide array of products and services ranging from insurance, assetmanagement, broking and lending solutions to investment banking and wealthmanagement. The group has also pioneered the concept of investments inalternative asset classes such as arts and films .With10,000 plus employees acrossmultiple geographies, Religare serves over a million clients, including corporatesand institutions, high net worth families and individuals, and retail investors.Religare Enterprises Limited is part of a family of companies that fall under thebroader Religare brand, which includes other global businesses such asdiagnostics, aviation and travel, wellness retail, and IT products and solutions. Adiversified financial services group Religare Enterprises Limited (REL) offers acomprehensive suite of customer-focused financial products and services targetedat retail investors, high net worth individuals and corporate and institutional clients.Kotak Securities:Kotak Mahindra is one of Indias leading financial conglomerates, offering completefinancial solutions that encompass every sphere of life. From commercial banking,Govt.RC.College Commerce & Management
  36. 36. - 36 -to stock broking, to mutual funds, to life insurance, to investment banking, thegroup caters to the financial needs of individuals and corporates. Kotak SecuritiesLtd., a 100 % subsidiary of Kotak Mahindra Bank is one of the oldest and largestbroking firms in the industry. Their offerings include stock broking through thebranch and Internet, Investments in IPO, Mutual funds and Portfolio managementservice.Reliance Securities Ltd:Reliance Securities Limited is a Reliance Capital company and part of the RelianceAnil Dhirubhai Ambani Group. “Reliance Money” is a brand owned by RelianceCapital Limited. Reliance Securities with the permission of Reliance Capital Limiteduses the “Reliance Money” brand to market its various services. RelianceSecurities endeavour’s to change the way investors transact in equities marketsand avails services. It provides customers with access to Equity, Derivatives,Portfolio Management Services, Investment Banking, Mutual Funds and IPO’s. Italso offers secured online share trading platform and investment activities insecure, cost effective and convenient manner. To enable wider participation, it alsoprovides the convenience of trading offline through variety of means, including Call& Trade, Branch dealing Desk and its network affiliates.3.9 Infrastructure Facilities:Sharekhan investment outlets are designed to be places where retail investors cancome in touch with investment opportunities in an atmosphere of convenience andcomfort. The look and feel of the offices across India projects a consistent branchimage for the company. The features that enable a unique facility for retailingfinancial services include among others: Easily visible branches set up in thecommercial spaces of potential investment zones ranging between 750 sft to 1000sft.Govt.RC.College Commerce & Management
  37. 37. - 37 - • Most branches are located in the ground floor sporting huge glass frontage promoting easy accessibility and reflecting our attitude of complete transparency. • The major portion of the branch area dedicated for customer use. The furniture is in CKD formats to add flexibility in using the branch for investor’s purposes. • Connectivity to NSE for trading facilities. • TV and other electronic mediums to facilitate real time update and dissemination of information to our customers. Each branch comprises of trained and qualified investment advisors to take care of the needs of3.10 Achievements and awards1. Rated among the top 20 wired companies along with Reliance, HLL, Infosys, etcby ‘Business Today’ January 2004 edition.2. Awarded ‘Top Domestic Brokerage House’ four times by Euro money andAsiamoney.3. Pioneers of online trading in India amongst the top3. Amongst the top 3 Online trading websites from India. Most preferred financialdestination amongst online broking customers.4. Winners of “Best Financial Website” award in 2001.5. Voted by CNBC Awaaz as the Most Preferred Stock broker in India in 2005.Govt.RC.College Commerce & Management
  38. 38. - 38 -3.11 Work Flow ModelGovt.RC.College Commerce & Management
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  40. 40. - 40 -At Sharekhan it’s believed that, “The clients are people, not accounts” hencesuccessful investment management relationship begins with a clear understandingof each client’s specific needs, concerns and long-term objectives. Sharekhaninvestment philosophy applies a disciplined approach to building a customizedstrategy designed to meet customer’s individual financial goals and tolerance forrisk.3.12 FUTURE GROWTH AND PROSPECTUS • 2, 00,000 plus retail customers being serviced through centralized call centers /web solutions. • Branches / Semi branches servicing affluent / aggressive traders through high skill financial advisor.Govt.RC.College Commerce & Management
  41. 41. - 41 - • 250 independent investment managers/ franchisee servicing 50,000 highly valued clients • New initiatives Portfolio management Services and commodities tradingSharekhan the financial services plan to launch portfolio management services(PMS), where managers will create a basket of stocks for each client, based onindividual needs, for amount as low as Rs5 lakhs. such services are popular inIndia but, almost all the offerings of large finance companies target high net worthindividual with the ability to invest Rs 1cr and above. Sharekhan, which helpsclients invest in equities, derivatives and commodities, will typically offer suchservices for amounts between Rs5 lakhs and Rs75 lakhs; Rs5 lakhs is the smallestamount the industry’s regulator mandates for PMS. Sharekhan will launch its PMSion December and will especially target executives and professionals in metros andsmaller towns.Sharekhan would not take a fee unless the portfolio earns a return higher than 8%.If the client earns a return of 8-20%, the fee charged will be 10% of the absolutereturns and if the client earns more than 20%, the fee will be 20%. The company:plans to offer a large-cap investment portfolio (where the stocks invested in will bethose of large-cap companies), blue chip portfolio (blue cip companies) and aninfrastructure portfolio (companies in the infrastructure sector). Sharekhan , whichstarted operations in April, already has around 250,000 invest or accounts and3000 outlets by law, while others are optional agreeing to the terms of an insurancepolicy.KEY FEATURES OF ONLINE TRADING WITH SHAREKHAN:- • Freedom from paperwork. • Instant credit and money transfer. • Trade from any net enabled PC. • Online orders on the phone. • Timely advice and research reports. • Real-time Portfolio tracking.Govt.RC.College Commerce & Management
  42. 42. - 42 - • After-hour orders.3.13 TRADING PROCEDUREOUTCRY SYSTEMTRADING IN THE STOCK EXCHANGE:-THE CONVENTION DAYThe broker has to buy or sell securities for which he has received the orders. Forthis, the broker or his authorized representatives goes to the stock exchange. Thismethod is called the open outcry system. Basically the brokers shout while buyingor selling the securities. The floor of the stock exchange is divided into a number ofmarkets 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 bidprice. For making the necessary bargain, he quotes his purchase or sale price, alsoknown as offer or bid price. The dealer, to whom the price is quoted, quotes hisown price when the quotation of the dealer suits the broker, he may loose thebargain. If he is not satisfied with the quote price, he may turn to some otherdealer. On the close of the bargain, the dealer as well as the broker makes a briefnot of the particulars of the deal. Such notes are made on some pad and on it thenumber of shares, the price agreed upon, the name of the party, what membershipnumber etc., are noted.DISADVANTAGES OF OUTCRY SYSTEM: • It lacks transparency. • The scope of manipulation, speculation and mal practice more. • The time gap between many of the trading operations used to be met quickly and easily.Govt.RC.College Commerce & Management
  43. 43. - 43 - • Signal were more important in the outcry system any member who could not interpret the buy/sell signal correctly often landed himself in disastrous situation. • In audibility was another disadvantage of the outcry system.Due to the above disadvantages of the outcry system, the SHAREKHAN has shifterfrom outcry system to online trading from February 29 1997.MANUAL TRADINGTRADING PROCEDURE BEFORE INTRODUCTION OF ONLINE TRADING:-Trading on stock exchanges is officially done in the trading ring. In the trading ringthe space is provided for specified and non-specified sections, the members andtheir authorized assistants have to wear a badge or carry with them on identity cardgiven by the exchange to enter the trading ring. They carry a sauda book orconfirmation 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 haveto be completed in executing a transaction at a stock exchange .The steps involvedin this method of trading have given below:CHOICE OF BROKER:-The prospective investor who wants to buy shares or the investors, who wants tosell shares and transact business, have to act through member brokers only. Theycan also appoint their bankers for this purpose as per the present regulations.PLACEMENT OF ORDER:-The next step is the placing order for the purchase or sale of securities with abroker. The order is usually placed by telegram, telephone, letter, fax etc or inperson. To avoid delay, it is placed generally over the phone. The orders may takeGovt.RC.College Commerce & Management
  44. 44. - 44 -any one of the forms such as At Best Orders, Limit Order, Immediate or CancelOrder, 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 2.30P.M on all working days Monday to Friday, and a special one-hour session onSaturday. The members or the authorized assistants have to wear a badge givenby the exchange to enter into the trading ring. They carry a suada Block Book orconformation memos, which are duly authorized by the exchange when the deal isstruck; both broker and jobber make a note in their suada block books. From thesuada book, the contract notes are drawn up and posted to the client. A contractnote is written agreement between the broker and his clients for the transactionexecuted.DRAWING UP AND BILLS:-Both sale and purchase bills are prepared along with the contract note and it isposted on the same day or the next day. This in a purchase transaction, once theshares are delivered to the client effects payment for the purchases and pays thestamp fees for transfer, a bill is made out giving the total cost of purchase, includingother expenses incurred by the broker in the price itself. With this, the processends.DEMATERLIZATION:Dematerialization is the process by which physical certificates of an investor areconverted to an equipment number of securities in electronic from and credited inthe investor account with his DP. In order to dematerialization his certifies aninvestor has to first open an account with a DP and then request for theDematerialization Request Form, which is DP and submit the same along with theshare certificates. The investor has to ensure that he marks “Submitted forGovt.RC.College Commerce & Management
  45. 45. - 45 -Dematerialization” on the certificates before the shares are handed over to the DPfor demat. Dematerialization can only be done to those certificates, which arealready registered in your name and belong to the list of securities admitted forDematerialization at NSDL.Most of the active scrip’s in the market including all the scrip’s of S&P CNXNIFTYand BSE SENSEX have already joined NSDL. This list is steadily increasing.Briefly, the process is as follows: after completion of transfer, the investor gets theoption to dematerialize such shares. Investor’s willing to exercise this option sendsa Demat request along with the option letter sent by the company to his DP. Thecompany or its R&T agent would confirm the Demat request on its receipt from theDP to reduce risk of loss in transit.Dematerialized shares do not have any distinctive or certificate numbers. Theseshares are fungible-which means that 100 shares of a security are the same as anyother 100 shares of the security. Odd lot shares certificates can also bedematerialized.Dematerialization normally takes about fifteen to thirty days. To get backdematerialized securities in the physical form, request DP for Rematerialization ofthe same is made.Rematerialization is the process of converting electronic shares in to physicalshares.BENEFITS OF DEMAT:-Transacting the depository has several advantages like• It reduces the risk of bad deliveries, in turn saving the cost and wastage of timeassociated with follow up for rectification. This has lead to reduction in brokerage tothe extent of 0.5% by quite a few brokerage firms.Govt.RC.College Commerce & Management
  46. 46. - 46 -• In case of transfer of electronic shares, you save 0.5% in stamp duty. You avoidthe cost of courier / notarization. The need for further follow-up with your broker fortheShares returned for company objection.• You can receive your bonuses and rights issues into your DA as a direct credit,this eliminating risk of loss in transit.• You can also expect a lower interest charge for loans taken against Dematshares as compared t internet for loans against physical shares.• There is no lost in transit, thus the overheads of getting a duplicate copy in such circumstances is reduced.• RBI has increased the limit of loans against dematerialized securities as collateralto Rs.1 per borrower in case of loans against physical securities.• RBI has also reduced the minimum margin to 25% for loans againstdematerialized securities as against 50% for loans against physical securities.3.14 ONLINE TRADINGBefore getting in to the online trading we should know some things about theinternet, e-commerce and etc. 1. 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 allowsGovt.RC.College Commerce & Management
  47. 47. - 47 - 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 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. In offers stock trading at a lower cost. Internet can change the nature and capacity of stock broking business in India. 2. 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 the paperless exchange of business information using electronic data inter change, electronic technologies. It not only automates manual processes and paper transactions but also helps organization move to a fully electronic environment and change the way they operated.Govt.RC.College Commerce & Management
  49. 49. - 49 -PC’s and networking attempts to introduce banks of the tools and technologiesrequired for electronic commerce. The computers are either workstations ofindividual office works or serves where large databases and information reside.Network connects both categories of computers; the various operating systems arethe most basis program within a computer. It manages the resources of thecomputer 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. Once investors learn to research on line, they will demand more market information. 3.15 EVOLUTION OF BROKING IN INDIA:- The evolution of a broking in India can be categorized in three phases – 1. Stockbrokers will offer on their sites features such as live portfolio manager, live quotes, market research and news, etc. to attract more investors. 2. Brokers will offer on line 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. 3. 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.The actual definition of “Online Trading” is as explained below: “Online trading is a service offered on the internet for purchase and sale ofshares. 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 willaccess a stockbroker’s website through your internet enabled PC and place ordersGovt.RC.College Commerce & Management
  50. 50. - 50 -through the broker’s internet based trading engine. These orders are routed to thestock exchange without manual intervention an executed thereon in a matter of afew seconds.The net is used as a modem of trading in internet trading. Orders arecommunicated to the stock exchange through website.In India: Internet trading started in India on 1st April 2000 with 79 members seekingpermission for online trading. The SEBI committees on internet based securitiestrading 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 oftransaction. Under the ORS the client enters his requirements (security, quantity,price buy/sell) on broker’s site.OBJECTIVES:-Internet trading is expected to –• Increase transparency in the markets,• Enhance market quality through improved liquidity, by increasing quote continuity and market depth,• Reduce settlement risks due to open trades, by elimination of mismatches,• Provide management information system,• 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 securitiesregulation can be easily achieved, these are:• Investor protection• Creation of a fair and efficient market, and• Reduction of the systematic risks.Govt.RC.College Commerce & Management
  51. 51. - 51 -Some of the brokers offering net trading include ICICI web trade, investment India,Geojit securities, etc.3.16 REQUIREMENTS FOR NET TRADING:-• For investors:1. Installation of a computer with required specification2. Installation of a mode3. Telephone connection4. Registration for on-line trading with broker5. A bank account6. Depository account7. Compliance with SEBI guidelines for net tradingThe following should be produce to get a demat account and online tradingaccount:As identity, proof &address proof produce the following things: • Voter ID card • Driving license • PAN card • Ration card • Bank pass book • Telephone billOther 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.Govt.RC.College Commerce & Management
  52. 52. - 52 -For stock brokers:1. Permission from stock exchange for net trading2. Net worth of Rs. 50 lac3. Adequate back-up system4. Secured and reliable software system5. Adequate, experienced and trained staff6. Communication of order (trade confirmation to investor by e-mail)7. Use of authentication technologies8. Issue of contract notes within 24 hours of the trade execution9. Setting up a website.The net is used as a medium of trading in internet trading. Orders arecommunicated to the stock exchange through website. Internet trading started inIndia on 1st April 2000 with 79 members seeking permission for online trading. TheSEBI committees on internet based securities trading services has allowed the netto be used as an Order Routing System (ORS) through registered stock brokers onbehalf of their clients for execution of transaction.Under the Order Routing System the client enters his requirements (security,quantity, price, and buy/sell) in brokers site. They are checked electronicallyagainst the clients account and routed electronically to the appropriate exchangefor execution by the broker. The client receives a confirmation on execution of theorder. The customers portfolio and ledger accounts get updated to reflect thetransaction. The user should have the user id and password to enter into theelectronic ring. He should also have demat account and bank account. The systempermits only a registered client to log in using user id and password. Order can beplaced using place order window of the website.Govt.RC.College Commerce & Management
  53. 53. - 53 -3.17 PROCEDURE FOR NET TRADING:-Step 1: Those investors, who are interested in doing the trading over internetsystem i.e. NEAT-IXS, should approach the brokers and get them self registeredwith the Stock Broker.Step 2: After registration, the broker will provide to them a Login name, Passwordand personal identification number (PIN).Step 3: Actual placement of an order. An order can then be placed by using theplace order window as under:(a) First by entering the symbol and series of stock and other parameters likequantity 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 orderplaced 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 clickingon the send option.Step 6: the investor will receive an "Order Confirmation" message along with theorder number and the value of the order.Step 7: In case the order is rejected by the Broker or the Stock Exchange forcertain reasons such as invalid price limit, an appropriate message will appear atthe bottom of the screen. At present, a time lag of about 10 seconds is there inexecuting the trade.Step 8: It is regarding charging payment, for which there are different mode. SomeGovt.RC.College Commerce & Management
  54. 54. - 54 -brokers will take some advance payment room the investor and will fix their tradinglimits. When the trade is executed, the broker will ask the investor for transfer offunds by the investor to his account.Internet trading provides total transparency between a broker and an investor in thesecondary market. In the open outcry system, only the broker knew the actuallytransacted price. Screen based trading provides more transparency. With onlinetrading investors can see themselves the price at which the deal take place.The time gap has narrowed in every stage of operation. Confirmation and executionof trade reaches the investor within the least possible time, mostly within 30seconds. Instant feedback is available about the execution. Some of the websitesalso offer;• New and research report• BSE and NSE movements• Stock analysis• Freebies• IPO and mutual fund centers and• Movements of interaction stock exchanges.STEP BY STEP PROCEDURE IN ONLINE TRADING:-Following steps explain the step by step approach to on-line trading:• Log on to the stock brokers 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 brokers site using secure user ID and password• Market watch page will show real time on-line market data• Trade shares directly yourself by entering the symbol or number of theGovt.RC.College Commerce & Management
  55. 55. - 55 - security• Brokers server will check your limit in the on-line accountant 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.3.18 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.  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 to self teaches our broker itself. • Online trading has let room for smaller organizations to compete with multinational organizations since is no longer a legit issue. Being online doesGovt.RC.College Commerce & Management
  56. 56. - 56 - 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, individual, government, and even insurance. • Online trading has made it possible for one fid investment options that were not available on a regular basis like offbeat net stocks eccentric unique things and trading in global market. 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 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 is the interest of the small investors because rates will be available immediately across the country execution will be immediately across the country and execution will be immediate. • It will give investors a greater choice and better realization.Govt.RC.College Commerce & Management
  57. 57. - 57 - • 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. • 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. • Chances are that one has no idea who one is dealing with on the other end, so it is advisable to gather all the possible information about the party one is dealing with. In short, do the home work and be prepared. • Online trading has left individuals open to too much information. This is harmful since it leaves brokerages wide open to sensitive data. • 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. • The study also shows that smart investment is better than fast investment. Simply put speed should be considered to be a major factor would lead any online trader to think they know the market. • Individuals think that they are trading with the market directly and know what they are doing, but the truth is that even through technology has taken overGovt.RC.College Commerce & Management
  58. 58. - 58 - 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.3.19 TRADING AND SETTLEMENT AT SHARE KHANThe NSE first introduced online trading in India. The Online trading systemimparted a greater level of transparency and investors preferred exchanges thatoffered 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 at higher level oftransparency.• Facilities better monitoring of the market by the exchange.• The best price achieved in buying and selling.All these resulted in ever-increasing volumes on the exchanges offering the onlinetrading.TRADING PROCEDURE AT SHARE KHAN STOCK BROCKING Share Khan deals in buying and selling equity shares and debentures on theNational 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 theirregistered stock exchanges. These centers are called “Broker Work Stations”.Govt.RC.College Commerce & Management
  59. 59. - 59 -These computers are connected to the server at the stock exchanges throughcable.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 sendrespective 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 foundsuitable, the transaction will be executed. Otherwise, the order will be deletedautomatically after completion of trading time the carry forward transactions (GoodTill cancellation) are forward to the next day. Even if the match is not found with inthe prescribed period, the order will not cancel.TRADING SESSIONTrading 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 hasstipulated that all the stock exchanges in India must have same trading period.BROKER WORK STATION:At the broker workstation the best BBO’s the last traded price, the day ‘s openingprice, previous day’s closing price, highest and lowest prices, the weighted averageprice, the total trade value and total trade value will be available continuously, asthe BBO for each scrip.Other information will be available on query from the BWS. These include topgainers /losers of the day. Trader-wise, scrip wise net position, client wise netposition, top scrip by the volume/value, market summary etc.The BWS as a powerful profiling future which enables each trader to customizehis/her screens layouts as is convenient, profiles may be set at the BWS by theindividual users, for the scrip’s that he/she is interested in watching columns ofinformation available, etc.Govt.RC.College Commerce & Management
  60. 60. - 60 -Brokers are also provided with information relating to the companies in the matterof Book closure, Dividend declarations, resolutions in board meeting, informationabout liquidated companies, company report etc.Broker can visualize his personal details relating to trade done he can have scripwise details, sub-broker wise details, and client-wise details and can also take thepoint of daily volume reports and adjustment reports.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 found any invalidreason the order is return back to the BWS, with the appropriate error message. IfAccepted 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 tofind a sell order, which fits the requirement of the buy order when such match isfound a trade, gets executed. Each trade involves two brokers and respectivetraders who sent the order. Both these traders are informed of the trade beingexecuted at their respective BWS.At the BWS the trade is added to the local trade book, land the pending quantitydecreased by the trade quantity in the local pending order book.Orders sent by the brokers are two types: • Good For the Day (GFD) • Good Till Cancellation(GTC)Good For the Day:This also called as “market order”. For an order if the member selects the deal asgood for day, the order is treated as market order. If a “best bid” founds match with“best order” then the transaction executes. If the match is not found then after tradetime the order is cancelled that day. Next day he has to place a new order.Govt.RC.College Commerce & Management
  61. 61. - 61 -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 iscancelled 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 alsocalled as carry forward order like GFT; broker has to select the option of GTC forthe order. If the order finds match with in the trading settlement period, the order isexecuted. If no match is found, the order is cancelled on the last day of settlementperiod. This order is not carried forward to the next settlement period.For example, if a member places a purchase order of 500 shares of SBI @ 690 pershare, selects the order as GTC, and places an order. If the match is not found onthat 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, whichwas held in clearing house of stock exchange (for example, SHAREKHAN is aclearance house is member in NSDL (National Securities Depository Limited).Buyers will take the delivery of shares through the Depository Participants (DP’S)like SHARE KHAN and others. Finally, the settlement is made by means ofdelivering the share certificates along with the transfer deeds. The transferor (or theseller) duly signed transfer deed. It bears a stamp of the selling broker. The buyerthen fills up the certificates fills up the particulars in the transfer deed. Settlementcan be done in the following way.• Spot settlement: under this method, the delivery of securities and payment forthem are affected on the day of the contract itself.Govt.RC.College Commerce & Management
  62. 62. - 62 -• Rolling settlement: Under this rolling settlement the trading is on “T+2”,basisi.e. if Monday is trading day then Wednesday is the paying day . In case on non-delivery, the securities will go for auction.DETAILS OF PROCEDURES:Delivery in : The members who is in PAY-OUT position delivers share certificatesin to clearing house with in the settlement period along with the delivery Chelanfilled in with the details of share certificates which has folio numbers or distinctivenumbers etc.Delivery out: The buyer of shares who made pay in position will take delivery ofshares from the clearinghouse.Pay-in: The member who is in paying position shall pay for value of shares with inthe trading settlement period (T+2).Payout: The cheques paid in the clearinghouse will be paid members who are inpaying position.All disputes arising between members regarding non-deliveries, non-payments,good and bad deliveries pertaining to the settlement will be here by Share Khanand settled by the settlement committee of the exchange.BROKERAGE STRUCTURE AT SHAREKHANTrading - 0.1 %( on each side)Delivery - 0.5%Exposure - 4 times of depositGovt.RC.College Commerce & Management
  63. 63. - 63 -Sharekhan provides offline trading too. For this sharekhan is providing a toll-freenumber i.e. 1-800-22-7500.The given flow chart clearly explains the process of online trading:Govt.RC.College Commerce & Management
  64. 64. - 64 - L o g in B u y t r a n s c a t io n S e ll t r a n s c a t io n T h e s y s te m w ill c h e c k y o u r T h e s y s te m w ill c h e c k b u y in g d p a c c o u n t q u an tity lim its O rd e rs ac c e p te d R e je c t e d o r d e r s w o u ld b e o rd e rs ac c e p te d c o m m u n ic a t e d a lo n g w it h r e a s o n s y o u r o r d e r is t r a n s m it t e d t o e x c h a n g e f o r e x e c u t io n p e n d in g b u y o r d e r s o n e x e c u t io n p e n d in g s e ll o r d e r s w o u ld b e d is p la y e d o f y o u r o rd e rs w o u ld b e d is p la y e d o n y o u r s c reen o n y o u r s c ree n y o u m a y e d it y o u r y o u m a y d e le t e y o u m a y e d it y o u r y o u m a y d e le t e y o u r p e n d in g o r d e r y o u r p e n d in g o r d e r p e n d in g o r d e r p e n d in g o r d e r f la s h e d o n y o u r c o n f o r m a t io n c o u l c o n t r a c t n o t e w o u ld s c r e e n im m e d ia t e ly d b e s e n d to y o u r b e s e n t t o b y m a il o n e x e c u t io n e - m a il a n d m o b ile o r h a n d d e liv e r yTHE WINDOW WHICH DISPLYAS IS BUYING SHARES ONLINE THROUGHSHAREKHAN.COMGovt.RC.College Commerce & Management
  66. 66. - 66 -SURVEILLANCE:Govt.RC.College Commerce & Management