Functions of stock brokers

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Functions of stock brokers

  1. 1. AN INTERNSHIP STUDY REPORT ON FUNCTIONS OF STOCK BROKER AT SHAREKHAN SECURITIES LTD Submitted in partial fulfillment of the Requirements for the award of MASTER OF FINANCE & ACCOUNT’S MASTER DEGREE COURSE OF BANGALORE UNIVERSITY By RAJU . S 12TUCFA039 3rd SEMISTER DEPARTMENT OF COMMERCE BANGALORE UNIVERSITY BANGALORE 2013-14 1
  2. 2. CERTIFICATE This is to certify that Mr.RAJU S 3rd semester student of MFA Department of Commerce, Bangalore University has successfully completed Internship Training on the Functions of Stock Brokers at SHAREKHAN SECURITIES LTD. Dr.K.ERESHI MUNIRAJU Prof. Dean & Chairman Department of Commerce Bangalore University Bangalore CO-ORDINATER Department of Commerce Bangalore University Bangalore PLACE: BANGALORE DATE: 2
  3. 3. AKNOWLEDGEMENT I take this opportunity to express my sincere gratitude and thanks to Professor Dr.K.ERESHI, Chairman and Dean, Department of Commerce, Bangalore University for having given me the opportunity to undertake this Internship project. I wish to express my sincere thanks to Mr.VINAY manager (Branch), SHAREKHAN SECURITIES LTD for providing an opportunity to carry out this internship project in this esteemed organization. My thanks to Mr.MUKUND NAIK Mr. RAHUL Mr.NAGESH and all the other staff for their guidance and support throughout the study. PLACE: BANGALORE RAJU S DATE: 3
  4. 4. CONTENTS 1. ABOUT STOCK EXCHANGE 5-11 2 .PROFILE OF SHAREKHAN LTD 12-17 3. ABOUT STOCK BROKER’S 18-23 4. OPEN OUTCRY SYSTEM AND ONLINE TRADING 24-28 5. PURCHASE AND SALE OF SECURITIES 29-34 6. ROLLING SETTLEMENT 35-39 7. ONLINE TRADIND SYSTEM IN SHAREKHAN LTD 40-46 8. CONCLUSION AND RECOMONDATION 47-49 4
  5. 5. CHAPTER - 1 ABOUT STOCK EXCHANGE 5
  6. 6. Definition of Stock Exchange: The word “Stock Exchange” is made from two words 'Stock' and Exchange. Stock means part or fraction of the capital of a company, and Exchange means a transferring the ownership; representing a market for purchasing and selling. Thus, we can describe the stock exchange as a market or a place where different types of securities are bought and sold. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. Importance or Functions of Stock Exchange : 1. Providing a ready market 2. Providing a quoting market prices 3. Providing facilities for working 4. Safeguarding activities for investors 5. Creating the discipline 6. Maintenance of liquidity 7. Promotion of the habit of saving 8. Refining and advancing the industry 9. Promotion of capital formation 10.Provides clearing house facility 6
  7. 7. History of Indian Stock Market Indian stock market marks to be one of the oldest stock market in Asia. It dates back to the close of 18th century when the East India Company used to transact loan securities. In the 1830s, trading on corporate stocks and shares in Bank and Cotton presses took place in Bombay. Though the trading was broad but the brokers were hardly half dozen during 1840 and 1850. An informal group of 22 stockbrokers began trading under a banyan tree opposite the Town Hall of Bombay from the mid-1850s, each investing a (then) princely amount of Rupee 1. This banyan tree still stands in the Horniman Circle Park, Mumbai. In 1860, the exchange flourished with 60 brokers. In fact the 'Share Mania' in India began with the American Civil War broke and the cotton supply from the US to Europe stopped. Further the brokers increased to 250. The informal group of stockbrokers organized themselves as the The Native Share and Stockbrokers Association which, in 1875, was formally organized as the Bombay Stock Exchange (BSE). BSE was shifted to an old building near the Town Hall. In 1928, the plot of land on which the BSE building now stands (at the intersection of Dalal Street, Bombay Samachar Marg and Hammam Street in downtown Mumbai) was acquired, and a building was constructed and occupied in 1930. Premchand Roychand was a leading stockbroker of that time, and he assisted in setting out traditions, conventions, and procedures for the trading of stocks at Bombay Stock Exchange and they are still being followed. Several stock broking firms in Mumbai were family run enterprises, and were named after the heads of the family. The following is the list of some of the initial members of the exchange, and who are still running their respective business: 7
  8. 8. D.S. Prabhudas & Company (now known as DSP, and a joint venture partner with Merrill Lynch) Jamnadas Morarjee (now known as JM) Champaklal Devidas (now called Cifco Finance Brijmohan Laxminarayan Introduction of BSE (BOMBAY STOCK EXCHANGE) As we read in the history of Indian stock exchange; the stock exchange, Mumbai, popularly known as "BSE". BSE was established in 1875 as "The Native Share and Stock Brokers Association". It is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in 1878. It is a voluntary nonprofit making Association of Persons (AOP) and has converted itself into demutualized and corporate entity. It has evolved over the years into its present status as the Premier Stock Exchange in the country. It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts (Regulation) Act, 1956. The Exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the investors and ensures redressal of their grievances whether against the companies or its own memberbrokers. It also strives to educate and enlighten the investors by conducting investor education programs and making available to them necessary informative inputs. Introduction of NSE (NATIONAL STOCK EXCHANGE) The National Stock Exchange (NSE) is India's leading stock exchange covering 364 cities and towns across the country. NSE was set up by leading institutions to provide a modern, fully automated screen-based trading system with national reach. The Exchange has brought about unparalleled transparency, speed & efficiency, safety and market integrity. It has set up 8
  9. 9. facilities that serve as a model for the securities industry in terms of systems, practices and procedures. NSE has played a catalytic role in reforming the Indian securities market in terms of microstructure, market practices and trading volumes. The market today uses state-of-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism, and has witnessed several innovations in products & services viz. demutualization of stock exchange governance, screen based trading, compression of settlement cycles, dematerialization and electronic transfer of securities, securities lending and Borrowing, professionalization of trading members, fine-tuned risk management systems, emergence of clearing corporations to assume counterparty risks, market of debt and derivative instruments and intensive use of information technology. The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FIs) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000. 9
  10. 10. List of stock exchanges recognized under the securities contracts (regulation), Act, 1956. Those are: • Ahmadabad Stock Exchange Association Ltd. • Bangalore Stock Exchange ltd • Bhubaneswar Stock Exchange Association • Bombay Stock Exchange (BSE) • Calcutta Stock Exchange ltd • Cochin Stock Exchange Ltd. • Coimbatore Stock Exchange ltd • Delhi Stock Exchange Association • Guwahati Stock Exchange Ltd • Hyderabad Stock Exchange Ltd. • Jaipur Stock Exchange Ltd • Kanara Stock Exchange Ltd • Ludhiana Stock Exchange Association Ltd • Madhya Pradesh Stock Exchange Ltd. • Madras Stock Exchange ltd • Magadh Stock Exchange Ltd • Meerut Stock Exchange Ltd. • National Stock Exchange of India (NSE) • OTC Exchange of India • Pune Stock Exchange Ltd. 10
  11. 11. • Saurashtra Kutch Stock Exchange Ltd • Uttar Pradesh Stock Exchange Association • Vadodara Stock Exchange Ltd 11
  12. 12. CHAPTER - 2 PROFILE OF SHAREKHAN LTD 12
  13. 13. COMPANY PROFILE Name of the company : Sharekhan ltd. Year of Establishment : 1922 Headquarter : Share Khan SSKI A-206 Phoenix House, Phoenix mills Compound Lower parel , Mumbai Maharashtra , I INDIA- 400013 Nature of Business : Service Provider, Services : Depository services Online Services And Technical Research. Number of Employees : Over 3500 Website : www.sharekhan.com Slogan : Your Guide to financial jungle. 13
  14. 14. Vision & Mission Vision : To be the best retail brokering brand in the retail business of stock marketing. Mission : To educated and empower the individual investor to make better investment better decision through the quality advice and superior services. Brief about Sharekhan Sharekhan is one of the top retail brokerage houses in India with strong online trading platform. The company provides equity based products (research, equities, derivatives, depository, margin funding, etc.). It has one of the largest networks in the country with 1288 share shops in 325 cities. It is the retail broking arm of the Mumbai-based SSKI [SHANTILAL SHEWANTILAL KANTILAL ISWARNATH LIMITED] Group. Sharekhan brings a user- friendly online trading facility, coupled with a wealth of content that will help to stalk the right shares. Achievement of company  A rated among the top 20 wired companies along with Reliance, Infosys, etc by ‘Business Today’, January 2004 edition.  Awarded ‘Top Domestic Brokerage House’ four times by Euro money and Asia money.  Pioneers of online trading in India amongst the top 3 online trading websites from India.  Most preferred financial destination amongst online broking customers. 14
  15. 15.  Winners of “Best Financial Website” award.  India’s most preferred brokers within 5 years. “Awaaz customers Award”. SWOT ANALYSIS STRENGTHS It is a pioneer in online trading with a turnover of Rs.400crores and more than 3000 peoples working in the organization. Employees are highly empowered and strong communication network. Number 1 registrar and transfer agent and dealer of investment products in India Good co-operation between employees. WEAKNESS Localized presence due to insufficient investments for country wide expansion. High brokerage charges but now they have overcome this by a new prepaid scheme in which brokerage is reduced to half. High employee turnover Lack of awareness among customers because of non-aggressive promotional strategies (print media, newspapers, etc). OPPORTUNITIES With the booming capital market it can successfully launch new services and raise its client’s base. Marketing at rural and semi-urban areas. Increasing usage of online trading may boost a whole new breed of investors for trading in securities. As interest on fixed deposits with post office and banks are all time low, more and more small investors are entering into stock market. 15
  16. 16. THREATS Lack of sufficient branch-offices for speedy delivery of services. Increasing number of Competitors. Constant pressure to be cost competitive to meet customer’s expectations. Aggressive promotional strategies by close competitors may hamper ShareKhan’s acceptance by new clients. SHAREKHAN LIMITED’S MANAGEMENT TEAM Dinesh Murikya : Owner of the company Tarun Shah : CEO of the company Shankar Vailaya : Director (Operations) Jaideep Arora : Director (Products & Technology) Pathik Gandotra : Head of Research Rishi Kohli : Vice President of Equity Derivatives Nikhil Vora : Vice President of Research 16
  17. 17. PRODUCTS AND SERVICES OF SHAREKHAN LIMITED The different types of products and services offered by Sharekhan Ltd. are as follows: • Equity and derivatives trading • Depository services • Online services • Currencies & Commodities trading • Dial-n-trade • Portfolio management • Share shops • Fundamental research • Technical research 17
  18. 18. CHAPTER – 3 ABOUT STOCK BROKER 18
  19. 19. MEMBERSHIP OF STOCK BROKE Conditions for grant of certificate to stock-broker The Board may grant a certificate to a stock-broker subject to the following conditions namely: (a) he holds the membership of any stock exchange; (b) he shall abide by the rules, regulations and bye-laws of the stock exchange or stock exchanges of which he is a member; (c) in case of any change in the status and constitution, the stock broker shall obtain prior permission of the Board to continue to buy, sell or deal in securities in any stock exchange; (d) he shall pay the amount of fees for registration in the manner provided in the regulations; and (e) he shall take adequate steps for redressal of grievances of the investors within one month of the date of the receipt of the complaint and keep the Board informed about the number, nature and other particulars of the complaints received from such investors. FUNCTIONAL ASPECTS OF BROKERS For the purpose of the stock exchange, the major activities of the broker’s fall into three categories:1. Those in primary market 2. Those in the secondary market or stock market 3 .Other services, as indicated in the adjacent chart. 19
  20. 20. The objectives of the all stock brokers are same, namely to earn income in the form of brokerage, commission and charges for service rendered. But some services are essential part of the activity and necessary for the survival of the stock brokers, such as advice and consultancy, research and post trading services. The quality services also counts for the growth of the activity and survival of stock brokers. FUNCTION’S OF STOCK BROKERS IN NEW ISSUE MARKET Stock brokers who are the registered members of the stock exchange who undertake a variety of financial services. Primarily their functions fall into two major categories depending on the market, they operate. 1. New issue market: If the brokers are operating in new issues market, their functions are normally underwriting and marketing of new issues through a network of sub-brokers. More recently, some of them are undertaking the important merchant banking functions. (a) Merchant bankers – performing the whole amount of financial services, namely, preparation of project report, market evaluation, advice, consultancy, and to act as lead managers or co-managers of an issue, coordinating with the government agencies, stock exchange, bankers etc. 20
  21. 21. (b) Lead managers & co-managers, advice, consultancy, portfolio managers, etc. (b) Investment consultants, advisors, etc. The fourth category recognized and licensed by SEBI is just to do consultancy. These three categories require the license of SEBI to operate in the market and a minimum net worth of 50 lakhs cr is required depending upon the category of the operations, they undertake. Besides, many brokers operate only as a brokers, underwriters or sub-underwriters or undertake marketing of only new issues for a commission, the permission of stock exchange is necessary for such brokers if any financial liability like underwriting is incurred by them and their liability is to be limited to 5% of any such issues of shares, debentures, etc. if they operate for any such issues as brokers, they attend all the broker’s and investor’s conferences of the company, visit the plant site and help the sale of these securities to the public. In this case, they are eligible for a fixed number of free copies of prospectus and application forms. These are the arranged through stock exchange is where the shares are to be listed. 21
  22. 22. FUNCTION’S OF STOCK BROKER’S IN STOCK OR SECONDARY MARKET 2. Stock market : If the brokers are operating in the stock market, they are eligible to have a limited number of sub-brokers or authorized clerks who can go to the trading ring, solicit business or help in trading and broking business. There can be many subbrokers who do not enter the trading ring, but bring in business, for a share in brokerage. In this market, the broker can operate as a jobber, offering bid and offer rates for selected scrip’s making his profits only on the difference or margins between offer and bid rates. He can do line business, namely, arbitrage business, buying in one center(Calcutta) and selling in another center (Bombay) or vice versa and earning profits through the differences in prices (also called as arbitrage business). The broker can also act as dealer doing business in his own account, both wholesale and retail and arrange for private sale and purchases of shares. If a broker is acting as a principle for any client, he has to separate their business from client business and take the written consent of client for him act as principle. A separate contract note is to be passed for such business, different from that he passes for client business. 22
  23. 23. A broker can also act as a badla financier for financing the carry forward business in the market. Here he earns interest on his money or for the shares lent. Acting as a broker, he earns only the brokerage is 0.5% to 2.5% depending upon on the volume of business or customer relations. Some brokers serve the customers by lending the money for payments of margins, sending shares for transfer to the company, collections of dividends, rights and bonus entitlement or manage the portfolios of the customers or provide only investment advice and consultancy. So, the changes made by the broker also vary with the services rendered for the clients. A broker’s strong hold is his analytical and research ability, which will enable him to advise his clients on investment decisions on what to buy or sell and when to buy or sell. 23
  24. 24. CHAPTER – 4 OPEN OUTCRY AND ONLINE TRADING SYSTEM 24
  25. 25. OPEN OUTCRY SYSTEM The broker has to buy or sell securities for which he has received the orders. For this, the broker or his authorized representatives goes to the stock exchange. This method is called the ‘open outcry system’. Basically the brokers shout while buying or selling the securities. The floor of the stock exchange is divided into a number of markets also known as ‘post pit’ or wing based on particular securities dealt there. In the post pit or wing, the broker using ‘open outcry’ method makes an offer or bid price. For making the necessary bargain, he quotes his purchase or sale price, also known as offer or bid price. The dealer, to whom the price is quoted, quotes his own price when the quotation of the dealer suits the broker, he may loss the bargain. If he is not satisfied with the quote price, he may turn to some other dealer. On the close of the bargain, the dealer as well as the broker makes a brief note of the particulars of the deal. Such notes are made on some pad and on it the number of shares, the price agreed upon, the name of the party, what membership number etc. DISADVANTAGES OF OUTCRY SYSTEM • It lacks transparency. • The scope of manipulation, speculation and mal practice is more .• Signal were more important in the outcry system any member who could not interpret the buy/sell signal correctly often landed himself in disaster situation. • In audibility was another disadvantage of the outcry system. 25
  26. 26. • Due to the above disadvantages of the outcry system the SHAREKHAN has shifted from outcry system to online trading from February 29th 1997. ONLINE TRADING SYSTEM “Online trading is a service offered on the internet for purchase and sale of shares. In the real world you place orders on your stockbroker either verbally (personally or telephonically) or in a written form (fax).” In online trading, you will access a stockbroker’s website through your internet enabled PC and place orders through the broker’s internet based trading engine. These orders are routed to the stock exchange without manual intervention and executed thereon in a matter of a few seconds. The net is used as a mode of trading in internet trading. Orders are communicated to the stock exchange through website. In India Internet trading started in India on 1st April 2000 with 79 members seeking permission for online trading. ONLINE TRADING BY NSE & BSE The central computer located at the Exchange is connected to the workstations of the Brokers through satellite using Very Small Aperture Terminals (VSATs). Orders placed at the Brokers workstations reach the central computer and are matched by the computer based on price and time priority. 26
  27. 27. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) and NEAT (National Exchange Automated Trading) System. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency. The scripts traded on the BSE have been classified into A, B1, B2, C, F and Z groups. The A group shares represent those, which are in the carry forward system (Badla). The F group represents the debt market (fixed income securities) segment. The Z group scripts are the blacklisted companies. The C group covers the odd lot securities in A, B1 & B2 groups. ONLINE TRADING HAS LED TO ADDITIONAL FEATURES SUCH AS: 1) 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. 2) 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. 3) Cash account: where funds have to be available prior to placing the order. 4) Margin account: where orders can be placed against stocks, to increase Purchasing power. 27
  28. 28. ADVANTAGES OF ONLINE TRADING 1) 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. 2) Online trading has let room for smaller organizations to compete with multinational organizations since it is no longer a leg it issue. Being online does not identify the size of any particular organization, therefore, this additional power to the underdogs. 3) 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. 4) 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. 5) Individuals’ benefit by saving comparatively a lot more when trading online as the cost per trade is less. 6) Individuals can invest in a variety of products, unlike earlier when people bought bonds, mutual funds, and stock for long-term basis and sat on them. Now they can invest in stocks, stock and index options mutual funds, government, and even insurance. TRADING PROCEDURE AT SHARE KHAN STOCK BROCKING ShareKhan deals in buying and selling equity shares and debentures on the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE) and the Over-The- Counter Exchange of India (OTCEI). Share Khan is provided with a computer and required software from their registered stock exchanges. These centers are called “Broker Work Stations”. 28
  29. 29. CHAPTER - 5 PURCHASE AND SALE OF SECURITIES 29
  30. 30. A. Procedure for purchasing dematerialized Securities:-The procedure for purchasing dematerialized securities is also similar to the procedure for buying physical securities. 1. Investor instructs DP to receive credits into his account in the prescribed form. There may be one time standing instruction or separate instruction each time to receive credits. 2. Investor purchases securities in any of the stock exchanges linked to depository through a broker. 3. Broker receives payment from investor and arranges payment to clearing corporation. 4. Broker receives credit to securities in clearing account on the payout day. 5. Broker gives instructions to DP to debit clearing account and credit client’s account. Investor receives shares into his account by way of book entry. 30
  31. 31. B. The procedure for selling dematerialized securities is given below: 1. Investor sells securities in any of the stock exchange linked to depository through a broker. 2. Investor instructs his DP to debit his demat account with the number of securities sold and credit the broker’s clearing account. 3. Before the pay-in-day, broker of the investor transfers the securities to clearing corporation. 4. The broker receives payment from the stock exchange. 5. The investor receives payment from the broker for sale of securities in the same manner as received in case of sale of physical securities. 31
  32. 32. DIFFERENT CATEGORIES OF ORDERS Orders received are time stamped and then processed. If an order is not matched, it is stored in price-time priority in the following sequence. • Best price. • Within price, by time priority. Various functions. ORDER MATCHING RULES • The best buy order is the one with highest price and the best sell order is the one with the lowest price. • Orders that came in to match the existing orders are called active orders. Orders lying unmatched are the passive orders. • Orders are always matched at the passive order price. • System looks at all buy orders from the point of view of a seller and all sell orders from the point of view of the buyes. 32
  33. 33. CONDITION OF ORDERS RECEIVED FOR EXECUTION BY BROKERS Brokers has three order condition options • Price related conditions • Quantity related conditions • Time related conditions Price Related Condition’s Limit price order: investor/trader specifies the price to the broker while entering the order into the system. Investor/trader specifies a stated price to buy at below or to sell at or above. Market price order: An order to buy or sell securities at best price obtainable at a time it is received from the investor/trader. Stop loss order: The orders are given to limit the loss due to unfavorable price movement in the market. . If the price falls below the limit, the broker is authorized to sell the shares to prevent further loss. Quantity Related Condition 33
  34. 34. Disclosed Quantity: An order with an disclosed quantity condition allow the broker to disclose only a part of the order quantity of the order. Time Related Conditions Day order (DO): A day order valid for the day on which it is entered. If the order is not matched until the trading close, it is cancelled automatically. Good till Cancelled (GTC): This is one order that remains in the system until cancelled by the broker. It wills therefore, be able to span trading days if not matched against. Good till Date (GTD): It permits the broker to specify the date up to which the order should stay in the system. Immediate or Cancel (IOC): Such an order allows a broker to buy or sell a security as soon as the order is released into the market, failing which the order will be removed from the market. 34
  35. 35. CHAPTER-6 SETTLEMENT SYSTEM 35
  36. 36. ROLLING SETTLEMENT SYSTEM Under rolling settlement system, the settlement takes place n days (usually 1, 2, 3 or 5days) after the trading day. The shares bought and sold are paid in for n days after the trading day of the particular transaction. Share settlement is likely to be completed much sooner after the transaction than under the fixed settlement system. The rolling settlement system is noted by T+N i.e. the settlement period is n days after the trading day. A rolling period which offers a large number of days negates the advantages of the system. Generally longer settlement periods are shortened gradually. SEBI made RS compulsory for trading in 10 securities selected on the basis of the criteria that they were in compulsory demat list and had daily turnover of about Rs.1.26 crore or more. Then it was extended to “A” stocks in Modified Carry Forward Scheme, Automated Lending and Borrowing Mechanism (ALBM) and Borrowing and lending Securities Scheme (BELSS) with effect from Dec 31, 2001. SEBI has introduced T+5 rolling settlement in equity market from July 2001 and subsequently shortened the cycle to T+3 from April 2002. After the T+3 rolling settlement experience it was further reduced to T+2 to reduce the risk in the market and to protect the interest of the investors from 1st April 2003. Activities on T+1: conformation of the institutional trades by the custodian is sent to the stock exchange by 11.00 am. A provision of an exception window would be available for late confirmation. The time limit and the additional changes for the exception window are dedicated by the exchange. 36
  37. 37. BSE generates Delivery and Receive Orders for transactions done by the Members in A, B, and F and G group scrips after netting purchase and sale transactions in each scrip whereas Delivery and Receive Orders for "T", "C" & "Z" group scrips and scrips which are traded on BSE on "trade-to-trade" basis are generated on a gross basis, i.e., without netting of purchase and sell transactions in a scrip. However, the funds obligations for the Members are netted for transactions across all groups of securities. The exchanges/clearing house/ clearing corporation would process and download the obligation files to the broker’s terminals late by 1.30 p. m on T+1. Depository participants accept the instructions for pay in securities by investors in physical form up to 4 p .m and in electronic form up to 6 p.m. the depositories accept from other DPs till 8p.m for same day processing .Activities on T+2: The depository permits the download of the paying in files of securities and funds till 10.30 a. m on T+2 from the brokers’ pool accounts. The depository processes the pay in requests and transfers the consolidated pay in files to clearing House/clearing Corporation by 11.00am/on T+2. The exchange/clearinghouse/clearing corporation executes the pay-out of securities and funds latest by 1.30p.m on T+2 to the depositories and clearing banks. In the demat mode net basis settlement is allowed. The buy and sale positions in the same scrip can be settled and net quantity has to be settled. SETTLEMENT OF TRANSACTIONS Clearing of transaction in the form of shares and cash is called settlement. Buyers will take the delivery of shares through the depository participants like SHARE KHAN and others. Finally, the settlement is made by means of delivering the share certificates along with the transfer deeds. The transferor (or the seller) duly signed transfer deed. It bears a stamp of the 37
  38. 38. selling broker. The buyer then fills up the certificates fills up the particulars in the transfer deed. Settlement can be done in the following way. Spot settlement: under this method, the delivery of securities and payment for them are affected on the day of the contract itself. Rolling settlement: Under this rolling settlement the trading is on “T+2”,basis i.e. if Monday is trading day then Wednesday is the paying day . In case on non-delivery, the securities will go for auction. DETAILS OF PROCEDURES Delivery in : The members who are in pay-out position delivers share certificates in to clearing house within the settlement period along with the delivery Chelan filled in with the details of share certificates which has folio numbers or distinctive numbers etc. Delivery out: The buyer of shares who made pay in position will take delivery of shares from the clearing house. 38
  39. 39. Pay-in: The member who is in paying position shall pay for value of shares with in the trading settlement period (T+2). Payout: The cheques paid in the clearinghouse will be paid to members who are in paying position. All disputes arising between members regarding non-deliveries, non-payments, good and bad deliveries pertaining to the settlement will be settled by the settlement committee of the exchange. 39
  40. 40. CHAPTER - 7 ONLINE TRADING SYSTEM IN SHAREKHAN LTD 40
  41. 41. 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 reduces manual processes and paper transactions but also helps organization move to a fully electronic environment and change the way they operated. PC’s and networking attempts to introduce banks of the tools and technologies required for electronic commerce. ONLINE TRADING The actual definition of “Online Trading” is as explained below: “Online trading is a service offered on the internet for purchase and sale of shares. In the real world you place orders on your stockbroker either verbally (personally or telephonically) or in a written form (fax).” In online trading, you will access a stockbroker’s website through your internet enabled PC and place orders through the broker’s internet based trading engine. These orders are routed to the stock exchange without manual intervention and executed thereon in a matter of a few seconds. The net is used as a mode of trading in internet trading. Orders are communicated to the stock exchange through website In India: Internet trading started in India on 1st April 2000 with 79 members seeking permission for online trading. 41
  42. 42. The SEBI committees on internet based securities trading services has allowed the net to be used as an Order Routing System (ORS) through registered stock brokers on behalf of their clients for execution of transaction. Under the ORS the client enters his requirements (security, quantity, price buy/sell) on broker’s site ONLINE TRADING BY NSE & BSE The central computer located at the Exchange is connected to the workstations of the Brokers through satellite using Very Small Aperture Terminals (VSATs). Orders placed at the Brokers workstations reach the central computer and are matched by the computer based on price and time priority. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) and NEAT (National Exchange Automated Trading) System. DEMAT ACCOUNT On doing an online business ever customer has to open and demat account in any bank whichever he likes. Demat account is the account in which the trading done by the customer is mentioned. If the customer sales or purchases any share the details of this sale and purchasing are in demat account. This account contents the name of the shares and also the number of shares held Or sold and also the rate of the share with this demat account. 42
  43. 43. It is also compulsory for every customer to open a saving account in the bank because the amount which is to be received when the customers sales the shares are transferred from the demat account to the saving account. It is the responsibility of the customers that the share which he purchased or sales are properly transferred in demat account from the stock exchange whichever he deals. The amount of dividend whichever to be received on the shares when held for one or more year are also transferred in this demat account. It is compulsory for every customer to have a PAN no. For opening a demat account. If PAN no. Is not there is no chance for the customer to do any trading on line. There is no limit of amount to deal in this account. DOCUMENT’S REQUIRE TO OPEN ACCOUNT WITH SHAREKHAN LTD • Photocopy of the clients’ PAN Card which should be duly attached • Photo copy of any of the following documents duly attached which will serve as correspondence address proof: a. Passport (valid) b. Voter’s ID Card c. Ration Card d. Driving License (valid) e. Electricity Bill (should be latest and should be in the name of the client) 43
  44. 44. f. Telephone Bill (should be latest and should be in the name of the client) g. Insurance Policy (should be latest and should be in the name of the client) i. Lease or Rent Agreement. j. Saving Bank Statement** (should be latest) • Two cheques drawn in favor of Sharkhan Limited, one for the Account Opening Fees and the other for the Margin Money (the minimum margin money is Rs. 5000). ** A cancelled cheque should be given by the client if he provides Saving Bank Statement as a proof for correspondence address. NOTE: Only Saving Bank Account cheques are accepted for the purpose of Opening an account. PROCEDURE FOR NET TRADING Step 1: Those investors, who are interested in doing the trading over internet system i.e. NEAT-IXS, should approach the brokers and get them selfregistered with the Stock Broker. Step 2: After registration, the broker will provide to them a Login name, Password and personal identification number (PIN). Step 3: Actual placement of an order. An order can then be placed by using the place order window as under: 44
  45. 45. (a) First by entering the symbol and series of stock and other parameters like quantity and price of the scrip on the place order window. (b) Second, fill in the symbol, series and the default quantity. Step 4: It is the process of review. Thus, the investor has to review the order placed by clicking the review option. He may also re-set to clear the values. Step 5: After the review has been satisfactory, the order has to be sent by clicking on the send option. Step 6: The investor will receive an "Order Confirmation" message along with the order number and the value of the order. Step 7: In case the order is rejected by the Broker or the Stock Exchange for certain reasons such as invalid price limit, an appropriate message will appear at the bottom of the screen. At present, a time lag of about 10 seconds is there in executing the trade. Step 8: It is regarding charging payment, for which there are different mode. Some brokers will take some advance payment from the investor and will fix their trading limits. When the trade is executed, the broker will ask the investor for transfer of funds to his account. Internet trading provides total transparency between a broker and an investor in the secondary market. BENEFITS OF ON LINE BROKING 1) Less Costly 2) Peace of mind 3) Keeping Records 4) Access to Information and investment Tools 5) Unparalleled Liquidity 45
  46. 46. 6) Highly Safety 7) Reduces the settlement risk 8) Offers greater transparency 9) Ease of trade TRADING SESSION Equity and Derivative market Trading timings are : PRE-OPEN from : 9:00 A.M to 9:15 A.M MARKET OPEN : 9:15 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. Commodities market MARKET OPEN : 10:00 A.M to 11:30 P.M Currency market MARKET OPEN :10:00 A.M to 5:00 P.M 46
  47. 47. CHAPTER - 8 CONCLUSION AND RECOMMENDATIONS 47
  48. 48. CONCLUSION AND RECOMMENDATIONS 1. Things have changed for the better with the SHAREKHAN going on-line coupled with endeavor to stream line the whole trading system, things have changed dramatically over the last 3 to 4 years. New and advanced technologies have breached geographical and cultural barriers, and have brought the countrywide market to doorstep. 2. In the present scenario to compete with the Broker’s would require sound infrastructure and trading as per international standards. 3. The introduction of on-line trading would influence the investors resulting in an increase in the business of the exchange. It has helped the brokers handling a vast amount of transactions and this can be an efficient trading, delivering, settlement system with adequate protection to investors. The trading of SHAREKHAN of the first day was Rs. 1.8 crores. 4. Due to invention of online trading there has been greater benefit to the investors as they could sell / buy shares as and when required and that to with online trading. 5. The broker’s has a greater scope than compared to the earlier times because of invention of online trading. 6. The concept of business has changed today, this is a service oriented industry hence the survival would require them to provide the best possible service to the clients. 7. I recommend the exchange authorities to take steps to educate Investors about their rights and duties. I suggest to the exchange authorities to increase the investors’ confidences. 8. I recommend the exchange authorities to be vigilant to curb wide fluctuations of prices. 9. The speculative pressures are responsible for the wide changes in the price, not attracting the genuine investors to the greater extent towards the market. 48
  49. 49. 10. Genuine investors are not at all interested in the speculative gain as their investment is based on the future profits, therefore the authorities of the exchange should be more vigilant to curb the speculation. 11. Necessary steps should be taken by the exchange to deal with the situations arising due to break down in online trading. BOOKS REFFERED FOR PREPARE PROJECT REPORT 1. investment Analysis And Portfolio Management – prasanna chandra 2. Indian Financial System -M.Y.Khan NEWSPAPERS • Business standard • The Economic Times WEBSITE’S WWW.Sharekhan.com www.rbi.co.in www.sebi.co.in www.nse.com www.bse.com 49

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