37711902 project-on-online-trading-at-sharekhan-ltd (1)


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37711902 project-on-online-trading-at-sharekhan-ltd (1)

  2. 2. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED DECLARATIONI hereby declare to the best of my knowledge and belief that the SummerTraining Project Report entitled as “STUDY ON ONLINE TRADING”for SHAREKHAN LIMITED HYDERABAD being submitted as thepartial fulfilment of Master of Business Administration, has been writtenand submitted under the guidance of Mr. Shayam Sundar and MrK.P.Singh Industry guides and Mr Ravi Kumar my faculty guide.I further declare that it is original work done as a part of the academiccourse and has not been submitted elsewhere.The conclusions and recommendations written in this project are based onthe data collected by me while preparing this report. MITHUN KUMAR PATNAIK A30601909082 2 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  3. 3. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED certificate (whom so ever it may concern) This is to certify that the project report entitled “A STUDY ONONLINE TARDING” carried at SHAREKHAN LIMITED Hyderabad isa bonafide work done by Mr. MITHUN KUMAR PATNAIK, bearing IDNo. A30601909082 a student of AMITY GLOBAL BUSINESSSCHOOL, Hyderabad and submitted the same in the partial fulfilmentfor the award of the degree of “ MASTER OF BUSINESSADMINISTRATION” has done his Summer Internship Programunder my guidance from 1st June 2010 to 15th July 2010. I found him to be good in the task and activities assigned tohim. I wish his success in all future endeavours.(FACULTY GUIDE) (INDUSTRY GUIDE) 3PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  4. 4. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED ACKNOWLEDGEMENTI would like to express word of thanks to all those who have provided me withsincere advice and information during the course of my training period. It wasindeed a great pleasure for me to work in a very co-operative, enthusiastic andlearning atmosphere at ShareKhan Limited.I would like to take this opportunity to thank Dr. Prasad Rao (Director AGBSBusiness School for giving me an opportunity for doing a project in a corporateHyderabad) and D.Surekha Thakur (corporate relations), Amity Globalfirm and all my faculty members, senior officials and colleagues at Share Khanfor their help and support during the project.I would also like to express my sincere thanks to prof. Ravi Kumar (FacultyGuide-AMITY GLOBAL BUSINESS SCHOOL, Hyderabad) for his unstintingguidance and support throughout the project. He has been a great source ofmotivation to me.I would also like to extend my regards to my company guides Mr.K.P.SinghTerritory Manager, Share Khan and Mr.Shyam Sundar, Marketing Manager,Share khan and for helping me and providing me with right direction during thecourse of my project. The interaction with him has provided me with theknowledge which will definitely help me to enrich my career and help me toperform better in future.With all the heartiest thanks; I hope my final project report will be a greatsuccess and a good source of learning and information.MITHUN KUMAR PATNAIK 4 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  6. 6. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED EXECUTIVE SUMMARYAs per the title suggest the project report has been prepared regarding the growth anddevelopment of online trading in India. Online trading was initiated by NSE in Indiaand soon after the other exchanges also followed it. There was a major boom in yr.2000 when lots of online trading companies came with a bang but only few weresurvived because of lack of computer knowledge and low internet penetration. Thereare two types of online trading companies one is the banking online tradingcompanies and the other is non-banking trading. A few examples of banking onlinetrading companies are HDFC securities, ICICI direct.com, UTI securities etc. On theother hand non banking trading companies are sharekhan.com, Angel Broking,Reliance Money etc. Today online trading contributes are about 8-10%. It iscontinuously growing and has a huge market potential. A study was undertaken todetermine the growth of various online trading companies in India in terms of tradedone by them through online and services provided by them.Major findings indicates that out of a survey of 50 respondents it was seen that majorinvestors prefer online trading because of few major factors such as time savingconvenience, protection through Freudian brokers etc. although during my researchproject I’ve seen that most of the respondents feel online trading, a secure way ofinvesting into stock market still a few of them feel it unsafe and a bit complicated butthey posses information about online trading. Today the online trading companieshaving cut-throat competition in our offering whose brokerage discounts lowermargin money and zero balance account. Due to the rising education awareness anduse of internet there is a huge potential for online trading in future and companiesmust come up with innovative offerings to capture the untapped market. 6 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  8. 8. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDCHAPTER-1OBJECTIVES OF THE STUDY: It is to analyze the changes in trading after the exchange shifted from outcry to online trading system. It is to study the functions of SHAREKHAN through various departments. To know the online screen based trading system adopted by SHAREKHAN and about its communication facilities. The appropriate configuration to set the network, which would link the SHAREKHAN to individual / members. To know about the latest and future development in the stock exchange trading system.METHODOLOGY OF THE STUDY: The data collection methods include both primary and secondary collection methods. Primary method: This method includes the data collected from the personal interaction with authorized members of Share khan Securities limited. Secondary method: The secondary data collection method includes: The lecturers delivered by the superintendents of respective departments. The brochures and material provided by Sharekhan Securities limited and Data collected through distribution of questionnaires from a sample. The data collected from the magazines of the NSE, economic times, and etc., various books relating to the investments, capital market and other related topics. 8 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  9. 9. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDNEED FOR THE STUDY: The present study to review the online trading procedure a case study of ONLINE TRADING at SHAREKHAN., as the exchange has changed it’s trading from the outcry mode to online trading on 20th February 1997, there is need to assess the performance of the capital market.LIMITATIONS OF THE STUDY: The study is confined to online trading procedure only. Problems of listing are not covered due to limited time and to keep the study in manageable limits.SAMPLE SIZE:Questionnaire 1: sample size 30Questionnaire 2: sample size 50TIME LINE: Project started on 1st June 2010 and concluded on 15th July 2010. 9 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  11. 11. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDCHAPTER-2Following diagram gives the structure of Indian financial system: 11 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  12. 12. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED FINANCIAL MARKET: Financial markets are helpful to provide liquidity in the system and for smooth functioning of the system. These markets are the centers that provide facilities for buying and selling of financial claims and services. The financial markets match the demands of investment with the supply of capital from various sources. According to functional basis financial markets are classified into two types. They are:  Money markets (short-term)  Capital markets (long-term) According to institutional basis again classified in to two types. They are  Organized financial market  Non-organized financial market. The organized market comprises of official market represented by recognized institutions, bank and government (SEBI) registered/controlled activities and intermediaries. The unorganized market is composed of indigenous bankers, moneylenders, individual professional and non-professionals. MONEY MARKET: Money market is a place where we can raise short-term capital. Again the money market is classified in to  Inter bank call money market  Bill market and  Bank loan market Etc.  E.g.; treasury bills, commercial papers, CDs etc. 12 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  13. 13. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDCAPITAL MARKET:The capital market is the market for securities, where companies and thegovernment can raise long term funds. The capital market includes the stock marketand the bond market. Financial regulators ensure that investors are protectedagainst fraud. The capital markets consist of the primary market, where new issuesare distributed to investors, and the secondary market, where existing securities aretraded.Capital market thus plays a vital role in channelizing the savings of individuals forInvestment in the economic development of the country. As a result the investorsare not constrained by their individual abilities, but by the abilities of thecompanies, which in turn enhance the savings and investments in the country,liquidity of capital market is an important factor affecting growth.Since projects require long term finance, but on the other hand, the investor maynot like to relinquish control over their savings for a long time. A liquid stock marketensures a quick exit without incurring heavy losses or costs. Thus development ofefficient market system is necessary for creating conductive climate for investmentand economic growth. Capital market is a place where we can raise long-term capital. Again the capital market is classified in to two types and they are  Primary market and  Secondary market. E.g.: Shares, Debentures, and Loans etc. 13 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  14. 14. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDPRIMARY MARKET: Primary market is generally referred to the market of new issues or market for mobilization of resources by the companies and government undertakings, for new projects as also for expansion, modernization, addition, and diversification and up gradation. Primary market is also referred to as New Issue Market. Primary market operations include new issues of shares by new and existing companies, further and right issues to existing shareholders, public offers, and issue of debt instruments such as debentures, bonds, etc. The primary market is regulated by the Securities and Exchange Board of India (SEBI a government regulated authority). Function: The main services of the primary market are origination, underwriting, and distribution. Origination deals with the origin of the new issue. Underwriting contract make the shares predictable and remove the element of uncertainty in the subscription. Distribution refers to the sale of securities to the investors. The following are the market intermediaries associated with the market: 1. Merchant banker/book building lead manager 2. Registrar and transfer agent 3. Underwriter/broker to the issue 4. Adviser to the issue 5. Banker to the issue 6. Depository 7. Depository participantInvestors’ protection in the primary market: To ensure healthy growth of primary market, the investing public should be protected. The term investor protection has a wider meaning in the primary market. The principal ingredients of investors’ protection are: 14  Provision of all the relevant information PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  15. 15. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED  Provision of accurate information and  Transparent allotment procedures without any bias.SECONDARY MARKET The primary market deals with the new issues of securities. Outstanding securities are traded in the secondary market, which is commonly known as stock market or stock exchange. “The secondary market is a market where scrip’s are traded”. It is a market place which provides liquidity to the scrip’s issued in the primary market. Thus, the growth of secondary market depends on the primary market. More the number of companies entering the primary market, the greater are the volume of trade at the secondary market. Trading activities in the secondary market are done through the recognized stock exchanges which are 23 in number including Over the Counter Exchange of India (OTCE), National Stock Exchange of India and Interconnected Stock Exchange of India. Secondary market operations involve buying and selling of securities on the stock exchange through its members. The companies hitting the primary market are mandatory to list their shares on one or more stock exchanges in India. Listing of scrip’s provides liquidity and offers an opportunity to the investors to buy or sell the scrip’s. The following are the intermediaries in the secondary market: 1. Broker/member of stock exchange – buyers broker and sellers broker 2. Portfolio Manager 3. Investment advisor 4. Share transfer agent 5. Depository 15 6. Depository participants. PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  16. 16. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDSTOCK MARKETS IN INDIA: Stock exchanges are the perfect type of market for securities whether of government and semi-govt bodies or other public bodies as also for shares and debentures issued by the joint-stock companies. In the stock market, purchases and sales of shares are affected in conditions of free competition. Government securities are traded outside the trading ring in the form of over the counter sales or purchase. The bargains that are struck in the trading ring by the members of the stock exchanges are at the fairest prices determined by the basic laws of supply and demand. Definition of a stock exchange: “Stock exchange means any body or individuals whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.” The securities include:  Shares of public company.  Government securities.  Bonds History of Stock Exchanges: The only stock exchanges operating in the 19th century were those of Mumbai setup in 1875 and Ahmadabad set up in 1894. These were organized as voluntary non-profit-marking associations of brokers to regulate and protect their interests. Before the control on securities under the constitution in 1950, it was a state subject and the Bombay securities contracts (control) act of 1925 used to regulate trading in securities. Under this act, the Mumbai stock exchange was recognized in 1927 and Ahmadabad in 1937. During the war boom, a number of stock exchanges were organized. Soon after it became a central 16 subject, central legislation was proposed and a committee headed by Page A.D.Gorwala went into the bill for securities regulation. On the basis of theAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  17. 17. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED committee’s recommendations and public discussion, the securities contract (regulation) act became law in 1956. Functions of Stock Exchanges: Stock exchanges provide liquidity to the listed companies. By giving quotations to the listed companies, they help trading and raise funds from the market. Over the hundred and twenty years during which the stock exchanges have existed in this country and through their medium, the central and state government have raised crores of rupees by floating public loans. Municipal corporations, trust and local bodies have obtained from the public their financial requirements, and industry, trade and commerce- the backbone of the country’s economy-have secured capital of crores or rupees through the issue of stocks, shares and debentures for financing their day-to-day activities, organizing new ventures and completing projects of expansion, diversification and modernization. By obtaining the listing and trading facilities, public investment is increased and companies were able to raise more funds. The quoted companies with wide public interest have enjoyed some benefits and assets valuation has become easier for tax and other purposes. Various Stock Exchanges in India: At present there are 23 stock exchanges recognized under the securities contracts (regulation), Act, 1956. Those are: Ahmadabad Stock Exchange Association Ltd. Bangalore Stock Exchange Bhubaneswar Stock Exchange Association Calcutta Stock Exchange Cochin Stock Exchange Ltd. 17 Coimbatore Stock Exchange PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  18. 18. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED 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 Madras Stock Exchange Madhya Pradesh Stock Exchange Ltd. Magadh Stock Exchange Limited Meerut Stock Exchange Ltd. Mumbai Stock Exchange National Stock Exchange of India OTC Exchange of India Pune Stock Exchange Ltd. Saurashtra Kutch Stock Exchange Ltd. Uttar Pradesh Stock Exchange Association Vadodara Stock Exchange Ltd. 18 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  19. 19. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED MAJOR STOCK EXCHANGES: NSE The National Stock Exchange of India Limited has genesis in the report of the High Powered Study Group on Establishment of New Stock Exchanges, which recommended promotion of a National Stock Exchange by financial institutions (FI’s) to provide access to investors from all across the country on an equal footing. Based on the recommendations, NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. On its recognition as a stock exchange under the Securities Contracts (Regulation) Act, 1956 in April 1993, NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in Derivatives segment commenced in June 2000 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 and debt instruments. Ensuring equal access to investors all over the country through an appropriate communication network. Providing a fair, efficient and transparent securities market to investors using electronic trading systems. Enabling shorter settlement cycles and book entry settlements systems, and Meeting the current international standards of securities markets. The standards set by NSE in terms of market practices and technology, have become industry benchmarks and are being emulated by other market participants. NSE is more than a mere market facilitator. Its that force which is guiding the industry towards new horizons and greater opportunities. 19 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  20. 20. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED BSE The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The Native Share and Stock Brokers Association". It is the oldest one in Asia, even older than the Tokyo Stock Exchange, which was established in 1878. It is a voluntary non-profit making Association of Persons (AOP) and is currently engaged in the process of converting itself into demutualised and corporate entity. It has evolved over the years into its present status as the premier Stock Exchange in the country. It is the first Stock Exchange in the Country to have obtained permanent recognition in 1956 from the Govt. of India under the Securities Contracts (Regulation) Act 1956.The Exchange, while providing an efficient and transparent market for trading in securities, debt and derivatives upholds the interests of the investors and ensures redresses of their grievances whether against the companies or its own member-brokers. It also strives to educate and enlighten the investors by conducting investor education programmers and making available to them necessary informative inputs. A Governing Board having 20 directors is the apex body, which decides the policies and regulates the affairs of the Exchange. The Governing Board consists of 9 elected directors, who are from the broking community (one third of them retire ever year by rotation), three SEBI nominees, six public representatives and an Executive Director & Chief Executive Officer and a Chief Operating Officer. The Executive Director as the Chief Executive Officer is responsible for the day- to-day administration of the Exchange and the Chief Operating Officer and other Heads of Department assist him. The Exchange has inserted new Rule No.126 A in its Rules, Byelaws pertaining to constitution of the Executive Committee of the Exchange. Accordingly, an Executive Committee, consisting of three elected directors, three SEBI nominees or public representatives, Executive Director & CEO and Chief Operating Officer 20 has been constituted. The Committee considers judicial & quasi matters in which PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  21. 21. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED the Governing Board has powers as an Appellate Authority, matters regarding annulment of transactions, admission, continuance and suspension of member- brokers, declaration of a member-broker as defaulter, norms, procedures and other matters relating to arbitration, fees, deposits, margins and other monies payable by the member-brokers to the Exchange, etc. REGULATORY FRAME WORK OF STOCK EXCHANGE A comprehensive legal framework was provided by the “Securities Contract Regulation Act, 1956” and “Securities Exchange Board of India 1952”. Three tier regulatory structure comprising  Ministry of finance  The Securities And Exchange Board of India  Governing body MEMBERS OF THE STOCK EXCHANGE: The securities contract regulation act 1956 has provided uniform regulation for the admission of members in the stock exchanges. The qualifications for becoming a member of a recognized stock exchange are given below: The minimum age prescribed for the members is 21 years. He should be an Indian citizen. 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 education is a pass in 12th standard examination. 21 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  22. 22. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDSECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) The securities and exchange board of India was constituted in 1988 under a resolution of government of India. It was later made statutory body by the SEBI act 1992.according to this act, the SEBI shall constitute of a chairman and four other members appointed by the central government. With the coming into effect of the securities and exchange board of India act, 1992 some of the powers and functions exercised by the central government, in respect of the regulation of stock exchange were transferred to the SEBI. OBJECTIVES AND FUNCTIONS OF SEBI 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. SEBI GUIDELINES TO SECONDARY MARKETS: (STOCK EXCHANGES): Board of Directors of Stock Exchange has to be reconstituted so as to include non-members, public representatives and government representatives to the extent of 50% of total number of members. Capital adequacy norms have been laid down for the members of various stock exchanges depending upon their turnover of trade and other factors. All recognized stock exchanges will have to inform about transactions within 22 24 hrs. PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  24. 24. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDCHAPTER-3ELECTRONIC SETTLEMENT OF TRADE A. Procedure for purchasing dematerialized Securities:-The procedure for purchasing dematerialized securities is also similar to theprocedure 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. B. Procedure of selling dematerialized securities The procedure for selling dematerialized securities in stock exchanges issimilar as selling physical securities. The only major difference is that instead ofdelivering physical securities to the broker, the investor instructs his DP to debit hisdemat account with the number of securities sold by him and credit the brokersclearing account. 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 24 of securities sold and credit the broker’s clearing account. PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  25. 25. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED 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.REMATERILISATION OF SHARES Rematerialization is the process of conversion of electronic holdings ofsecurities into physical certificate form. For rematerilisation of scrip’s, the investorhas to fill up a demat request form (RRF) and submit it to the DP. The DP forwardsthe request to depository after verifying the investor’s balances. Depository in turninitiates the registrars and transfer agent or the issuer company. RTA/ Companyprint the certificates and dispatch the same to the investor.Market timings:Normal Market / Exercise Market Open time : 09:00 hoursNormal market close : 15:30 hoursSet up cut of time for Position limit/Collateral value : till 15:30 hrsTrade modification end time / Exercise Market : 16:15 hour 25 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  26. 26. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDINTERNET BASED TRADING THROUGH ORDER ROUTING SYSTEMS Internet based trading on conventional exchanges, uses the Internet as a medium for communicating client orders to the exchange, through broker web sites. Broker’s web sites may serve a variety of functions. These may include; Allowing the clients to directly trade through investors; Advertise the broker dealers’ services to potential investors; Offer market information and investment tools similar to those offered by information vendor or SRO web sites; Offer real-time or delayed quote information, continuously update quotes while the user visits other sites, or allow investors to create a personal stock ticker; Provide market summaries and commentaries, analyst reports and trading strategies and market data on currencies, mutual funds, options, market indices and news; and Offer investors access to portfolio management tools and analytic programs; Information on commission and fees; and Account information and research reports. In an Order Routing system, a broker offering Internet trading facilityprovides an electronic template for the customer to enter the name of the security,whatever it is to be bought or sold, the quantity and whatever the order is a marketor limit order. Once the broker’s system receives this information. 26 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  27. 27. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDUSE OF INTERNET AS ALTERNATIVE TRADING SYSTEMS (PROVISION FOR PRICEDISCOVERY AND MATCHING OUTSIDE CONVENTIONAL EXCHANGES) In foreign jurisdiction, Alternative trading systems have been developingoutside conventional securities markets, which provide investors with additionalproprietary electronic trading facilities for securities that are traded principally onsecurities exchanges, or other organized markets. They have price discoveryfunctions, matching systems and crossing systems. The systems that are currently inuse in outside jurisdictions are closed systems and are not accessible to the generalpublic through the Internet. The securities markets regulators abroad the maintainedflexible and open policies designed to encourage innovation in the secondarysecurities markets. As a result, a number of market participants, usually broker-dealers, have developed computerized “alternative trading systems” by which thesystem centralize, display, match, cross or otherwise execute trading interest.USE OF INTERNET FOR MAKING INITIAL PUBLIC OFFERINGS Issues of securities of using the Internet to communicate directly with their shareholders, potential investors and analysts by disseminating corporate information. In foreign jurisdiction, they are also using the Internet to communicate to the public for the following: Public offerings; Private offerings; and Disclosure and communication Issuers are using the Internet to market themselves to potential investors.The Internet is also being used for fulfilling necessary disclosure requirements, fordisseminating the prospects in electronics form and even for receiving shareapplications in public issues electronically. In India, SEBI has taken initiative inpermitting use of the network of stock exchange for collection of investor 27applications in public offerings by the issuer companies PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  28. 28. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDINVESTMENT ADVISORY SERVICES Brokers as well as other service provides such as investment firms, researchoutfits etc. are using the Internet for marketing and advertising purposes, forpresenting information on portfolio analysis and market information, and forcommunicating with and receiving orders from potential investors. The servicesoffered by the service providers to the investors are generally the following: Advertising Providing investment information and investment advice; Underwriting Communicating with the investors; Customer orders; and Record keepingWORKING GROUPS SET UP BY THE COMMITTEE Considering the present state of capital markets in India and keeping in viewthe ongoing developments in Internet based securities business, it was felt that SEBIas a regulator could strive to identify areas where use of Internet in the capitalmarket is possible within the existing legal framework. One such area identified bythe Committee, which is also the central within the existing legal framework. Onesuch area identified by the Committee, which is also the central theme of this report,is the area of Internet trading on existing electronic exchange. In this area, throughearly introduction of Cyber Laws would be highly describe but their existence is not anecessary precondition. To look into the existing regulatory scenario and to bring outsome ground rules for use of the medium of Internet, the Committee thereforeconstituted the following two working groups to look into the area of: i. Security protocols and standardization of interfaces for Interest based securities trading, chaired by Prof. Deepak B. Phatak, IIT, Pawai, Mumbai 28 ii. Surveillance and monitoring related issues arising due to Interest based Page securities trading, chaired by Shri. L.K. Singhvi, Sr. ED, SEBIAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  29. 29. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED The committee also requested Ms D N Raval, Executive Director, SEBI to examinethe legality of introduction of Internet trading and issue of Alternative tradingsystems. This report of the standing committee examines the regulatory and securityrequirements Internet Based Trading on Conventional Exchanges. Separate reports(s) will cover the other areas related to Internet applications in the securitiesmarkets. The report of the first working group on security protocols andstandardization of interfaces has since been submitted and incorporated in thereport. The committee would like to place on record its sincere thanks to Dr. D.B.Phatak, Ms. D.N. Raval and their team members. The global financial market isundergoing a transformation due to rapid technological developments. It thusbecomes imperative that for developing in effective regulatory frameworkdevelopments in other parts of the world should be studies and analyzed. Withnearly who million on-line investors, Internet trading in the United States is growingby leaps and bounds. Internet trading is being facilitated by large brokerage houses,thus changing the total concept of securities trading. A team comprising of membersfrom stock exchanges and SEBI visited the United States to these development andhad interactions with brokerages houses, Internet service providers and otheragencies involved in facilitating Internet trading. The team also discussed the developments in the emerging regulatory andsupervisory framework in United States with the Securities and ExchangeCommission officials. They were also tripped of the various initiatives taken by SEC inthis regard. These inputs have been utilized while drafting this report. 29 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  30. 30. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDRECOMMENDATIONS OF THE COMMITTEEApplication for Permission by Brokers SEBI registered Stock Brokers interested in providing Internet based tradingservices will be required to apply to the respective stock exchange for a formalpermission. The stock exchange should grant approval or reject the application asthe case may be, and communicate its decisions to the number within 30 calendardays of the date of completed application submitted to the exchange. The stockExchange, before giving permission to brokers to start Internet based services shallensure the fulfillment of the following minimum conditions.Net worth Requirement The broker must have a minimum net worth of Rs. 50 lacs if the broker isproviding the Internet based facility on his own. However, if some brokerscollectively approach a service provider for providing the interest trading facility, networth, criteria as stipulated by the stock exchange will apply. The net worth will becomputed as per the SEBI circular no FITTC/DC/CIR-1/98 dated June 16, 1998.sOperational and System Requirements:Operational Integrity: The stock Exchange must ensure that the system used by the broker hasprovision for security, reliability and confidentiality of data through use of encryptiontechnology. This stock exchange must also ensure that records encryptiontechnology. The stock Exchange must also ensure the records maintained inelectronic from by the broker are not susceptible to manipulation. 30 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  31. 31. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDSystem Capacity The stock Exchange must ensure that the brokers maintain adequate backupsystems and data storage capacity. The stock Exchange must also ensure that theworkers have adequate system capacity for handling data transfer, and arranged foralternative means of communications in case of Internet link failure.Qualified Personnel: The stock Exchange must lay down the minimum qualification fro personnelto ensure that the broker has suitably qualified and adequate personnel to handlecommunication including instructions as well as other back office work which is likelyto increase because of higher volumes.Written Procedures: Stock Exchange must develop uniform written procedures to handlecontingency Tuitions and for review of incoming and outgoing electroniccorrespondence.Signature Verification/ Authentication: It is desirable that participants use authentication technologies. For thispurpose is should be mandatory for participants to use certification agencies as andwhen notified by Government/SEBI. They should also clearly specify when manualsignatures would be required.Client Broker RelationshipKnow Your Client: The stock Exchange must ensure that brokers have sufficient, verifiableinformation about clients, which would facilitate risk evaluation of clients. 31 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  32. 32. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDBroker- Client Agreement: Brokers must enter into an agreement with clients spelling out all obligationsand rights. This agreement should also inter alia, the minimum service standards tobe maintained by the broker for such service specified by SEBI/Exchange for theinternet based trading from time to time. Exchange will prepare a model agreementfor this purpose. The broker agreement with clients should not haveInvestor Information: The broker web site providing the internet based trading facility shouldcontain information meant for investor protection such as rules and regulationsaffecting client broker relationship arbitration rules, investor protection rules etc.The broker web site providing the Internet based trading facility should also provideand display prominently, hyper link to the web site/page on the web site of therelevant stock exchange (s) displaying rules/ regulations/ circulars.Ticker/quote/order book displayed on the web-site of the broker should display thetime stamp as well as source of such information against the given information.Order/Trade Confirmation: Order/Trade confirmation should also be sent to the investor through emailat client’s discretion at the time specified by the client in addition to the other madeof display of such confirmation of real time basis on the broker web site. Theinvestor should be allowed to specify the time interval on the web site itself with inwhich he would like to receive this information through email. Facility forreconfirmation of orders which are larger than that specified by the members riskmanagement system should be provided on the internet based system.Handling Complaints by Investors: Exchanges should monitor complaints from investors regarding serviceprovided by brokers to ensure a minimum level of service. Exchange should have 32separate cell specifically to handle Internet trading related complaints. It is desirable PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  33. 33. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDthat exchanges should also have facility for on-line registration of complaints ontheir web site.Risk Management: Exchanges must ensure that brokers have a system-based control on thetrading limits of clients, and exposures taken by clients. Brokers must set predefinedlimits on the exposure and turnover of each client. The broker systems should becapable of assessing the risk of the client as soon as the order comes in. The clientshould be informed of acceptance/rejection of the order within a reasonable period.In case system based control rejects an order because of client having exceededlimits etc., the broker system may have a review and release facility to allow theorder to pass through.Contract Notes:Contract notes must be issued to clients as per existing regulations, within 24 hoursof the trade execution.Cross Trades: As a matter of abundant precaution, the committee seeks to reiterate that asIII the case of existing system, brokers using Internet based systems for routing clientorders will also not be allowed to cross trades of their clients with each other. Allorders must be offered to the market for matching. It is emphasized that in addition to the requirements mentioned above, allexisting obligations of the broker as per current regulation will continue withoutchanges. Exchanges may also like to specify more stringent standards as they maydeem fit for allowing Internet based trading facilities to their brokers. 33 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  34. 34. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDEnforcement: A separate working group has been set to look into the surveillance andenforcement related issues arising due to Internet based securities trading.However, general anti-fraud provisions (SEBI Fraudulent and Unfair Trade PracticesRegulations, 1995) would apply to all transactions involving securities or financialservices, regardless of the medium. 34 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  36. 36. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDCHAPTER-4DEFINITIONS AND EXPLANATIONS1. SHARES:- In everyday language, when we talk of shares we normally refer to equity shares or ordinary shares of a company. The terms shares and stock essentially means the same things, the letter being a more common American usage. An equity share is evidence of ownership in a company. The physical evidence of this ownership of this document is called the Share Certificate. Now days, shares are usually kept in electronic, or dematerialized, form with a depository participant (Banks, brokers, financial institutions) of the National Securities Depository Limited (NSDL). However, if one wants one can still hold the share in the physical form which has your name endorsed on it, and is proved that you are a part owner of the company. Your ownership rights are proportionate to the number of share you own. Companies issue shares of a certain fixed denomination, called face value or par value of that share, which is clearly indicated on a share certificate in the physical form.2. INVESTMENT: - Investment essentially refers to what you do with your savings in order to preserve them and make them grow or yield an income. If you keep your savings in the form of cash, they are certainly going to diminish in value because the purchasing power of money is constantly going down as a result of inflation. (The value of money is judged by the quantity of goods and services you can buy with it). Therefore, if you want to maintain or increase 36 the value of your savings, you have to keep them in forms other than cash. PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  37. 37. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED This is what investment is all about, deployment of your saving with the intentions of preserving or increasing their value. This deployment can be done by using your savings to buy land, residential properties, commercial properties, gold, jewelry, works of art, fixed deposits in banks and companies, shares, bonds, infact, anything whose value is likely to either remain constant or appreciate with time. Investment also refers to using ones savings with the intention of earning an income.3. DEMAT A/C:- 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. 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. 37 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  38. 38. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED4. CIRCUIT LIMIT:- While issuing the shares to the public the company has to fix a particular limit of the rate of the per share this limit is called as circuit limit. This circuit limit is generally fixed on the percentage basis. This circuit limit is applied to both the ends of the share. That is to the upper limit also and also to the lower limit actually circuit limit is of two types 1) Upper limit 2) Lower limit It is compulsory for every company to fix the circuit limit. This limit isbeneficial to both. The customer and also to the company generally every companyfix below 10%of the rate of per share.5. UPPER LIMIT: - While issuing the shares to the public the company has to fix the upper limitthis limit is also calculated in percentage the limit is also beyond which the rate ofthe shares cannot exceed nor that the customer doing the trading can sell above thelevel. For ex. Customer wants to sell a share which is of Rs10 and itsupper limit is fixed at 10% so in this case the person will have to sell it at Rs11 or therate which ever he wants but the person cannot sell it beyond this Rs 11 because byaddition of upper limit to the rate of share the maximum amount of the shares is Rs11 only and not above.6. LOWER LIMIT: - At the time of issuing share the company has to fix the lower limit also. Thislower limit is calculated on the basis of the rate of the shares. This limit bears thesame percentage, which is mentioned for the upper limit of the share. Like upperlimit in this limit also the share minimum rate of the share is fixed the customer whowants to see; the holding shares has to first consider the upper & lower limit of the 38share he cannot sell the share below the lower limit and not above the upper limit PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABADlike the upper limit Percentage generally in this limit also the percentage is below
  39. 39. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED10% of the face value of the shares the percentage is below 10% of the face value ofthe shares the percentage of the upper &lower limit is equal to every type of share For ex. Suppose the person wants to sell the shares and therate of the share is Rs. 10/- and the lower limit percentage is 10% of the rate. So inthis case the person cannot sell the share at below Rs. 9/-. He will have to sell atabove Rs. 9/- or up to the upper limit of the share.7. SENSEX:- When the shares are issued to the public the stock exchange gives aparticular group to the company. For ex. The Reliance Group is given the group “A”like this there are several companies which fall in “A” Group. The weightage mean iscalculated according to its equity when all the companies of Group “A” hascalculated this weightage mean they are added all together when this addition isdone the result which comes down is known as “Sensex”. The trading of shares of “A” group is totally depended on this sensex value.The price of the share rises this sensex value also rises and when the price of thisshare comes down the sensex value also comes down. With the sensex8. SCRIPTS:- The company, which has more than one working area, it has to issue theshare separately than that company is the company which has the script of its name. For Ex. The Reliance this company has its several working area NamelyReliance, Capital Reliance, Infocom Reliance Energy, Reliance Industry. So reliancecompany issues separate share for separate working area but the bold name which isgiven to the working area is “Reliance”. So in this case Reliance has its own scripts.Other example Ambuja, Birla, Etc.9. GROUPS:- When the shares are issued by the company they are given the particular group 39by the Stock exchange according to its demand in the market. There are mainly 7 Pagegroups.AMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  40. 40. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED The scripts traded on the BSE have been classified into ‘A’,’B1’,’B2’,’C’,’F’ and ‘Z’groups. The ‘A’ group represents those, which are in the carry forward system. The‘F’ group represents the debt market segment (fixed income securities). The Z groupscripts are of the blacklisted companies. The ‘C’ group covers the odd lot securities in‘A’, ‘B1’&’B2’ groups.10. TYPES OF ORDERS: Buy and sell orders placed with members of the stock exchange by the investors.The orders are of different types. Limit orders: Orders are limited by a fixed price. E.g. ‘buy Reliance Petroleum at Rs.50.’Here, the order has clearly indicated the price at which it has to be bought and the investor is not willing to give more than Rs.50. Best rate order: Here, the buyer or seller gives the freedom to the broker to execute the order at the best possible rate quoted on the particular date for buying. It may be lowest rate for buying and highest rate for selling. Discretionary order: The investor gives the range of price for purchase and sale. The broker can use his discretion to buy within the specified limit. Generally the approximation price is fixed. The order stands as this “buy BRC 100 shares around Rs.40”. 40 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  41. 41. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED Stop loss order: The orders are given to limit the loss due to unfavorable price movement in the market. A particular limit is given for waiting. If the price falls below the limit, the broker is authorized to sell the shares to prevent further loss. E.g. Sell BRC limited at Rs.24, stop loss at Rs.22.11. BUYING AND SELLING SHARES: To buy and sell the shares the investor has to locate register broker or sub broker who render prompt and efficient service to him. The order to buy or sell specifying the number of shares of the company of investors’ choice is placed with the broker. The order may be of any type. After receiving the order the broker tries to execute the order in his computer terminal. Once matching order is found, the order is executed. The broker then delivers the contract note to the investor. It gives the details regarding the name of the company, number of shares bought, price, brokerage, and the date of delivery of share. In this physical trading form, once the broker gets the share certificate through the clearing houses he delivers the share certificate along with transfer deed to the investor. The investor has to fill the transfer deed and stamp it. The stamp duty is one of the percentage considerations, the investor should lodge the share certificate and transfer deed to the register or transfer agent of the company. If it is bought in the DEMAT form, the broker has to give a matching instruction to his depository participant to transfer shares bought to the investors account. The investor should be account holder in any of the depository participant. In the case of sale of shares on receiving payment from the purchasing broker, the broker effects the payment to the investor. 41 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  42. 42. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED12. ROLLING SETTLEMENT SYSTEM: SETTLEMENT CYCLE SCHEDULE SR. NO. DAY DESCRIPTION OF ACTIVITY TRADE1 T Trading Day2 T +2 PAY IN BY 10.30 am.3 T +2 PAY – OUT BY 2 pm.4 T +3 Auction of shortage in deliveries5 T +5 Auction pay-in by 10.30 (1 am/ pay Out by 2 pm.) 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 demats list and had daily turnover of about Rs.1 crore or more. Then it was extended to “A” stocks in Modified Carry Forward Scheme, Automated Lending and Borrowing Mechanism (ALBM) and Borrowing and lending Securities Scheme (BELSS) with effect from Dec 31, 2001. SEBI has introduced T+5 rolling settlement in equity market from July 2001 and subsequently shortened the cycle to T+3 from April 2002. After the T+3 rolling settlement experience it was further reduced to T+2 to reduce the risk in the market and to protect the interest of the investors from 1st April 2003. 42 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  43. 43. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED 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. 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 am on T+2 from the brokers’ pool accounts. The depository processes the pay in requests and transfers the consolidated pay in files to clearing House/clearing Corporation by 11.00am/on T+2. The exchange/clearing house/clearing corporation executes the pay-out of securities and funds latest by 1.30 p.m on T+2 to the depositories and clearing banks. In the demat mode net basis settlement is allowed. The buy and sale positions in the same scrip can be settled and net quantity has to be settled. 43 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  45. 45. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDCHAPTER-5 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 loose the bargain. If he is not satisfied with the quote price, he may turn to some other dealer. On the close of the bargain, the dealer as well as the broker makes a brief note of the particulars of the deal. Such notes are made on some pad and on it the number of shares, the price agreed upon, the name of the party, what membership number etc., are noted. DISADVANTAGES OF OUTCRY SYSTEM: It lacks transparency. The scope of manipulation, speculation and mal practice is more. Signal were more important in the outcry system any member who could not interpret the buy/sell signal correctly often landed himself in disaster situation. In audibility was another disadvantage of the outcry system. Due to the above disadvantages of the outcry system the SHAREKHAN has shifted from outcry system to online trading from February 29th 1997. 45 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  46. 46. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED MANUAL TRADING Trading procedure before introduction of online trading Trading on stock exchanges is officially done in the trading ring. In the trading ring the space is provided for specified and non-specified sections, the members and their authorized assistants have to wear a badge or carry with them an identity card given by the exchange to enter the trading ring. They carry a sauda book or confirmation memos, duly authorized by the exchange and carry a pen with them. The stock exchanges operations are floor level are technical in nature .Non-members are not permitted to enter in to stock market. Hence various stages have to be completed in executing a transaction at a stock exchange .The steps involved in this method of trading have given below: Choice of broker: Sell shares and transact business, have to act through member brokers only. They can also appoint their bankers for this purpose as per the present regulations. Placement of order: The next step is the prospective investor who wants to buy shares or the investors, who wants to place order for the purchase or sale of securities with a broker. The order is usually placed by telegram, telephone, letter, fax etc or in person. To avoid delay, it is placed generally over the phone. The orders may take any one of the forms such as At Best Orders, Limit Order, Immediate or Cancel Order, Limited Discretionary Order, and Open Order, Stop Loss Order. 46 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  47. 47. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED Execution of order or contract: Orders are executed in the trading ring of the BSE. This works from 11:30 to 2.30 P.M on all working days Monday to Friday, and a special one-hour session on Saturday. The members or the authorized assistants have to wear a badge given by the exchange to enter into the trading ring. They carry a sauda Block Book or conformation memos, which are duly authorized by the exchange when the deal is struck; both broker and jobber make a note in their sauda block books. From the sauda book, the contract notes are drawn up and posted to the client. A contract note is written agreement between the broker and his clients for the transaction executed. Drawing Up and Bills: Both sale and purchase bills are prepared along with the contract note and it is posted on the same day or the next day. This in a purchase transaction, once the shares are delivered to the client effects payment for the purchases and pays the stamp fees for transfer, a bill is made out giving the total cost of purchase, including other expenses incurred by the broker in the price itself. With this, the process ends. DEMATERLIZATION: Dematerialization is the process by which physical certificates of an investor are converted to an equipment number of securities in electronic from and credited in the investor account with his DP. In order to dematerialize the certificates, an investor has to first open an account with a DP and then request for the Dematerialization Request Form, which is DP and submit the same along with the share certificates. The investor has to ensure that he marks “Submitted for Dematerialization” on the certificates before the shares are handed over to the DP for demat. Dematerialization can only be done to those certificates, which are already registered in your name and belong to the list of securities admitted 47 for Dematerialization at NSDL. PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  48. 48. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED Most of the active scrip’s in the market including all the scrip’s of S&P CNX NIFTY and BSE SENSEX have already joined NSDL. This list is steadily increasing. Briefly, the process is as follows: after completion of transfer, the investor gets the option to dematerialize such shares. Investor’s willing to exercise this option sends a Demat request along with the option letter sent by the company to his DP. The company or its R&T agent would confirm the Demat request on its receipt from the DP to reduce risk of loss in transit. Dematerialized shares do not have any distinctive or certificate numbers. These shares are fungible-which means that 100 shares of a security are the same as any other 100 shares of the security. Odd lot shares certificates can also be dematerialized. Dematerialization normally takes about fifteen to thirty days. To get back dematerialized securities in the physical form, request DP for Rematerialization of the same is made. Rematerialization is the process of converting electronic shares in to physical shares.BENEFITS OF DEMAT: It reduces the risk of bad deliveries, in turn saving the cost and wastage of time associated with follow up for rectification. This has lead to reduction in brokerage to the extent of 0.5% by quite a few brokerage firms. In case of transfer of electronic shares, you save 0.5% in stamp duty. You avoid the cost of courier / notarization. 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 Demat shares as compared to loans against physical shares. There is no lost in transit, thus the overheads of getting a duplicate copy 48 in such circumstances is reduced. PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  49. 49. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED RBI has also reduced the minimum margin to 25% for loans against dematerialized securities as against 50% for loans against physical securities.ONLINE TRADING Before getting in to the online trading we should know some things about the internet, 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 allows direct, ubiquitous links to anyone anywhere and anytime to build up interactive relationships. A combination of time and space, called the Internet promises to bring unprecedented changes in our lives and business. Internet or net is an inter- connection of computer communication networks spanning the entire globe, crossing all geographical boundaries. It has re-defined the methods of communication, work study, education, business, leisure, health, trade, banking, commerce and what not it is virtually changing every thing and we are living in dot.com age. Net being an interactive two way medium, through various websites, enables participation by individuals in business to business and business to consumer commerce, visit to shopping arcades, games, etc. in cyber space even the information can be copied, downloaded and retransmitted. The use of Internet has grown 2000 percent in last decade and is currently growing at 10 percent per month. In India, growth of Internet is of recent times. It is expected to bring changes in every functional area of business activity 49 including management and financial services. It offers stock trading at a lower PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  50. 50. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED 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 reduces manual processes and paper transactions but also helps organization move to a fully electronic environment and change the way they operated. PC’s and networking attempts to introduce banks of the tools and technologies required for electronic commerce. The computers are either workstations of individual office works or serves where large databases and information reside. Network connects both categories of computers; the various operating systems are the most basis program within a computer. It manages the resources of the computer system in a fair and efficient manner. Now we can enter in to the concept known as online trading. In the past, investors had no option but to contact their broker to get real time access to market data. The net brings data to the investor on-line and net broking enables him to trade on a click of mouse. Now information has become easily accessible to both retail as well as big investor. 50 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  51. 51. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDMEANING OF ONLINE TRADING “Change is the law of nature”. There were times when man was a wandereror a normal. He himself had to go place to place in search of food, water and noweverything is available at your doorstep just at the click of the mouse. The growth ofinformation technology has affected almost all sectors of life. Internet has enabledus to get every information at our doorstep. When Internet has affected all sectorshe could “stock markets” the most important player of the economy, has remainedfar behind? Like all other sectors Internet has set its feet in the stock markets also. Internet trading commissions are clearly posted on the websites of thevarious services, and are typically a fixed rate charge, depending upon the type ofsecurity being traded and the size of trade. In theory, therefore, an Interest investoralways knows what commission he is being charged on each trade. Internet investorscan take as much time as they would like to take prior to placing a trade order.Similarly the online investor likely does not have to worry that his broker is makingunauthorized trades. Since there is no individual broker making a commission, theonly person who is authorized to trace in a account is the actual investor.Furthermore, the internet investor can never become a victim of excessive trading(where for the broker) since the investor maintains total control over the number oftransactions which take place in the account. All of these positive features of internet trading may lead the unwary investorto believe that Internet trading is a way to take control of their finances and savemore money in the process. Unfortunately, this is not always the case. Theadvantages of Internet stock trading have also its weaknesses and these weaknessespresent significant drawbacks for the average investor. First and foremost, the average investor is not an expert in the financialmarkets. There is a danger for allowing the autonomy of online trading to hull youinto the belief that you are an expert investor. An online investor sitting at home at apersonal computer also foregoes proper investment advice and financial planning, 51perhaps among the most valuable services provided by traditional brokers. PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  52. 52. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED There are, of course, additional risks relative to performing transactions overthe Internet especially on a shared computer. Those people whom investors haveprovided their account number and password can freely trade that account while theinvestor will have little, if any, resource against the brokerage firm for the breach ofsecurity.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. Theinitial delay was due to laying down the specifications for creating Closed User Groups(CUGs). This issue was resolved between the Department of Telecommunications (DoT) andthe Finance Ministry around 1998 and after that soon came the online trading portals likeIL&FS invests mart, ICICIDirect.com, motilaloswal.com, sharekhan.com etc. Connectivityrelated issue was perhaps the most important technological factor.RBI made regulation thatit is mandatory for company to store at least 7 year financial and transactional data.In the non-stop, 24 hours a day, seven days a week world of investing, we are ableto  Obtain investment news around the clock  Check quotes on exchanges all over the world – day or night  Easily compare one investment to another via numerous ratios, charts, graphs, and tables  Screen for the best investments to fit our individual goals and requirements  Trade stocks as easily and quickly as professional traders  Calculate retirement needs based on various scenarios  Regularly monitor portfolios and make necessary changes quickly and almost effortlessly  Control the routing of individual trades for the best possible price and execution 52 Even many years after the launch of the first online brokerage firm, there Page remain a large contingent of individual investors who still pick up the phoneAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  53. 53. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED and call their stock broker to buy and sell investments. However, every year a growing number of investors are placing their trades using online brokers.EVOLUTION OF BROKING IN INDIA: The evolution of a broking in India can be categorized in three phases - Stockbrokers will offer on their sites features such as live portfolio manager, live quotes, market research and news, etc. to attract more investors. Brokers will offer online broking and relationship management by providing and offering analysis and information to investors during broking and non-broking hours based on their profile and needs, i.e. customized services. 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 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. 53 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  54. 54. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED In India: Internet trading started in India on 1st April 2000 with 79 members seeking permission for online trading. The SEBI committees on internet based securities trading services has allowed the net to be used as an Order Routing System (ORS) through registered stock brokers on behalf of their clients for execution of transaction. Under the ORS the client enters his requirements (security, quantity, price buy/sell) on broker’s site.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. 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 and Rights renunciation 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 54 mismatches, PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  55. 55. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED 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 securities regulation can be easily achieved, these are: Investor protection Creation of a fair and efficient market, and Reduction of the systematic risks. Some of the brokers offering net trading include ICICI direct, kotakstreet, etc.REQUIREMENTS FOR NET TRADING: For investors: 1. Installation of a computer with required specification 2. Installation of a modem 3. Telephone connection 4. Registration for on-line trading with broker 5. A bank account 6. Depository account 7. Compliance with SEBI guidelines for net trading The following should be produced to get a demat account and online trading account: As identity proof & address proof any one of the following: Voter ID card Driving license PAN card( in case of to trade more than 50000) Ration card Bank pass book Telephone bill 55PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  56. 56. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDOther requirements, which are necessary First page of the bank pass book and last 6 months statement. Bank manager’s signature along with bank’s seal, manager registration code on photograph. For stock brokers: 1. Permission from stock exchange for net trading 2. Net worth of Rs. 50 lac 3. Adequate back-up system 4. Secured and reliable software system 5. Adequate, experienced and trained staff 6. Communication of order (trade confirmation to investor by e-mail) 7. Use of authentication technologies 8. Issue of contract notes within 24 hours of the trade execution 9. Setting up a website. The net is used as a medium of trading in internet trading. Orders are communicated to the stock exchange through website. Internet trading started in India on 1st April 2000 with 79 members seeking permission for online trading. The SEBI committees on internet based securities trading services has allowed the net to be used as an Order Routing System (ORS) through registered stock brokers on behalf of their clients for execution of transaction. Under the Order Routing System the client enters his requirements (security, quantity, price, and buy/sell) in brokers site. They are checked electronically against the clients account and routed electronically to the appropriate exchange for execution by the broker. The client receives a confirmation on execution of the order. The customers portfolio and ledger accounts get updated to reflect the transaction. The user should have the user id and password to enter into the electronic ring. He should also have demat account and bank account. The 56 system permits only a registered client to log in using user id and password. Page Order can be placed using place order window of the website.AMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  57. 57. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITEDPROCEDURE FOR NET TRADING Step 1: Those investors, who are interested in doing the trading over internet system i.e. NEAT-IXS, should approach the brokers and get them self registered with the Stock Broker. Step 2: After registration, the broker will provide to them a Login name, Password and personal identification number (PIN). Step 3: Actual placement of an order. An order can then be placed by using the place order window as under: (a) First by entering the symbol and series of stock and other parameters like quantity and price of the scrip on the place order window. (b) Second, fill in the symbol, series and the default quantity. Step 4: It is the process of review. Thus, the investor has to review the order placed by clicking the review option. He may also re-set to clear the values. Step 5: After the review has been satisfactory, the order has to be sent by clicking on the send option. Step 6: The investor will receive an "Order Confirmation" message along with the order number and the value of the order. Step 7: In case the order is rejected by the Broker or the Stock Exchange for certain reasons such as invalid price limit, an appropriate message will appear at the bottom of the screen. At present, a time lag of about 10 seconds is there in executing the trade. Step 8: It is regarding charging payment, for which there are different mode. Some brokers will take some advance payment from the investor and will fix their trading limits. When the trade is executed, the broker will ask the investor for transfer of funds to his account. Internet trading provides total transparency between a broker and an investor in the secondary market. In the open outcry system, only the broker knew the actually transacted price. Screen based trading provides more 57 transparency. With online trading investors can see themselves the price at Page which the deal takes place.AMITY GLOBAL BUSINESS SCHOOL, HYDERABAD
  58. 58. “A STUDY ON ONLINE TRADING” in SHAREKHAN LIMITED The time gap has narrowed in every stage of operation. Confirmation and execution of trade reaches the investor within the least possible time, mostly within 30 seconds. Instant feedback is available about the execution. Some of the websites also offer; News and research report BSE and NSE movements Stock analysis IPO and mutual fund centersSTEP 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 by entering the symbol or number of the security Brokers server will check your limit in the on-line account and demat account for the number of shares and execute the trade Order is executed instantly (10-30 seconds) and confirmation can be obtained. Confirmation is e-mailed to investor by broker Contract note is printed and mailed in 24 hours Settlement will take place automatically on the settlement day Demat account and the bank account will get debited and credited by electronic means. 58 PageAMITY GLOBAL BUSINESS SCHOOL, HYDERABAD