36124320 vaibhav-project-report-on-bonanza-portfolio (2)


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36124320 vaibhav-project-report-on-bonanza-portfolio (2)

  2. 2. DECLARATIONI “VAIBHAV VERMA” a Student Of MBA, MANAGEMENT & COMMERCEINSTITUTE OF GLOBAL SYNERGY, AJMER (RAJ). declare that the ProjectEntitled “Demate and online trading . In Partial Fulfillment of MBA Degree Course inBONANZA PORTFOLIO LTD is my Original Work.(VAIBHAV VERMA) 1
  3. 3. ACKNOWLEDGEMENTIf words are considered as a symbol of approval and token of appreciation then letthe words play the heralding role expressing my gratitudeThe world of capital market war far from me but I got an opportunity tounderstand the capital market at LSE. While training I learnt many things aboutcapital market and its structure. So I am very thankful to Ludhiana StockExchange association limited for giving me such opportunity.First of all I thank to that Gracie god who blessed me with all kinds of facilities thathad been provided to me for completion of my report.I am also grateful to Mrs._____________ for permiting me to take the training atbonanza portfolio Ltd.I acknowledge my deepest sense of gratitude and sincere feeling of in debt nessdivine all my faculty richa sharma members (lecturer ) under whose guidance andthrough their sustained efforts and encouraging attitude IU was able to completemy project. It would have been difficult to achieve the results in such a short spanof time.I want to express my sincere gratitude to all the staff members of LSE forspending their precious time and sharing the value able information with me andin helping my project to be a success. 1
  4. 4. PREFACE For management career, it is important to develop managerial skills. In order toachieve positive and concrete results, along with theoretical concepts, the exposure ofreal life situation existing in corporate world is very much needed. To fulfill this need, thispractical training is required. I took training in in Bonanza portfolio Ltd located in Ajmer. It was my fortune toget training in a very healthy atmosphere. I got ample opportunity to view the overallworking of the stock exchange. This report is the result of my 45 days of summer training in Bonanza portfolioLtd, as a part of M.B.A. The subject of my report is- Online trading. 1
  5. 5. CONTENTSS.NO.Page no.DECLARATION………………………………………………… 2ACKNOWLEDGEMENT………………………………………..3PREFACE………………………………………………………….4CHAPTER-1INTRODUCTION OF STUDY………………………………………………...5CHAPTER-2 • LITERATURE REVIEW………………………………………9CHAPTER-3 • COMPANY PROFILE…………………………………………55CHAPTER-4 • DATA & INTERPRETATION ANALYSIS……………… 60CHAPTER-5 1
  6. 6. • CONCLUSIONS…………………………………………………72 • SUGGESTIONS…………………………………………………73CHAPTER-6BIBLIOGRAPHY………………………………………………………………..75Questionnaire………………………………………………..76 • CHAPTER – 1 INTRODUCTION TO STUDYDEMATERIALIZATION:Dematerialization is the process of converting the physical form of shares into electronic form.Prior to dematerialization the Indian stock markets have faced several problems like delay in thetransfer of certificates, forgery of certificates etc. Dematerialization helps to overcome theseproblems as well as reduces the transaction time as compared to the physical segment. The articlediscusses the procedures, advantages and problems of dematerialization.The Indian Stock markets have seen a major change with the introduction of depository systemand scrip less trading mechanism. There were various problems like inordinate delays in thetransfer of share certificates, delay in receipt of securities and inadequate infrastructure inbanking and postal segments to handle a large volume of application and storage of sharecertificates .To overcome these problems physical dealing in securities should be eliminated . TheIndian stock market introduced the system of dematerialization recognizing the need for scrip lesstrading.According to the Depositories Act, 1996, an investor has the option to hold shares either inphysical or electronic form .The process of converting the physical form of shares into electronicform is called dematerialization or in short demats. The converted electronic data is stored withthe depository from where they can be traded. It is similar to a bank where an investor opens anaccount with any of the depository participants. Depository participant is a representative of thedepository .The DP maintains the investors securities account balances and intimates him aboutthe status of holdings. 1
  7. 7. ONLINETRADINGOnline Trading is an easy way to buy and sell shares from the comfort of one’s place instead of tradingthrough individual stockbroker and broking firms, the customer can transact with the help of mouseclick and his visits to the neighborhood broker will become a thing of the past. Even the oldergeneration is adapting the online trading route.Find the right depository to provide with an online trading account can be difficult, but many banks andcompanies offer excellent services for online trading. Our needs will determine which online broker isbest for us. Online trading brings in total transparency between broker an investor in case of secondarymarketoperation.Whether we are buying a mutual fund, investing in commodities market or any othertransaction can be performed with minimal fuss. In India presently online trading can take placethrough order routing system, which will route client orders to exchanges trading system for executionof trade on stock exchange (NSE and BSE).One of the measure attractions of online trading is the wealth of free commentary and analysis aboutstock market and global economy. Any investor with an ounce of market saviness can extract all thedata needed to make trading decisions and complete the trades. An important catalyst behind theemergence of thriving online brokerage system has been the buoyant stock market. One can tradeonline with e-brokerage such as ICICI Direct, HDFC Securities, India Bulls, Kotakstreet and India Infoline’s 5paisa.com.NEED OF STUDY: With the emergence of the internet in everyday business, the significance of the online stock market trading broker has gone up. • It can be done from home at any desired fixed hours of the investor. • The processing of the order is executed at proper timings as the servers of the online trading portal are linked to the selected banks and stock exchanges though out twenty four hours. • The investments made are safe and secured and profit is earned at proper time without any dispute. 1
  8. 8. • Online trading updates are also provided to the investors and also about the present grade of their orders either through the interface or e-mail. • The investors increase shares and make development to the company..OBJECTIVES OF STUDY: • To Study & understood the concept of Online trading. • To know the time information & importance & the role played by the stock exchanges in the process of online trading. • To know the reasons for the introduction of online trading and their Benefits. • To review the changes that Online trading brought when compared with the previous systems. RESEARCH METHODOLOGY OF THE STUDY:DATA COLLECTION METHODSThe data collection methods include both the primary and secondary collectionmethods Primary collection methods: This method includes the data collection from the personal discussion with the authorized clerks and members of the Net worth. Secondary collection methods: The secondary collection methods includes the lectures of the superintend of the department of market operations and so on. Also the data collected from the news, magazines of the Net worth and different books issues of this study. 1
  9. 9. SCOPE OF STUDY: The study is limited to “Demat and Online Trading”. And since the year 2000, a big boom has been witnessed in the Indian stock Market when the market showed the coming up of Online Trading System. Many Online stock trading companies came but initially due to lack of Online Trading some Companies Vanished and some survived. The Companies which are survived are getting the handsome returns also attracting the foreign Investment Companies. Now a days this sector is facing cut-throat Competition. And also provides huge growth prospects.LIMITATIONS OF STUDY:A good report tells us the results of the study. But every project has its own Limitations. TheseLimitations can be in terms of: • There is lack awareness among people about investing in stock market. So people who are aware of such things were found in specific areas for survey purposes. • Most people are comfortable with traditional system in small towns and like to trade from their respective brokers, hence not providing their true opinions. • Most of people are not using technology and Internet is growing still it is not at the required level. • Some of the respondents who did not do Online trading were able to respond only to some questions. • Limitations towards Demat and online trading confined to keep the study in manageable limits. CHAPTER – 2 REVIEW OF LITERATUREINTRODUCTION 1
  10. 10. India Financial Market the India Financial market comprise of talks about the primary market, FDIs, alternative investment options, banking and insurance and the pension sectors, asset management segment as well. With all these elements in the India Financial market, it happens to be one of the oldest across the globe and is definitely the fastest growing and best among all the financial markets of the emerging economies. The history of Indian capital markets spans back 200 years, around the end of the 18th century. It was at this time that India was under the rule of the East India Company. The capital market of India initially developed around Mumbai; with around 200 to 250 securities brokers participating in active trade during the second half of the 19th century.Scope of the India Financial Market –The financial market in India at present is more advanced than many other sectors as it became organized as early as the 19th century with the securities exchanges in Mumbai, Ahmedabad and Kolkata. In the early 1960s, the number of securities exchanges in India became eight – including Mumbai, Ahmedabad and Kolkata. Apart from these three exchanges, there was the Madras, Kanpur, Delhi, Bangalore and Pune exchanges as well. Today there are 23 regional securities exchanges in India. The financial market used to give financial services to the IndustriesThe NSE provides exposure to investors into two types of financial Markets: 1. Capital market. 2. Money market.Capital market: Refers to all the facilities and Institutional arrangements for borrowing and lending of termfunds. It does not deal in capital goods but is concerned with the raising of money capital. Itconsists of term lending institutions and investing Institutions which mainly provide longterm funds. Capital market has its growth includes: 1
  11. 11. 1) Gilt-edged Securities Market2) Industrial Securities Market3) Development Banks and4) Financial Services.Industrial Securities Market has been further divided into two markets they are:A. Primary Market.B.Secondary Market.Primary Market: Refers to the raising of new capital in the form of shares anddebentures, while Secondary Market deals with securities already issued by companies.Both the markets are important, but the new issues market is much more important from thepoint of view of economic growth.Secondary Market: The market where securities are traded after they are initiallyoffered in the primary market. Most trading is done in the secondary market. Toexplain further, it is trading in previously issued financial instruments. Anorganized market for used securities. Bombay Stock Exchange (BSE), NationalStock Exchange NSE, bond markets, over-the-counter markets, residentialmortgage loans, governmental guaranteed loans etcSecondary Market refers to a market where securities are traded after beinginitially offered to the public in the primary market and/or listed on the StockExchange. Majority of the trading is done in the secondary market. Secondarymarket comprises of equity markets and the debt markets. For the generalinvestor, the secondary market provides an efficient platform for trading of hissecurities. For the management of the company, Secondary equity markets serveas a monitoring and control conduit—by facilitating value-enhancing controlactivities, enabling implementation of incentive-based management contracts,and aggregating information (via price discovery) that guides managementdecisions.Money market: Money Market is a market for short-term funds, which can be used forovernights to one year duration. It also deals with the financial assets that constitute nearmoney which means that the assets can be converted into cash quickly with minimumtransaction cost and without a loss in value. It consists of commercial banks, co-operativebanks and other agencies which supply only short term funds. It consists of 1
  12. 12. • Organized Money Markets. And Un Organized money markets • The Call Money Market, Treasury Bill Market, Collateral Money market, Commercial paper and Certificate of deposits. INDIAN CAPITAL 18 Trading of shares of east India company in 00 Kolkata And Mumbai MARKET AT 18 Joint stock company came into existence GLANCE 50 18 Speculation and feverish dealing in securities 60 18 Formulation of stock exchange of Mumbai20th 75century 18 Formulation of Ahmadabad stock exchange 19 94Formulation of Calcutta stock exchange 08 19 Formulation of Lahore and madras stock exchange 39 19 Formulation of U.P and Delhi stock exchange 40 19 Securities contract and regulation act enacted 56 19 Scam of Haridas Mundhra 57 19 Securities and exchange board of India set up 88 19 Scam of MS Shoes 91 19 SEBI given power Under SEBI act,1992 92 19 Formation of National stock exchange 93 1
  13. 13. 19 HARSHAD MEHTA Scam 95 19 SESA GOA Scam 95 19 CRB scam 97 19 BPL And Videocon Scam 9821 st century200 Depositories came into existence0 (electronic form of shares)200 Ketan Parekh scam1200 Start of rolling settlement and banning of Badla2 trading200 Introduction of T+3 settlement in April2200 Introduction of T+2 settlement in April3200 BSE Sensex touches all time high 6954 in January5200 BSE Sensex touches all time high 12500,the6 highest intraday fall of 1100200 BSE reaches the level of7200 BSE touches all time high in January 20088200 Sensex saw its highest ever loss of 1,4088 points at the end of the session.200 Sexsex saw its 15 month low,from its all time8 high 1
  14. 14. 200 Sexsex saw its down trend & highest ever loss9 because of Satyam case.STOCK MARKETS IN INDIA:A stock market is a marketplace where organized exchange (buying andselling) of stocks or equities takes place. Indian stock markets are one ofthe most dynamic and efficient stock markets in Asia. In terms of themake up and overall dynamics, the Indian stock markets are at par withinternational standards. The two national exchanges operating in Indiaare the National Stock Exchange (NSE) and the Bombay Stock Exchange(BSE). These exchanges are well equipped with electronic tradingplatforms and handle large volume of transactions on a daily basis.DEFINATION OF STOCK EXCHANGE:Stock exchange is an organized market place where securities are traded. These securitiesare issued by the government, semi-government bodies, public sector undertakings andcompanies for borrowing funds and raising resources. Securities are defined as anymonetary claims (promissory notes or I.O.U) and also include shares, debentures, bonds andetc., if these securities are marketable as in the case of the government stock, they aretransferable by endorsement and alike movable property. They are tradable on the stockexchange. So are the case shares of companies. Under the Securities Contract Regulation Act of 1956, securities’ trading is regulatedby the Central Government and such trading can take place only in stock exchangesrecognized by the government under this Act. As referred to earlier there are at present 23such recognized stock exchanges in India. Of these, major stock exchanges, like BombayStock Exchange National Stock Exchange,Inter-Connected Stock Exchange, Calcutta,Delhi, Chennai, Hyderabad and Bangalore etc. are permanently recognized while a few aretemporarily recognized. The above act has also laid down that trading in approved contractshould be done through registered members of the exchange. As per the rules made underthe above act, trading in securities permitted to be traded would be in the normal trading 1
  15. 15. hours (09:15 A.M to 3.30 P.M) on working days in the trading ring, as specified for tradingpurpose. Contracts approved to be traded are the following: A. Spot delivery deals are for deliveries of shares on the same day or the next day as the payment is made. B. Hand deliveries deals for delivering shares within a period of 7 to 14 days from the date of contract. C. Delivery through clearing for delivering shares with in a period of two months from the date of the contract, which is now reduce to 15 days.(Reduced to 2 days in demat trading) D. Special Delivery deals for delivering of shares for specified longer periods as may be approved by the governing board of the stock exchange. Except in those deals meant for delivery on spot basis, all the rest are to beput through by the registered brokers of a stock exchange. The securities contracts(Regulation) rules of 1957 laid down the condition for such trading, the trading hours, rulesof trading, settlement of disputes, etc. as between the members and of the members withreference to their clients.HISTORY OF STOCK EXCHANGE IN INDIA The origin of the Stock Exchanges in India can be traced back to the later half of 19thcentury. After the American Civil War (1860-61) due to the share mania of the public, thenumber of brokers dealing in shares increased. The brokers organized an informalassociation in Mumbai named “The Native Stock and Share Brokers Association in1875”.later evolved as Bombay stock exchange. Increased activity in trade and commerce during the First World War andSecond World War resulted in an increase in the stock trading. The Growth of StockExchanges suffered a set after the end of World War. World wide depression affected themmost of the Stock Exchanges in the early stages had a speculative nature of working withouttechnical strength. After independence, government took keen interest to regulate thespeculative nature of stock exchange working. In that direction, securities and ContractRegulation Act 1956 was passed, this gave powers to Central Government to regulate thestock exchanges. Further to develop secondary markets in the country, stock exchangesestablished at Mumbai, Chennai, Delhi, Hyderabad, Ahmedabad and Indore. TheBangalore Stock Exchange was recognized in 1963. At present there are 23 StockExchanges. 1
  16. 16. Till recent past, floor trading took place in all Stock Exchanges. In the floor tradingsystem, the trade takes place through open outcry system during the official trading hours.Trading posts are assigned for different securities where by and sell activities of securitiestook place. This system needs a face – to – face contact among the traders and restricts thetrading volume. The speed of the new information reflected on the prices was rather thanthe investors. The Setting up of NSE and OTCEI (Over the counter exchange of India with the screenbased trading facility resulted in more and more Sock exchanges turning towards thecomputer based trading. BSE introduced the screen based trading system in 1995, whichknown as BOLT (Bombay on – line Trading. System).FUNCTIONS OF STOCK EXCHANGE Maintain Active Trading: Shares are traded on the stock exchanges, enabling theinvestors to buy and sell securities. The prices may vary from transaction to transaction. Acontinuous trading increases the liquidity or marketability of the shares traded on the stockexchanges.Fixation of Prices: Price is determined by the transactions that flow from investorsdemand and the supplier’s preferences. Usually the traded prices are made known to thepublic. This helps the investors to make the better decision. Ensures safe and fair dealings: The rules, regulations and bylaws of the StockExchanges provide a measure of safety to the investors. Transactions are conducted undercompetitive conditions enabling the investors to get a fair deal. Aids in financing the Industry: A continuous market for shares provides a favourableclimate for raising capital. The negotiability and transferability of the securities, investorsare willing to subscribe to the initial public offering (IPO). This stimulates the capitalformation. Dissemination of Information: Stock Exchanges provide information through theirvarious publications. They publish the share prices traded on their basis along with thevolume traded. Directory of Corporate Information is useful for the investor’s assessmentregarding the corporate. Handouts, handbooks and pamphlets provide informationregarding the functioning of the Stock Exchanges. Performance Inducer: The prices of stocks reflect the performance of the tradedcompanies. This makes the corporate more concerned with its public image and tries tomaintain good performance. 1
  17. 17. Self-regulating organization: The Stock Exchanges monitor the integrity of the members,brokers, listed companies and clients. Continuous internal audit safeguards the investorsagainst unfair trade practices. It settles the disputes between member brokers, investors andbrokers. 1
  18. 18. REGULATORY FRAME WORK This Securities Contract Regulation Act, 1956 and Securities and Exchange board ofIndia (SEB1) Act, 1992, provides a comprehensive legal framework. A 3-tier regulatorystructure comprising the ministry of finance, SEB1 and the Governing Boards of the StockExchanges regulates the functioning of Stock Exchanges. Ministry of finance: The Stock Exchange division of the Ministry of Finance haspowers related to the application of the provision of the SCR Act and licensing of dealers inthe other area. According to SEBI Act, The Ministry of Finance has the appellate and thesupervisory power over the SEBI. It has powered to grant recognition to the Stock Exchangeand regulation of their operations. Ministry of Finance has the power to approve theappointments of executives chiefs and the nominations of the public representatives in thegovernment Boards of the Stock Exchanges. It has the responsibility of preventingundesirable speculation.The Securities and Exchange Board of India 1
  19. 19. The Securities and Exchange Board of India even though established in the year1988. Received statutory powers only on 30th January 1992. Under the SEBI Act, a widevariety of powers are vested in the hands of SEBI. SEBI has the powers to regulate thebusiness of Stock Exchanges, other security and mutual funds. Registration and regulation ofmarket intermediaries are also carried out by SEBI. It has responsibility to prohibit thefraudulent unfair trade practices and insider dealings. Takeovers are also monitored by theSEBI has the multi pronged duty to promote the healthy growth of the capital market andprotect the investors.The Governing Board of stockexchanges: The Governing Board of theStock Exchange consists of elected members of directors, government nominees and publicrepresentatives. Rules, by laws and regulations of the Stock Exchange substantial powers tothe executive director for maintaining efficient and smooth day-to day functioning of StockExchange. The Governing Board has the responsibility to maintain and orderly and well-regulated market.The Governing body of the Stock Exchange consists of 13 members of which A. Six members of the Stock Exchange are elected by the members of the Stock Exchange. B. Central Government nominates not more than three members. C. The board nominates three public representatives. D. SEBI nominates persona not exceeding three and E. The Stock Exchange appoints one Executive Director. One third of the elected members retire at annual general meeting (AGM). Theretired member can offer himself for election if he is not elected for two consecutive years. Ifa member serves in the governing body for two years consecutively, he should refrainoffering himself for another two years. 1
  20. 20. The members of the governing body elect the president and vice-president. It needsto approval from the Central Government or the Board. The office tenure for the presidentand vice-president is on year. They can offer themselves for re-election, if they have not heldfor two consecutive years. In that case they can offer themselves for re-election after a gap ofone-year period. VARIOUS STOCK EXCHANGES IN INDA: List of Stock Exchanges in India » Bombay Stock Exchange » National Stock Exchange » Regional Stock Exchanges » Ahmedabad » Bangalore » Bhubaneshwar » Calcutta » Cochin » Coimbatore » Delhi » Guwahati 1
  21. 21. » Hyderabad» Jaipur» Ludhiana» Madhya Pradesh» Madras» Magadh» Mangalore» Meerut» OTC Exchange Of India» Pune» Saurashtra Kutch» UttarPradesh» Vadodara AMONG THESE STOCK EXCHANGES THERE ARE TWO IMPORTANT, THEY ARE: 1) NSE 2) BSENATIONAL STOCK EXCHANGE The National Stock Exchange of India (NSE) situated in Mumbai - is the largest and most advancedexchange with 1016 companies listed and 726 trading members. Capital market reforms in India andthe launch of the Securities and Exchange Board of India (SEBI) accelerated the incorporation of thesecond Indian stock exchange called the National Stock Exchange (NSE) in 1992. After a few years ofoperations, the NSE has become the largest stock exchange in India.Three segments of the NSE trading platform were established one after another. The Wholesale DebtMarket (WDM) commenced operations in June 1994 and the Capital Market (CM) segment wasopened at the end of 1994. Finally, the Futures and Options segment began operating in 2000. Todaythe NSE takes the 14th position in the top 40 futures exchanges in the world.In 1996, the National Stock Exchange of India launched S&P CNX Nifty and CNX Junior Indices thatmake up 100 most liquid stocks in India. CNX Nifty is a diversified index of 50 stocks from 25different economy sectors. The Indices are owned and managed by India Index Services and ProductsLtd (IISL) that has a consulting and licensing agreement with Standard & Poors. 1
  22. 22. In 1998, the National Stock Exchange of India launched its web-site and was the first exchange in Indiathat started trading stock on the Internet in 2000. The NSE has also proved its leadership in the Indianfinancial market by gaining many awards such as Best IT Usage Award by Computer Society in India(in 1996 and 1997) and CHIP Web Award by CHIP magazine (1999).The NSE is owned by the group of leading financial institutions such as Indian Bank or Life InsuranceCorporation of India. However, in the totally de-mutualized Exchange, the ownership as well as themanagement does not have a right to trade on the Exchange. Only qualified traders can be involved inthe securities trading.The NSE is one of the few exchanges in the world trading all types of securities on a single platform,which is divided into three segments: Wholesale Debt Market (WDM), Capital Market (CM), andFutures & Options (F&O) Market.The main objectives of NSE are as follows 1). To establish a nation wide trading facility for equities, debt and hybrid instruments 2). To ensure equal access investors all over the country through appropriate communication network. 3). To provide a fair, efficient and transparent securities market to investors using an electroniccommunication network. 4). To enable shorter settlement cycle and book entry settlement system. 5). To meet current international standards of securities market. Promoters of NSE: IDBI, ICICI, IFCI, LIC, GIC, SBI, Bank of Baroda. Canara Bank, CorporationBank, Indian Bank, Oriental Bank of Commerce. Union Bank of India, Punjab National Bank,Infrastructure Leasing and Financial Services, Stock Holding Corporation fo India and SBE capitalmarket are the promoters of NSE.NSE Nifty:The S&P CNX Nifty (nicknamed Nifty 50 or simply Nifty), is the leading index for large companies onthe National Stock Exchange of India. S&P CNX Nifty is a well diversified 50 stock index accountingfor 22 sectors of the economy. It is used for a variety of purposes such as benchmarking fundportfolios, index based derivatives and index funds. 1
  23. 23. Nifty was developed by the economists Ajay Shah and Susan Thomas, then at IGIDR. Later on, it cameto be owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venturebetween NSE and CRISIL. IISL is Indias first specialized company focused upon the index as a coreproduct. IISL have a consulting and licensing agreement with Standard & Poors (S&P), who are worldleaders in index services.CNX stands for CRISIL NSE Indices. CNX ensures common branding of indices, to reflect theidentities of both the promoters, i.e. NSE and CRISIL. Thus, C stands for CRISIL, N stands for NSEand X stands for Exchange or Index. The S&P prefix belongs to the US-based Standard & PoorsFinancial Information Services.NSE other indices: • S&P CNX Nifty • CNX Nifty Junior • CNX 100 • S&P CNX 500 • CNX Midcap • S&P CNX Defty • CNX Midcap 200BOMBAY STOCK EXCHANGE: 1
  24. 24. The Bombay Stock Exchange Limited (formerly, The Stock Exchange, Mumbai; popularly called TheBombay Stock Exchange, or BSE) is the oldest stock exchange in Asia. It is located at Dalal Street,Mumbai, India.Bombay Stock Exchange was established in 1875. There are around 5,600 Indian companies listed withthe stock exchange, and has a significant trading volume. As of October2006, the market capitalizationof the BSE was about Rs. 33.4 trillion (US $ 730 billion). The BSE SENSEX (Sensitive index), alsocalled the BSE 30, is a widely used market index in India and Asia. As of 2005, it is among the 5biggest stock exchanges in the world in terms of transactions volume.History:An informal group of 22 stockbrokers began trading under a banyan tree opposite the Town Hall ofBombay from the mid-1850s, 1875, was formally organized as the Bombay Stock Exchange (BSE).InJanuary 1899, the stock exchange moved into the Brokers’ Hall after it was inaugurated by James MMacLean. After the First World War, the BSE was shifted to an old building near the Town Hall. In1956, the Government of India recognized the Bombay Stock Exchange as the first stock exchange inthe country under the Securities Contracts (Regulation) Act.1995, when it was replaced by an electronic(eTrading) system named BOLT,or the BSE Online Trading system. In 2005, the status of the exchangechanged from an Association of Persons (AoP) to a full fledged corporation under the BSE(Corporatization and Demutualization) Scheme , 2005 (and its name was changed to The BombayStock Exchange Limited). 1
  25. 25. BSE Sensex:The BSE SENSEX (also known as the BSE 30) is a value-weighted index composed of 30 scrips, withthe base April 1979= 100. The set of companies which make up the index has been changed only a fewtimes in the last 20 years. These companies account for around one-fifth of the market capitalization ofthe BSE.SENSEX, first compiled in 1986 was calculated on a "Market Capitalization-Weighted" methodologyof 30 component stocks representing a sample of large, well-established and financially soundcompanies. The base year of SENSEX is 1978-79. The index is widely reported in both domestic andinternational markets through print as well as electronic media. SENSEX is not only scientificallydesigned but also based on globally accepted construction and review methodology. From September2003, the SENSEX is calculated on a free-float market capitalization methodology. The "free-floatMarket Capitalization-Weighted" methodology is a widely followed index construction methodologyon which majority of global equity benchmarks are based.The growth of equity markets in India has been phenomenal in the decade gone by. Right from earlynineties the stock market witnessed heightened activity in terms of various bull and bear runs. Morerecently, the bourses in India witnessed a similar frenzy in the TMT sectors. The SENSEX captured allthese happenings in the most judicial manner. One can identify the booms and bust of the Indian equitymarket through SENSEX.The values of all BSE indices are updated every 15 seconds during the market hours and displayedthrough the BOLT system, BSE website and news wire agencies.SENSEXcalculation:SENSEX is calculated using a "Market Capitalization-Weighted" methodology.As per this methodology, the level of index at any point of time reflects the total market value of 30component stocks relative to a base period. (The market capitalization of a company is determined bymultiplying the price of its stock by the number of shares issued by the company). An index of a set ofcombined variables (such as price and number of shares) is commonly referred as a Composite Indexby statisticians. A single indexed number is used to represent the results of this calculation in order tomake the value easier to work with and track over time. It is much easier to graph a chart based onindexed values than one based on actual values. .BSE - other Indices:Apart from BSE SENSEX, which is the most popular stock index in India, BSE uses other stockindices as well: • BSE 500 • BSE PSU • BSE MIDCAP • BSE SMLCAP • BSE BANK 1
  26. 26. The Securities and Exchange Board of India The Securities and Exchange Board of India even though established in the year 1988. Received statutory powers only on 30th January 1992. Under the SEBI Act, a wide variety of powers are vested in the hands of SEBI. SEBI has the powers to regulate the business of Stock Exchanges, other security and mutual funds. Registration and regulation of market intermediaries are also carried out by SEBI. It has responsibility to prohibit the fraudulent unfair trade practices and insider dealings. Takeovers are also monitored by the SEBI has the multi pronged duty to promote the healthy growth of the capital market and protect the investors. The Governing Board of stock exchanges: The Governing Board of the Stock Exchange consists of elected members of directors, government nominees and public representatives. Rules, by laws and regulations of the Stock Exchange substantial powers to the executive director for maintaining efficient and smooth day-to day functioning of Stock Exchange. The Governing Board has the responsibility to maintain and orderly and well-regulated market The Governing body of the Stock Exchange consists of 13 members of which Six members of the Stock Exchange are elected by the members of the Stock Exchange.Central Government nominates not more than three members. F. The board nominates three public representatives. G. SEBI nominates persona not exceeding three and H. The Stock Exchange appoints one Executive Director. One third of the elected members retire at annual general meeting (AGM). The retired membercan offer himself for election if he is not elected for two consecutive years. If a member serves in thegoverning body for two years consecutively, he should refrain offering himself for another two years. The members of the governing body elect the president and vice-president. It needs to approvalfrom the Central Government or the Board. The office tenure for the president and vice-president is on year.They can offer themselves for re-election, if they have not held for two consecutive years. In that case theycan offer themselves for re-election after a gap of one-year period. SEBI GUIDELINES TO SECONDARY MARKETS: 1
  27. 27. The Securities and Exchange Board of India even though established in the year 1988. Received statutory powers only on 30th January 1992. Under the SEBI Act, a wide variety of powers are vested in the hands of SEBI. SEBI has the powers to regulate the business of Stock Exchanges, other security and mutual funds. Registration and regulation of market intermediaries are also carried out by SEBI. It has responsibility to prohibit the fraudulent unfair trade practices and insider dealings. Takeovers are also monitored by the SEBI has the multi pronged duty to promote the healthy growth of the capital market and protect the investorsMANUAL MODE OF TRADING: TRADING PROCEDURE BEFORE ONLINE THE TRADING RING: 1
  28. 28. Trading on stock exchanges is officially done in the ring for a few hours from 11.00 A.M to 2.30P.M.Trading before or after official hour is called KERB TRADING. In the trading ring space is provided forspecified and non-specified sections. The members of their authorized assistants have to wear a badge orcarry with them identify cards given by the exchange to enter the trading ring. They carry a Sauda book orconfirmation memos duly authorized by exchange. The stock exchanges operations at floor level are highlytechnical in nature. Non-members are not permitted to enter into stock market. Hence, various stages have tobe completed in executing a transaction at a stock exchange. The steps involved in the methods of tradinghave been given below: A.CHOICE OF BROKER: The prospective investor who wants to buy shares or the investor who wants to sell his shares cannot enterinto hall of the exchange and transact business. They have to act through only member brokers. They can alsoappoint their bankers for this purpose. Since, bankers can become members of stock exchange as per thepresent regulations.So, the first task in transacting business on stock exchanges is to choose a broker of repute or banker. Suchpeople’s can ensure prompt and quick execution of a transaction at the possible price.At present there are 4500 authorized brokers in ISE. PLACEMENT OF ORDER: The next step in planning of order for the purchase or sale of Securities with the broker. The orderis usually by telegram, telephone, letter, fax etc., or in person. To avoid delay it is placed generally over thephone. The orders may take any one of the forms such as at best order, limit order, immediate or cancel order,discretionary order, limited discretionary order, open order and stop loss order.ENTRY OF ORDER INTO THE BOOKS: After receiving the order, the member enters them in his books and the purchase and sale ordersare distributed among his assistants to handle them separately in non-specified and odd-lots.EXECUTION OF ORDER: Big brokers transact their business through their authorized clerk. Small ones out their businesspersonally. Orders are executed in the trading ring of the ISE.Thisworks from 12:00 noon to2:00 p.m discretionary order on all working days from Monday to Friday and a special hour session onSaturday. 1
  29. 29. The floor of the stock exchange is divided into number of markets (pits) according to the natureof security deal in. The authorized clerk/broker goes to the pit and jobbers offer two way quotes for the scripsthey deal in. they act as market makers and provide liquidity to the market. The system has been designed toget the bet lids and offers from the jobber’s book as well as the best buy and sell orders from the book. If thequotation is not acceptable to the brokers, he may make a counter bid/offer. Ultimately the bargains may be closed at a price mutually acceptable to both the parties. In casethe quotation is not acceptable to him, the broker may go to another dealer and make a bargain. All bargainson the stock exchanges are settled by word of mouth and there is no written contract signed immediately bythe parties concerned. Once the transaction is finalized, the deals are recorded in a Chaupri Rough notebookor transaction note or confirmation memos. Soudha block books or confirmation memos are provided by thestock exchange. The details are recorded in these books also. The prices at which different scrips are tradedon a particular day published on the next day in the newspapers. An authorized representative of the stockexchange is also present in the hall to supervise the trading.PREPARATION OF CONTRACT NOTES Usually, the authorized clerks enter the particulars of the business transacted during a particular day in ‘Kacha Sauda Book’ they are transferred to ‘Pucca Sauda Book’, which are maintained separately for the ready delivery contracts. Then the broker/authorized clerk prepares a contract note. A contract note is a written agreement between the broker and his client for the transaction executed. It contains the details of the contract made for the purchase/sale of Securities, the brokerage chargeable, name of the company, number of shares bought/sold, net rate, etc., it is prepared in a prescribed from and a copy of it is also sent to the client. PLACING ORDER WITH THE BROKER:  The next step is placing an order for the purchase/sale of securities with the broker. The order is usually placed over telephone, fax. It can also take the form of telegram or letter or in person. The order placed may be any of the following varieties (largely classified on the basis of price limits that it imposes.).  AT BEST ORDER (OR) BEST RATE ORDER: 1
  30. 30. “Buy 1000 XYZ ltd.”, it does not specify any price. It means buy XYZ Ltd. Securities at the prevailingmarket price. These are executed very fast as there is no price limits.  LIMIT ORDER:“Buy 100 XYZ Ltd. At Rs 100”, it is an order for the purchase of shares at a specified price by the client.(Rs100)  LIMITED DISCRETIONARY ORDER:“Buy 1000 XYZ Ltd., around Rs.100”. it gives discretion to the broker. The price can be a little above Rs100. How much discretion is implied depends on how the broker and client define around.  OPEN ORDER:It is an order to buy or sell without fixing any time or price limit on the execution of the order.  STOP LOSS ORDER:“Buy 100 XYZ Ltd. @ Rs 12 to stop Rs 10”. It means buy 100 XYZ Ltd securities at the market rate of Rs.12 but if on the same day the price falls to Rs. 10 immediately sell of the securities /shares. Thus an attempt ismade to limit the loss of sudden unfavorable shift in the market.  NET RATE ORDER:“Buy 1000 XYZ Ltd. @Rs.30 net “would mean that the client is willing to buy 1000 XYZ Ltd. For no morethan Rs.30 per security inclusive of brokerage payable to the broker. Net rate is purchase or sale rate minusbrokerage.  MARKET RATE ORDER:Market rate is net rate plus brokerage for purchase and net minus brokerage for sale. So, “Buy 1000 XYZLtd. @Rs.30 market” would mean that the client is willing to pay Rs.30 plus brokerage for each security ofXYZ Ltd.DISADVANTAGES OF MANUAL TRADING: 1) Manual records are very difficult to be maintained safe 2) Manual records are subject to greater human error 1
  31. 31. 3) Business can see itself in fines and penalties if records are lost 4) Manual records are easier to be falsified, modified, altered or vanished, as compared to computerized records which become very safe when using passwords, firewalls, and back-ups.DEPOSITORY SYSTEM:A "Depository" is a facility for holding securities, which enables securities transactions to be processed bybook entry. To achieve this purpose, the depository may immobilize the securities or dematerialise them (sothat they exist only as electronic records).India has chosen the dematerialisation route. In India, a depositoryis an organisation, which holds the beneficial owners securities in electronic form, through a registeredDepository Participant (DP). A depository functions somewhat similar to a commercial bank. To avail of theservices offered by a depository, the investor has to open an account with a registered DP.BENEFITS OF DEPOSITORY SYSTEM:In the depository system, the ownership and transfer of Securities takes place bymeans of electronic book entries. At the outset, this system rids the capital market ofthe danger related to handling of paper. NSDL provides numerous direct and indirectbenefits, like: Elimination of bad deliveries-in the depository environment, once holding of aninvestor are Dematerialized, the question of bad delivery does not arise i.e. theycannot be hold “under objection”. Elimination of all risks associated with physical certificates-dealing in physicalSecurities have associates security risks of stocks, mutilation of certificates, loss ofcertificates during movements through and from the registrars, thus exposing theinvestor to the cost of obtaining duplicate certificates and advertisement, etc.., Thisproblem does not arise in the depository environment. SERVICES AVAILABLE IN DEPOSITORY SYSTEM: NSE AND BSE. 1
  32. 32. NSDL: NATIONAL SECURITY DEPOSITORY LIMITED Although India had a vibrant capital market which is more than a century old, the paper-based settlement of trades caused substantial problems like bad delivery and delayed transfer of title till recently. The enactment of Depositories Act in August 1996 paved the way for establishment of NSDL, the first depository in India. This depository promoted by institutions of national stature responsible for economic development of the country has since established a national infrastructure of international standards that handles most of the securities held and settled in dematerialized form in the Indian capital market. Using innovative and flexible technology systems, NSDL works to support the investors and brokers in the capital market of the country. NSDL aims at ensuring the safety and soundness of Indian marketplaces by developing settlement solutions that increase efficiency, minimize risk and reduce costs. At NSDL, we play a quiet but central role in developing products and services that will continue to nurture the growing needs of the financial services industry. In the depository system, securities are held in depository accounts, which is more or less similar to holding funds in bank accounts. Transfer of ownership of securities is done through simple account transfers. This method does away with all the risks and hassles normally associated with paperwork. Consequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificates.Promoters/ShareholdersNSDL is promoted by Industrial Development Bank of India Limited (IDBI) - the largest developmentbank of India, Unit Trust of India (UTI) - the largest mutual fund in India and National Stock Exchangeof India Limited (NSE) - the largest stock exchange in India. Some of the prominent banks in thecountry have taken a stake in NSDL.Promoters • Industrial Development Bank of India Limited (Now, IDBI Bank Limited) • Unit Trust of India (Now, Adminstrator of the Specified Undertaking of the Unit Trust of India) • National Stock Exchange of India LimitedOther Shareholders 1
  33. 33. • State Bank of India • Oriental Bank of Commerce • Citibank NA • Standard Chartered Bank • HDFC Bank Limited • The Honkong and Shanghai Banking Corporation Limited • Deutsche Bank • Dena Bank • Canara Bank • Union Bank of IndiaCDSL: CENTRAL DEPOSITORY SERVICES LIMITED:A Depository facilitates holding of securities in the electronic form and enables securities transactionsto be processed by book entry by a Depository Participant (DP), who as an agent of the depository,offers depository services to investors. According to SEBI guidelines, financial institutions, banks,custodians, stockbrokers, etc. are eligible to act as DPs. The investor who is known as beneficial owner(BO) has to open a demat account through any DP for dematerialization of his holdings and transferringsecurities.The balances in the investors account recorded and maintained with CDSL can be obtained through theDP. The DP is required to provide the investor, at regular intervals, a statement of account which givesthe details of the securities holdings and transactions. The depository system has effectively eliminatedpaper-based certificates which were prone to be fake, forged, counterfeit resulting in bad deliveries.CDSL offers an efficient and instantaneous transfer of securities.CDSL was promoted by BombayStock Exchange Limited (BSE) jointly with leading banks such as State Bank of India, Bank of India,Bank of Baroda, HDFC Bank, Standard Chartered Bank, Union Bank of India and Centurion Bank.Promoters &shareholdersCDSL was promoted by Bombay Stock Exchange Limited (BSE) inassociation with Bank of India, Bank of Baroda, State Bank of India and HDFC Bank. BSE has beeninvolved with this venture right from the inception and has contributed overwhelmingly to the fruitionof the project. The initial capital of the company is Rs.104.50 crores. The list of shareholders witheffect from 11th December, 2008 is as under.Sr. Name of shareholders Value of % termsNo. holding (in to total Rupees Lacs) equity1 Bombay Stock Exchange Limited 3,825.46 36.612 Bank of India 1,000.00 9.573 Bank of Baroda 1,000.00 9.57 1
  34. 34. 4 State Bank of India 1,000.00 9.57 5 HDFC Bank Limited 1,500.00 14.36 6 Standard Chartered Bank 750.00 7.18 7 Canara Bank 674.46 6.45 8 Union Bank of India 200.00 1.91 9 Bank of Maharashtra 200.00 1.91 10 The Jammu and Kashmir Bank 200.00 1.91 Limited 11 The Calcutta Stock Exchange 100.00 0.96 Association Limited 12 Others 0.08 -- TOTAL 10,450.00 100.00 • • • DEMATERIALIZATION Dematerialization is a process by which physical shares of investors are converted to anequivalent number of Securities in electronic form and credited in the investor’s account with his DepositoryParticipant. Dematerialized trading is now compulsory for all investors. Beginning offirst week of January 1999, investor can trade in specific scripts in the Demoralizationform. They can provide and receive delivery only in a Dematerialized form and sharecertificate will not be changed for these scripts. A depository is an organization where Securities of shareholder are held in theelectronic form at the request of the shareholder through Depository Participant (DPs).The system is comparable to that in a bank. If an investor wants services offered by adepository, he would have to open an account with it through a DP- similar to openingan account with any other branches of the bank in order to avail of its services. 1
  35. 35. Dematerialization is a process by which physical certificates of an investor are takenback by the company/registrar and actually destroyed and an equivalent number ofSecurities are credited in the depository account of those investors. A DepositoryParticipant is investor’s agent in the system. He maintains investor’s Securitiesaccount and intimates the status of holdings from time to time to the investor.FEATURES OF DEMAT: • In case you want to convert your existing shares into Demat format, you can view securities available for Demat • You can view the details of your transactions including settlement date, pay in date, pay out date using the View Settlement calendar optionOPENING CLEARING ACCOUNTS FOR SETTLEMENT OF TRADES: All the trades executed at the exchanges are settled by theclearing member (CM), as in the case of Securities in the physical form. Tosettle trades in Demat segment each CM should open one clearingaccount with any of the DP.The procedure for opening clearing accounts is: Approach a DP. Fill up an account opening form. Sign on an agreement with the DP. Application is forwarded to NSDL by DP. NSDL allots a number identified as CM-BP-ID. DP opens account and an account number is providing along with CM- BP-ID to the clearing member. 1
  36. 36. • After opening an account with the DP the investor should surrender the physical certificates held in his name to a depository participant. These certificates will be sent to the respective companies where they will be cancelled after dematerialization and will credit the investors account with the DP. The securities on dematerialisation will appear as balances in the depository account. These balances can be transferred like the shares held in physical form. Dematerialised shares are in the fungible form and do not have any distinctive or certificate numbers .The securities in the demat can again be converted into physical form which is called as rematerialisation. Safety to the investor* Securities Exchange Board of India (SEBI) has laid down certain rules and regulations forgetting registered as a depository participant. With the recommendation of the Depository andSEBIs own independent evaluation a DP will be registered under SEBI.* The investors account will be credited/debited by the DP only on the basis of valid instructionfrom the client.* The system driven mandatory reconciliation is done between the DP and NSDL.* Periodic inspections of both DP and R&T agent are conducted by NSDL* The data interchange between NSDL and its business partners is protected by standardprotection measures such as encryption.* No direct communication links exist between two business partners and all communications arerouted through NSDL.* A statement of account is received periodically by the investors. NSDL sends statement ofaccount to a random sample of investors a s a counter check.* The investor has the right to approach NSDL if the grievances of the investors are not resolvedby the concerned DP. Advantages of dematerialization: • There is no risk due to loss on account of fire, theft or mutilation. • There is no chance of bad delivery at the time of selling shares as there is no signature mismatch. • Transaction costs are usually lower than that in the physical segment. • The bonus /rights shares allotted to the investor will be immediately credited into his account. • Share transactions like sale or purchase and transfer/transmission etc. can be effected in a much simpler and faster way. • A safe and convenient way to hold securities • ; Immediate transfer of securities; • No stamp duty on transfer of securities; • Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.; • - Reduction in paperwork involved in transfer of securities; 1
  37. 37. • - Reduction in transaction cost; - No odd lot problem, even one share can be sold; • - Nomination facility; • - Change in address recorded with DP gets registered with all companies in which investor holds securities electronically eliminating the need to correspond with each of them separately; • - Transmission of securities is done by DP eliminating correspondence with companies; • - Automatic credit into demat account of shares, arising out of bonus/split/consolidation/merger etc. • - Holding investments in equity and debt instruments in a single account. • Disadvantages of Demat account - • There is no as such disadvantage of Demat account. And even if there is any disadvantage of Demat account than by law, In India we Must have to use Demat accounts to do share transactions. • A. Procedure for purchasing dematerialized securitiesThe 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 securitiesThe procedure for selling dematerialized securities in stock exchanges is similar as sellingphysical securities. The only major difference is that instead of delivering physicalsecurities to the broker, the investor instructs his DP to debit his demat account with the 1
  38. 38. number of securities sold by him and credit the brokers clearing account. The procedurefor 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. The Evolution of Stock Brokers with Online TradingAn online stock broker is an investor’s means of buying and selling shares via the Internet, just like a regular stock broker, wherein an individual or a brokerage firm acts as one’s link to the stock exchange. Are such services necessary? Is it, after all, not true that anyone can engage in online trading today, and that it is possible to invest in stocks with one’s own computer?The fact is, only a registered (SEBI) stock broker can buy and sell shares in the stock market. Such an individual is registered on one or many stock exchanges and is authorized to transact on behalf of others. Apart from that, an online stock broker is very valuable to investors who are not technically inclined and have no or little prior knowledge of stock trading. Such investors can use their own online stock trading accounts to obtain necessary information and place online trades at any time of the day. Others, however, still require a human interface - a real person who will place trades on their behalf.INTRODUCTION TO ONLINETRADINGThe Internet revolution has been changing the fundamentals of our society. It shapes the way wecommunicate and the way we do business. It brings us closer and closer to vital sources of information.It provides us with means to directly interact with service-oriented computer systems tailored to ourspecific needs; therefore, we can serve ourselves better by making our own decisions. This prevailingshift of the business paradigm is reshaping the financial industry and transforming the way peopleinvest.In the old days, because of the limitations of communications technology, Wall Street was the centerfor most of the Stock Exchange and Brokerage firms. Today, at this millennial transition, investors can 1
  39. 39. use revolutionary Internet Client-Server technology to trade stocks nearly anywhere, anytime,independent of brokers fees and service limitations.Definition: Online TradingThe act or practice of buying and selling securities over the Internet. Generallyspeaking, online trading occurs when an investor makes an order to a brokeronline; the broker then executes the order through the ordinary means. Onlinetrading became more common in the 1990s as more brokerages offered theirservices online, often for a small fee rather than a commission on the trade.Online trading should be distinguished from electronic trading, which occurs on anexchange. See also: Discount brokerage. Online trading in India is the internet basedinvestment activity that involves no direct involvement of the broker. There are many leading onlinetrading portals in India along with the online trading platforms of the biggest stock houses like theNational stock exchange and the Bombay stock exchange. The total portion of online share tradingIndia has been found to have grown from just 3 per cent of the total turnover in 2003-04 to 16 per centin 2006-07Facilities of the online trading in India:The investor has to register with an online trading portal and get into an agreement with the firm totrade in different securities following the terms and conditions listed down on the agreement. The orderprocessing is done in correct timings as the servers of the online trading portal are connected to thestock exchanges and designated banks all round the clock. They can also get updates on the trading andcheck the current status of their orders either through e-mail or through the interface. Brokerage alsoprovides research content on their websites, such that the clients can take their own decisions on stocksbefore investing.Products and services of the online trading in India:Varieties of financial products and services of the online trading are available in India such as: • Life insurance • Equities, • Portfolio management 1
  40. 40. • Mutual funds • Loans • General insurance • Share trading • Commodities trading • Financial planning.National stock exchange and Bombay stock exchange: In spite of many private stock housesat present involved in online trading in India, the NSE and BSE are among the largest exchanges. Theyhandle huge daily trading volumes, supporting large amounts of data traffic, and possessing acountrywide network. The automated online systems used for trading by the national stock exchangeand the Bombay stock exchange are the NIBIS or NSEs Internet Based Information System and NEATfor the national stock exchange and the BSE Online Trading system or BOLT for the Bombay stockexchange. • .Online trading is termed as selling products or good services through Internet. • Customers willing to purchase the product should provide the credit card details and personal contact information online and once the payment is being made the product is shipped to the address of the customer as provided earlier generally after two business days. • The product is shipped to the customer from the retailer only. • Online trading is treated as the most effective process to make money with the help of Internet by sitting at home only. • But is not easy and simple as it requires constant supervision and once people attains the appropriate skill can gain profit in huge amount. • In order to make a business successful a plan need to be prepared first then multiple sources of income policy should be opened so that the plan at later time should be incorporated in to the businessCompanies provide Online Trading in India:-Online Trading in India:: India Stock :: BSEIndia:: A1 Technology Online Trading :: JV Financial Online:: Best online trading :: Kotak Securities Online Trading 1
  41. 41. :: Bonanza Online Trading :: Mansukh Securities Online Trading:: BullishIndian.com Online Trading :: Quote.com Online Trading:: Express Computer Online Trading :: SHCL Online Trading:: Geojit Securities Online :: STC Online Trading:: ICICI Online Trading :: Technical Analysis Trading:: Indiabulls Online :: Union Bank of India Online Trading:: India Insurance :: Best Online TradingFEATURES OF ONLINE TRADING: The Online Trading is having many featureswhich make it most suitable for the investors to go for. Some of these features are asfollows:Features of information.The Internet can provide a new sense of control over your financial future. The amount ofinvestment information available online is truly astounding. Its one of the best aspects ofbeing a wired investor. For the first time in history, any individual with an Internetconnection can: • Know the price of any stock at any time • Review the price history of any stock in chart format • Follow market events in-depth • Receive a wealth of free commentary and analysis about stock markets and the global economy • Conduct extensive financial research on any company • Controlofyourmoney: One of the great appeals of using an online trading account is the fact that the account belongs to you, and is under your direct control. When you want to buy or sell stock, you no longer need to call your broker on the phone; hope that he is in the office to place your order; possibly 1
  42. 42. argue with the broker about the order; and hope that the transaction is executed instantly.Access to Market:At the most basic level, an online trading account gives you more agility in buying andselling stocks. This is through sophisticated information streams, dedicated tradingplatforms and sophisticated tools for accessing the markets.Ensures the best price for Investor:Every broker house aims at providing the investor with the best price available. Also dueto the high level of transparency with regard to display of information relating to thespecific stocksand company profiles, you will be able to get the best quote for your orders.Offers grater transperancy:Online trading offers you greater transparency by providing you with an audit trail. Thisinvolves a complete integrated electronic chain starting from order placement, to clearingand settlement and finally ending with a credit into your depository account. All thesestages are subject to inspection, thus bringing in transparency into the system.Enables hassle free trading:Online trading integrates your bank account, your trading account and your demataccounts, which leads to easy and paperless trading for you. 1
  43. 43. You as an Investment online customer will be able to execute the entire tradingtransaction, right from logging on to our site, to the execution and settlement of yourbank account, in a very short period of time.Trading on the net, gives even the smallest retail investor access to information thatearlier was available only to the big traders. This provides a level playing field for allinvestors in the securities market.This method of trading reduces the settlement risk for the investor, as in this case allshort sell orders are squared off at the specified cut-off time and not allowed to be carriedforward.In the case of a demat account your demat account is checked by us before executingyour sell transaction. This reduces the settlement risk for the buyer, who is assured of thedelivery of the securities and for you as a seller of the securitiesEvery trade is confirmed immediately and you will receive an on-screen confirmationfollowing every trade with full details for your records. This avoids costly errors that wouldhave been discovered when it is too late.Your Bank, Depository and online account are integrated for your convenience. Variousbroking houses provide access to many of the popular banks.Broking houses work hard to keep our account and personal information secure. Fromupdated security technology to advanced fraud prevention measures, they have thepeople and tools in place to provide a strong defense against electronic scams and fraud. 1
  44. 44. BENEFITS OF ONLINE BROKING1) Less Costly:The most significant advantage of the Online broking is the cost reduction in thebrokerage. Due to the power of the Internet one has the privilege of becoming the clientsof really large brokerages with the benefits of enjoying the low charges hithelio beforeenjoyed only by the big players. As the DP account has got linked to the trading accountmost players do not charge a minimum transaction cost thus truly allowing one to buy asingle share and achieve meaningful rupee price averaging whatever be your buyingpower.2) Peace of Mind:One can never have complete peace of mind but online investing does away with thehassles of filling up instruction slips, visits to the broker for handing over these slips andconsequent costs.3) Keeping Records:The site one trades on keeps a record of all transactions down to unexecuted orders andcancelled orders thus keeping one abreast of all your transactions 24 hours a day. Nopaperwork means more time at one’s disposal for research and analysis.4) Access to Information and investment Tools:Most online investing sites have a wealth of information for their registered members.This includes research reports, results, analysis and even gossip and the buzz in themarket.5.) Unparalleled Liquidity: 1
  45. 45. The. bank account linked with the trading account invariably has an A TM free. Mostpartner banks offer Internet banking as well. This results in one’s money becomingavailable to him whenever he like from his trading account. Conversely in case he spot anopportunity in the market he can immediately allocate money from his savings account tohis trading account and make profits.6.) Unparalleled Safety:Most sites are secure using 128-bit algorithms -highest available commercially anywherein the world. Moreover even if somebody broke in and tampered with one’s account themoney from the stocks he sold or the stock bought from the money in his account is in hisaccount only.7.) Reduces the settlement risk:This method of trading reduces the settlement risk for the investor, as in this case noShort sale is possible i.e. the seller will not be able to sell the securities unless he hastheir actual possession. In the case of a demat account (required for an onlinetransaction), when a seller wants to sell the securities, his demat account is checked bythe Depository Participant before executing the sale transaction. This reduces thesettlement risk for the buyer, who is assured of the delivery of the securities.8.) Offers greater transparency:Online trading gives greater transparency to the investors by providing them an audittrail. This involves a complete integrated electronic chain starting from order placement,to clearing and settlement and finally ending with a credit to the depository account ofthe investor. All these stages are subject to inspection, thus bringing in transparency intothe system.9.) Ease of trade:It is the ease of doing the trade through net, with a click of mouse, one can buy or sellany share that is dematerialized. 1
  46. 46. Other than the above-mentioned advantages, Internet trading provides some additionaladvantages to the investors, brokers and also helps the nation to channelize theresources. Net trading would increase competition in the market hence increase in thebargaining power of the investors. The entire communication between the investor,broker and exchange would take place within milliseconds.PROBLEMS OF ONLINE BROKINGThere is a flip side to everything and online trading is no exception.ChartSource:- www.lse.co.in27% Loyality is of traditional broker23% people says that online trading is more costly than manual trading.21% people not prefer online trading because of lack of knowledge.So, the main problems of online trading are as follows:1.) "Server not found": 1
  47. 47. This may appear on one’s screens when he is desperately trying to get out of anunprofitable position. Some of the online sites are providing a telephone number for usein case their sites are overloaded or their server down.2.) Connectivity of the Broker with NSE:Recently ICICI Direct had a connectivity problem with the NSE for two and halfhoursduring trading hours. This problem is rare but be alive to its possibility.3.) Cyber attack:In the event of a malicious attack on the systems of one’s broker he is protected only ifthe company is taking proper precautions against such attacks and if proper backup isregularly been taken. He may like to choose a brokerage that has a stated security policyand contingency plan in place.4.) Non-availability of a seamless interface:As a client one will access the NSE through a server of the online brokerage and this mayinvolve queuing delays. If a number of client access the server the server takes its owntime sending the orders to the NSE server. He must check out the seamlessness of thisinterface before selecting an online brokerage. The faster the orders are processed themore seamless is the interface.5.) Non- availability of personalized advice:If one like to ask his broker "Aaj kya achcha lag raha hai" he may not be able to do so. Ifhe want advice on a particular stock in his portfolio he may not even be able to get that.6.) Margin:If Internet trading alone is not fast and furious enough; many people are trading onmargin. That is where the brokerage firm lends you money by leveraging his account,allowing him to buy a large amount of securities by putting up only a small amount ofmoney. He may have forgotten what he read in the small print of his agreement, but thebrokerage firm has the right to change the maintenance margin requirements withoutany warning or notice to him. In fact, the firm has the right to liquidate his securities 1
  48. 48. holdings (and it can pick and choose which ones) without any notice to one if he fail tomeet the margin call. And there he was leveraged to the hilt, hoping to hit a home runwhen he discovered that he is required to make a large deposit that he cannot make. Thenext thing one know, the firm is selling off his securities at a point in time that is not thebest for him. These are the perils of trading on margin.7.) Little use of advisory services:The advisory services being promised by the brokers would be of little use to investorslooking for an insight into the market. Many would not like to rely on research reports,which are there for all. So, net investors will have to do their own research and take theirown decision, whether wild or wise.8.) Increased charges:Some of the brokers are of the view that they would have to provide advisory services tothe customers. But with increased volumes, they will have to follow the internationalpractice of charging a little more than the normal charges from a customer looking forpersonal advice.WHY PEOPLE ARE BENDING TOWARDS ONLINE TRADINGSeveral broking houses now offer online trading facilities. You can trade online with e-brokerages such as ICICI Direct, Kotakstreet, India bulls, India info line’s 5paisa.com andHDFC securities.If you are already comfortable trading with your regular broker, here are few reasons whyyou may consider switching to trading online, or at least another avenue of trading. anobvious advantage of online trading is that your transaction would be virtually paperless.Your trading account would be linked to your demat and bank account, ensuring a smoothtransaction process. This is especially helpful in the extent T+2 settlement system, whereyou have just two days to settle your transaction.The normal process of issuing of delivery note, in case of a sale, or arranging for apayment in case of purchaser of shares, is all taken care of the minute your order is 1
  49. 49. executed online. The absence of manual intervention ensures that you are completely incontrol of all transaction.There is also little room for error, as your order is always confirmed before it is executed.You can also make better decision as you have a clear record of all your previoustransaction. When you trade offline, a demat statement is normally sent to you only on aquarterly basis .keeping track of your portfolio can be a hassle in such a case. The internet can provide a new sense of control over your financial future. The amount ofinvestment information available online is truly astounding. Its one of the best aspect ofbeing a wired investor for the first time in history, any individual with an internetconnection can: • Know the price of any stock at any time • Review the price history of any stock in chart format • Follow market events in-depth • Receive a wealth of free commentary and analysis about stock markets and globe economy. • Conduct extensive financial research on any company • Talk with other investors around the worldAt investsmart you can get real-time stock quotes, daily roundups of the stock market,experts commentary, and a deep community of fellow investors.Convenience is probably the greatest advantage online trading offers investors. if don’thave time to trade during market hours ,perhaps you are at work, you can log on theweb-trading site and place your order offline, during off market hours. Your order wouldjoin the queue and be expected the next day. You would need to enjoy a goodrelationship with your broker, for you to be able to reach him in the late hours. For non-resident Indians (NRI), trading online is perhaps their easiest option to invest in the Indianstock markets.What is more, the time difference, in some cases, can work to their advantage .Antony,an NRI-based in New York, places his order in the evening after work, when it is day time 1
  50. 50. India and the markets are open. We also have access to considerable information online.By just logging on to ICICI direct online, for instance, we can get the latest news, marketinformation and company research.Moreover, if our connection is maddeningly slow and we want to get your order executedimmediately, most e-brokerages also provide a facility to trade offline by placing ourorder via the phone.PROCEDURE FOR ON-LINE TRADING:An Investor interesting in trading through Internet shall such as filling the accountopening form of -broker, copies of identity proof have to, firstly register himselfwith an Internet brokerage firm. Some formalities, copy of residence proof aremade to register himself with the e-trader. Secondly, the investor would berequired to open a bank account with a scheduled bank and sufficient balanceshould be kept in the account. Thirdly he would be required to open account witha depository participant because only dematerialized shares can be traded onInternet. The client places order via the net by logging on to his Broker’s site. The broker accepts and executes the order and places it with the exchange The exchange accepts the order after checking the share limit for the day. 1
  51. 51. The broker makes the payment either directly via the client bank account or pays through its own account and recovers it later from the client. The exchange receives money and completes the settlement. The client is intimated about the settlement either through the demat or via e-mail.So, generally following steps are followed while doing the trading through theInternet:Step-I:Those investors interested in doing the trading over Internet system, that is,NEAT- ISX (NSE), should approach the brokers and register with the Stock Broker.Step-2:After registration, the broker will provide to them a login name, password and apersonal identification number (PIN).Step-3:Actual placement of an order, Using the place order window as under can thenplace an order:(a) First by entering the symbol and series of stock and other parameters such asquantity and price of the scrip on the place order window.(b) Second, fill in the symbol, series and the default quantity.Step-4: 1
  52. 52. It is the process of review. Thus, the investor has to review the order placed byclicking 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 thesend option.Step-6:The investor will receive an "Order Confirmation" message along with the ordernumber and the value of the order.Step- 7:In case the order is rejected by the Broker or the Stock Exchange forcertain reasons such as invalid price limit, an appropriate message will appear atthe bottom of the screen. At present, a time lag of about ten seconds is there inexecuting the trade.Step-8:It is regarding charging payment, for which there are different modes. Somebrokers will take some advance payment from the, investors and will fix theirtrading limits. When the trade is executed, the broker will ask the investor fortransfer of funds by the investor to his account.When was online trading introduced in INDIA?Online trading started in India in February 2000 when a couple of brokers started offeringan online trading platform for their customers. 1
  53. 53. THE MECHANICS OF ONLINE TRADING CLIENT BROKER STOCK EXCHANGE Accepts the Accepts the orderPlaces an order on order, Checks after checking the the net on the the client’s scrip limit of the broker’s website Identity and broker for the day through the places the distinctive I.D. order with the code stock exchange Executes the orderThe settlement ofthe deal (buy/sellorder) getsreflected in hisDemat account. Pays the Exchange The client is though his owns intimated about Receives the account and the execution of money and receives it fromthe deal by e-mail. completes the the client Pays the broker settlement account. pending physical delivery.The benefits of investor due to Online Investing:a) Independence and freedom due to enjoyed by an individual access to the markets: This isconceivably the greatest advantage of online brokerages. A novice investor with an Internet connectioncan know there all time stock quotes, historical stock price trends, have a handle on market events, 1
  54. 54. access vast amounts of economic and market analysis, do research on firms, and interact with otherinvestors via forums or chat rooms. This, in combination with time, can transform even the most noviceinvestor with an active interest in investments into a knowledgeable and powerful investor.b) Elimination of the “middle man”:Investing online gives the investor a sense of control over their wealth. Buying and selling of stock nolonger requires another individual to carry it out. It saves the investor the added worries that come withbusy phone lines; broker not being in, etc. when wanting to do an important trade. It can be donewhenever and wherever by the Investor themselves.c) Elimination of Losses on account of Brokers: Most brokers live on commissions, hence the tacticsused by them are in the favor of the broker first, the brokerage house next and finally the client. Onlinebrokerages pay financial advisors a fixed salary, thus eliminating the chance for an investor doingunnecessary trades for the benefit of the brokerage firm and the broker.d) Inexpensive and affordable commission charges: Commissions per trade online are much lowerthan when compared to that charged by traditional brokerage houses like Merrill Lynch, etc. This is thefulcrum on which online brokerages leverage. Cheap transaction costs along with the immense amountaccessible online are the biggest reasons for the clients to move online. Traditional brokerage housese) Internet as an InformationSuperhighway: Information related to stocks, companyFundamentals, etc., which were once only available to licensed brokers, are now at the finger tips ofanyone and everyone. Online brokerages are inconstant endeavor to bridge the gap between the investorand the market.f) Diverse range of investment products and choices: Online brokerages are offering moreProducts to the consumer, so as to give the consumer a wider choice and also to accommodateconsumers that have niche tastes. Investors can invest in stocks, bonds, mutual funds, mortgages.g) Speed of trade execution: Keeping time in mind, online trading is much quicker – as far asaccessibility and availability to investment information and execution of trades areconcerned. Onlinehave decreased the time for total completion of a trade from the regular T+3 days to a matter ofminutes.The costs borne by an Individual Investor from Online Investinga) Technical Reliability: The greatest disadvantage of online trading is the inability of a network to befail-safe. Computers in spite of the technological advances are by no means perfect. There are variousthings that could go wrong like failure to log on to the network, network blackout due to failure power,server crash resulting in site failure, traffic overload thuscausing site freeze. Site freeze can happen on extremely demanding days with large amounts of ordersgoing over the networks.b) The investor is alone: Another disadvantage may be the penalty of a bad investment. 1
  55. 55. The do it yourself attitude that empowers the investor over his own money, can give a sense ofautonomy previously not experienced when dealing with traditional brokerages. But it can alsospell investment failure.The Limitations of Online Investing to an individual investor:Besides advantages and disadvantages, there exists the possibility of limitations of what onlinebrokerages can do for an individual investor. Though the Internet has allowed more players into theinvestment playing field, some investors like the institutional investors still have an advantage over theindividual investors in spite of the Internet and all its advantages. It can be assertively said, “Size doesmatter”.Firstly, because of the sheer size of resources and contacts, institutional investors almost always getexclusive access to the hottest Initial Public Offering (IPO) deals before it goes into the markets.Individual investors usually gain access to these stocks after the initial price gain is already lost. Onlinebrokerages do offer IPO deals –provided the trading account has between $100,000 to $500,000.Client Broker RelationshipKnow Your Client:The stock Exchange must ensure that brokers have sufficient, verifiable informationabout clients, which would facilitate risk evaluation of clients.Broker- Client Agreement:Brokers must enter into an agreement with clients spelling out all obligations and rights.This agreement should also inter alia, the minimum service standards to be maintainedby the broker for such service specified by SEBI/Exchange for the internet based tradingfrom time to time. Exchange will prepare a model agreement for this purpose. The brokeragreement with clients should not have any clause that is less stringent/contrary to theconditions stipulated is the model agreement.Investor Information:The broker web site providing the internet based trading facility should containinformation meant for investor protection such as rules and regulations affecting clientbroker relationship arbitration rules, investor protection rules etc. The broker web site 1