A PROJECT ON ONLINE TRADING AND DE-MATERLISATION DE-MATERLISATION
CONDUCTED AT
ITI FINANCIAL SERVICES LTD BY DOKIPARTHI SANTHOSH KUMAR ROLL.NO: 09JE1E0046 09JE1E0046 Submitted in partial fulfillment of award of Degree of
MASTER OF BUSINESS ADMINISTRATION
ESWAR COLLEGE OF ENGINEERING, KESANUPALLI (V), NARSARAOPET (M), GUNTUR (DT)
1
CERTIFICATE
This This is to cert certif ify y that that the the proj projec ectt enti entitl tled ed “INVE “INVESTM STMENT ENT IN EQUITI EQUITIES ES WITH WITH REFERE REFERENCE NCE TO
submit itte ted d to to the the ITI FINAN FINANCIA CIAL L SERVICE SERVICES S LTD” subm
JNTU JNTU
KAKINADA UNVERSITY in partial fulfillment for the award of degree of Master of Business Administration has been carried out by Mr. BADIRI SAI BABU Hall-Ticket
Number 09KP1E0005 , who is a bonafide student of NRI INSTITUTE OF TECHNOLOGY (NRIIT), VISADALA ROAD, GUNTUR for the academic year 2009-11.
HEAD
PRINCIPAL
2
CERTIFICATE
This This is to cert certif ify y that that the the proj projec ectt enti entitl tled ed “INVE “INVESTM STMENT ENT IN EQUITI EQUITIES ES WITH WITH REFERE REFERENCE NCE TO
submit itte ted d to to the the ITI FINAN FINANCIA CIAL L SERVICE SERVICES S LTD” subm
JNTU JNTU
KAKINADA UNVERSITY in partial fulfillment for the award of degree of Master of Business Administration has been carried out by Mr. BADIRI SAI BABU Hall-Ticket
Number 09KP1E0005 , who is a bonafide student of NRI INSTITUTE OF TECHNOLOGY (NRIIT), VISADALA ROAD, GUNTUR for the academic year 2009-11.
HEAD
PRINCIPAL
2
CERTIFICATE This is to certify that the project report titled “INVESTMENT IN EQUITIES WITH REFERENCE TO ITI FINANCIAL SERVICES LTD” submitted in partial fulfillment for
the award of MBA Programme of Department of Business Management, JNTU KAKINADA UNVERS UNVERSITY ITY,, KAKINA KAKINADA, DA, was carried carried out by Mr. under my Mr. BADIRI BADIRI SAI BABU, under guidance. This has not been submitted to any other university or institution for the award of any degree / diploma / certificate.
Name and Address of the Guide
Signature of the Guide
3
DECLARATION I hereby declare that this project report titled “INVESTMENT IN EQUITIES WITH REFERENCE TO NRI INSTITUTE OF TECHNOLOGIES”
submitted by me to the Department of Business Management,
JNTU
KAKINADA UNVERSITY, KAKINADA, is a bonafide work undertaken by me and it is not submitted to any other university or institution for the award of any degree / diploma / certificate or published any time before.
Place: Date:
(BADIRI SAI BABU)
4
ACKNOWLEDGEMENT
I express my gratitude to Mr. Shiva Kumar for giving me this opportunity to carry out the project work on “INVESTMENT IN EQUITIES” in Ventura Securities.
I also express my sincere thanks to the Staff Of ITI FINANCIAL SERVICES LTD who were of ready help in answering my various quires related to the project work.
It is with great pleasure that I Express my gratitude to Mr.DEEPU , under whose inspiring guidance and advice this study has been carried out.
(BADIRI SAI BABU)
5
TABLE OF CONTENTS
TOPIC INTRODUCTION TO THE STUDY NEED FOR THE STUDY LITERATURE REVIEW COMPANY PROFILE DATA ANALYSIS SUMMARY FINDINGS SUGGESTIONS CONCLUSIONS BIBILIOGRAPHY
INTRODUCTION
6
Online trading symbolizes the perfect synergy between technology and the mind numbering intricacies of stock markets in bringing about a paradigm shift in the way financial markets operate in recent times. It facilitates faster and efficient transaction of stocks and share through the internet, while keeping the basic principles of share trading intact. In addition to replication the traditional stock trading business on the net, online trading has led to the mushrooming of a plethora of peripheral business units in the form of e-broking firms, web-advisors, e-consultants, etc.
Across the globe, bulk of the trading is being done through the net, provding online trading to be an instant success among the investors and intermediaries. It also renders a harmonic integration of investors, e-broking firms, banks, stock exchanges and the depositories with the possibility of a ‘single window system’, in the near future. Such a system will enable the execution of trade at‘t+o’, rather then the existing ‘T+2’ time cycle. The emergence of high-tech mechanisms like straight. Through processing (STP), Continuous Linking System (CLS) and Direct Access Trading (DAT) platform is sure to make the dream of an investor, getting his orders executed with the click of a mouse in 20-30 seconds, a reality.
In the last decade, online trading has spread far and wide across the globe, with varying degrees of adoption in terms of percentage of trade carried out online, economic giants like the US and Japan where online trading had its origin, are yet to completely transform the stock business through the net, while, India and china, despise their inherent infrastructural limitations are fast progressing towards a scenario where a big chunk of the transactions would be online, though online trading has made cross border trading
much easier, the tendency of the investors to trade in their own currencies and securities, limits the spread and success of it.
However, European investors are best placed in cross border online trading given their historical and geographical associations with other nations, and also due to the single trading currency, the euro.
The emergence and spiraling growth of online trading have thrown up a lot of challenges and opportunities for all major elements, viz, investors, brokers and internet 7
portals, of the trading mechanism. In the current scenario, online trading portals are slowly replacing the physical presence of traditional brokers and sub brokers. The role of these brokers, henceforth, could be restricted to online counseling and web-advising to the investors. The online portals or the e-broking firms, as they are know, are connected to the stock exchanges 24 hours a day to execute the orders placed by the investors. They also provide the vital market information technical analysis and various other innovative services to the investors. It is learnt that, at present, the market of e-broking is little overcrowded and hence over-brokered, making it hugely difficult for the new entrants to negotiate the entry barriers. However, when the markets move in upward trends and trade volume increases, it is expected that these firms will get enough to share.
The presence of a wide array of e-broking firms has drastically cut down the brokerage cost for the investors. The cost effectiveness and the fascination of online trading are enticing millions of retail traders to the stock markets. These investors, armed with the variety of market information and intelligence provided by online portals and consultancies, directly involve in the trade just by sitting in any corner of the world. The introduction of futures and options trading in the recent past has made online trading more attractive. But this situation could be a double edged sword. All these market
information and the easy trading opportunities have created an illusionary knowledge and over confidence among the investors, leaving them like a bunch of sitting ducks on the highway of market fluctuations and uncertainties.
8
Online trading has also given way to a new breed of investors known as ‘Day Traders’ who gamble in the market, trying to make money out of the minute-by-minute fluctuations in share prices. To their dismay most of them end up bankrupt and simply disappear. These day traders are also responsible for most of the day to day price variations that are beyond the rational expectations prevailing in the market. Another important worrying factor of online trading is the safety and regulation issues of stock business. It is very difficult to have a foolproof system of trading, considering that the entire business is done on a seamless and a very fluid platform. It needs the evolution of a
blend of well-tested technology and trading mechanism to make online trading universal and complete. All said and done, investors and people involved in stock trading should keep in mind that the stock market is not a Mexican casino to gamble, but a means of capital mobilization and equitable distribution in achieving the ends of economic growth.
TRADING PROCEDURE BEFORE ON-LINE
THE TRADING RING:
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 for specified and non-specified sections. The members of their authorized assistants have to wear a badge or carries with them identify cards given by the exchange to enter the trading ring. The carry a Sauda block book or confirmation memos duly authorized by exchange and carry a pen with them. The stock exchanges operations at floor level are highly technical in nature. Non-members are not permitted to enter into stock market. Hence, various stages have to be completed in executing a transaction at a stock exchange. The steps involved in the methods of trading have been given below:
9
CHOICE OF BROKER: The prospective investor who wants to buy shares or the investor who wants to sell his shares cannot enter into hall of the exchange and transact business. They have to act through only member brokers. They can also appoint their bankers for this purpose. Since, bankers can become members of stock exchange as per the present regulations. So, the first task in transacting business on stock exchanges is to choose a broker of repute or banker. Such people’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 order is usually 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 order, limit order, immediate or cancel order, discretionary order, limited discretionary order, open order and stop loss order.
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.).
INTRODUCTION TO ONLINE TRADING Gone are the days of trading on the floor. Technology has changed the landscape of the stock markets. The look of the stock exchanges has undergone metamorphic changes in the recent years. Prior to online trading, regional stock exchange was playing a very important role in capital markets, as they were local investors. Regional SE, which was unable to interact with other SE’s started developing this own screen based trading and 10
connecting to other scrip’s which were not available with them. This also helped in accessing the quotes and other market information from other stock exchange, which proved vital in the functioning of the system as a whole.
The trading network is depicted in given below NSE has main computer which is connected through Very Small Aperture Terminal (VSAT) installed at its office. The main computer runs on a fault tolerant STRATUS mainframe computer at the Exchange. Brokers have terminals (identified as the PCs in the given picture) installed at their premises, which are connected through VSATs/ leased lines/modems. An investor informs a broker to place an order on his behalf. The broker enters the order through his PC, which runs under Windows NT and sends signal to the satellite via VSAT/leased line/modem. The signal is directed to mainframe computer at NSE via VSAT at NSE’s office. A message relating to the order activity is broadcast to the respective member. The order confirmation message is immediately displayed on the PC of the broker. This order matches with the existing passive order (S) otherwise it waits for the active orders to enter the system. On order matching, a message is broadcast to the respective member.
11
TRADING NETWORK
HUB ANTENNA SATELITE
NSE MAINFRAME
BROKERS PREMISES
12
OBJECTIVES
To study the conceptual framework of online trading and de-materlisation.
•
To study about online trading procedure followed in ITI Financial Services Limited.
•
To study the advantages of online trading system over manual system.
•
To study how online trading system helps in improving market transperancy .
•
To study how online trading system helps in smooth market operaton while retaining the flexibility of conventional trading practices.
•
To compare the transaction changes of similar firms. To study the entire mechanism of trading online and dematerialization.
•
•
To study various benefits of depositories. To study the concept of dematerialization of shares that is procedure, Demat a/c, transfer
of securities and trading and settlement of Demat securities. •
To study the services provided by NSDL and CSDL.
•
To study the procedure of online trading of Demat securities.
13
NEED OF THE STUDY In outcry 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. Basically the broker shouts while buying or selling the securities. The floor of the stock exchange is divided in to a number of market also ‘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 codes his purchase or sales price, also known as offer or bid price. The dealer, to whom the price is quoted, quotes his own price quotation of the dealer suits the broker, he may lose 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 sell as well as the broker makes a brief notes 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.
The disadvantages of outcry system are it lack transparency, the scope of manipulation, Inaudibility and also speculation and malpractice is more, in order to overcome the above problems, online trading came in to existence. Hence the need to study the advantages of online trading system and its importance in making the market operations and smooth while retaining the flexibility of conventional trading practices.
14
Scope of the study
The scope of the project is to study and know about Online Trading and Clearing & Settlements dealt in ITI FINANCIAL SERVICES LTD. By studying the Online Trading and Clearing & Settlements, a clear option of dealing in stock exchange is been understood. Unlike olden days the concept of trading manually is been replaced for fast interaction of shares of shareholder. By this we can access anywhere and know the present dealings in shares.
The scope of the study is limited to ON-LINE trading mechanism of stock broking firm in particular ITI Financial Services Limited, Secundrabad.
15
IMPORTANCE OF THE STUDY
Stock exchange is an integral part of capital market it is the most perfect type market for securities wether govt or semi govt bodies or other public bodies also for shares and debentures issued by joint stock enterprises.
Stock exchange provides liquidity to the listed company they give quotations to listed companies and help in trading and raising funds from the market. Stock exchange provides ready marketability and unequalled of ownership of stocks, shares and securities. Stock market in India is more than a centuary old and has been functioning effectively through the medium of recognized stock exchange the stock market which is an integral part of the capital market has been major impact on the functioning of the economy. In turn, the agriculture industries growth and performance of corporate sector in particular , reflecting the fundamentals in the economy would be influenced the tone of capital and stock markets, and since the capital market is playing major role in Indian economy from the past several years. There is need to study the capital market in India.
The present scenario to complete and survive the regional stock exchange would require sound infrastructure and trading system as per international standards, due to the following reasons.
With the introduction of online trading liquidity will improve considerably which is very much essential for attracting small companies to the exchange. Before the introduction of the online trading, Outcry prevalent. Here the member or the broker
Would stand at specifies spot in trading hall. He is required to shut out the name of the company, number of shares he has and the price of the shares ultimately the deal would be made between the buyer and seller and transfer of the shares take place. With the use of the online trading surveillance be came easy as there is very less scope for speculation. The invester is provided with best offer. Also transparency is observed in transactions 16
RESEARCH AND METHODOLOGY
Data source: -
The data source utilized to under taker the project is both primary and secondary data.
Primary data: -
The data is collected by personal interaction with autherised members of ITI Financial Services Limited.
Secondary data: -
The secondary data is collected from various sources like the brochures and material provided by ITI Finaicial Services Limited.
17
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
The data is collected from the primary and secondary sources and thus is subject to slight variation than what the study includes in reality
The study was restricted in Hyderabad.
The observations drawn are of past and present years only.
Detailed study on the topic was not possible due to limited size of the project.
There was a constraint with regard to time allocation for the research study i.e. for a period of two months.
Data collection was strictly confined to secondary source of data. No primary data is associated with the project.
18
REVIEW OF LITERATURE Online trading marks a watershed in the application of technology in conducting trading business in stock markets. This book is divided into four sections. The first section deals with fundamentals and framework, the second section focuses on the implication of online trading the third section describes the implications for online investors. The fourth section is about the technology advancements in online trading. The first section on fundamentals and Framework deals with the evolution of online trading, basic concepts, background and trading mechanisms involved. The opening article, “share trading: Moving to the Net”, by Dr. T R Rajarajan traces the evolution of securities trading from traditional system to trading through the internet. It discusses the trading mechanism through the major components of online trading, viz, banking, depositories, technology and other infrastructure.
Information technology has replaced the age-old share trading method with the faster and more accurate online stock trading. The second article. “Online trading: Trading @ the speed of light,” By Mayura jaiswal, deeepad vashist and Abhay Kumar, traces the growth of online trading from the year 2000 using statistics on volume of online trading from the year 2000 using statistics on volume of online trading, number of e-broking firms, brokerages and demographic patterns. Online trading has dramatically changed the way stock business has been conducted over the years. In the next article, “online trading: Issues and concerns”, by Anup Bagchi, the author suggests that online trading should balance a technology centric approach to transactions with the human factor for a successful transition from traditional to online trading. In his interview, jade smith (HSBC treasury and capital markets) discusses various aspects of online trading: the types of transactions conducted online, different value propositions in the online marketing and the future trends in e-trading.
19
The process of payment and settlement is an issue of importance in online stock trading. The sixth article, “ payments in India: The journey so far and the road ahead”, by Vinod Madhavan looks at how the multiple payment systems have developed in India and considers the need for technology and a legal framework to ensure that an electronically linked payments and clearing system, including cheque truncation, can be implemented in future. In the next article, ‘clearing & settlement system at NSDL’, the structure of a clearing account is described along with the process of settling trade in markets.
EVOLUTION OF ONLINE TRADING:
Online trading had its origin in the US where the first E-trading of stocks began in 1983. Primarily used in the form of e-commerce to place and receive orders for commodities; slowly it entered the financial markets as an alternative to the traditional system. By the late 1990’s, most of the stock exchanges had been automated, and the “open outcry” method of trading had been slowly done away with. Most stock exchanges began to use computers to replace the market makers or the floor traders who execute the trade on the floor.
With the emergence and growth of the internet, the floor trader’s started taking computer orders from brokers and executed the trade. Subsequently, when the stock exchanges used software technology to interconnect brokers, depositories and banks, the internet order place by clients were firs route through the stock brokers’ computer systems where the matching of orders took place and the trade was executed. This gradual up scaling of technology has led to the rise in popularity and acceptance of online broking as a major way of stock trading.
With the book in software technology, the online trading platform became faster and faster with a lot of sophistication and increased security. Now the thrust is on making the entire trading process completely seamless and risk free. 20
TRADING MECHANISM:
The mechanism in online trading Is the replication of trading of physical securities through the internet in a much faster and convenient way. Basic principles and logic of stock trading remain the same as before; only, the investors feel more empowered and are served with plenty of information. The diagram 1 and 2 depict both selling and buying of securities online.
There are primarily 5 components in any online trading mechanism.
1. Investor 2. broker/ E-broking firm 3. DP Accounts 4. Bank Account 5. The Exchange
The process of online trading is driven by a front-end software which the stock exchange employs through satellite (like V-SAT) connections. This software technology provides the necessary interface between the brokers, depositories and the banks. The investor is required to trade through any of the approved brokers, and brokers of trading members can only trade with the exchange.
The investor places the order with the broker and the broker gets the order executed from the exchange. Each broker, who has to be a trading member, is connected to the exchange through sophisticated software. In the same way, each investor has to trade only through the broker and needs to have a demat account and a broker’s account. Each investor will be given a login account and a password in the broker’s site. Investors can log in and lace orders anytime that will be sent to exchange and will be compared with all the orders and executed as per the prices.
21
In this linear chain of investor-broker-exchange channel, there are two more important players, viz, depositories and banks. Depositories (DP) handle the holding and selling of demat securities. All brokers are embers and account holders of DPs. The depositories function in liaison with the stock exchange and act as an online store for shares and stocks. The transaction of cash is taken care of by banks. The investor’s money is transferred to the account with the broker and used for transactions, and similarly, the credits for the investor can be directly to the investor’s bank account. The whole mechanism is interconnected and the speed of transaction depends on how well all these components operate in harmony with each other. The technology used for interlinking these components and the security issues play a major role in the speed of transactions. When these issues are addressed, the transactions can be executed in realtime (T+0), instead of the present T+2 days time period.
22
BUY TRANSACTION (TABLE-1)
CUSTOMER APPROACH THROUGH PHONE/INTERNET KIOSK Funds transferred Broker buys 100 xyz @ market rate Hold Rs.30, 000 Yes, hold DP server Bank server
Order accepted and goes to exchange Share transferred
NSE
23
Trade done
SELL TRANSACTION (TABLE-2)
CUSTOMER APPROACH THROUGH PHONE/INTERNET KIOSK
BROKER SELLS 100 XYZ @ Rs.300/Hold100 xyz shares
Funds Transferred
Yes, Hold Bank Server
DP server Orders accepted and goes to exchange
Trades done
NSE
24
Share transferred
SETTLEMENT SYSTEM
The schedule of setting the trade Is governed by the stock exchange rules. The following details are available in the depository software of the DP.
The pay in time decided by the stock exchanges for each settlement is the NSDL deadline time. The significance of NSDL time is that securities can be moved from the client account to the clearing account (client to clearing member), or from clearing account to the stock exchange (clearing member to stock exchange) or from one settlem settlement ent to anothe anotherr (inter (inter-se -settl ttlemen ement) t) only only till till the NSDL NSDL deadli deadline ne of the releva relevant nt settlement. Securities cannot be transferred to a settlement after the NSDL deadline for that settlement is over.
No.of
Transactions day
day
Party with
Activity
Obligation
Day 1
T (if, Monday)
Customer
Trading
Day 2
T+1 (Tuesday)
Customer
Securities pay in to member broker
Day 2
T+1 (Tuesday
Customer
Funds pay in to member broker
Day 3
T+2(Wednesday)
Member
Secu Securi riti ties es pay pay in to the the stoc stock k
broker
exchange
Member
Funds
broker
exchange
Day 3
T+2(Wednesday)
25
pay
in
to
the
stock
Day 3
Day 3
Day 4
Day 4
T+2(Wednesday)
T+2(Wednesday)
T+3 (Thursday)
T+3 (Thursday)
Stock
Payout of securities to member
exchange
broker
Stock
Payout of monies to member
exchange
broker
Member
Securities deposited into demat
broker
account of customer
Member
Funds transferred into client’s
broker
bank account.
26
MAJOR ADVANTAGES OF ONLINE TRADING With the February 2003 announcement of Gilts trading available online, capital market reforms in India have outpaced all other sectors in the post-liberalization era. The options available for investments today are many. The mutual funds industry is doing well, IPO market is received and derivatives trading are catching on in India. If these investments can be made by the click of the mouse then the investment process will be the easiest. Investors can save time and make money. Online trading, which is the way the developed world is investing, is now the mantra of investment markets in India. To combine the speed of the internet and the intricacy of the trade and provide an interactive and integrated trading environment for all investments is the ultimate goal.
•
Online trading started in India in February 2000:
Online trading is of 2 categories: Discount online brokers and the other one is the full service online broker. Discount online brokers allow one to trade via the internet through the broker at reduced (less than offline brokerage charges) rates. Full service online brokerage is linked to existing brokerage directly through the internet. These brokers allow their clients to place online orders with the option of chatting to brokers if advice is needed.
27
FOR THE INVESTORS:
Online trading has created a new wave of changes among the investors because of its convenience and the sense of empowerment attached with executing the trade on their own If has also thrown in plenty of options to the investors in the form of various online broking firms which provide a whole lot of advisory and counseling services. The biggest advantages of online trading is the equitable treatment of investors, irrespective of small or big, In terms of offering the service, making the information available and the benefits of the stock trading were highly concentrated with a particular group of investors who could afford the technical and advisory services. The stock market used to be a black box, now it is open to all those who are willing and capable of investing because of the simple and user friendly ways of online trading. In a nutshell,
•
The internet made the stock market operations transparent.
•
Cost of execution of trade for small quantities can be done in proportionate fractions
as that of big transactions.
•
Data and information are their for everyone and available everywhere.
•
Investors are empowered.
28
FOR THE BROKERS:
Brokers can gain on two accounts.
•
Surge in the volume of transactions will increase the profit even though the cost per
transaction is less in case of online trading.
•
Marketing the investor accounts and transaction of demat securities has manifold
conveniences compared to the traditional method of transactions in physical securities.
ONLINE TRADING BENEFITS
Advent of online trading can shift the trading power from stock brokers to individual investors. The e-trading concept ensures that the investor, howsoever small, could be a more active participant in the decision rather than leaving his portfolio at the sole discretion of his broker. Online trading provides.
BEST PRICE FOR INVESTORS:
Online trade offers the best price for the buying and selling transactions of the investors, by ensuring proper matching of their orders within the communications network itself. Also due to the high level of transparency with regard to display of information the investors are able to get the best quote for the shares.
BROKERAGE IS THE LOWEST:
As the process of online trade is thoroughly automated the transaction costs are low, also with competition among the online service providers the brokerage charges are at their lowest in India.
LIQUIDITY TO THE INVESTORS:
29
When online trade and online banking are available, liquidity of the investments are very high as it is only a click away to disinvest and release the funds. Conversely, if the investor spots some opportunity to invest, he could immediately allocate money from his savings account and make his transactions.
TRANSPARENCY:
Online trading gives greater transparency to the investors by providing them an audit trail. 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 of the investor. All these stages were subject to inspection, thus bringing in transparency into the system.
HASSLE FREE TRADING:
Online trading integrates the bank, the brokerage firm and the stock accounts (demat account) which lead to easy and paperless trading for the client.
QUICK TRADING:
The investor is able to execute the entire trading transaction, right from logging on the broker’s site, to the execution and settlement of his bank account, in a very short period of time.
LEVEL PLAYING FIELD:
Trading on the net, gives even the smallest retail investor access to information that earlier was available only to the big traders. This provides a level playing field for all investors In the securities market.
REDUCES THE SETTLEMENT RISK:
This method of trading reduces the settlement risk for the investor, as in this case no short sale is possible, i.e., the seller will not be able to sell the securities unless he has their actual possession. This reduces the settlement risk for the buyer. Who is assured of the delivery of the securities.
30
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.
31
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 ITI Financial Servicees
Limited has shifted from outcry system to online trading.
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:
32
The prospective investor who wants to buy shares or the investors, who wants to 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 placing 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.
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.
33
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 for Dematerialization at NSDL.
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.
34
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 in such
circumstances is reduced.
•
RBI has also reduced the minimum margin to 25% for loans against
dematerialized securities as against 50% for loans against physical securities.
35
DEMAT ACCOUNT
What is Demat account and why it is required?
Securities and Exchange Board of India (SEBI) is a board (corporate body) appointed by the Government of India in 1992 with its head office at Mumbai. Its one of the function is helping the business in stock exchanges and any other securities markets. Demat (short form of Dematerialization) is the process by which an investor can get stocks (also called as physical certificates) converted into electronic form maintained in an account with the Depository Participant (DP).
DP could be organizations involved in the business of providing financial services like banks, brokers, financial institutions etc. DP’s are like agents of Depository.
Depository is an organization responsible to maintain investor's securities (securities can be stocks or any other form of investments) in the electronic form. In India there are two such organizations called NSDL (National Securities Depository Ltd.) and CDSL (Central Depository Services India Ltd.)
Investor’s wishing to open Demat account has to go DP and open the account. Opening the Demat account is as simple as opening the bank account with any bank. As we need bank account to save our money, make cheque payments etc, likewise we need to open a demat account if we want to buy or sell stocks. All stocks what we possess will show in our demat account. So we don't have to possess any physical certificates. They are all held electronically in our demat account. As we buy and sell the stocks, accordingly our stocks will get adjusted in our account.
36
Is a demat account must?
The market regulator, the Securities and Exchange Board of India (SEBI), has made it compulsory to open the demat account if you want to buy and sell stocks. So
a
demat
account
is
a
must
for
trading
and
investing.
How to start to open a Demat account?
We have to approach a DP to open a Demat account. Most banks are DP participants so we may approach them.
A broker and a DP are two different people. A broker is a member of the stock exchange, who buys and sells stocks on his behalf and also on behalf of his customers.
Following are the documents required to open Demat account .
When we approach any DP, we will be guided through the formalities of opening an account. The DP will ask to provide some documents as proof of our identity and address. Below PAN
is card,
a Voter's
list
but
we
ID, Passport, Ration
may
not
card, Driver’s
require
all
license, Photo
of credit
them. card
Employee ID card, IT returns, Electricity/ Landline phone bill etc.
Do we need any stocks to open a Demat account?
No. We need not need any stocks to open a demat account. A demat account can be opened with no balance of stocks. And there is no minimum balance to be maintained either. You can have a zero balance in your account.
37
How much it cost to open a Demat account?
The charges for account opening, annual account maintenance fees and transaction charges
vary
between
various
DP’s.
Finally – After successfully opening the demat account, the DP will allot “Beneficial Owner
Identification” Number, which will be needed to mention for all our future transactions.
If we want to sell our stocks, we need to place an order with our broker and give a 'Delivery Instruction' to your DP. The DP will debit our account with the number of stocks sold. We will receive the payment from our broker.
If we want to buy stocks, inform our broker about our Depository Account Number, so that the stocks bought are credited into our account. Points to remember while opening online account
a) Make multiple enquiries and try getting low brokerage trading and dematting account.
b) Also discuss about the margin they provide for day trading.
c) Discuss about fund transfer. The fund transfer should be reliable and easy. Fund transfer from our bank account to trading account and visa versa. Some online share trading account has integrated savings account which makes easy for us to transfer funds from our saving account to trading account.
d) Very important is about service they provide, the research calls, intraday or daily trading tips.
e) Also enquire about their services charges and any other hidden charges if any.
f) And also see how reliable and easy is to contact them in case if any emergency.
38
INDUSTRY PROFILE Following diagram gives the structure of Indian Financial System:
39
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
intermediaries.
The
and
government
unorganized
(SEBI)
registered/controlled
activities
and
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, CD's etc.
40
CAPITAL MARKET:
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.
PRIMARY 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, 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.
41
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 participant.
Investors’ 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:
Provision of all the relevant information
Provision of accurate information and
Transparent allotment procedures without any bias.
SECONDARY MARKET The primary market deals with the new issues of securities. Outstanding 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. 42
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 6. Depository participants.
STOCK 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 43
History of Stock Exchanges:
The only stock exchanges operating in the 19 th century were those of Mumbai setup in 1875 and Ahmedabad 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 Ahmedabad in 1937. During the war boom, a number of stock exchanges were organized. Soon after it became a central subject, central legislation was proposed and a committee headed by A.D.Gorwala went into the bill for securities regulation. On the basis of the 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.
44
Various Stock Exchanges in India:
At present there are 23 stock exchanges recognized under the securities contracts (regulation), Act, 1956. Those are:
Ahmedabad Stock Exchange Association Ltd. Bangalore Stock Exchange Bhubaneshwar Stock Exchange Association Calcutta Stock Exchange Cochin Stock Exchange Ltd. Coimbatore Stock Exchange 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
Uttar Pradesh Stock Exchange Association Vadodara Stock Exchange Ltd.
45
Out of these major stock exchanges were:
NSE(NATIONAL STOCK EXCHANGE):
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 NSE's 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. It's that force which is guiding the industry towards new horizons and greater opportunities.
46
BSE(BOMBAY STOCK EXCHANGE): 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-today 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 has been constituted. The Committee considers judicial & quasi matters in which the Governing Board has powers as an Appellate Authority, matters regarding annulment of transactions, admission, continuance and suspension of member-brokers, declaration of a member47
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 bond
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 12 th standard examination.
48
STOCK 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.
49
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 24 hrs.
50
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”.
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
51
is authorized to sell the shares to prevent further loss. E.g. Sell BRC limited at Rs.24, stop loss at Rs.22.
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.
Share groups:
The scrips 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 group scrips are of the blacklisted companies. The ‘C’ group covers the odd lot securities in ‘A’, ‘B1’&’B2’ groups.
ROLLING SETTLEMENT SYSTEM:
52
Under rolling settlement system, the settlement takes place n days (usually 1, 2, 3 or 5days) after the trading day. The shares bought and sold are paid in for n days after the trading day of the particular transaction. Share settlement is likely to be completed much sooner after the transaction than under the fixed settlement system.
The rolling settlement system is noted by T+N i.e. the settlement period is n days after the trading day. A rolling period which offers a large number of days negates the advantages of the system. Generally longer settlement periods are shortened gradually.
SEBI made RS compulsory for trading in 10 securities selected on the basis of the criteria that they were in compulsory demat list and had daily turnover of about Rs.1 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 1 st April 2003.
Activities on T+1: Conformation of the institutional trades by the custodian is sent to the stock exchange by 11.00 am. A provision of an exception window would be available for late confirmation. The time limit and the additional changes for the exception window are dedicated by the exchange. 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 upto 4 p.m and in electronic form upto 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 53
by 11.00am/on T+2. The exchange/clearing house/clearing corporation executes the payout 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.
COMPANY PROFILE
ABOUT THE ORGANISATION ITIFSL is emerging as one of the top most wealth management companies in India with a daily turnover of over 200 crores and 116 branches spread all over the country. ITIFSL, originally promoted by the Investment Trust of India, is now a part of the Sharyans and Inga Group. The Sharyans Group has an impressive portfolio of businesses under its fold which mainly fall under the real estate and financial services categories. The prominent subsidiaries of this Group are Prebone Yamane (Country’s largest debt broking company), Intime Spectrum (India’s largest Registry & Transfer Agents), and Collin Stewarts India Private Limited (Portfolio Management Services & Research along with institutional broking operations for Collin Stewarts which is the largest wealth management company in the UK). Under the guidance of the Sharyans and Inga Group, ITIFSL will soon touch the pinnacles of success in the financial services industry by being a dominant force in the broking as well as the distribution arena. With an unblemished and reputed track record, ITIFSL is all set become an imposing wealth management firm in the country by giving the best to its clients as well as stakeholders.
ITI FSL has been set up to engage in
•
Stock Broking
•
Institutional Broking
•
Derivatives
•
Depository Services
•
Distribution of Investment Products
•
Distribution of Insurance
•
Commodities Broking 54
Headquartered in Chennai, ITI FSL has a growing network of offices across several states to ensure easy accessibility to our clients wherever they are. ITIFSL has over 116 Branch Offices spread across the country to offer better reach and service to the investor. The
company currently marks its presence in the following regions: •
Andhra Pradesh
•
Delhi
•
Karnataka
•
Maharashtra
•
Madhya Pradesh
•
Tamil Nadu
•
West Bengal
Mission:
ITI FSL's mission is to deliver value with commitment. Emerging as one of the frontline Brokerage Houses and a dominant force in the Distribution arena, we are continuously engaged in the assessment of market conditions to balance risk and reward so as to optimize returns to our investors.
Vision:
"To be the most Preferred Financial Advisor, Creator, Wealth Manager and to deliver the Highest Standards of Service to customers and be Prominent in the horde of Finance Companies offering similar services". 55
Why ITIFSL?
•
ITIFSL’s services are offered under total confidentiality and integrity with the sole purpose of maximizing returns for their clients.
•
Equity Broking - Corporate Member of The Stock Exchange, Mumbai (BSE) and National Stock Exchange of India Ltd. (NSE).
•
Pan India reach - 380 terminals spread across 75 different locations, in semi urban, urban and metropolitan areas.
•
More than 100,000 retail clients serviced from the above locations.
•
ITIFSL have heavily invested in technology (customized and ready to use software) involving front and back end operations offering seamless process and flawless execution and raising our service levels.
•
ITIFSL operate on an alert and well-defined system in risk management and settlement mechanism.
56
OFFERINGS
57
ADVANTAGES TO INVESTERS
Why you need a Financial Planner?
The financial planner is someone who can help you invest across investment avenues based on your risk profile and investment objectives. Post-investment, he monitors your investments and ensures that you are on course to achieve your investment objectives. If necessary, he suggests changes to your financial plan so that you are able to achieve your investment objectives as planned.Given the critical inputs provided by the financial planner in helping you achieve your financial goals, it is important that you select the right financial planner. Here are the reasons why ITI is the right planner for you… Certification/Membership
More than anything else, this is a pre-requisite from the compliance point of view. Your financial planner should be certified and registered as a broker or mutual fund agent with NSE, BSE, AMFI etc. ITI FSL has Trading and Clearing Memberships with major Stock Exchanges in India to offer broking services across market segments at all of the National-level Exchanges. ITI FSL is a Depository Participant with CDSL. We also have memberships with commodity exchanges. We have AMFI certified professionals to advice you on mutual funds. Competence
Gone are the days when financial planning simply required delivering application forms. The traditional "one-size fits all" approach is passé.
58
With the increasing list of investment avenues on offer, selecting the one that suits you the best is becoming a challenge. To that end, competence and skill set are the basic criteria that investors should look for in an investment planner.
With ITI fine staff of professionals, you can be sure that you will get the best advice and service to achieve your financial goals. Furthermore, the recommendations offered by ITI are backed by solid research.
Value-add services
In addition to financial planning, ITI provides related, value-add services that can assist you in the investment process. On-line tools and calculators are some of our more popular value-add services. These tools can help you keep track of your investments. These value-add services form an integral part of our offering. One-stop shop
Every individual has different needs and the same undergo a change over a period of time. The financial planner should be capable enough to understand these needs and offer suitable products to fulfill them. For this purpose, ITI provides you with the entire range of investment products from stocks, mutual funds, bonds to fixed deposits. In other words, we offer a "one-stop" solution for all your investment needs. Accessibility
One of the common complaints from investors is that their financial planner is unavailable/inaccessible and therefore unable to provide adequate/prompt service. This is particularly common in a one-man setup where the financial planner's services begin and end with him, with little or no backup. If the financial planner is preoccupied with some important clients or if he re-locates, it 59
leaves you in a soup because your financial plan is in limbo. It is best to go with a financial planning initiative that is run by teams (as opposed to one-man setups) to ensure continuity of your financial plan. ITI has a team of professionals who are ever ready to serve you at any point of time. We are spread across the country so that you can have access to us always.
PRODUCTS AND SERVICES
We are a one-stop financial services shop, most respected for quality of its advice, personalized service and cutting-edge technology.
Equities
ITIFSL provided the prospect of researched investing to its clients, which was hitherto restricted only to the institutions. Research for the retail investor did not exist prior to ITIFSL. ITI leveraged technology to bring the convenience of trading to the investor’s location of preference (residence or office) through computerized access. ITIFSL made it possible for clients to view transaction costs and ledger updates in real time.
PMS
Our Portfolio Management Service is a product wherein an equity investment portfolio is created to suit the investment objectives of a client. We at ITI FSL invest your resources into stocks from different sectors, depending on your risk-return profile. This service is particularly advisable for investors who cannot afford to give time or don't have that expertise for day-to-day management of their equity portfolio.
Research
Sound investment decisions depend upon reliable fundamental data and stock selection techniques. ITIFSL Equity Research is proud of its reputation for, and we want 60
you to find the facts that you need. Equity investment professionals routinely use our research and models as integral tools in their work. They choose Ford Equity Research when they can clear your doubts.
Commodities
ITIFSL’s extension into commodities trading reconciles its strategic intent to emerge as a one-stop solutions financial intermediary. Its experience in securities broking has empowered it with requisite skills and technologies. The Company’s commodities business provides a contra-cyclical alternative to equities broking. The company was among the first to offer the facility of commodities trading in India’s young commodities market (the MCX commenced operations only in 2003). Average monthly turnover on the commodity exchanges increased from Rs 0.34 bn to Rs 20.02 bn. The commodities market has several products with different and non-correlated cycles. On the whole, the business is fairly insulated against cyclical gyrations in the business.
Invest Online
ITIFSL has made investing in Mutual funds and primary market so effortless. All you have to do is register with us and that’s all. No paperwork no queues and No registration charges.
INVEST IN Mutual Fund
ITIFSL offers you a host of mutual fund choices under one roof, backed by in-depth research and advice from research house and tools configured as investor friendly.
APPLY IN IPOs
61
You could also invest in Initial Public Offers (IPO’s) online without going through the hassles of filling ANY application form/ paperwork
Stay connected to the market:
The trader of today, you are constantly on the move. But how do you stay connected to the market while on the move? Simple, subscribe to ITIFSL Stock Messaging Service and get Market on your Mobile!
Insurance
An entry into this segment helped complete the client’s product basket; concurrently, it graduated the Company into a one-stop retail financial solutions provider. To ensure maximum reach to customers across India, we have employed a multi pronged approach and reach out to customers via our Network, Direct and Affiliate channels. Following the opening of the sector in 1999-2000, a number of private sector insurance service providers commenced operations aggressively and helped grow the market. The company’s entry into the insurance sector de-risked the company from a predominant dependence on broking and equity-linked revenues. The annuity based income generated from insurance intermediation result in solid core revenues across the
tenure of the
policy.
Wealth Management Service
Imagine a financial firm with the heart and soul of a two-person organization. A world-leading wealth management company that sits down with you to understand your needs and goals. We offer you a dedicated group for giving you the most personal attentionat every level.
62
Roles and Responcibilities in Organisation:
We will give updates to customers in
Economic Outlook and Updates
Sector & Company Reports
Technical Recommendations
Daily Market Report
Daily Technical Outlook
Reports on New Fund Offerings
Weekly analysis of mutual funds – Fund Focus
Weekly debt report: Debt Dose
Offer daily technical calls through SMS to our clients
63
KEY LEARNINGS IN ORGANISATION:
EQUITY
MUTUAL FUNDS
TAX SAVENGS SCHEMES IN MUTUAL FUNDS
ONLINE AND OFFLINE TRADING
IPO (INITIAL PUBLIC OFFER)
DERIVATIVES
FOREX MARKET
COMMODITIES
RISK-RETURN PROFILE IN FUTURES AND OPTIONS-S&P CNX NIFTY
64
ANALYSIS OF THE STUDY
Most of the Stock trading companies charge a fixed amount per Rs.100.
ITI Financial Services Ltd
The company charges Rs.0.03% for Intraday and Rs.0.30% for delivery based transactions.
For Intraday based transactions Transaction value
Rs.100000
Deduct Brokerage (0.03%)
30
Service Tax (10.2% on brokerage)
3.0
STT (security transaction tax) 0.125% on transaction value
125 --------------Rs.99842.0 ---------------
For Delivery based transactions Transaction value
Rs.100000
Deduct Brokerage (0.30%)
300
Service Tax (10.2% on brokerage)
30.6
STT (security transaction tax) 0.25% on transaction value
250 --------------Rs.99419.4 65
India Infoline Ltd
The company charges Rs.0.05% for Intraday and Rs.0.40% for delivery based transactions
For Intraday based transactions
Transaction value
Rs.100000
Deduct Brokerage (0.05%)
50
Service Tax (10.2% on brokerage)
5.1
STT (security transaction tax) 0.125% on transaction value
125 --------------Rs.99819.9 ----------------
For Delivery based transactions Transaction value
Rs.100000
Deduct Brokerage (0.40%)
400
Service Tax (10.2% on brokerage)
40.8
STT (security transaction tax) 0.25% on transaction value
250 --------------Rs.99309.2 ---------------
66
Share Khan Ltd
The company charges Rs.0.6% for Intraday and Rs.0.5% for delivery based transactions
For Intraday based transactions
Transaction value
Rs.100000
Deduct Brokerage (0.1%)
60
Service Tax (10.2% on brokerage)
6.12
STT (security transaction tax) 0.125% on transaction value
125 --------------Rs.99808.8 ---------------
For Delivery based transactions
Transaction value
Rs.100000
Deduct Brokerage (0.5%)
500
Service Tax (10.2% on brokerage)
51
STT (security transaction tax) 0.25% on transaction value
250 --------------Rs.99199 ---------------67
For Intraday
Particulars
ITIFSL Ltd
India nfoline Ltd
Transaction value Brokerage Service Tax STT
100000 30 3.0 125
100000 50 5.1 125
100000 60 6.12 125
Net Amount
99842.0
99819.9
99808.8
Interpretation:
Though the transaction value is same for ITIFSL, India Infoline & Share Khan, but the net amount benefited to the customer is obtained from 68
Share Khan Ltd
ITIFSL. The reason, the brokerage charges are less. Also it is to be noted that the service tax is charged on brokerage amount.
For Delivery
Particulars
ITIFSL Ltd
India Infoline Ltd
Share Khan Ltd
Transaction value Brokerage Service Tax STT Net Amount
100000 300 30.6 250 99419.4
100000 400 40.8 250 99309.2
100000 500 51.0 250 99199.0
Interpretation:
69
Though the transaction value is same for ITIFSL, India Infoline & Share Khan, but the net amount benefited to the customer is obtained from ITIFSL. The reason, the brokerage charges are less. Also it is to be noted that the service tax is charged on brokerage amount.
ONLINE TRADING MECHANISM F1 Key is used for the buying of shares and to display the order entry table . For eg:-
Bse/Nse Company code Symbol Total quantity Price
F2 Key is used for selling the shares and to display order entry.
F3 Key is used to display the pending entry eg:- If we order for shares and it will not be traded by Nse/Bse. Then the shares are known as in pending.
F4 Key is used for market watch
F5&F6
70
Key is used for market picture of a particular company if we enter some particular company name in the market picture. It will show the best five buyers of that particular and best five seller of that particular company. Always the five buyers /sellers will not be same they will change with in seconds.
Buyer
Seller No.of
Orders
Quantity
Price
Price
of shares
of shares
Quantity
No.of
orders
And we can see .
Opening/yesterday closing price of the shares.
High /low rate of the shares.
% of changes in particular company.
Last traded quantity and rate will be shown.
Shift F7 To know the details of a particular company Eg:- Reliance:-symbol, company code, dividend details
F8 & F9 This keys are used to show all the executed order. Eg:-which are already traded in the market picture
F10 Key is used for message log At what time particular company shares were traded, particular trade, particular time.
71
F11 To add script to the screens
F12 Key is used for market movement for particular script or share.
FINDINGS OF THE STUDY
The intraday net amount (99842.0) is highest for ITIFSL when compared to India Infoline
Ltd & Share Khan Ltd.
The net amount for delivery based transactions( 99419.4) is highest for ITIFSL followed by
India Infoline Ltd & Share Khan Ltd
It was found that most of the customers are willing to take Demat Account rather than commodity account.
From the survey it is found that most of the customer’s satisfaction level is good with the advice given by their marketing executives and the information given in the broachers.
Most of the customers prefer to invest in long term investments.
From the survey it is found that most of the customers are aware of online trading process of ITI Financial Services Limited.
Most of the customers are interested to take part in the demo sessions of online trading in ITI Financial Services Limited. 72
SUGGESTIONS
The competitors of ITIFinancial Services Limited Viz., India Infoline Ltd and Share Khan Ltd should decrease the brokerage charges to attract the customers.
Company should increase awareness about the company’s products & service offered by them in the market.
Company should maintain good relation with the customers and respond quickly to the queries asked by the customers
The company should give demonstration to customers so that they can get complete knowledge about online trading.
Company should try to minimize the rejections by taking care while filling the application form.
73
The company should increase branch offices in Hyderabad & other areas in A.P.
CONCLUSION New ideas are to be implemented to catch the customers. The strategy of giving more benefits to the high end customers is very useful. All the positive points are used to get the business for the firm.
But again if any one wants to take risk & earns a lot he can go for shares. Because stock market is a volatile market. Anything & everything can happen to this market. But then again if anyone study the market well he can earn a lot.
Again like every coin has its two sides, similarly every financial instrument has its own features, its advantage & disadvantage. So finally it is the investor himself/herself has to decide where to invest.
74
