Angel Final K J.vikas

8/8/2019 Angel Final K J.vikas

1/90

Trading and work in Stockmarket

TRADING AND WORK IN STOCK MARKET

With reference to Angel Broking ,

Mehsana

A Project Report Submitted in partial Fulfillment of

Award of the MBA Degree

SUBMITTED BY:

Patel Vikaschandra

Roll No. 947

Enrollment no. 097210592039

SUBMITTED TO:K. J. INSTITUTE OF MANAGEMENT

Vadasma

1

K.J Institute ofManagement, Vadasma


2/90


(Gujarat Technological University)

July, 2010

DECLARATION

I, hereby, declare that Summer that the Summer Project on TRADING AND WORK IN

STOCK MARKET is original to the best of my knowledge and has not been published

elsewhere. This is for the purpose of partial fulfillment of M.B.A degree affiliated with

Gujarat Technological University.

Student Name :- Signature

Patel Vikaschandra

2



3/90


PREFACE

A project report on stock market is being prepared in attempts to interpret in-depth study of

stock market. This report helps us to understand various terminologies in stock market. This

report gave me opportunity to have complete idea about trading in stock market. This gave me

idea about technical and fundamental analysis in stock market and how trading is being done

in stock market.

This project report helps in following aspects,

Build understanding of central ideas and theories of stock market.

Develop familiarity with the analysis of stock market.

Furnish institutional material relevant for understanding the environment in which trading

decisions are taken.

3



4/90


This project will guide to investors for an investment in stock market. This project

deployed a lot time for collections of information from

various sources. This project willbe very helpful to know how trading is done.

ACKNOWLEDGEMENT

This report is most important for my MBA degree and I am really thankful to executive staff

of ANGEL BROKING LTD, MEHSANA.

Mr. piyush suthar who is the manager, who is diligently provide the most information about

stock market and his experience in this field.

Mr.viral patel who is the marketing manager, who provide the market current condition and

the customer flow in an investment.

4



5/90


I am really thankful to Mr. Harshil shah,Mr.Rajesh prajapati and Mr. fulkesh patel, who are

the customer relationship executives. They provide us most knowledge of commoditiesmarket, the factor affected to the share price and the investor perception.

EXECUTIVE SUMMARY

The project is an attempt to trading and work procedure of stock exchanges in

detail. It provides thorough knowledge of different aspects of trading in stock exchanges.

5



6/90


The focus is basically with Indian context. Its mention the information about the securities

market, concept of stock exchanges, their role in economy, their characteristics, role of SEBIetc.

There is also added the different methods of trading and In all they offer 9 different

avenues for investing, which have been explained in depth

.

This survey Is mainly targeted towards the trading behaviour of people of various

occupation group, various age and to know about the awareness level and experience of the

people of mahesana city.

TABLE OF CONTENTS

CHAPTERS PARTICULARS PAGE NO.

6



7/90


Chapter-1 Introduction of the project 8

Chapter-2 Liturature survey 10

Chapter-3 Researchmethodology

3.1 Researchobjective3.2 Researchprocess3.3 Limitation of thestudy

15

1 51619

Chapter- 4 Inteoduction of capital market

4.1 Overview of

capital market4.2 Introduction ofstock market4.3 Introduction ofBSE & NSE

20

21

23

32

Chapter-5 Profile of theorganization

38

Chapter-6 Theory of tradingprocess 44

Chapter-7 Data analysis and 59

7



8/90


Interpretation

Chapter-8 Findings andConclusions

8.1 Findings8.2 Suggestions8.3 Conclusion

67

676869

Chapter-9 Annexture 70

Chapter-10 Bibliography 7 3

8



9/90


TABLE OF ILLUSTRATION

No. Particulars Page no.1 Transaction cycle 462 Settlement Process 483 Ques:1 604 Ques:2 605 Ques:3 616 Ques:4 61

7 Ques:5 628 Ques:6 629 Ques:7 6310 Ques:8 6311 Ques:9 6412 Ques:10 6413 Ques:11 65

9



10/90


Chapter:1INTRODUCTION

Angel Broking Limited is one of the leading and professionally managed stock broking

firm involved in quality services and research. Angel Broking Limited is a corporate member

of The Stock Exchange, Mumbai.

The membership of the company with The Stock Exchange Mumbai was originally in the

name of Mukesh R. Gandhi, which was eventually turned into a corporate membership in the

name of Angel Broking Limited.

Angel Broking Limited is managed by Mr. Dinesh Thakkar and he is well supported by Mr.

Mukesh Gandhi, a fifteen years veteran in the market.

The group is well supported by a professional and qualified research team and efficient

operations and back office team, which comprises of highly dedicated and qualified

individuals. Angel has an in-house, state of art research department.

10



11/90


Angel believes in reaching out to the customer at the farthest end rather than by reaching out

to them.

The company in its endeavour to give its client the best has opened up several branches all

over Mumbai, which are efficiently integrated with the Head Office.

Angel Broking Limited is primarily into retail stock broking, with a customer base of retail

investors, which has been increasing at a compounded growth rate of 100% every year. The

company has huge network sub-brokers in Mumbai and other places outside Mumbai,

registered with SEBI, who act as chanel partners for the company. The company presently has

a total staff strength of around 150 employees

who are spread accordingly across the head office and all the branches.

Angel has empowered its physical presence throughout India through various strategies which

it has been adopting efficiently and effectively over a period of time, like opening up of

branches at various places, tie-ups with various agencies and sales agents, buy-outs of smaller

regional outfits and appointment of sub-brokers and franchisees. Moreover Angel has been

tapping and including high net-worth and self-employed individuals it its vast array of clients.

Angel has always strived in the direction of delivering ultimate client satisfaction anddeveloping stronger bonds with its customers and chose partners. Angel has a vision to

introduce new and innovative products and services regularly. Moreover Angel has been one

among the pioneers to introduce the latest technological innovations and integrate it efficiently

within its business.

11



12/90


Chapter:2

Literature Survey

The past decade in many ways has been remarkable for securities market in India.It has grown

exponentially as measured in terms of amount raised from the market, number of stock

exchanges and other intermediaries, the number of listed stocks, market capitalization, trading

volumes and turnover on stock exchanges, and investor population.

Along with this growth, the profiles of the investors, issuers and intermediaries have changed

significantly. The market has witnessed Fundamental institutional changes resulting in drastic

reduction in transaction costs and significant improvements in efficiency, transparency and

safety.

Dependence on Securities Market

Three main sets of entities depend on securities market. While the corporate and Governments

raise resources from the securities market to meet their obligations. The households invest

their savings in the securities.

12



13/90


Corporate Sector:

The 1990s witnessed emergence of the securities market as a major source of finance for trade

and industry. A growing number of companies are accessing the securities market rather than

depending on loans from FIIs/banks. The corporate sector is increasingly depending on

external sources for meeting its funding requirements.

There appears to be growing preference for direct financing (equity and debt) to indirect

financing (bank loan) with in the external sources. According to CMIE data, the share of

capital market based instruments in resources raised externally increased to 53% in 1993-94,

but declined thereafter to 33% by 1999-00 and further to 21% in 2001-02. In the sector-wise

shareholding pattern of companies listed on NSE, it is observed that on an average the

promoters hold more than 55% of total shares. Though the nonpromoter holding is about 44%,

Indian public held only 17% and the public float (holding by FIIs, MFs, Indian public) is at

best 25%.

Governments:

Along with increase in fiscal deficits of the governments, the dependence on market

borrowings to finance fiscal deficits has increased over the Years. During the year 1990-91,

the state governments and the central government financed nearly 14% and 18% respectively

of their fiscal deficit by market borrowing. In percentage terms, dependence of the state

governments on market borrowing did not increase much during the decade 1991-2001. In

case of central government, it increased to 77.6% by 2002-03, and 82.3% in 2007-08.

Households:

13



14/90


According to RBI data, household sector accounted for 82.4% of gross domestic savingsduring 2001-02. They invested 38% of financial savings in deposits, 33% in

insurance/provident funds, 11% on small savings, and 8% in securities, including government

securities and units of mutual funds during 2001- 02. Thus the fixed income bearing

instruments are the most preferred assets of the household sector.

Their share in total financial savings of the household sector witnessed an increasing trend in

the recent past and is estimated at 82.4% in 2001- 02. In contrast, the share of financialsavings of the household sector in securities (shares, debentures, public sector bonds and units

of UTI and other mutual funds and government securities) is estimated to have gone down

from 22.9% in 1991-92 to 4.3% in 2000-01, which increased to 8% in 2001-02. in 2007-08

that is 12.3%.

Investor Population

The Society for Capital Market Research and Development carries out periodical surveys of

household investors to estimate the number of investors. Their first survey carried out in 1990

placed the total number of share owners at 90-100 lakh. Their second survey estimated the

number of share owners at around 140-150 lakh as of mid-1993.

Their latest survey estimates the number of shareowners at around 2 crore at 1997 end, after

which it remained stagnant up to the end of 1990s. The bulk of increase in number of

investors took place during 1991-94 and tapered off thereafter. 49% of the share owners at the

end of 2000 had, for the first time, entered the market before the end of 1990, 44% entered

during 1991-94, 6.3% during 1995-96 and 0.8% since 1997.

The survey attributes such tapering off to persistent depression in the share market and

investors bad experience with many unscrupulous company promoters and managements.

14



15/90


Distribution of Investors:

The Society for Capital Market Research & Development estimates that 15% of urban

households and only 0.5-1.0% of semi-urban and rural households own shares. It is estimated

that 4% of all households own shares.

Distribution of Beneficial Accounts with NSDL at the end of Feb.2007 An indirect, but very

authentic source of information about distribution of

Table - 1

15



16/90


Investors are the data base of beneficial accounts with the depositories. By February 2006,

there were 3 million beneficial accounts with the National Securities Depository Limited(NSDL). The state-wise distribution of beneficial accounts with NSDL is presented in Table.

As expected Maharashtra and Gujarat account for nearly 45% of total beneficial accounts.

16



17/90


Table 2Market Participants in securities market

It is not that the users and suppliers of funds meet each other and exchange funds for

securities. It is difficult to accomplish such double coincidence of wants. The amount of funds

supplied by the supplier may not be the amount needed by the user. Similarly, the risk,

liquidity and maturity characteristics of the securities issued by the issuer may not match

preference of the supplier.

Source: (www.stockmarket.com)

17

http://www.stock/http://www.stock/


18/90


CHAPTER:3

RESEARCH METHODOLOGY

OBJECTIVE OF THE STUDAY

The objective of the study was:-

1. To study the investors satisfaction level for the various services provided by the brokerrelationship.

2. To get the brief knowledge of trading system in securities.

3. To get the detail information about the company and to analysis thelearning in past six weeks at Angel Broking.

4. To gain the knowledge about the market conditions.

5. To learn how to convince the client to buy a Demate at Angel Broking.

6. How to handle the various questions raised by them and how to deal with them.

7. To learn how corporate world works, and what people things about it.

18



19/90


Research Process

The research process consists of series of steps necessary to effectively carryout the research

and the desired sequencing of these steps. It consists of closely related activities but these

activities overlap continuously rather than strictly prescribed sequence. Each step will have an

influence over the following steps so the researcher always has to think a few steps ahead.

These steps are not distinct and separate but are interwoven. The researcher has a difficult task

of anticipating the requirements of the subsequent steps, with each step he takes. His focus is

not concentrated only on one single activity or operation at a particular point of time.

However the following order concerning various steps provides useful procedural guideline

regarding the research process:-

1) Formulating research problem:

Find out customer reacting in the practice in live situation in the market. To gain a practical in

sight to market and improve ones knowledge base where in we will expose to many kinds of

people interesting in securities.

19



20/90


Revenue is directly linked to market valuations, so a major fall in asset prices causes a

precipitous decline in revenues relative to costs. Successful fund managers are expensive andmay be head hunted by competitors.

2) Choice of research design:

Since, research design is simply the frame work or plan for a study. It is a blue print that of a

house devised by an architect. My approach to research is descriptive and quite specific.

Out of various research methods the research method, which was most suitable to my research,

was Exploratory Research.

Exploratory Research is offer conducted because a problem has not been clearly defined as

yet, or its real scope is as yet unclear.

It allows the research to familiarize him/herself with the problem or concept to be studied.

3) Determining the sources of data:

After selection of research design, next step is to determine sources of data, whether primary

data or secondary data should be used.

The researcher should critically evaluate the secondary data or primary data so as to avoid the

possible sources of error. The researcher should know about the authentic sources of relevant

data, their periodicity, agency publishing data, etc. it is only when the secondary data is not

available or not reliable that the researcher should use primary data.

4) Data Collection Methods:

20



21/90


A researcher should keep in mind the following factors while deciding on the data collection

methods. Nature, scope and objectives of research, availability of funds and time and theprecision needed.

Primary Sources

These include the Continuous interaction with the staff.

as well as the personal interview methods of data collection.

Secondary Data

BSE & NSE official web site where all information regarding secondary market

Angel Broking web site

SEBI official web site

Magazines

Financial market materials

5) Determining the sample design and sample size:

Another aspect which forms a part of research process is the sampling plan. When a researcher

has decided to carryout a field survey, he has to decide whether it is to be a Non probability or

Probability sampling method.

In my research selected to, The Primary Methods of Non-Probability Sampling Methods are:-

1. Convenience Or Accidental Sampling:-

When a population cant be defied or a list of population is notavailable, there is no other

alternative than to use convenient sampling.2. Purposive or Judgments Sampling:-

The method is appropriate when what is important is the typicality &specific relevance of the

sampling units to the study & not their overall representativeness to the population

21



22/90


6) Organizing and conducting field survey:

To gain the knowledge about the market conditions.

To learn how to convince the client to buy a demate at Angel Broking.

To learn how corporate world works, and what people things about it.

7) Processing and analyzing the collected data:

After the completion of field survey, The next task is to aggregate the data in a meaningful

manner. The Data is prepared to bring out the main characteristics of the data.

8) Preparing the research report:

Research report is defined as written / oral presentation of a research

project which includes all possible details about research objectives,

research design, research process, compilation of data, presentation of data, analysis &

interpretation, conclusions & suggestion & above all, limitation of research.

It is a formal statement & documentation of the process & results of research.

LIMITATIONS OF STUDY

The study was restricted to mehsana City so it is difficult to generalize. The

interpretation made out of the findings.

This research is dependent on the information provided by the respondents and

sometimes the respondents are very reluctant in providing right information and often

22



23/90


provide it carelessly and the result drawn out by only this information, so sometimes

all efforts might not find direction and results. This conclusion and recommendations made are based on a very less experience of

researcher in this field.

Time was the biggest constraints as the study was limited for a period of 45 days only

as per the curriculum of researcher, which means that any relevant market

phenomenon before and after this duration of time might have been skipped in the

study.

Many respondents did not reply and didnt give accurate answer.

CHAPTER- 4

INTRODUCTION OF CAPITAL MARKET

23



24/90


The pattern of growth in the Indian capital markets in the post independence regime can be

analyzed from the following graphs.

From the above

graph we find

that the number

of stock

exchanges in

India increased

at a crawling pace till 1980 but witnessed a sharp rise thereafter till 1995. The following

diagram shows the trend in the no. of listed companies participating in the Indian Capital

Market. Here again we register a sharp rise after 1980. The numbers of stocks issued by the

listed companies also show a similar trend.

OVERVIEW OF THE SECURITIES MARKET

INTRODUCTIONS

24



25/90


Securities markets provide a channel for allocation of savings to those who have areductiveneed for them. As a result, the savers and investors are not constrained by their individual

abilities, but by the economys abilities invest and save respectively, which inevitably

enhance saving and investment in the economy.

Market segment

The securities market has to interdependent and inseparable segments; the primary and the

secondary market. The primary market provides to channel for creation of new securities

through issuance of financial instrument by public companies as well as Government and

government agencies and bodies whereas the secondary market helps the holders of these

financial instruments to sale for exiting from the investment.

This business including associated risk, generated in the secondary market, help the primary

market in allocation of the funds and its follows the company act 1956.

The corporate entities issue mainly debt and equity instrument (shares, debentures, etc.),

while the governments (central & state Government) issue debt securities (dated securities,

treasury bills). The secondary enables participant who hold securities adjust their assessment

of risk and return. They also sell securities for cash to meet their liquidity needs.

Trades taking place over a trading cycle (one day under rolling settlement) are settled together

after a certain time all the 23 stock exchange in the country provide facilities for trading of

corporate securities. Trades executed on NSE only are cleared and selected by a clearingcorporation which provides innovations and settlement guarantee. Nearly 100% the trades in

capital segment are settled through demat delivery.

25



26/90


NSE also provides a formal trading platform for trading of a wide range of debt securitiesincluding government securities in both retail and wholesale mode. NSE also provides trading

in derivatives of equities, interest rate as well indices.

In derivatives market (F&O market segment of NSE), standardized contracts are traded for

future settlement. These futures can be on a basket of securities like an index or an individual

security. In case of options, securities are traded for conditional future delivery.

There are two types of options a put option permits the owner to sell a security to the writer

of options at a predetermined price while a call option permits the owner to purchase a

security from the writer of the option at a predetermined price. These options can also be on

individual stocks or baskets of stocks like index. Two exchanges namely NSE and the stock

exchange, Mumbai (BSE) provide trading of derivatives of securities.

Today the participants have the flexibility of choosing from a basket a products likes:

Equities

Bond issued by both government and companies

Futures on benchmark indices as well as stocks

Options on benchmark indices as well as stocks

Future on interest rate products like national 91 day T-bills, 10 year national zero

coupon bond and 6% national 10 year bond.

26



27/90


INTRODUCTION OF STOCK MARKET

Of all the modern service institutions, stock exchanges are perhaps the most crucial

agents and facilitators of entrepreneurial progress. After the industrial revolution, as the size

of business enterprises grew, it was no longer possible for proprietors or partnerships to raise

colossal amount of money required for undertaking large entrepreneurial ventures.

Such huge requirement of capital could only be met by the participation of a very large

number of investors; their numbers running into hundreds, thousands and even millions,

depending on the size of business venture. In general, small time proprietors, or partners of a

proprietary or partnership firm, are likely to find it rather difficult to get out of their business

should they for some reason wish to do so. This is so because it is not always possible to find

buyers for an entire business or a part of business, just when one wishes to sell it. Similarly, it

is not easy for someone with savings, especially with a small amount of savings, to readily

find an appropriate business opportunity, or a part thereof, for investment. These problems

will be even more magnified in large proprietorships and partnerships.

Nobody would like to invest in such partnerships in the first place, since once invested, their

savings would be very difficult to convert into cash. And most people have lots of reasons,

such as better investment opportunity, marriage, education, death, health and so on for

wanting to convert their savings into cash. Clearly then, big enterprises will be able to raisecapital from the public at large only if there were some mechanism by which the investors

could purchase or sell their share of business as ands they wished to do so.

27



28/90


This implies that ownership in business has to be broken up into a lager number of smallunits, such that each unit may be independently & easily bought and sold without hampering

the business activity as such. Also, such breaking of business ownership would help mobilize

small savings in the economy into entrepreneurial ventures.

What is a share?

A share represents the smallest recognized fraction of ownership in a publicly held business.

Each such fraction of ownership is represented in the form of a certificate known as a share

certificate. The breaking up of total ownership of a business into small fragments, each

fragment represented by a share certificate, enables them to be easily bought and sold.

What is a stock exchange?

The institution where this buying and selling of shares essentially takes place is the Stock

Exchange. In the absence of stock exchanges, i.e. Institutions where small chunks of

businesses could be traded, there would be no modern business in the form of publicly held

companies.

Today, owing to the stock exchanges, one can be part owners of one company today and

another company tomorrow; one can be part owners in several companies at the same time;

one can be part owner in a company hundreds or thousands of miles away; one can be all of

these things. Thus by enabling the convertibility of ownership in the product market into

financial assets, namely shares, stock exchanges bring together buyers and sellers (or their

representatives) of fractional ownerships of companies. And for that very reason, activitiesrelating to stock exchanges are also appropriately enough, known as stock market or security

market.

28



29/90


The stock exchanges are the exclusive centers for the trading of securities. The regulatoryframework encourages this by virtually banning trading of securities outside exchanges.

Until recently, the area of operation/ jurisdiction of exchange were specified at the time of its

recognition, which in effect precluded competition among the exchanges. These are called

regional exchanges. In order to provide an opportunity to investors to invest/ trade in the

securities of local companies, it is mandatory foe the companies, wishing to list their

securities, to list on the regional stock exchange nearest to their registered office.

Characteristics of Stock Exchanges in India

Traditionally, a stock exchange has been an association of individual members called

member brokers (or simply members or brokers), formed for the express purpose of

regulating and facilitating buying and selling of securities by the public and institution

at large.

A stock exchange in India operates with due recognition from the government under

the Securities and Contracts (Regulations) Act, 1956. the member brokers are

essentially the middlemen who carry out the desired transactions in securities on

behalf of the public(for a commission) or on their own behalf. New membership to a

Stock Exchange is through election by the governing board of that stock exchange.

At present, there areTHE BUYING 23 stock exchanges in India, the largest among

them being the Bombay Stock Exchange. BSE alone accounts for over 80% of the

total volume of transactions in shares.

29



30/90


Typically, a stock exchange is governed by a board consisting of directors largely

elected by the member brokers, and a few nominated by the government. Governmentnominee include representatives of the ministry of finance, as well as some public

representatives, who are expected to safeguard the public interest in the functioning of

the exchanges. A president, who is an elected member, usually nominated by the

government from among the elected members, heads the board.

The executive director, who is usually appointed by the stock exchange with the government

approval is the operational chief of the stock exchange. His duty is to ensure that the day to

day operations the Stock Exchange are carried out in accordance with the various rules and

regulations governing its functioning.

The overall development and regulation of the securities market has been entrusted to

the Securities and Exchange Board of India (SEBI) by an act of parliament in 1992.

All companies wishing to raise capital from the public are required to list their

securities on at least one stock exchange. Thus, all ordinary shares, preference shares

and debentures of the publicly held companies are listed in the stock exchange.

Exchange Management

Made some attempts in this direction, but this did not materially alter the situation. In view of

the less than satisfactory quality, of administration of brokermanaged exchanges, the finance

minister in March 2001 proposed demutualization of exchanges by which ownership,

management and trading membership would be segregated from each other.

Role of SEBI

30



31/90


The SEBI, that is, the Securities and the Exchange Board of India, is the national regulatory

body for the securities market, set up under the securities and Exchange Board of India act,

1992, to protect the interest of investors in securities and to promote the development of, and

to regulate the securities market and for matters connected therewith and incidental too.

SEBI has its head office in Mumbai and it has now set up regional offices in the metropolitan

cities of Kolkatta, Delhi, and Chennai. The Board of SEBI comprises a Chairman, two

members from the central government representing the ministries of finance and law, one

member from the Reserve Bank of India and two other members appointed by the centralgovernment.

As per the SEBI act, 1992, the power and functions of the Board encompass the regulation of

Stock Exchanges and other securities markets; registration and regulation of the working

stock brokers, sub-brokers, bankers to an issue (a public offer of capital), trustees of trust

deeds, registrars to an issues, merchant bankers, under writers, portfolio managers, investment

advisors and such other intermediaries who may be associated with the stock market in any

way; registration and regulations of mutual funds; promotion and regulation of self-regulatoryorganizations; prohibiting Fraudulent and unfair trade practices and insider trading in

securities markets; regulating substantial acquisition of shares and takeover of companies;

calling for information from, undertaking inspection, conducting inquiries and audits of stock

exchanges, intermediaries and self- regulatory organizations of the securities market;

performing such functions and exercising such powers as contained in the provisions of the

Capital Issues (Control) Act,1947 and the Securities Contracts (Regulation) Act, 1956,

levying various fees and other charges, conducting necessary research for above purposes and

performing such other functions as may be prescribes from time to time.

31



32/90


SEBI as the watchdog of the industry has an important and crucial role in the market in

ensuring that the market participants perform their duties in accordance with the regulatorynorms. The Stock Exchange as a responsible Self Regulatory Organization (SRO) function to

regulate the market and its prices as per the prevalent regulations.

SEBI and the Exchange play complimentary roles to enhance the investor protection and the

overall quality of the market.

Membership

The trading platform of a stock exchange is accessible only to brokers. The broker enters into

trades in exchanges either on his own account or on behalf of clients. The clients may place

their order with them directly or a sub-broker indirectly. A broker is admitted to the

membership of an exchange in terms of the provisions of the SCRA, the SEBI act 1992, the

rules, circulars, notifications, guidelines, etc.

prescribed there under and the byelaws, rules and regulations of the concerned exchange. No

stockbroker or subbroker is allowed to buy, sell or deal in securities, unless he or she holds a

certificate of registration granted by SEBI. A broker/sub-broker compiles with the code of

conduct prescribed by SEBI.

The stock exchanges are free to stipulate stricter requirements for its members than those

stipulated by SEBI. The minimum standards stipulated by NSE for membership are in excess

of the minimum norms laid down by SEBI. The standards for admission of members laid

down by NSE stress on factors, such as, corporate structure, capital adequacy, track record,

education, experience, etc. and reflect the conscious endeavors to ensure quality broking

services.

Listing

32



33/90


Listing means formal admission of a security to the trading platform of a stock exchange,

invariably evidenced by a listing agreement between the issuer of the security and the stock

exchange. ; Listing of securities on Indian Stock Exchanges is essentially governed by the

provisions in the companies act, 1956, SCRA, SCRR, rules, bye-laws and regulations of the

concerned stock exchange, the listing agreement entered into by the issuer and the stock

exchange and the circulars/ guidelines issued by central government and SEBI.

Index services

Stock index uses a set of stocks that are representative of the whole market, or a specified

sector to measure the change in overall behavior of the markets or sector over a period of

time. India Index Services & Products Limited (IISL), promoted by NSE and CRISIL, is the

only specialized organization in the country to provide stock index services.

Trading Mechanism

All stock exchanges in India follow screen-based trading system. NSE was the first stock

exchange in the country to provide nation-wide order-driven, screen-based trading system.NSE model was gradually emulated by all other stock exchanges in the country. The trading

system at NSE known as the National Exchange for Automated Trading (NEAT) system is an

anonymous order-driven system and operates on a strict price/time priority. It enables

members from across the countries to trade simultaneously with enormous ease and

efficiency.

NEAT has lent considerable depth in the market by enabling large number of members all

over the country to trade simultaneously and consequently narrowed the spreads significantly.

33



34/90


A single consolidated order book for each stock displays, on a real time basis, buy and sell

orders originating from all over the country.The bookstores only limit orders, which are orders to buy or sell shares at a stated quantity and

stated price. The limit order is executed only if the price quantity conditions match. Thus, the

NEAT system provides an open electronic consolidated limit order book (OECLOB).

The trading system provides tremendous flexibility to the users in terms of kinds of orders

that can be placed on the system. Several time-related (Good- Till-Cancelled, Good-Till-Day,

Immediate-or-Cancel), price related (buy/sell limit and stop-loss orders) or volume related

(All-or-None, Minimum Fill, etc.) conditions van be easily built into an order. Orders are

sorted and match automatically by the computer keeping the system transparent, objective and

fair. The trading system also provides complete market information on-line, which is updated

on real time basis.

The trading platform of the CM segment of NSE is accessed not only from the computer

terminals from the premises of brokers spread over 420 cities, but also from the personal

computers in the homes of investors through the internet and from the hand-held devices

throughWAP. The trading platform of BSE is also accessible from 400 cities.

Internet trading is available on NSE and BSE, as of now. SEBI has approved the use of

Internet as an order routing system, for communicating clients orders to the exchanges

through brokers. SEBI- registered brokers can introduce internet-based trading after obtaining

permission from the respective Stock Exchanges.

SEBI has stipulated the minimum conditions to be fulfilled by trading members to start

internet-based trading and services.

NSE was the first exchange in the country to provide web-based access toinvestors to trade

directly on the exchange. It launched Internet trading in February 2000.

34



35/90


It was followed by the launch of Internet trading by BSE in March 2001. The orders

originating from the personal computers (PCs) of investors are routed through the Internet toteh trading terminals of the designated brokers with whom they have relations and further to

the exchange of trade execution. Soon after these orders get matched and result into trades,

the investors get confirmation about them on their PCs through the same Internet routes.

SEBI approved trading through wireless medium or WAP platform. NSE is the only exchange

to provide access to its order book through the hand held devices, which use WAP

technology. This serves primarily retail investors who are mobile and want to trade from any

place when the market prices for stock of their choice are attractive.Demat Trading

A depository holds securities in dematerialized form. It maintains ownership records of

securities in a book entry form and also effects transfer of ownership through book entry.

SEBI has introduced some degree of compulsion in trading and settlement of securities in

dematerialized form. While the investors have a right to hold securities in either physical or

demat form, SEBI has mandated compulsory trading and settlement of securities in

dematerialized form.

This was initially introduced for institutional investors and was later extended to all investors.

Starting with 12 scrips on January 15, 1998, all investors are required to mandatorily trade in

dematerialized form in respect of 2,335 securities as at end-June, 2001.

Since the introduction of the depository system, dematerialization has progressed at a fast

pace and has gained acceptance among the participants in the market. All actively traded

scrips are held, traded and settled in demat form.

The details of progress in dematerialization in two depositories, viz., NSDL and CDSL, are

presented as below: In a SEBI working paper titled Dematerialization: A Silent Revolution in

35



36/90


the Indian Capital Market released in April 2000, it has been observed that India has

achieved a very high level of dematerialization in less than three years time, and currentlymore than 99% of trades settle in demand form.

Competition and regulatory developments facilitated reduction in custodial charges and

improvements in qualities of service standards.

The paper observes that one imminent and apparent immediate benefit of competition

between the two depositories is fall in settlement and other charges. Competition has been

driving improvement in service standards.

Depository facility has effected changes in stock market microstructure.

Breadth and depth of investment culture has further got extended to interior areas of the

country faster. Explicit transaction cost has been falling due to dematerialization.

Dematerialization substantially contributed to the increased growth in the turnover.

Dematerialization growth in India is the quickest among all emerging markets and also among

developed markets excepting for the U.K and Hong Kong.

36



37/90


37



38/90


I NTRODUCTION OF BSE & NSE

BOMBAY STOCK EXCHANGE LIMITED (BSE):-

The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as "The

Native Share and Stock Brokers Association", as a voluntary non-profit making association. It

has evolved over the years into its present status as the premier Stock Exchange in the

country. It may be noted that the Stock Exchanges is the oldest one in Asia, even older than

the Tokyo Stock Exchange, which was founded in 1878.

The Exchange, while providing an efficient and transparent market for trading insecurities,

upholds the interests of the investors and ensures redressed of their grievances, whether

against the companies or its own member-brokers. It also strives to educate and enlighten the

investors by making available necessary informative inputs and conducting investor

education programmers.

A Governing Board comprising of 9 elected directors (one third of them retire every year by

rotation), two SEBI nominees, a Reserve Bank of India nominee, six public representativesand an Executive Director is the apex body, which decides the policies and regulates the

affairs of the Exchange.

The Executive Director as the Chief Executive Officer is responsible for the day today

administration of the Exchange.

The average daily turnover of the Exchange during the year 2000-2001 (April- March), was

Rs.3984.19 crores and average number of daily trades was 5.69 lakhs.

However, the average daily turnover of the Exchange during the year 2001- 2002 has declined

to Rs. 1244.10 crores and number of average daily trades during the period to 5.17 lakhs. The

38



39/90


ban on all deferral products like BLESS and ALBM in the Indian capital Markets by SEBI

W.E.F July 2, 2001, abolition of account period settlements, introduction of CompulsoryRolling Settlements in all scrips traded on the Exchanges W.E.F. December 31, 2001, etc.

have adversely impacted the liquidity and consequently there is a considerable decline in the

daily turnover at the Exchange.

NATIONAL STOCK EXCHANGE OF INDIA LTD .( NSE):-

The National Stock Exchange (NSE) is India's leading stock exchange covering around 400

cities and towns all over India. NSE introduced for the first time in India, fully automated

screen based trading.

It provides a modern, fully computerized trading system designed to offer investors across

the length and breadth of the country a safe and easy way to invest or liquidate investments in

securities.

Sponsored by the industrial development bank of India, the NSE has been cosponsored by

other development/ public finance institutions, LIC, GIC, banks and other financial

institutions such as SBI Capital Market, Stockholding corporation, Infrastructure leasing and

finance and so on. India has had a history of stock exchanges limited in their operating

jurisdiction to the cities in which they were set up.

NSE started equity trading on November 3, 1994 and within a short span of 1 year became the

largest exchange in India in terms of volumes transacted. Trading volumes in the equity

segment have grown rapidly with average daily turnover increasing from Rs.7 crores in

November 1994 to Rs.6797 crores in February 2001 with an average of 9.6 lakh trades on adaily basis. During the year 2000-2001, NSE reported a turnover of Rs.13,39,510 crores in the

equities segment accounting for 45% of the total market.

39



40/90


The NSE represented an attempt to overcome the fragmentation of regional markets byproviding a screen-based system, which transcends geographical barriers.

Having operationalized both the debt and equity markets, the NSE is planning for aderivative

market, which will provide futures and options in equity. Its main objectives has been to set

up comprehensive facilities for the entire range of securities under a single umbrella, namely,

To set up a nation wide trading facility for equities, debt instruments and Hybrids;

To ensure equal access to investors across the country through an appropriate

Communication network;

To provide a fair, efficient and transparent securities market to investors using the

electronic trading system;

To ensure shorter settlement cycles and book entry settlement systems; and

To meet the current international standards prevalent in the securities

Industry/markets.

Our Mission:-

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:

40



41/90


Establishing a nation-wide trading facility for equities, debt instruments and

hybrids,

Ensuring equal access to investors all over the country through an appropriate

communication network,

Providing a fair, efficient and transparent securities market to investors using

electronic trading systems,

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.

Corporate Structure:-

NSE is one of the first de-mutualised stock exchanges in the country, where the ownership and

management of the Exchange is completely divorced from the right to trade on it. Though the

impetus for its establishment came from policy makers in the country, it has been set up as a

public limited company, owned by the leading institutional investors in the country.

From day one, NSE has adopted the form of a demutualised exchange the ownership,

management and trading is in the hands of three different sets of people.

41



42/90


NSE is owned by a set of leading financial institutions, banks, insurance companies and other

financial intermediaries and is managed by professionals, who do not directly or indirectlytrade on the Exchange. This has completely eliminated any conflict of interest and helped

NSE in aggressively pursuing policies and practices within a public interest framework.

The NSE model however, does not preclude, but in fact accommodates

involvement, support and contribution of trading members in a variety of ways. Its Board

comprises of senior executives from promoter institutions, eminent professionals in the fields

of law, economics, accountancy, finance, taxation, etc, public representatives, nominees of

SEBI and one full time executive of the Exchange.

While the Board deals with broad policy issues, decisions relating to market operations are

delegated by the Board to various committees constituted by it. Such committees includes

representatives from trading members, professionals, the public and the management.The day-

to-day management of the Exchange is delegated to the Managing Director who is supported

by a team of professional staff.

The following are likely BSE/NSE holidays for calender year 2010, from

January to December 2010

1 - Moharram - 4th January 2010 - Monday

2 - Republic Day - 26th January 2010 - Tuesday

3 - Mahashivratri - 12th February 2010 - Friday

4 - Holi - 1st March 2010 - Monday

5 - Ram Navmi - 24th March 2010 - Wednesday6 - Good Friday - 2nd April 2010 - Friday

7- Dr. Ambedkar Jayanti - 14th April 2010 - Wednesday

42



43/90


8 - Ramzan Id - 10th September 2010 - Friday

9 - Diwali (Diwali) - 5th November 2010 - Monday10 - Bakri - Id (Diwali) - 17th November 2010 - Wednesday

Note :

This is a tentative list of Holidays of BSE / NSE. This year most of the holidays fall on

Saturday or Sunday.

Soon we will update this list after official holiday list is declared by BSE /NSE.

Muhurat Trading will be on 5th November 2010

43



44/90


At the end it is concluded that following are Major factors, which have generally contributed

to fall & rise in stock market.

US economic growth

Crude oil prices

Emerging market valuations

Foreign direct investment (FDI)

Capital spending Equity supply

Government policy toward foreign firms

Politics

Domestic risk

Foreign institutional investors (FII) withdrawals

US Fed interest rates

Indian industry growth

Budget 2006-07 and finance bill

Tax circular regarding transaction tax to FII.

44



45/90


CHAPTER- 5

PROFILE OF THE ORGANISATION

Angel Broking's tryst with excellence in customer relations began in 1987. Today,Angel has

emerged as one of the most respected Stock-Broking and Wealth Management Companies in

India. With its unique retail-focused stock trading business model, Angel is committed to

providing Real Value for Money to all its clients.

The Angel Group is a member of the Bombay Stock Exchange (BSE), National Stock

Exchange (NSE) and the two leading Commodity Exchanges in the country:NCDEX & MCX.

Angel is also registered as a Depository Participant with CDSL.

Angel Group

Angel Broking Ltd.

Angel Commodities Broking Ltd.

Angel Securities Ltd.

Our Business

Equity Trading

Commodities

Portfolio Management Services Mutual Funds

Life Insurance

Personal Loans

45



46/90


IPO

Depository Services Investment Advisory

VISION OF THE COMPANY

To provide best value for money to investors through innovative products,trading / investment

strategies, state-of-the-art technology and personalized service

PHILOSOPHY OF THE COMPANY

Ethical practices & transparency in all our dealings customer interest above our own always

deliver what we promise effective cost management.

QUALITY ASSURANCE POLICY

We are committed to being the leader in providing World Class Product &Services which

exceed the expectations of our customers Achieved by teamwork and a process of continuous

improvement

CRM POLICY

A Customer is the most important visitor on our premises. He is not dependent on us but we

are dependent on him. He is not interruption in our work, but is the Purpose of it. We are not

doing him a favour by serving. He is doing us afavour by giving us an opportunity to do so

RESEARCH COVERAGE

46



47/90


Active coverage of political developments, economy changes. Sector wise investment strategies are in place.

Stock ideas are presented from time to time in tune with overall strategy.

Total coverage exceeds some 100 stocks spread over 20 sectors.

Coverage includes all GDR stocks.

It is amongst the widest coverage broking houses in India.

Product and Service

The products of Angel Broking can be broadly classified into three types suiting the clients

trading habits.

Three Key Products

IT-Enabled call center for servicing clients.

Integrated depository services / Demat account for transparency.

Online fund transfer facility with HDFC, Citibank, GTB, IDBI Bank. Regularb

banking facility with any bank in India.

Derivatives Trading

Angel Broking is a significantly large player in this with over 5 % market share. It offers

complete intellectual support to the clients. The trading facility is available through the ground

network as well as over the internet. It has also created proprietary intellectual material for

client servicing- Derivative digest, Derivatives info kit, Options calculator.

Derivative Product

47



48/90


For Buyers

Going with the brave heart view.

Advantage option.

For Portfolio Hedging

Nifty futures and using the beta factor.

Flex option.

SDS(Structured Derivatives Strategy)

Research Product

The research is varied but focused in each of the area of the operation. These are tailor made to

suit the following needs of customers.

Intra-day trading.

Short term trading

Long term investing

High Yield product.

Hedging products

Research based on fundamental view, Technical view and dealing room information. The

delivery is through the website, Branch, E-mail, SMS and instant messenger. Investment Ideas

Angel Broking has a broad based distribution of funds across various sectors covering major

companies in these sectors. Some of the important sectors are

48



49/90


Automobile

Petrochemicals Banking

Pharma

Home Textile

Retail Finance

Media

IT Services

Oil and gas

Telecom

AWARD AND ACHIVEMENT

We have been in information services since inception and have assiduously built the data and

skill set necessary for the business.

Mar,2002 Angel Broking develops web-enabled back office software to

maximize its operational efficiency

Nov,2002 Angel Broking successfully conducts its first Investor Seminar toincrease investor awareness

49



50/90


Apr,2003 Angel Broking publishes its first research report

Apr,2004 Angel Broking expands its basket of services by establishing the

Commodity Broking division

Sep,2004 Angel Broking launches Online Trading Platform facilitating easy

and hassle-free trading for its customers

Oct,2005 Angel Broking wins the prestigious Major Volume Driver

Award by BSE for 2004-2005

Mar,2006 Angel Broking on expansion drive crosses 1,00,000 mark in

unique trading accounts

Jul,2006 Angel Broking launches Portfolio Management Services (PMS)

Oct,2006 Angel Broking bags the coveted Major Volume Driver Award by

BSE for 2005- 2006

Decr,2006 Angel Broking expands its network by creating 2500 business

associates

Mar,2007 Angel Broking crosses the benchmark of 2,00,000 unique trading

accounts

50



51/90


Nov,2007 Angel Broking wins the honoured Major Volume Driver Award by

BSE for 2006-2007

Nov,2008 Angel Broking wins the esteemed Major Volume Driver Award by

BSE for 2007-2008

Aug2008 Angel Broking crosses 5,00,000 mark in unique trading accounts

May,2009 Angel Broking wins two prestigious awards for 'Broking House with

Largest Distribution Network' and 'Best Retail Broking House' at Dun &

Bradstreet Equity Broking Awards

Oct,2009 Angel Broking bags the coveted Major Volume Driver Award by

BSE for 2008-09

We have leveraged our content to create our Angel Broking, brand, which is

synonymous with high quality and credible information on business and finance.

Our top management team represents a skill set, which is mutually exclusive

butcollectively exhaustive.

The strength of the organization is that the organizations has been continuously

innovating and reinvent

CHAPTER- 6

51



52/90


THEORY OF TRADING PROCESS

The clearing and settlement mechanism in Indian securities market has witnessed significant

changes and several innovations during the last decade. These include use of the state-of-art

information technology, emergence of clearing corporations to assume counterparty risk,

shorter settlement cycle, dematerialization and electronic transfer of securities, fine-tuned risk

management system, etc., though many of these are yet to permeate the whole market. Till

recently, the stock exchanges in India were following a system of account period settlement

for cash market transactions. T+2 rolling settlement has now been introduced for all securities.

The members receive the funds/securities in accordance with the pay-in/pay-out schedules

notified by the respective exchanges. Given the growing volume of trades and market

volatility, the time gap between trading and settlement gives rise to settlement risk. In

recognition of this, the exchanges and their clearing corporations employ risk management

practices to ensure timely settlement of trades. The regulators have also prescribed elaborate

margining and capital adequacy standards to secure market integrity and protect the interests

of investors. The trades are settled irrespective of default by a member and the exchange

follows up with the defaulting member subsequently for recovery of his dues to the exchange.

Due to setting up of the Clearing Corporation, the market has full confidence that settlements

will take place on time and will be completed irrespective of possible default by isolated

trading members. Movement of securities has become almost instantaneous in the

dematerialized environment. Two depositories viz., National Securities Depositories Ltd.

(NSDL) and Central Depositories Services Ltd.

(CDSL) provide electronic transfer of securities and more than 99% of turnover is settled in

dematerialised form. All actively traded scrips are held, traded and settled in demat form.

52



53/90


The obligations of members are downloaded to members/custodians by the clearing agency.

The members/custodians make available the required securities in their pool accounts with

depository participants (DPs) by the prescribed pay-in time for securities.

The depository transfers the securities from the pool accounts of members/custodians to the

settlement account of the clearing agency. As per the schedule determined by the clearing

agency, the securities are transferred on the pay-out day by the depository from the settlement

account of the clearing agency to the pool accounts of members/custodians. The pay-in and

pay-out of securities is effected on the same day for all settlements. Select banks have been

empanelled by clearing agency for electronic transfer of funds.The members are required to

maintain accounts with any of these banks. The members are informed electronically of their

pay-in obligations of funds. The members make available required funds in their accounts with

clearing banks by the prescribed pay-in day. The clearing agency forwards funds obligations

file to clearing banks which, in turn, debit the accounts of members and credit the account of

the clearing agency. In some cases, the clearing agency runs an electronic file to debit

members accounts with clearing banks and credit its own account. On pay-out day, the funds

are transferred by the clearing banks from the account of the clearing agency to the accounts of

members as per the members obligations. In the T+2 rolling settlement, the pay-in and pay-

out of funds as well as securities take place 2 working days after the trade date.

53



54/90


TRANSACTION CYCLE

CHART : 2

54



55/90


A person holding assets (securities/funds), either to meet his liquidity needs or to reshuffle his

holdings in response to changes in his perception about risk and return of the assets, decides to

buy or sell the securities. He selects a broker and instructs him to place buy/sell order on an

55



56/90


exchange. The order is converted to a trade as soon as it finds a matching sell/buy order. At theend of the trade cycle, the trades are netted to determine the obligations of the trading

members to deliver securities/funds as per settlement schedule. Buyer/seller delivers

funds/securities and receives securities/ funds and acquires ownership of the securities. A

securities transaction cycle is presented in Figure.

Settlement Process

While NSE provides a platform for trading to its trading members, the National Securities

Clearing Corporation Ltd. (NSCCL) determines the funds/securities obligations of the trading

members and ensures that trading members meet their obligations. NSCCL becomes the legal

counterparty to the net settlement obligations of every member. This principle is called

``novation'' and NSCCL is obligated to meet all settlement obligations, regardless of member

defaults, without any discretion.

Once a member fails on any obligations, NSCCL immediately cuts off trading and initiates

recovery. The clearing banks and depositories provide the necessary interface between the

custodians/clearing members (who clear for the trading members or their own transactions) for

settlement of funds/securities obligations of trading members. The core processes involved in

the settlement process are:

56



57/90


CHART :3

Figure 2.2: Settlement Process in CM segment of NSE

(a) Determination of Obligation:

57



58/90


NSCCL determines what counter-parties owe, and what counter-parties are due to receive onthe settlement date. The NSCCL interposes itself as a central counterparty between the

counterparties to trades and nets the positions so that a member has security wise net

obligation to receive or deliver a security and has to either pay or receive funds.

(b) Pay-in of Funds and Securities:

The members bring in their funds/securities to the NSCCL. They make available required

securities in designated accounts with the depositories by the prescribed pay-in time. The

depositories move the securities available in the accounts of members to the account of the

NSCCL. Likewise members with funds obligations make available required funds in the

designated accounts with clearing banks by the prescribed pay-in time. The NSCCL sends

electronic instructions to the clearing banks to debit members accounts to the extent of

payment obligations. The banks process these instructions, debit accounts of members and

credit accounts of the NSCCL.

(c) Pay-out of Funds and Securities:

After processing for shortages of funds/securities and arranging for movement of funds from

surplus banks to deficit banks through RBI clearing, the NSCCL sends electronic instructions

to the depositories/clearing banks to release pay-out of securities/funds.

The depositories and clearing banks debit accounts of NSCCL and credit settlement accounts

of members. Settlement is complete upon release of pay-out of funds and securities tocustodians/members. The settlement process for transactions in securities in the CM segment

of NSE is presented in the Figure 2.2.

58



59/90


(d) Risk Management:

A sound risk management system is integral to an efficient

settlement system. NSCCL has put in place a comprehensive risk management system, which

is constantly monitored and upgraded to pre-empt market failures. It monitors the track record

and performance of members and their net worth; undertakes on-line monitoring of members

positions and exposure in the market, collects margins from members and automatically

disables members if the limits are breached.

Settlement Agencies:-

The NSCCL, with the help of clearing members, custodians, clearing banks and

depositories settles the trades executed on exchanges. The roles of each of these entities are

explained below:

(a) NSCCL:

The NSCCL is responsible for post-trade activities of a stock exchange. Clearing and

settlement of trades and risk management are its central functions. It clears all trades,

determines obligations of members, arranges for pay-in of funds/securities, receives

funds/securities, processes for shortages in funds/securities, arranges for pay-out of

funds/securities to members, guarantees settlement, and collects and maintains

margins/collateral/base capital/other funds.

(b) Clearing Members:

59



60/90


They are responsible for settling their obligations as determined by the NSCCL. They have to

make available funds and/or securities in the designated accounts with clearingbank/depository participant, as the case may be, to meet their obligations on the settlement

day. In the capital market segment, all trading members of the Exchange are required to

become the Clearing Member of the Clearing Corporation.

(c) Custodians:

A custodian is a person who holds for safekeeping the documentary evidence of the title to

property belonging like share certificates, etc. The title to the custodians property remains

vested with the original holder, or in their nominee(s), or custodian trustee, as the case may be.

In NSCCL, custodian is a clearing member but not a trading member. He settles trades

assigned to him by trading members. He is required to confirm whether he is going to settle a

particular trade or not. If it is confirmed, the NSCCL assigns that obligation to that custodian

and the custodian is required to settle it on the settlement day. If the custodian rejects the trade,

the obligation is assigned back to the trading / clearing member.

Explanations:

Trade details from Exchange to NSCCL (real-time and end of day trade file).

NSCCL notifies the consummated trade details to CMs/custodians who affirm back.

Based on the affirmation, NSCCL applies multilateral netting and determines

obligations.

Download of obligation and pay-in advice of funds/securities.

Instructions to clearing banks to make funds available by pay-in time. Instructions to depositories to make securities available by pay-in-time.

Pay-in of securities (NSCCL advises depository to debit pool account of

60



61/90


custodians/CMs and credit its account and depository does it).

Pay-in of funds (NSCCL advises Clearing Banks to debit account of custodians/CMsand credit its account and clearing bank does it).

Pay-out of securities (NSCCL advises depository to credit pool account of custodians/

CMs and debit its account and depository does it).

Pay-out of funds (NSCCL advises Clearing Banks to credit account of custodians/ CMs

and debit its account and clearing bank does it).

Depository informs custodians/CMs through DPs.

Clearing Banks inform custodians/CMs.

(d) Clearing Banks:

Clearing banks are a key link between the clearing members and NSCCL for funds settlement.

Every clearing member is required to open a dedicated settlement account with one of the

clearing banks. Based on his obligation as determined through clearing, the clearing member

makes funds available in the clearing account for the pay-in and receives funds in case of a

pay-out. Multiple clearing banks provide advantages of competitive forces, facilitate

introduction of new products viz. working capital funding, anywhere banking facilities, the

option to members to settle funds through a bank, which provides the maximum services

suitable to the member.

The clearing banks are required to provide the following services as a single window to all

clearing members of National Securities Clearing Corporation Ltd. as also to the Clearing

Corporation:

Branch network in cities that cover bulk of the trading cum clearing members High level automation including electronic funds transfer (EFT) facilities

61



62/90


Facilities like (a) dedicated branch facilities (b) software to interface with the Clearing

Corporation (c) access to accounts information on a real time basis Value-added services to members such as free-of-cost funds transfer across centers etc.

Providing working capital funds

Stock lending facilities

Services as Professional Clearing Members

Services as Depository Participants

Other Capital Market related facilities

All other banking facilities like issuing bank guarantees / credit facilities etc.

(e) Depositories:

A depository is an entity where the securities of an investor are held in electronic form. The

person who holds a demat account is a beneficiary owner. In case of a joint account, the

account holders will be beneficiary holders of that joint account. Depositories help in the

settlement of the dematerialised securities. Each custodian/clearing member is required to

maintain a clearing pool account with the depositories. He is required to make available the

required securities in the designated account on settlement day.

The depository runs an electronic file to transfer the securities from accounts of the

custodians/clearing member to that of NSCCL. As per the schedule of allocation of securities

determined by the NSCCL, the depositories transfer the securities on the pay-out day from the

account of the NSCCL to those of members/custodians.

(f) Professional Clearing Member:

62



63/90


NSCCL admits special category of members namely, professional clearing members.

Professional Clearing Member (PCM) may clear and settle trades executed for their clients(individuals, institutions etc.). In such an event,the functions and responsibilities of the PCM

would be similar to Custodians.

PCMs may also undertake clearing and settlement responsibility for trading members. In such

a case, the PCM would settle the trades carried out by the trading members connected to them.

The onus for settling the trade would be thus on the PCM and not the trading member.

APCM has no trading rights but has only clearing rights, i.e. he just clears the trades of his

associate trading members and institutional clients.

Risks in Settlement

The following two kinds of risks are inherent in a settlement system:

(1) Counterparty Risk:

This arises if parties do not discharge their obligations fully when due or at any time

thereafter. This has two components, namely replacement cost risk prior to settlement and

principal risk during settlement.

(a) The replacement cost risk arises from the failure of one of the parties to

transaction. While the non-defaulting party tries to replace the original transaction at current

prices, he loses the profit that has accrued on the transaction between the date of originaltransaction and date of replacement transaction. The seller/buyer of the security loses this

unrealized profit if the current price is below/above the transaction price. Both parties

63



64/90


encounter this risk as prices are uncertain. It has been reduced by reducing time gap between

transaction and settlement and by legally binding netting systems.(b) The principal risk arises if a party discharges his obligations but the

counterparty defaults. The seller/buyer of the security suffers this risk when he delivers/makes

payment, but does not receive payment/delivery.

This risk can be eliminated by delivery vs. payment mechanism which ensures delivery only

against payment. This has been reduced by having a central counterparty (NSCCL) which

becomes the buyer to every seller and the seller to every buyer. A variant of counterparty risk

is liquidity risk

which arises if one of the parties to transaction does not settle on the settlement

date, but later.

The seller/buyer who does not receive payment/delivery when due, may have to borrow

funds/securities to complete his payment/delivery obligations.

Another variant is the third party risk which arises if the parties to trade are permitted or

required to use the services of a third party which fails to perform. For example, the failure of

a clearing bank which helps in payment can disrupt settlement.

This risk is reduced by allowing parties to have accounts with multiple banks. Similarly, the

users of custodial services face risk if the concerned custodian becomes insolvent, acts

negligently, etc.

(2) System Risk:

64



65/90


This comprises of operational, legal and systemic risks. The operational risk arises frompossible operational failures such as errors, fraud, outages etc. The legal risk arises if the laws

or regulations do not support enforcement of settlement obligations or are uncertain. Systemic

risk arises when failure of one of the parties to discharge his obligations leads to failure by

other parties. The domino effect of successive failures can cause a failure of the settlement

system. These risks have been contained by enforcement of an elaborate margining and capital

adequacy standards to secure market integrity, settlement guarantee funds to provide counter-

party guarantee, legal backing for settlement activities and business continuity plan, etc.

Dematerialization and Electronic Transfer of Securities

Traditionally, settlement system on Indian stock exchanges gave rise to settlement risk due to

the time that elapsed before trades were settled by physical movement of certificates. There

were two aspects: First relating to settlement of trade in stock exchanges by delivery of shares

by the seller and payment by the buyer.

The stock exchange aggregated trades over a period of time and carried out net settlement

through the physical delivery of securities. The process of physically moving the securities

from the seller to his broker to Clearing Corporation to the buyers broker and finally to the

buyer took time with the risk of delay somewhere along the chain.

The second aspect related to transfer of shares in favour of the purchaser by the issuer. This

system of transfer of ownership was grossly inefficient as every transfer involved the physical

movement of paper securities to the issuer for registration, with the change of ownership being

evidenced by an endorsement on the security certificate. In many cases the process of transfer

65



66/90


took much longer than the two months as stipulated in the Companies Act, and a significant

proportion of transactions wound up as bad delivery due to faulty compliance of paper work.Theft, mutilation of certificates and other irregularities were rampant, and in addition the

issuer had the right to refuse the transfer of a security.

Thus the buyer did not get good title of the securities after parting with good money. All this

added to the costs and delays in settlement, restricted liquidity and made investor grievance

redressal time-consuming and at times intractable.

To obviate these problems, the Depositories Act, 1996 was passed to provide for theestablishment of depositories in securities with the objective of ensuring free Transferability of

securities with speed, accuracy and security by

(a) Making securities of public limited companies freely transferable subject to Certain

exceptions;

(b) Dematerializing the securities in the depository mode; and

(c) Providing for maintenance of ownership records in a book entry form.

In order to streamline both the stages of settlement process, the

Depositories Act

Envisages transfer of ownership of securities electronically by book entry without Making the

securities move from person to person. The Act has made the securities Of all public limited

companies freely transferable by restricting the companys right To use discretion in effecting

the transfer of securities, and dispensing with the Transfer deed and other procedural

requirements under the Companies Act. A depository holds securities in dematerialised form.

It maintains ownership Records of securities and effects transfer of ownership through book

entry. By Fiction of law, it is the registered owner of the securities held with it with the

Limited purpose of effecting transfer of ownership at the behest of the owner.

66



67/90


The Name of the depository appears in the records of the issuer as registered owner of

Securities. The name of actual owner appears in the records of the depository as Beneficialowner. The beneficial owner has all the rights and liabilities associated With the securities.

The owner of securities intending to avail of depository services Opens an account with a

depository through a depository participant (DP).

The Securities are transferred from one account to another through book entry only on The

instructions of the beneficial owner. In order to promote dematerialisation of securities, NSE

joined hands with leading Financial institutions to establish the National Securities Depository

Ltd. (NSDL), The first depository in the country, with the objective of enhancing the

efficiency in Settlement systems as also to reduce the menace of fake/forged and stolen

Securities. This has ushered in an era of dematerialised trading and settlement. SEBI has made

dematerialised settlement mandatory in an ever-increasing number Of securities in a phased

manner, thus bringing about an increase in the proportion Of shares delivered in

dematerialised form. There is an increasing preference to Settle trades, particularly in high

value securities in demat form. Such high level of Demat settlement reassures success of

rolling settlement.

CDSL was set up in February, 1999 to provide depository services. All leading Stock

exchanges like the National Stock Exchange, Calcutta Stock Exchange, and Delhi Stock

Exchange, The Stock Exchange, Ahmedabad, etc have established Connectivity with CDSL.

Trading Membership

Stock Brokers

A broker is an intermediary who arranges to buy and sell securities on behalf of Clients (the

buyer and the seller). According to Rule 2 (e) of SEBI (Stock Brokers and Sub-Brokers)

67



68/90


Rules, 1992, a Stockbroker means a member of a recognized stock exchange. No stockbroker

is Allowed to buy, sell or deal in securities, unless he or she holds a certificate of Registrationgranted by SEBI.

A stockbroker applies for registration to SEBI through a stock exchange or stock Exchanges of

whic

Angel Final K J.vikas

Documents

Transcript of Angel Final K J.vikas