Final Report on Demat Priya

DEMAT: Is it 100% safe for an investor.

Executive Summary

The term "market" can have many different meanings. One usage of the

term denotes the primary market and the secondary market. These two

markets distinguish between the market where securities are created and

the market where they are traded among investors. Their function is key in

understanding how securities are traded.

The primary market is where securities are created. It's in this market that

firms sell (float) new stocks and bonds to the public for the first time.

Secondary market is where most trading occurs, the secondary market is

the one in which securities are traded after having been initially offered in

the primary market. It is basically a market in which an investor purchases

an asset from another investor, rather than an issuing corporation. This

includes the NYSE, NASDAQ and all major exchanges around the world.

The defining characteristic of the secondary market is that investors trade

among themselves. For example, if you go to buy Microsoft stock, you are

dealing only with another investor who owns shares in Microsoft.

Microsoft (the company) is in no way involved with the transaction.

However there was an improvement in the mechanism of trading whereby

it was seen that there was a shift from the traditional method of physical

trading to the updated version of online trading. This gave birth to the

system of DEMATERIALISATION (Demat). With the age of computers

1

http://www.investopedia.com/terms/n/nasdaq.asp

http://www.investopedia.com/terms/n/nyse.asp

http://www.investopedia.com/terms/f/float.asp

http://www.investopedia.com/terms/p/primarymarket.asp


and the Depository Trust Company, securities no longer need to be in

certificate form. They can be registered and transferred electronically.

Dematerialisation is nothing but the process by which physical certificates

of an investor are converted to an equivalent number of securities in

electronic form and credited in the investor's account with his (DP)

Depository Party. Only those certificates that are already registered in your

name and are in the list of securities are admitted for Dematerialisation at

NSDL/ CDSL.

Investors readily accepted and are still continuing with this system as

trading in Demat segment completely eliminates the risk of bad deliveries.

In case of transfer of electronic shares, one saves around 0.5% in stamp

duty.

Demat shares are supposed to obviate all the problems of physical trading.

The biggest attraction of trading in Demat shares is that the shares an

investor buys comes with a clean title and immediately after the settlement

on the relevant stock exchange. Buying shares in the Demat form always

guarantees the investor a good title as soon as the settlement is over and

hence it is a preferred mode of trading today and will be so in the future

also.

2


Background of the research

Online brokering global scenario:

Online brokerage has grown substantially since the introduction of Internet

and now account for 40%-50% of retail trade. This change has come in

because individual investors want to increase control over their finances

and do not want someone else to manage the money.

Online trading has become very popular in last couple of years because of

convenience of ease and use. Numerous companies have gone on-line to

meet their customer’s demands enabling them to trade when they want and

how they want to.

Online trade, which now accounts for 40%-50% of all retail trade, is

forecasted to increase to 70% by 2006. At present online brokers hold

$574billion in assets but this figure is expected to grow to $4 trillion by

end of 2006. The market has become saturated and very competitive. As

the number of players increase, it becomes very difficult to differentiate.

The volatility in US equity, market in 1999 and September 11 World Trade

Center attack has hurt the online brokerage trading volumes. Established

E-brokerage firms have created bearer to entry that makes it difficult for

new player to enter into the market.

3


Indian e-broking scenario

The Indian stock broking business has gone through a sea of changes.

From that of a business dominated by few individual players to

institutional members, as did trading open outcry and hidden deeds to

screen best and transparency.

India enters the cyber trading era to equal the current market trends taking

into consideration the need to facilitate inflow of funds in the capital

market. The trading system will enable all categories of investors, resident

and non-resident Indian, to trade online.

Online brokerage in India is still in its early days. Though the trade

through online broking is very miniscule compare to total trading, the signs

are that it will grow to 30%-35% in next few years.

Effect on off-line Business

With the emergence of e-broking, which offers many benefits like, level

playing filled to all investors, comfort of the house, simplicity, low

brokerage and value added services it could be possible for some of the

offline trade to shift to online trade.

4


The proportion of online broking business compare to off line broking is

miniscule about less than 1%. The offline player would not be affected

unless the figure reaches a minimum of 8-10%.

Online trade has not started to eat the volumes of, off line business till

now. But at he same time it has created new set of clients for e.g., NRI’s

who were not very active in the market due to lack of transparency and

information, have moved to use this facility. Housewives are another new

category. Net savvy student’s and retired persons are the next expected

category.

But a question is still there, those who get value added services from

broker will continue to stay offline and those that are like any other normal

retail investors, will have no hesitation to shift to online trading. The fact is

that over a few years we would see more non-professionals getting to

access to the market. E-broking has eaten the share of offline broking

business especially into the sub-broking where the same investors went to

get whatever services was provided.

Depository services-beginning of the era of stocks at click

Today it is a practical reality that one can arrange delivery of securities

(shares) sold anytime, anywhere to anyone by a ‘click’ of the mouse and it

is possible to trade in securities and settlement of the accounts from the

convenience of a sitting room or via a laptop. The depository is responsible

to deliver and receive securities trade at the stock exchange, which are the

5


business partners of the depository. It dose not deal with financial aspect of

the settlement of the trade.

Dematerialisation of securities (shares) was the commencement of the era

of stocks. The beginning was made in 1996, with legislation of the

depository act 1996 and SEBI regulations 1996.

Concept of depositories

A depository means a place where anything is deposited. It can be anything

and can include securities, physical goods, cash and or money or valuables.

We have safe deposit vaults where we deposit our valuables for safe

custody but under our control. This is also a form of depository.

Internationally, there are two systems to hold securities.

The first is to hold securities in a physical form. The ownership can be

transferred by any means, including the electronic media. This is also

known as ‘immobilization of securities’. This system is followed where the

physical volume of securities is low, for example bullion.

The second system is to retain the details of the security holding in an

account in an electronic format, which is similar to maintaining a bank

account. This is known as ‘Dematerialisation of securities’. This system is

followed where the volume of securities is substantial.

With the growth of the Indian capital market in the decade and the

increasing trading activity in the stock market, the volume of paper being

exchanged has increased exponentially and will continue to increase. This

6


was one of the primary reasons for India opting for the ‘Dematerialisation’

depository route.

7


Statement of problem:

Online trading and Demat are the two emerging concepts in stock market.

It involves personal factors, technical factors, business factors and

economic factors. The interplay of these factors on stock market requires a

deep study about the pattern process and procedures and performance. This

study is intended to identify the various concepts about Demat and the

online trading and its way of functioning.

Scope of the Study

The study encompasses only the major Secondary market that have a

substantial share in the share market. The scope of the study is limited to

the performance of the industry for the limited period.

Need for the study

Physical trading has been given up by many stock exchange

around the world and till India is catching up.

Transparency has become an important issue with the regular

series of scams over the years

At this junction, Indian investors are able to avail the facilities of

Depository participants, Depositories, along with brokerage.

So how far this system is working in India and the investors

experience with these new system of trading.

8


Objectives of the Study

The awareness level of various concepts of Demat & online trading.

Most preferred Demat & online trading.

To study various plans of any company.

To study the cost of online trading.

To know the market leaders in the segment.

To offer suggestions based on findings

Research Design

Throughout the study an attempt has been made to arrive at the

conclusions with help of economic reasoning, experience derived from

secondary markets from the lessons of the economic history. The assets,

which the corporation has inherited, have deep roots and justify full

discussion in its historical perspective.

Sources of data

Database can be classified into two categories, which are:

Primary data: The procedure followed in the collection of primary data is

from the interview method i.e., personal interview with the managers.

Secondary data: The secondary data collected from different websites,

journals, company reports and the available literature on the subject.

LIMITATIONS OF THE STUDY

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The information provided by the managers may not be the actual

figures; it may be a virtual data in the sense conclusions based on the

real data vary from the virtual data.

The study is conducted in the short period of time, and hence the

results vary from time to time.

The study covers only a particular geographical region, and hence the

conclusions cannot be considered as a whole outcome of the industry.

OPERATIONAL DEFINITION OF THE STUDY

SECONDARY MARKET: Secondary market is the one in which

securities are traded after having been initially offered in the primary

market. It is basically a market in which an investor purchases an asset

from another investor, rather than an issuing corporation.

STOCK EXCHANGE: It is an association, organization or body of

individuals whether incorporated or not, established for the purpose of

assisting, regulating and controlling business in buying, selling and dealing

in securities.

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CLEARING HOUSE (CH): Clearing House is entities setup by Stock

exchanges to ensure that process of settlement takes place smoothly.

Generally Stock Exchange will set aside some capital to start the CH.

ROLLING SETTLEMENT CYCLE: Rolling settlement cycle starts and

ends on the same day and the settlement takes place on T+2, which is 2

business days from the date of the same day from the date of the

transaction.

INITIAL PUBLIC OFFERING – IPO: The first sale of stock by a

private company to the public. IPOs are often smaller, younger companies

seeking capital to expand their business. IPOs can be a risky investment,

for the individual investor it is tough to predict what the stock will do on

its initial day of trading. It is also known as going public.

FLOAT: It indicates that portion of a new issue which has not yet been

procured by the public. The term also depicts the amount of funds that are

in the process of collection and represented by cheques possessed by one

bank drawn on other local or out of town banks. It also signifies the value

of cheques covered by the Federal Reserve but which are not collected by

the Federal Reserve from the bank on which the cheques were drawn.

MARGINAL TRADING: It suggests buying of security or commodity by

a person from the funds borrowed for part of the purchase price rather than

the entire price. Such a person does not pay for the entire transaction from

his own funds but borrows money for part of the purchase price.

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DEMATERIALISATION: Dematerialisation is the process by which

physical certificates of an investor are converted to an equivalent number

of securities in electronic form and credited to the investor’s depository

account with his Depository Party (DP).

DEPOSITORY: A depository account is similar to a bank account. It

gives a summary of an investor’s holding of securities in the companies in

the Indian stock exchange and records transaction details of securities

bought and sold during the period. The information of securities holding is

maintained in the electronic form.

SCRIP: It denotes any temporary document entitling its holder or bearer to

receive stock or a fractional share of stock in a corporation, cash, or some

other article of value upon demand, or at some specified future date.

DEPOSITORY PARTICIPANT: A Depository Participant (DP) is an

agent appointed by the Depository and is authorized to offer depository

services to all investors. An investor cannot directly open a demat account

with the depository. An investor has to open his account through a DP

only. The DP in turn opens the account with the Depository. The DP in

turn takes up the responsibility of maintaining the account and updating

them as per the instructions given by the investor from time to time. The

DP generates and provides the holdings statement from time to time as

required by the investor. Thus, the DP is basically the interface between

the investor and the Depository.

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Overview of chapter scheme

The study has been divided into five chapters.

Chapter one: It contains the introduction to the study and the background

of the study is described in detail.

Chapter two: It contains the objectives of the study, scope of the study,

the definition of the operational terms, tools for data collection, and

limitations of the study and the overview of the report.

Chapter three: It gives an overall profile of the industry and its

developments and the profile of the organization.

Chapter four: It contains analysis and interpretation of the study.

Chapter five: It includes summary of findings, and conclusions. It also

contains the suggestions and recommendations of the researcher.

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Indian Stock Market Overview

The two primary exchanges in India are the Bombay Stock Exchange

(BSE) and the National Stock Exchange of India Ltd (NSE). In addition,

there are 24 Regional Stock Exchanges. However, the BSE and NSE have

emerged as the two leading exchanges and account for about 80 percent of

the equity volume traded in India.

The NSE and BSE are almost equal in size in terms of daily traded volume.

The average daily turnover at the exchange has increased from Rs 851

crore in 1997-98 to Rs 5,273 crores in 2002- 2003 and further to 6000

crores. NSE has around 1900 shares listed with a total market

capitalization of around Rs 10,00,500 crore. The BSE has over 8000 stocks

listed and has a market capitalization of around Rs 10,68,000 crore.

Most of the key stocks are traded on both the exchanges and hence a

investor can buy these stocks from either of the two exchange. Both the

exchange has same settlement cycle, which does not allow investors to

shift their positions. The primary index of BSE is BSE Sensex comprising

30 stocks.

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The BSE Sensex is the older and more widely followed index. Both these

indices are calculated on the basis of market capitalization and contain the

heavily traded shares from key sectors. The timing of trading hours starts

from 9.55 am to 3.30 pm. The markets are closed on Saturdays and

Sundays.

The key regulator governing Stock Exchanges, Brokers, Depositories

participants, Mutual Funds, FIIs and other participants in Indian secondary

and primary market is the Securities and Exchange Board Of India

(SEBI) Ltd.

India ranked top 10 countries in term of the market capitalization of its

stock market. If you decide to operate through an exchange, you have to

avail the services of a SECURITIES AND EXCHANGE BOARD OF

INDIA registered broker/sub-broker. You have to enter into a broker-client

agreement and file a client registration form. Since the contract note is a

legally enforceable document, you should insist on receiving it.

You have the obligation to deliver the shares in case of sale or pay the

money in case of purchase within the time prescribed. If you have opted

for transaction in physical mode, in case of bad delivery of securities by

you, you have the responsibility to rectify them or replace them with good

ones.

To affect a transfer in the physical mode the securities should be sent to

the company along with a valid, duly executed and stamped transfer deed

duly signed by or on behalf of the transferor (seller) and transferee (buyer).

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It is essential to send by registered post with acknowledgement due and

watch out for the receipt of the acknowledgement card.

If the confirmation of receipt is not received within a reasonable period,

the postal authorities should be immediately approached for confirmation.

Sometimes, for our own convenience, we may choose not to transfer the

securities immediately. This may facilitate easy and quick selling of the

securities. In that case care should be taken to see that the transfer deed

remains valid. However, in order to avail the corporate benefits like the

dividends, bonus or rights from the company, it is essential to get the

securities transferred in our name.

On receipt of our request for transfer, the company proceeds to transfer the

securities as per provisions of the law. In case they cannot affect the

transfer, the company returns back the securities giving details of the

grounds under which the transfer could not be affected. This is known as

Company Objection.

In case we are unable to get the errors rectified or get them replaced, we

may have to recourse to the seller and his broker through the stock

exchange to get back our money. Sometimes securities in physical form

may be lost or misplaced then we must immediately request the company

to record a stop transfer of the securities and simultaneously apply for

issue of duplicate securities.

For transactions in Demat mode we are requested to refer to the

trading/settlement in depositories section. Whom to approach for

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Grievance Redressal? There will be occasions when there are grievances

against the company in which we are stake-holders.

Given below are types of grievances for which we could approach SEBI:

Issue related i.e. non-receipt of refund order/allotment advice,

cancelled stock invests.

Non-receipt of dividend.

Shares related i.e. non-receipt of share certificates.

Debenture related i.e. non-receipt of deb. certificates, non-receipt of

interest warrant.

Non-receipt of letter of offer for rights and interest on delayed

payment of refund orders.

Complaints related to collective investment schemes.

Complaints related to Mutual Funds Mutual Funds Dept., SEBI

Complaints related to Dematerialisation or DPs, Depositories and

Custodian Cell.

Apart from taking up grievances against companies of the types

mentioned above through SEBI the following types of grievances

could be taken up with other authorities/agencies as given below:

With the Stock Exchange: At the investor Information Centre of all

the recognised Stock Exchanges:

Complaints related to securities traded/listed with the exchanges.

Regarding the trades effected in the exchange against the companies.

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Complaints regarding the trades effected in the exchange against the

members of the exchange.

With the Department Of Company Affairs/ concerned Registrar of

Companies (ROC)

Complaints against unlisted companies.

Complaints regarding non-receipt of annual report, AGM Notice.

Fixed deposit in manufacturing companies.

With the Reserve Bank of India:

Fixed deposits in banks and NBFCs.

With the concerned company/ROC:

Forfeiture of shares.

Moreover two other avenues always available to the investors to

seek redressal of their complaints. They areas follows:

Complaints with Consumers’ Disputes Redressal

Suit in the court of Law.

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EVOLUTION OF ON-LINE TRADING

The history of e-trading began in 1983, when a doctor in Michigan placed

the first online trade using E TRADE technology. What began with a

single click over 16 years ago has now taken the world by storm. The

concept was visualized by one Bill Porter, a physicist and inventor with

more than a dozen patents to his credit, who provided online quotes and

trading services to Fidelity, Charles Schwab, and Quick & Reilly.

This led Bill to wonder why, as an individual investor, he had to pay a

broker hundreds of dollars for stock transactions. With incredible foresight,

19


he saw the solution at hand: Someday, everyone would own computers and

invest through them with unprecedented efficiency and control.

And today his dream has become a reality. e trading has become a way of

investing in the developed world and is soon catching on in developing

countries too.

There are three basic things needed for e-trading, a bank account, a Demat

account and a brokerage account. The steps in e-trading replicate the real

life situation and are fairly simple to follow. Once these three accounts are

opened, the money and shares are transferred to your bank and Demat

account automatically, electronically and without any paper work.

The first step is of course to open an account. One can open multiple

accounts with himself or herself as the first name in the account. Then it is

necessary to determine the type of account that you want and how you

want to pay for the trades you make. Accounts can be Individual, Joint,

Sole Proprietorship, Corporate, or Partnership etc.

The form filling requires simple personal details like full legal name,

Citizenship status, Residency status, employer's name and address, your

passport\PAN number, Date of birth, etc.

One can download the forms or request for them by post or even request

for a representative of the firm to come over to help you with the form.

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Post-submitting, you are allotted a USER ID and PASSWORD while

giving details for registration.

Then an Account Reference Number is generated and displayed to you.

These three things are unique to an individual and ensure security of

transactions. The acceptance of the application is communicated by email.

The Online Trading is a discount trading service appropriate for

individuals who require fast execution, lowest commissions and have the

expertise to make their own trading decisions without the direction of a full

service broker. It gives you an opportunity to leverage your independence

to execute, receive automatic fills, monitor, and manage your account on

your time. With online order-entry system the investor can transmit his/her

orders via the Internet (electronically), directly to the Pit or to the

Exchange floor in real time (in as little as 2.5 seconds).

In order to start trading online it is important that you deposit money in

your bank account before placing a buy order. In order to place a sell order

you must have shares in your DEMAT Account. In order to place a buy

order you need to fund your account.

You can do this by depositing money in your bank account or else you can

sell some shares existing in your Demat account and use the proceeds of

sale to fund your purchase transaction. The amount of money required

before placing a buy order would depend on the value of order and the type

of e-invest account you have enrolled for - whether cash or margin.

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http://www.ia-group.net/Online_Trading/online_platforms.htm

http://www.ia-group.net/SERVICES/online_self_directed.htm


In a Margin account one can use a line of credit to buy marginable

securities or for overdraft protection. Such an account is opened after

taking into consideration Annual income, Net worth, description of your

investment objectives, as it involves lending a line of credit. In a cash

account, the amount of securities bought has to be backed by the cash in

the account.

Then comes placing the order. For this you enter your Trading password

and go to trade. From the Trading tab, select Enter Order under the Stocks

heading. Select a transaction type: Buy, Sell. At 'Number of Shares', type

the number of shares that you want to buy. At 'Stock Symbol or Name(s)',

type the stock symbol.

If you don't know the symbol, click 'Find Symbol', type the company

name, click 'Search' and click the symbol that you want from the list. For a

market order, select 'Market'. Otherwise, select 'Limit', 'Stop' or 'Stop

Limit' and enter the price.

'Market Order': you just ask the broker to buy or sell your stocks at the best

price available. 'Limit Order': you tell the broker to trade only when the

stock hits a certain price or better. 'Stop Order': you tell the broker to sell

your shares if the stock drops below a certain price.

Select either 'Good for Day' or 'Good Until Canceled'. If you want to place

an 'All-or-None' order, click 'All or None'. Type your trading password and

22


click 'Preview Order'. If you want to change your order, click 'Cancel' and

make your changes.

To see if your order has been executed and filled as you expect, check your

account balance. The 'Account Balances' page shows your account equity

(the value of your account) and your buying power.

If an order to buy or sell stock hasn't been executed yet, you might be able

to change or cancel the order. Orders that you have placed but for which

you haven't yet received execution reports appear when you click 'View

Open Orders' under the 'Stocks' heading of the 'Trading' tab.

To change a stock order from the 'Trading' tab, select 'View Open Orders',

make sure you're currently in the correct account, the click 'Change' beside

the order you want to change.

Enter your change or changes - you can change the quantity, price, and

term. For a new price, select the appropriate option button and then enter

the price (unless you're changing it to a market order).

You cannot change the stock symbol or the transaction type (Buy, Sell,

Sell Short, or Buy to Cover). Enter your trading password and click

'Preview Change Order'. Or, if you want to cancel your changes, click 'Do

Not Change'.

23


The account opening charge, commission rates and the minimum limit of

transaction vary from site to site. Other charges can include Annual

Services Charges, Custody charges, D-Mat account charges etc.

So sitting at home one can take an investment decision at ease after having

researched and read up fully about the stock. With the advent of online

trading, it would seem that the markets are just a click away.

However, do remember that currently in India the handful of online trading

offers are mere order routing systems. But it will not be long enough

before the entire system goes online.

REASONS FOR ONLINE TRADING IN INDIA:

Each investor has one or other reasons to go for online trading instead of

offline trading. They are as follows:

They are independent. They fell they have control over their

account, can make their own decisions and don’t have to give

reasons for their actions.

They have a reason to participate in the stock market and learn about

it.

24


They find it interesting, cheap, easy, fast and convenience.

A lot of information is online so they can keep up-to-date with what

is happening in the trading world.

They are sure and overconfident.

They have access to numerous tools to invest and can create their

own portfolio.

They feel that trading through net can hide from others.

REASONS FOR THE EMERGENCE OF ONLINE

TRADING IN INDIA:

The reasons for providing online trading facility to investors by the Indian

companies are various. They are as follows:

Online trading has a very good future in India as it is not exploited

properly so far.

Consistent increase in the number of users of interest.

Consistent increase in the number of personal computer users.

Part of diversification.

Less investment in technology and other areas compared to the

returns.

More awareness in investors about the stock market.

RECENT DEVELOPMENTS:

The bumpy Bull Run in the stock markets has triggered a slowdown in the

opening of new account by the depository participants (DPs). Faced with

25


the sudden dip in the number of new account being opened the DPs are

devising ways to attracts customers.

On offer is Interactive Voice Response (IVR) for the latest update on

Demat accounts and services through the Internet.

Analysts said there was booms in Demat account opening as retail

customers were riding high on the loans extended to pick up initial public

offers. Most of these Demat accounts are now dormant.

Several DPs are planning to launch Interactive Voice Response (IVR) units

and Demat services on the Net, Through these IVR units , investor will be

able to know the current value of their portfolio, current holdings,

transaction list, etc.

Some DPs are providing Demat services on the Net to enable customer to

access their account and get the holding and transaction statement on a

daily basis. For eg: HDFC Bank.

With Online trading an investor can:

Enter orders through internet.

Review your account balances and transaction activity.

Obtain stock quotes in real time.

Access company profiles and research.

Receive the most competitive and current commission schedule.

Direct Floor Access-Submit trades directly to the pit in real time.

26


Institutional Quality Order Entry.

Market-to-Market Dynamic Account Updates.

Reduced Commissions - Up to 80% discounted commission rates.

Table 1: Showing usage of Online trading system continent wise.

Continent PercentageN.America 25%Asia Pacific 21%W.Europe 44%Rest of the world 10%

Usage of online trading system continent w iseN.America

Asia Pacif ic

W.Europe

Rest of thew orld

25%

21%44%

10%

Source: Primary data

Table 2: Showing ranking of major benefits of online trading system

Benefit Single bank multi-bankIIT 4 1TS 1 2CS 6 3BS/A 2 4STP 3 5QR/A 5 6

27


02468

1012

Ranks

IIT TS CS BS/A STP QR/A

Benefits

Ranking of major benefits multi-bank

Single bank

Source: Secondary data

IIT: Improved Information Transparency.

TS: Time Saving

CS: Cost Saving

BS/A: Better Security/Audit

STP: Straight Through Processing

QR/A: Quality of Research /Analytics

Table 3: Showing products traded online

Product PercentageSwaps and options 8%Bonds 15%Commercial paper 12%Shares 65%

28


Products traded online Sw aps andoptions

Bonds

Commercialpaper

Shares65%

12%

15%

8%


Physical Trading

Indian investor community has undergone sea changes in the past few

years. India now has a very large investor population and ever increasing

29


volumes of trades. However, this continuous growth in activities has also

increased problems associated with stock trading.

Most of these problems arise due to the intrinsic nature of paper based

trading and settlement, like theft or loss of share certificates. This system

requires handling of huge volumes of paper leading to increased costs and

inefficiencies. Risk exposure of the investor also increases due to this

trading in paper.

The risks involved are a follows:

Delay in transfer of shares.

Possibility of forgery on various documents leading to bad

deliveries, legal disputes etc.

Possibility of theft of share certificates.

Prevalence of fake certificates in the market.

Mutilation or loss of share certificates in transit.

The physical form of holding and trading in securities also acts as a

bottleneck for broking community in capital market operations.

The introduction of NSE and BOLT has increased the reach of capital

market manifolds. The increase in number of investors participating in the

capital market has increased the possibility of being hit by a bad delivery.

The cost and time spent by the brokers for rectification of these bad

deliveries tends to be higher with the geographical spread of the clients. The

30


increase in trade volumes lead to exponential rise in the back office

operations thus limiting the growth potential of the broking members.

The inconvenience faced by investors (in areas that are far flung and away

from the main metros) in settlement of trade also limits the opportunity for

such investors, especially in participating in auction trading. This has made

the investors as well as broker wary of Indian capital market. In this scenario

Dematerialised trading is certainly a welcome move.

Trading can be at minimum number in capital market. Split of shares made

more investors to join the investment scenario.

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Dematerialised Trading

Dematerialisation or "Demat" is a process whereby the investors securities

like shares, debentures etc, are converted into electronic data and stored in

computers by a Depository. Securities registered in the investors name are

surrendered to depository participant (DP) and these are sent to the

respective companies who will cancel them after "Dematerialisation" and

credit investors depository account with the DP.

The securities on Dematerialisation appear as balances in investors

depository account. These balances are transferable like physical shares. If

at a later date, the investor wishes to have these “Demat" securities

converted back into paper certificates, the Depository helps them to do

this.

Depository functions like a securities bank, where the Dematerialised

physical securities are traded and held in custody. This facilitates faster,

risk free and low cost settlement. Depository is much like a bank and

performs many activities that are similar to a bank. Following table compares

the two:

Bank Depository

Holds funds in accounts Holds securities in account

Transfers funds between accounts Transfers securities between accounts

32


Transfers without handling money Transfers without handling securities

Safekeeping of money Safekeeping of securities

National Securities Depository Limited (NSDL)

At present there are two depositories in India, National Securities

Depository Limited (NSDL) and Central Depository Services (CDS).

NSDL is the first Indian depository; it was inaugurated in November 1996.

NSDL was set up with an initial capital of US$28mn, promoted by

Industrial Development Bank of India (IDBI), Unit Trust of India (UTI)

and National Stock Exchange of India Ltd. (NSEIL). Later, State Bank of

India (SBI) also became a shareholder.

NSDL has since its inception built a network of its business partners and

10 stock exchanges are now trading in securities in the Demat form.

Chart 1: Showing NSDL and its Interface

33

Investor

Depository

Participan

R & TNSDL

Clearing House


NSDL carries out its activities through various functionaries called business

partners who include Depository Participants (DPs), Issuing corporates and

their Registrars and Transfer Agents, Clearing corporations/ Clearing

Houses etc. NSDL is electronically linked to each of these business partners

via a satellite link through Very Small Aperture Terminals (VSATs). The

investor interacts with the depository through a depository participant of

NSDL. A DP can be a bank, financial institution, a custodian or a broker.

Table 4 : Showing statistics of NSDL as on Aug’2004

Companies available for demat 4,464Companies signed for demat 4,510Debt instruments admitted for demat 4,767Commercial papers admitted for demat 619Depository participants of NSDL 213Depository participants' service centre locations

1,718

Active clients accounts (in thousands) 3,798Demat custody (Qty. in crores) 6170Demat custody (Value in Rs crores) 478,845

34


Statistics of NSDL as on Aug'04 1

2

3

4

5

6

7

8

9


Central Depository Services (CDS)

The other depository is Central Depository Services (CDS). It is still in the

process of linking with the stock exchanges. It has registered around 20 DPs

and has signed up with 40 companies. It had received a certificate of

commencement of business from SEBI on February 8, 1999.

These depositories have appointed different Depository Participants (DP) for

them. An investor can open an account with any of the Depositories’

Participant (DP). But transfers arising out of trades on the stock exchanges

can take place only amongst account-holders with NSDL's DPs. This is

because only NSDL is linked to the stock exchanges (nine of them including

the main ones-NSE and BSE).

Once connected to both the depositories the stock exchanges have also to

ensure that inter-depository transfers take place smoothly. It also involves

35


the two depositories connecting with each other. The NSDL and CDS have

signed an agreement for inter-depository connectivity.

Benefits Of Demat

Transacting the depository way has several advantages over the traditional

system of transacting using share certificates. Some of the benefits are:

• Trading in Demat segment completely eliminates the risk of bad

deliveries, which in turn eliminates all cost and wastage of time

• Associated with follow up for rectification. This reduction in risk

associated with bad delivery 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.

36


• The investor can also avoid the cost of courier/ notarization/ the need

for further follow-up with your broker for shares returned for company

objection

• In case the certificates are lost in transit or when the share certificates

become mutilated or misplaced, to obtain duplicate certificates, the

investor may have to spend at least Rs 500 for indemnity bond, newspaper

advertisement etc, which can be completely eliminated in the Demat form

• The investor can also receive his/her bonuses and rights into their

depository account as a direct credit, thus eliminating risk of loss in transit.

• The investor can also expect a lower interest charge for loans taken

against Demat shares as compared to the interest for loan against physical

shares. This could result in a saving of about 0.25% to 1.5%. Some banks

have already announced this.

The exclusive demat segments follow rolling settlement cycle

of T+3 i.e. the settlement of trades will be on the 3rd working day from the

trade day. This will enable faster turnover of stock and more liquidity with

the investor.

Reduction in handling of huge volumes of paper

Periodic status reports to investors on their holdings and

transactions, leading to better controls.

• RBI has increased the limit of loans against Dematerialised securities

as collateral to Rs 2mn per borrower as against Rs1mn per borrower in

case of loans against physical securities.

37


• RBI has also reduced the minimum margin to 25% for loans against

Dematerialised securities as against 50% for loans against physical

securities.

Demat functions not only in capital market, it also does in money

market.

Savings

Trading in dematerialised shares results in substantial savings for the

investors. Following tables and graphs gives an idea about these savings.

Table 5: Showing savings for a person who buys shares for

long term investment. (On a purchase of Rs10000)

ItemPhysical

(Rs)

Depository (demat)

(RS)

Savings

(Rs)

38


Brokerage 100 75 25

*Stamp Duty 50 - 50

Postal Charges 30 - 30

Company Objection (courier

etc.)

35 - 35

Settlement charges 10 5 5

Custody (5 years) 50 30 20

Total275 110

165

* Stamp duty of 0.5%.

39


Long term investment

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Brokerage StampDuty

PostalCharges

CompanyObjection(courier

etc.)

Settlementcharges

Custody(5 years)

Items

Savin

gs

Savings (Rs)

Demat (Rs)

Physical (Rs)

Analysis: In physical trading an investor incurs 50% charges more than

he/she does in demat. Due to trading in demat an investor saves upto 10%

in brokerage, 50% in stamp duty, postal charges and company objection

like courier etc. Investor can save upto 25% in settlement charges and 20%

in custody of 5 years.

Inference: As compared to physical trading, an investor saves a lot in

demat on account of brokerage, settlement charges and custody and does

not incur any cost in stamp duty, postal charges and courier.

40


Table 6: Showing savings for an investor who sells

dematerialised shares (For a sale of Rs10000).

ItemPhysical

(Rs)

Depository (demat)

(Rs)

Savings

(Rs)

Brokerage 75 50 25

Company Objection (courier,

etc.)

35 - 35


Total120 55

65

01020304050607080

Savings

Physical(Rs)

Demat (Rs) Savings(Rs)

Form of shares

Selling of dematerialised shares

Brokerage

Company Objection(courier, etc.)

Settlement charges

41


Analysis: Many brokers offer reduced brokerage for selling of

dematerialised securities since they will not have the fear of bad delivery.

Saves upto 35% in company objection, 20% in brokerage charges and 5%

in settlement charges when trading is done through demat rather than doing

physical trading.

Inference: Selling of dematerialised shares is more profitable than

physical selling of shares.

42


Table 7: Showing savings for a trader who buys and sell very

often.(For a trader who turns over his portfolio of Rs10000 ten

times in a year).

Item Physical (Rs) Depository (demat) (Rs) Savings (Rs)

Brokerage 1000 500 500


Custody (5 years) 125 25 100

Total1125 575

650

43


0%10%20%30%40%50%60%70%80%90%

100%

Savings

Brokerage Settlementcharges

Custody (5years)

Items

Frequent buying & selling of shares Savings (Rs)

Demat (Rs)

Physical (Rs)

Analysis: For those who sell and buy shares frequently, they save upto

20% in brokerage and settlement charges and upto 40% in custody for 5

years if trading is done through demat and not physically.

Inference: For frequent traders in the stock market demat is a better

option.

44


Bank Accounts

How to open a bank account with a DP?

Opening a depository account is as simple as opening a bank account. To

open an account the investor has to:

• Fill up the account opening form, which is available with the DP.

• Sign the DP-client agreement, which defines the rights and duties of

the DP and the person wishing to open the account.

• Receive your client account number (client ID).

45


• This client ID along with investors DP ID gives them a unique

identification in the depository system.

There is no restriction on the number of depository accounts a person can

open. However, if the existing physical shares are in joint names, investor

has to open the account in the same order of names before they submit

their share certificates for demat. A sole holder of the share certificates

cannot add more names as joint holders at the time of dematerializing

his/her share certificates.

However, if the investor wants to transfer the ownership from his

individual name to a joint name, he should first open an account as the sole

holder (account A) and dematerialise the share certificates. He should then

open another depository account (account B) in which he is the first holder

and the other person is the second holder and make an off market transfer

of the shares from the account A to account B. The investor will incur a

charge on this transaction.

A client can choose to open more than one account with same DP. In

addition to this, he has a choice of opening accounts with more than one

DP. There is no compulsion for the client to open his account with the

same DP as that of his broker. Even if he has an account with another DP,

he can carry out normal business with his broker. There is no loss in

operational efficiency.

How to choose a DP?

46


Following are the few aspects that you should consider before choosing a

DP:

Branch-level service: Most DPs offer depository services from their main

branch as well as through other branches and franchisees. Higher the

number of branches your DP has greater will be the geographical

convenience you will have. Before opening an account with a DP you

should also check whether the DP is offering all the services through its

branches.

DPs mandate a time limit for submission of debit instructions before

settlement pay-in time. It should be checked whether the time limit applies

equally to all the branches (or franchisees) of the DP or whether it varies.

Backup facilities: Having an adequate backup system is extremely

necessary for a DP. In case of a system failure all the data could be lost if

backup facilities are not present. Although depositories too have the data

with them but a strong system with the DP ensures no risks and hassles. So

before opening an account get details from your DP about its computer

system's technical specifications and backup facilities.

Safe procedures: Your securities account can get debited only if you

submit to your DP a duly filled and signed 'delivery instruction' form

(separate for market trades and off-market transfers) that authorizes the DP

to debit your account. This form will be executed only when the investor

has sold shares. But the investor could have worries that some one else can

forge your signature on such a form, which your DP will not be able to

detect, and their account will get debited .To get rid of these worries

47


investor should check that delivery instruction form book that they get

from their DP must be serial-numbered with numbers unique to their

account and recorded in the DP's system.

There is an additional safety feature available with the DPs. Investor can

freeze their account on the debit side if they do not want to sell the shares

from their account, this will ensure that no debit is done in their account.

When they want to sell their shares they can execute the same form to

unlock their account.

Customer Service: DPs should have adequate customer service facilities.

At some time or other the investor will need some information on their

account. DP should be able to provide quick service, so it should be

checked whether the DP has a dedicated customer service department.

OPENING OF DEPOSITORY ACCOUNT

An investor is required to open a depository account with a depository

participant, if he / she wish to buy or sell securities listed in demat form in

the Indian stock exchanges. At present, the following groups of investor

are permitted to open a depository account:

48


Individuals

Non- Resident India

Foreign nationals of Indians origin, except those from Pakistan,

Nepal and Bangladesh.

Corporate

Clearing Members ( CM )

Foreign Institutional Investors ( FIIs)

Mutual Funds ( MFs ).

SEBI, on 28 January 2000, also permitted foreign corporation and

individuals to invest in the Indian market, albeit with some restrictions. It

has, however, yet to issue the guidelines for opening depository accounts

for this group of investors.

PROCEDURE OF OPENING A DEPOSITORY

ACCOUNT

49


Chart 2: Showing procedure of opening a demat account

Select a Depository Participant

Complete Depository Account Opening

Form

Prepare Required Documents, Detailed

Submit DAOF , with documents to DP

Sign Agreement with DP

Open Depository Account

Generate Client ID ( account ) number

Transmit details to depository

Acknowledge Client ID

Client ID Activated

Communicates to investor

Client ID number

Guidelines for availing depository

services

50

Investor

Investor

Investor

Depository Participan


Depositor


Dematerialisation and Rematerialisation

How to Dematerialise Your Shares?

To dematerialise the share certificates the investor has to:

Fill up a dematerialisation request form, which is available with the

DP;

Submit their share certificates along with the form; (write

"surrendered for demat" on the face of the certificate before

submitting it for demat)

Receive credit for the dematerialised shares into their account in 15

days.

Dematerialised 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 that security.

Shares held in street name (market deliveries) cannot be dematerialised.

Odd lot share certificates can also be dematerialised. No transfer deed is

required for dematerializing certificates, the certificates have to be

accompanied by a demat request form (DRF) which can be obtained from

DPs. It is compulsory to mention the ISIN number of the company while

filling up the Demat Request form.

51



This, to a certain extent, ensures that the security mentioned in the Demat

Request Form is the same as the one the investor intends to dematerialise.

According to the Depositories Act, 1996, an investor has the option to hold

shares either in physical or in dematerialised form. An investor can hold

part of his holdings in demat form and part of his holdings in the form of

share certificates for the same security. An investor can dematerialise

shares that are pledged with a bank, which is a DP as well.

How to Rematerialise Your Shares?

During a rematerialisation process, the request goes from the DP to the

R&T agent via NSDL. The R&T Agent, after processing the request, will

print and dispatch the share certificate directly to the investor. No transfer

duty will be charged when they rematerialise their shares. They have the

option of rematerializing their total holdings or part of it.

52


Trading

Trading in dematerialised securities is quite similar to trading in physical

securities. The major difference is that at the time of settlement, instead of

delivery/ receipt of securities in the physical form, it is done through

account transfer. An investor cannot trade in dematerialised securities

through his DP.

Trading at the stock exchanges can be done only through a registered

trading member (broker) of the stock exchange irrespective of whether the

securities are held in physical or dematerialised form. DPs role will only be

to facilitate settlement of trade in the dematerialised form, by transferring

securities from and to the account of the investor, for selling and buying

respectively. Trading in dematerialised securities is presently available at

NSE, BSE, CSE, DSE, BgSE, LSE, MSE, ISE and OTCEI.

Any investor, who buys securities from any of the stock exchanges where

dematerialised securities are available, may receive his delivery in the

dematerialised form as dematerialised shares can be delivered in the

physical segment at the option of the seller. Therefore those investors who

buy securities from these exchanges should necessarily open a depository

account to take delivery of these shares.

53


Squaring off

In the exclusive demat segment, the trades can be squared off within the

same day as this segment follows a rolling settlement cycle. In the physical

segment the trades can be squared off within the trading period specified

for that stock exchange. This is presently five working days, between

Wednesday to Tuesday at NSE, Monday to Friday at BSE and Thursday to

Wednesday at CSE

If an investor squares off his position within the trading period, he does not

need to open a depository account. Depository account is required for

taking delivery or giving delivery of dematerialised securities in case an

investor buys or sells respectively. In case the investor squares off his trade

and does not have to take or give delivery of dematerialised securities, the

depository account is not used. As in the physical segment, an investor can

go long or short in the demat segment also.

How to access a scrip?

At NSE, the AE and BE segments can be accessed by selecting the scrip

the investor wants to trade in and typing AE or BE in place of EQ.

At the BSE, all scrips have a scrip code. For going to the Demat segment,

add 500000 to the scrip code. For eg If the scrip code of RIL is 325 in

54


the physical segment, the scrip code to be typed for going to Demat

segment is 500325.

Selling and Buying Of Shares

Selling dematerialised shares in stock exchanges is similar to the procedure

for selling physical shares. Instead of delivering physical shares to the

broker, the investor instruct their DP to debit their account with the number

of shares sold by them and credit their broker's clearing account

The investor can sell shares in any of the stock exchanges linked to a

depository through a broker of their choice. On the pay-in day, the broker

gives instruction to his DP for delivery of the shares to clearing

corporation of the relevant stock exchange. The broker receives payment

from the clearing corporation. The investor receives payment from their

broker for the sale in the same manner they would receive payment for a

sale in the physical mode.

The procedure for buying dematerialised shares in stock exchanges is

similar to the procedure for buying physical shares. When the investor

wants to purchase shares in electronic form, they have to instruct their

broker to purchase the dematerialised shares from the stock exchanges

linked to a depository.

The investor has to ensure that their broker gives a matching instruction to

his DP to transfer the shares purchased on their behalf into their depository

55


account. The investor should also ensure that their broker transfers the

shares purchased from his/her clearing account to their depository account,

before the book closure. This is really important because shares that

remain in the clearing account of the broker on the book closure/ record

date will not be eligible for corporate benefits.

Charges

NSDL does not charge the investor directly but charges its DPs, who are

free to charge their clients. NSDL charges its DPs under the following

heads:

Transaction Fees: Market Trade - sale - nil; purchase - 5 basis points (i.e.

0.05% of the value of net receipts to a clearing members account)

Off Market Trade: sale - nil; purchase - 10 basis points (ie 0.1% of value

of securities)

Custody Fees: 3.5 basis points p.a.(ie 0.035% p.a. of average value of

securities)

Rematerialisation: Rs. 10/- per certificate

One time payment scheme: NSDL has announced a new scheme under

which, if a company makes a one-time payment of 5 basis points (0.05%)

of the average market capitalization during the preceding 26 weeks, then

NSDL will not charge any custody fees to the DPs for shares of that

company. Future issues by such companies would require a payment of 5

56


basis points on the new share capital created. The valuation for new shares

will be done at the issue price. Companies would not be required to pay

any additional amount, if they make a bonus issue.

Receipt of Cash/ Non-Cash and Corporate benefits

When any corporate event such as rights or bonus or dividend is

announced for a particular security, depository will give the details of all

the clients having electronic holdings in that security as of the record date

to the registrar.

The disbursement of cash benefits such as dividend/ interest will be done

directly by the registrar. In case of non-cash benefits, depository will

directly credit the securities entitlements in the depository accounts of all

those clients who have opted for electronic allotment based on the

information provided by the registrar.

If an investor has holdings in physical form, he can receive the bonus/

rights issue against this in the dematerialised form. In case of fractional

part, as in the physical segment, it would be paid in cash and the remaining

whole part would be credited to the investors account.

NSDL provides details of the beneficial owner as on (the record date) to

the Issuer Company / register so as to enable the company the benefits

57


arising out of these holdings. Shareholders are given the option by the

issuer, of receiving their securities entitlements (like bonus or rights) in the

form of physical certificates or in the form of dematerialised holdings. If

the investor choose to receive securities in the dematerialised form, he gets

a direct credit to his account through NSDL, thereby avoiding the risk of

loss of certificates in transit..

Lending, borrowing and transmission of securities

How to Lend Securities?

The investor has to instruct their DP through a standard format (which is

available with your DP) to deposit their securities with the intermediary. If

the intermediary accepts the deposit of securities, the securities will be

moved from their account into the intermediary's account. If they wish to

recall the securities lent, then they can make a request through a standard

format available with their DP.

How to Borrow Securities?

The investor has to instruct their DP through a standard format (which is

available with your DP) to borrow securities from the intermediary. If the

intermediary accepts the request, the securities will be moved from the

intermediary's account to their account. If they wish to return the securities

borrowed, then they can make a request through a standard format

available with the DP.

58


Transmission of Securities:

Transmission of securities due to death, lunacy, bankruptcy, insolvency or

by any other lawful means other than transfer is also possible in the

depository system. In the case of transmission, the claimant will have to

fill in a transmission request form. The DP, after ensuring that the

application is genuine, will transfer securities to the account of the

claimant. For this, the claimant must have a depository account.

The major advantage in transmission of dematerialised holdings is that the

transmission formalities for all securities held with a DP can be completed

in one go, unlike in the case of share certificates, where the claimant will

have to interact with each issuing company or its R&T Agent.

In case where the deceased was one of the joint holders in the Client

account, the surviving client(s) shall be the person(s) recognized by

depository as having title to the securities held in that joint Client account.

In case where the deceased was a sole holder of the Client account, his

legal heir(s) or the legal representative(s) will be the person(s) recognized

by depository as having title to the securities held in that sole Client

account.

Security

59


National Security and Depository Limited claims to have undertaken

sufficient security measures. These measures are:

A DP can be operational only after registration by SEBI, which is

based on the recommendation from NSDL and SEBI’s own

independent evaluation.

Every day, there is a system driven mandatory reconciliation between

the DP and NSDL.

There are periodic inspections into the activities of both DP and R&T

agent by NSDL. This also includes records based on which the debit/

credit are affected.

The data interchange between NSDL and its business partners is

protected by standard protection measures such as encryption. This is

a SEBI requirement.

There are no direct communication links between two business

partners and all communications between two business partners are

routed through NSDL

All investors have a right to receive their statement of accounts

periodically from the DP.

Every month NSDL forwards statement of accounts to a random

sample of investors as a counter check.

60


In the depository, the depository holds the investor holdings on trust.

Therefore, if the DP goes bankrupt the creditors of the DP will have

no access to the holdings in the name of the clients of the DP. These

investors can then either dematerialise their holdings or transfer them

to a different account held with another DP.

Investor grievance: All grievances of the investors are to be resolved

by the concerned DP. If they fail to do so the investor has the right to

approach NSDL.

Insurance Cover: NSDL has taken a comprehensive insurance policy

to protect the interest of the investors in cases of failure of the DP to

resolve a genuine loss. The details of the policy is as under:

Upper limit per claim : Rs200mn

Number of claims allowed : unlimited

Minimum value of the claim : Rs150,000

To cover claims valued less than Rs150,000 NSDL has an investor

protection fund in place.

Besides all these safety measures efforts have been done to make this

electronic system foolproof.

61


Demat Shares: Are They 100% Safe

When an investor buys physical shares from the stock market, they can

never be certain of the validity of the title of shares. There were many

reasons- the sellers' signature did not match, or the certificates were fake,

forged or stolen, and so on.

Demat shares are supposed to obviate these problems. Buying shares in the

demat form always guarantees the investor a good title as soon as the

settlement is over. The biggest attraction of trading in demat shares is that

the shares an investor buys comes with a clean title and immediately after

the settlement on the relevant stock exchange.

Rule 100 of market regulator SEBI determines whether the shares

delivered in a settlement, are good or not. Under rule 100, the shares that

have been transferred any number of times can still be withdrawn by the

company, if a transfer is found to be invalid for any reason.

Suppose an investor <A> sells physical shares to investor <B> and

investor <B> gets them dematerialised. Later <B> sells the shares in the

stock exchange and investor <C> buys them. Meanwhile <A> discovers

that his share certificates were stolen and fraudulently sold by someone

else. He gets a court order restraining the company from further

transferring the shares and attaching them (currently in possession of C).

This is known as 'stop transfer'. So <C> who has bought dematerialised

62


shares is now struck with the shares. He cannot sell these shares since they

would be frozen in his account

Safety of the system has given boost to secondary market operations.

Volume increased and number of securities increased by reducing the face

value. In demat shares, pre-demat problems about the validity of a share do

not affect the interest of the buyers after dematerialisation. Shares go

through a verification process at the registrars' before they are

dematerialised.

Therefore the responsibility lies with the registrar. The registrar must find

a remedy if the original transfer of shares, before their dematerialisation

comes under doubt. But there is a catch. The company and its registrars are

not responsible if the reasons for original transfer being invalid were not

available at the time of dematerialisation. Matters have to be dealt with, on

a case to case basis. Which means that even demat buyer may find that his

shares have been frozen in his demat account. This kind of case has to be

contested in court by the parties involved.

This issue is not directly addressed in ‘The Depositories Act, 1996’.

SEBI’s regulations on depositories and depository participants also do not

mention the issue. Matters get more complex if an investor has traded

further in shares of the same company in his demat account. Demat shares

are fungible and don’t have distinctive numbers. It is not easy to track the

sale or trade of shares after they are dematerialised.

One of the major worries in case of dematerializing the physical holdings

is the taxman. Through depositories or DPs Income Tax department can

63


easily track down your holdings in capital market. This could be a reason

for worry to the people as it is not possible at all as the settlement process

is streamlined.

Findings

After the introduction of dematerialisation the stock market has

become more transparent and it attracts more investors day by day.

If the volume increases continuously, DPs will be in a position to

decrease the charges for opening and maintenance of demat a/c.

It is observed that banks normally levy a lower service charge

compared to other depository participants.

There are some other banks which charges less services charges for

demat services than other securities companies.

When the numbers of users are more on line, the speed of the

transaction is affected.

Since the rolling settlement is one day, people who are speculating

without having full amount of money or shares with their DP, tend to face

higher degree of risk.

64


Some securities have not yet started with the Interactive Voice

Response (IVR) units and demat on net.

Even though online trading provides privacy to the clients, trends

available from the trading room will not help most of the online traders.

Investors dealing online must possess good knowledge for analyzing

the information passed on by the companies through net.

Online service depends highly on technology.

65


Conclusion

Notwithstanding many problems, Indian stock market has emerged as a

significant financial intermediary, assisting efficient resource allocation,

providing strong support to Indian economy and help investors to realize

the benefits of stock market investing. The growing importance of the

Indian stock market place may be noted in terms of increased mobilization

of funds and growing number of investors account.

Indian stock market industry has remained centered around a limited

product range. This has happened due to the tendency to avoid risk,

inability to understand future market development and changes in investor

preference.

The absence of product diversification and a confused market situation has

been made more by the absence of an innovative marketing network.

Online is considered as one of the innovative network. The product range

offered by stock broking firms needs to be redesigned to cater the changes

66


in the short term, medium term and long term savings and investment

markets.

Management is considered to be a key for the operational efficiency of any

business venture. This factor becomes even more crucial for service

ventures such as stock broking business venture.

Stock market industry must undertake a well designed and comprehensive

program of investor education especially aimed at investors in rural and

semi-urban areas. However this has been mostly neglected in India. In

India most of the broking business comes from the small investors and

efforts are concentrated on serving them efficiently ,and this would help

them in being a good intermediary for providing various financial services

due to it’s reach to the last mile.

SEBI has been playing a significant role in the regulation of stock market.

SEBI’s steps like dematerialising, and trading through net etc. has

increased the transparency of the trading than before.

In the global market place no industry can afford to be struck by inertia.

But it is management which is crucial to the success of any business

operation.

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Suggestions

1. Since more and more companies are planning to enter into online

trading, quality of service should be continuously updated.

2. Companies have to offer Interactive Voice Response (IVR) facility to

their clients, as it will help clients to know the current value of their

portfolio, current holding, transaction list etc.

3. Clients will be more happy if they can access demat account reports

through net.

4. Online professional assistance will be helpful to investors. It will

increase the customer base in online trading because it will be helpful to

those who are not much aware of the market trends.

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5. Since the number of customers are increasing, online facilities should

be always updated or else the speed of the system will be affected.

6. It is very important to know as to how many clients the existing

infrastructure can cater to effectively. It is no use trying to rope in 20,000

investors when the ability of the infrastructure is only for 10,000 investors.

This will create much more trouble to the bandwidth and the whole system

works very slowly by which one may end up with 20,000 dissatisfied

investors rather than 10,000 happy investors.

7. It is important to maintain a very good relationship with the partners-

banks, depositories. It is important to have good relation with the channel

participants and the sub brokers. There should be responsibility and

accountability.

8. As the whole set up is getting sophisticated, and one is moving from

offline to online, the war and the differentiated factor could be technology.

One has to constantly innovate and offer better products.

9. One should see where they stand in the whole value chain. One should

carve a niche for themselves. It could be in providing the lowest charges or

could have the technology as edge or full service brokerage. One should

not try to be all in one or constantly move up and down the value chain.

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10. Target the new hidden customers, for whom the net can bring out

convenience and comfort like NRI, women, young executives,

professionals etc.

11. Try to work in the existing constraints rather than wasting time on

things, which are beyond the control and common to all the connectivity

etc.

12. Apart from providing the basic content free, if extra services like

prices alerts can be provided then one must not hesitate to charge the

people using the services. They must not fear to charge for the services if

they think they are worth being charged, as the facility is not elsewhere.

13. Develop a brand name for the services, which is quickly secure and

reliable.

14. It is very important to educate and train the customer on the use and

limitation of the services. This helps them to have a realistic expectation of

the use. It also reduces the number of complaints like difficulty of

accessing the account and best execution issues.

15. Control the cost of unnecessary, unproductive activities, which do not

in any way add value to the services.

16. Total abolition of physical formatting of securities.

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Sources of information:

Internet:

o www.bse.com

o www.nse.com

o www.sebi.com

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http://www.sebi.com/

http://www.nse.com/

http://www.bse.com/


o www.nsdl.co.in/

o www.birlamartin.com

o www.timesbankindia.com

o www.hll.com

Books: I.M.Panday, Financial Management,

Prasannachandra, Financial Management

E.Gordon & K.Natarajan, Financial Markets and Services

News papers: Financial Express

Economic Times

Business line

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http://www.hll.com/

http://www.timesbankindia.com/

http://www.birlamartin.com/

http://www.nsdl.co.in/

Final Report on Demat Priya

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