Online Share Trading Benefits and Pitfalls

J.Karthikeyan, CFPCM

Director – Research & Consulting,

Finerva Financial Solutions Pvt Ltd

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Agenda

• History – Your Sharing

• Entities Involved

• Benefits for Each Entity

• Pitfalls for Each Entity

• Discussions

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History

• Stock Exchanges

• BSE – 1875 – BOLT 1995

• NSE – NEAT (National Exchange for Automated Trading) – 1992

• Volume Online – Close to Rs.One lakh crores per day

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Entities Involved

• Individual Investors• The Government & The Regulator (SEBI)• Intermediaries

– Stock Exchanges (Cash & Derivatives)– Brokers, corporate brokers, sub-brokers, derivatives brokers– FIIs– Custodians– Depositories– Depository Participants– Merchant Bankers– Bankers to an Issue– Underwriters– Credit rating agencies– Venture capital funds – Indian & Foreign– Registrars and Share transfer agents– Portfolio Mangers, MFs, Collective Investment Schemes– Stock lending Schemes

• Large & Institutional Investors

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Benefits & Pitfalls for the Government and the

RegulatorBenefits

– Settlement Period is reduced and monitored easily – Events like Harshad Metha Scam cannot happen

– Better control on the traders – through Demat Accounts – PAN linked

– Better control on Intermediaries – Easy & More Collection of Tax – STT & Volumes– Environment friendly– IPO processing easier faster and more economical –

promotes development

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Benefits & Pitfalls for the Government and the

Regulator• Pitfalls

– Effort required for Implementation• Education – Investor Education Fund • Infrastructure – processing, verifying documents

– Errors in Processing – Trade / Settlement Guarantee Fund

– Scams like multiple demat accounts - Roopalben Panchal (14,807) 45,000 in all

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Benefits & Pitfalls for the Intermediaries

• Benefits

• Higher income – Higher transactions

• Better Management of Portfolios – Easier and Faster

• Transparent Operation – Clear Communication, Processing, Accounting

• More Products – Futures, Options, Debt

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Benefits & Pitfalls for the Intermediaries

• Pitfalls

• More investment required – margin money and client leverage

• More risky if client is highly leveraged – Mark-to-Market

• More research required

• Higher regulator visibility and intervention

• Lesser Investments in Mutual funds

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Benefits and Pitfalls for Individual Investors

• Benefits

• Easier to maintain

• Cost per transaction is reduced

• Easier and Faster to Trade - Buying or Selling

• Transparent Transactions

• Accounting is automatic

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Benefits and Pitfalls for Individual Investors

• Pitfalls• More Transactions – More cost• Day-Trading Addiction - Brad Barber and

Terrance Odean - Research on the US market shows that 82% of the day traders lose money.

• Higher Visibility to the Taxman• Lack of Research and Knowledge• No Verification on Decision

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DISCUSSION

THANK YOU

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