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ANALYTICAL STUDY ON ONLINE TRADING

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SIR CRR ENGINEERING COLLEGE

CHAPTER 1

INTRODUCTION


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INTRODUCTION

The trading on stock exchanges in India used to take place throughopen outcry without use of information technology for immediate

matching or recording of trades. This was time consuming and in efficient.

This imposed limits on trading volumes and efficiency. In order to provide

efficiency in order to provide efficiency, liquidity and transparency, NSE

introduced a nation-wide on-line full automated Screen Based Trading

System (SBTS) where a member can punch into the computer quantities of

securities ant the prices at which he likes to transact and the transaction is

executed as soon as it finds a matching sale or buy order from a counter

party. SBTS is electronically matches on a strict /time priority and hence

cuts down on time, cost and risk of error, as well as on fraud resulting in

improved operational efficiency. It allows faster incorporation of price

sensitive information into prevailing prices, thus increasing the

informational efficiency of markets. It enables market participants,

irrespective of their geographical locations, to trade with one another

simultaneously, improving the depth and liquidity of the market.

It provides full anonymity by accepting orders, big or small, from

members without revealing their identity, thus providing equal access to

everybody. It also provides a perfect audit trail, which helps to resolve

disputes by logging in the trade execution process in entirety.

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This sucked liquidity from other exchanges and in the very first year of

its operation, NSE became the leading stock exchange in the country,

impacting the fortunes of other exchange in the country, impacting the

fortunes of other exchanges and forcing them to adopt SBTS also. Today

India can boast that almost 1005 trading take place through electronic

order matching.

The trading network in NSE has main computer, which is connected

through very small (VSAT) installed at its office. The main computer runs

on a runs on a fault tolerant STRATUS main frame computer at the

exchange. Brokers have terminal s installed at their premises, which are

connected through VSATs/leased lines/modems.

An investor informs a broker to place an order on his behalf. The

broker enters the order through his pc which runs under Windows NT and

sends signal to the satellite via VSAT/leased line/modem.

OBEJECTIVES:3



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To know the settlement procedure of transactions

To know the on-line screen based trading systems and its

communication facilities.

To know about the latest and future development in the stock

exchange trading system.

To know the NSDL & CDSL DPs operations

To know how online trading process takes place

NEED AND IMPORTANCE OF THE STUDY

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Capital Markets play a vital role in the development of the economy

and stock exchanges are the integral part of the capital market. With the

advance in Information Technology, age-old methods of stock trading are

gradually fading out. They are replaced by the easier and hassle-free

method of trading On-line through Internet.

This study is carried out to explore the changes occurring in stock

exchange with the advancements in the information technology. The major

need for this study is to know the effectiveness of online system in

comparison with the outcry system. More emphasis is given to bring out

the process of online trading behind the screen and its advantages. The

study also includes the emergence of the depository system in the country

to rule out the drawbacks of the system of physical transfer of the shares.

RESEARCH METHODOLOGY

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RESEARCH DESIGN

In the present research study the aim was to know the feedback about

online trading process for which a scheduled questionnaire of 10 questions

was prepared, the data was collected and the responses were recorded.

SAMPLING DESIGN

The sampling design adopted in the research was simple random

sampling technique and the respondents were selected on a random basis.

DATA COLLECTION METHOD

Primary Data: The data collected was mainly primary data as it was collected

directly from the clients through interviews and questionnaire.

Secondary Data: The secondary data was collected from various websites,

annual reports of Hyderabad Stock Exchange, Journals etc.

SAMPLING METHOD

Sampling unit: The sampling unit of the study is clients and customers

of Hyd Stock Exchange.

Size of the sample: The sample size in the study is 100 people in Hyd Stock

Exchange.

SCOPE OF THE STUDY

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1. The online trading system can increase efficiency, free up time and, most

importantly, increase profits.

2. Online trading is a concept that has emerged in today phenomenon is only

beneficial to the urban investors. This concept has not reached yet the semi urban

and rural population.

3. Online trading facility can be avail easily by just opening an account with

the broker and depository participant.

4. The broker delivers the shares from his clearing member account to clients

account when the clients take the delivery of the shares.

LIMITATIONS OF THE STUDY

1. The analysis is made on the online trading activities carried out in Hyd

Stock Exchange.

2. The data is collected from the primary & secondary sources so the study

will have slight variation than what the study includes in reality.

3. The study is limited to current time period.

4. The study is purely for academic purpose.

5. Most of the information collected for study is acquired from primary

secondary source.

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REVIEW OF LITERATURE

Indian stock markets are one of the oldest in Asia. Its history dates back to

nearly 200 years ago. The earliest records of security dealings in India are meager

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CHAPTER-II

LITERATURE REVIEW


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and obscure. The east India Company was the dominant institution in those days

and business in its loan securities used to e transacted towards the close of the 18th

century.

By 1830s business on corporate stocks and shares in bank and cotton presses took

place in Bombay. Though the trading list was broader in 1839, there were only half

a dozen brokers recognized by banks and merchants during 1840 and 1850.

The 1850s witnessed a rapid development of commercial enterprise and brokerage

business attracted many men into the field and by 1860 the number of brokers

increased into 60.

In 1860-61 the American civil war broke out and cotton supply from United States

of Europe was stopped; thus, the share mania in India begun. The number of

brokers increased to about 200 to 250. However, at the end of the American civil

war, in 1865, a disastrous slump began (for example, bank of Bombay share which

had touched Rs2850 could only be sold at Rs.87.)

At the end of the American civil war, the brokers who thrived out civil war in 1874,

found a place in a street (now appropriately called Dalal street) where they would

conveniently assemble and transact business, In 1887, they formally established in

Bombay, the Native share and stock brokers (which is alternatively known as the

stock exchange) in 1895, the stock exchange acquired a premise in the same street

and it was inaugurated in 1899. Thus, the stock exchange at Bombay was

consolidated.

OTHER LEADING CITIES IN STOCK MARKET OPERATIONS

Ahmedabad gained importance next to Bombay with respect to cotton textile

industry. After 1880, many mills originated from Ahmedabad and rapidly forged

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ahead. As new mills were floated, the need for a stock exchange at Ahmedabad was

realized and in 1894 the brokers formed The Ahmedabad share and stock Brokers

Association.

What the cotton textile industry was to Bombay and Ahmedabad, the jute industry

was to Calcutta. Also tea and coal industries were the other major industrial groups

in Calcutta. After the share mania in 1861-65, in the 1870s there was a sharp boom

in jute shares, which was followed by boom in tea shares in the 1880s and 1890s;

and coal boom between 1904 and 1908. On June 1908, some leading brokers

formed The Calcutta Stock Exchange Association

In the beginning of the 20th century, the industrial revolution was on the way in

India with the swadeshi movement; and with the inauguration of the Tata Iron and

steel company limited in 1907, an important stage in industrial advancement under

Indian enterprise was reached.

Indian cotton and jute textiles, steel, sugar, paper and flourmills and all companies

generally enjoyed phenomenal prosperity, due to the First World War.

In 1935, the stock market activity improved; especially win south India where there

was a rapid increase in the number of textile mills a many plantation companies

were floated. In 1937, a stock exchange was once again organized in madras-

madras stock exchange association (Pvt) limited. Lahore stock exchange was

formed in 1934 and it had a brief life. It way merged with the Punjab stock

exchange limited, which was incorporated in 1936.

INDIAN STOCK EXCHANGES - AN UMBRELLA GROWTH

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The Second World War broke out in 1939. It gave a sharp boom, which was

followed by slump. But, in 1943, the situation changed radically, when India was

fully mobilized as a supply base.

On account of the restrictive control on cotton, bullion, seeds and other

commodities, those dealing in them found in the stock market as the only outlet for

their activities. They were anxious to join the trade and their number was swelled

by numerous others. Many new associations were constituted for the purpose and

stock exchanges in all parts f the country were floated.

The Uttar Pradesh stock exchange limited (1940), Nagpur stock exchanged limited

(1940) and Hyderabad stock exchanges limited (1944) were incorporated.

In Delhi two stock exchanges-Delhi stocks and share brokers association limited

and the Delhi stock and stock exchange limited were floated and later in June 1947,

amalgamated into the Delhi stock exchange association limited.

TRADING PATTERN OF THE INDIAN STOCK MARKET

Trading in Indian stock exchanges are limited to listed securities of public

limited companies. They are broadly divided into two categories, namely specified

securities (forward list) and non specified securities (cash list). Equity shares of

dividend paying, growth oriented companies with a paid up capital of at least

Rs.50million and a market capitalization of at least Rs.100 million and having more

than 20,000 shareholders are, normally, put in the specified group and the balance

in non-specified group.

Two types of transactions can be carried out on the Indian stock exchanges

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1. Spot delivery transactions for delivery and payment within the time or on the

date stipulated when entering into the contract which shall not be more than 14days

following the date of contract.

2. Forward transactions delivery and payment can be extended by further period of

14days each so that the overall period does not exceed 90 days from the date of the

contract.

A member broker in an Indian stock exchanges can act as an agent, buy and sell

securities for his clients on a commission basis and l\also can act as a trader or

dealer as a principal, buy and sell securities on his own account an risk, in contrast

with the practice prevailing on New York an London stock exchanges, where a

ember can act as a jobber or broker only.

The nature of trading on Indian stock exchanges is that of age-old conventional

style of face to-face trading with bids and offers being made by open outcry.

However, there is a great amount of effort to modernize the Indian stock exchanges

in the very recent times.

OVER THE COUNTER EXCHANGE OF INDIA (OCTEI):

The traditional trading mechanism prevailed in the Indian stock markets

gave way to any functional inefficiencies, such as, absence of liquidity, lack of

transparency, unduly long settlement periods and benami transactions, which

affected the small investors to a great extent. To provide improved services to

investors, the countrys first ring less, scrip less, electronic stock exchange-OTCEI-

was created in 1992 by countrys premier financial institution-unit trust of India

(UTI), industrial credit and investment corporation of India, Industrial Development

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Bank of India (IDBI), SBI capital markets, IFCI, General Insurance Corporation

and its subsidiaries and can bank financial services.

Trading at OTCEI is done over the centers spread across the country. Securities

traded on the OTCEI are classified into

Listed securities: The shares and debentures of the companies listed on the OTC

can be bought or sold at any OTC counter all over the country and they should not

be listed anywhere else.

Permitted securities: Certain share and debentures listed on other exchanges and

units of mutual funds are allowed to be traded.

Initiated debentures: Any equity holding at least one lakhs debentures of particular

scrip can offer them for trading on the OTC.OTC has a unique feature of trading

compared to other traditional exchanges. That is, certificates of listed securities and

initiated debentures are not traded at OTC. The original certificate will be safely

with the custodian. But, a counter receipt is generated out at the counter which

substitutes the share certificate and is used fro all transactions.

In the case of permitted securities, the system is similar to a traditional stock

exchange. The difference is that the delivery of and payment procedure will be

completed within 14 days

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INDUSTRY PROFILE

Stock Exchange

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CHAPTER III

STOCK MARKET PROFILE


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Stocks (Shares, equity) are traded in stock exchange. India has two big stock

exchanges (Bombay Stock Exchange - BSE and National Stock Exchange - NSE)

and few small exchanges like Jaipur Stock Exchange etc. Click here to see the list

of Stock Exchanges in India

Investor can trade stocks in any of the stock exchange in India.

Stock Broker

Investor requires a Stock Broker to buy and sell shares in stock exchanges (BSE,

NSE etc.). Stock Broker is registered member of stock exchange. A stockbroker can

register to one or more stock exchanges.

Only stockbrokers can directly buy and sell shares in Stock Market. An investor

must contact a stockbroker to trade stocks. Broker charge commissions (brokerages)

for their service. Brokerage is usually a percent of total amount of trade and varies

from broker to broker.

Stock Trading

Traditionally stock trading is done through stockbrokers, personally or through

telephones. As number of people trading in stock market increase enormously in

last few years, some issues like location constrains, busy phone lines, miss

communication etc start growing in stock broker offices. Information technology

(Stock Market Software) helps stock brokers in solving these problems with Online

Stock Trading.

Online Stock Market Trading is an Internet based stock trading facility. Investor can

trade shares through a website without any manual intervention from Stock Broker.

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In this case these Online Stock Trading companies are stockbroker for the investor.

They are registered with one or more Stock Exchanges. Mostly Online Trading

Websites in India trades in BSE and NSE.

There are two different type of trading environments available for online equity

trading. Installable software based Stock Trading Terminals

These trading environments require software to be installed on investors computer.

This software is provided by the stockbroker. This softwares require high speed

internet connection. These kind of trading terminals are used by high volume intra

day equity traders.

Below is the detail comparison of major Online Stock Market Trading websites in

India. This comparison is to help investor to take calculated decision while

searching for new trading portal.

1. ICICIDirect

2. Sharekhan

3. India bulls

4. 5Paisa

5. Motilal Oswal Securities

6. HDFC Securities

7. Reliance Money

8. IDBIPaisaBuilder

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9. Religare

10. Geojit

11. Networth Stock Broking

12. Kotak Securities

13. Standard Chartered-STCI Capital Markets Ltd

14. Angel Trade

15. HSBC Invest Direct

BOMBAY STOCK EXCHANGE (BSE):

This stock exchange, Mumbai, popularly known as BSE was established

in 1857 as The Native share and stock brokers association as a voluntary non-

profit making associations. It has an evolved over the years into its present status

as the premier stock exchange in the country. It may be not that the stock

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exchanges the oldest one in Asia, even than the Tokyo Stock Exchange, which

was founded in 1878.

The exchange, while providing an efficient and transparent market for trading in

securities, upholds the interests of the investors and ensures 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 investors education programmers.

A governing board comprising of 9 elected directors 2 SEBI nominees, 7 public

representative and executive directors, 2 SEBI nominees, 7 public representative

and 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 to

day administration of the exchange. The average daily turnover of the exchange

during the year 2000-01 (April March) was Rs.3.984.16 crores and average

number of daily trades 5.69 lakes.

The Ban on all deferral products like BLESS AND ALBM in the Indian capita

Markets by SEBI with effect from 2001, abolition period settlements and

introduction of compulsory ruling settlements in all scripts traded on the

exchanges with effect from December 31, 2001 etc, have adversely impacted the

liquidity and consequently there is a considerable decline in the daily turnover at

the exchange. The average daily turnover of the exchange present scenario is

110363 (lakhs) and number of average daily trade 1057 (lakhs).

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BSE INDICES:

In order to enable the market participants, etc, to track the various

ups and downs in the Indian stock market, the exchange have introduced in 1986

and equity stock index called BSE SENSEX that subsequent became the

barometer if the moments of the share prices in the Indian stock market. It is a

Market capitalization weighted index of 30 companies. The base year of

Sensex is 1978-79 .The Sensex is widely reported in both domestic and

international market through print as well as electronic media.

Sensex is calculated using a market capitalization weighted method.

As per this methodology, the level of the index reflects the total market value of

all 3-component stocks from different industries related to particular base period.

The total market value of the company is determined by multiplying the price of

its stock by the number of shares outstanding. Statisticians call a index of a set of

combined variables (such as price and number of shares) a composite index. It is

much easier to graph a chart based on indexed values than one based on actual

values worked over majority of the well known indices are constructed using

Market capitalization weighted method.

In practice, the daily calculation of SENSEX is done by dividing the aggregate

market value of the 30 companies in the index by a number called the index

Devisor. The devisor is the only link to the original base period value of the

sensex.

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The divisor keeps the index comparable over a period of time and if the

reference point for the entire index maintains adjustments. SENSEX is widely

used to describe the mood in the Indian Stock Markets.

Base year average is changed as per the formula new base year average =old base

year average*(new market value/old market value).

NATIONAL STOCK EXCHANGE (NSE):

The NSE was incorporated in November 1992 with an equity capital of Rs. 25

crores. The International Securities Consultancy (ICS) of Hong Kong has helped

in setting up NSE. ISE has prepared detailed business plans and installation of

hardware and software systems. The promotions for NSE were financial

institutions, insurances companies, banks and SEBI Capital Market Ltd.

It has been set up to strengthen the move towards professionalizing of the capitalmarket was well as provide nation wide securities facilities to investors.

NSE is not an exchange in the traditional sense where brokers own and manage

the exchange. A two tier administrative set up involving a company board and a

governing board envisaged.

NSE is a national market for shares PSU bonds, debentures and government

securities since infrastructure and trading facilities are provided.

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NSE MIDCAP INDEX:

The NSE midcap index or the junior Nifty comprises 50 that represents 21

abroad industry groups and will provide proper representation of the midcap

segment of the Indian Capital Market. All stocks in the index should have market

capitalization of greater than Rs 200 crores and should have traded 85% of the

trading says at the impact cost less 2.5%

The base period for the index is November 4th, 1996, which signifies two years

for completion of operation of the capital market segment of the operations. The

base value of the index has been set at 1000. At present there are 24 stock

exchanges recognized under the securities contract (regulations) Act, 1956.

They are

Name of the Stock Exchange Year of Reg.

Bombay Stock Exchange 1875

Ahmadabad share & stockbrokers association 1957

Calcutta Stock Exchange Association Ltd 1957

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Delhi Stock Exchange Ltd 1957

Madras Stock Exchange Association Ltd 1957

Indore Stock brokers Association Ltd 1958

Bangalore Stock Exchange 1963

Hyderabad Stock Exchange 1943

Cochin Stock Exchange 1978

Pune Stock Exchange 1982

UP Stock Exchange 1982

Ludhiana Stock Exchange 1983

Jaipur Stock Exchange Ltd 1983-84

Gauhati Stock Exchange Ltd 1984

Mangalore Stock Exchange Ltd 1985

Name of the Stock Exchange Year of Reg.

Maghad Stock Exchange Ltd, Patna 1986

Bhubaneshwar Stock Exchange Association Ltd 1989

Over the counter Exchange India, Bombay 1989

Saurastra Kuth Stock Exchange Ltd 199022



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Vadodard Stock Exchange Ltd 1991

Coimbatore Stock Exchange Ltd 1991

The Meerut Stock Exchange 1991

National Stock Exchange

Integrated Stock Exchange 1999

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CHAPTER IV

COMPANY PROFILE


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The Hyderabad Stock Exchange

Origin:

Rapid growth in the industries is the previous Hyderabad state saw effort for

the starting of stock exchange. In November 1941 some trading bankers and brokers

formed the stock and share brokers Association. In 1942,Mr.Gulab Mohammed,

The Finance Minister of the state Hyderabad formed a committee for the purpose of

constructing rules and regulations of the Stock Exchange in 1942.

Sri Purushotthamdas Thakurdas founder member of HSE on 14th November

1943 under Hyderabad Companies Act.Mr.Kamal Ya Jung Bahadur was the

president of the Exchange. The HSE started functioning under Hyderabad Security

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Contract Act. of 21 in 1952.Under HEH Nizam's government as a company LTD

by guarantee.

It was the 6th stock exchange, recognized uner securities contract Act. Afterthe premier stock exchange, Ahmadabad, Bombay, Calcutta, Madras and Bangalore

stock exchange.

Recognition:

The 95 securities contract (Regulation) rules 1957, passed by the governmentof India came into force from 21stFeb 1957. The provision of the Act and rules

were applied in twin cities of Hyderabad and Secundrabad from 29th Sep 1958 and

government of India from that data recognized the HSE Ltd.The Stock Exchange

division. Government of India also approved the rules, by laws and regulations

framed as per the provision of Act. From these data a new chapter started in the

history of Exchange.

It has significant share achievements of crores, while state of Andhra pradesh

toits present state in the matter of industrial development. In view of substantial

growth in trading activities and for the service rendered.The exchange was

bestowed with permanent recognition with effect 19th 1983.

The History of Hyderabad Stock Exchange

1943: Formation of HSE.

1958: First recognition was accorded on renewable basis for every year.

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1983: Bestowed in to the present and fully mechanized own building on on 23 Sep.

1993: Golden jubilee celebration on 18th Oct 1993.

1994: Purchase of "NAVBHARAT PLAZA" a new building computer for the

Exchange

from 117 to 300

1995: Appointment of first Executive Director in April, Sri M.Subrahmaniyam.

Chief Minister of A.P.Sri N.T.Ramarao.

1995: Inauguration of new trading hall at Somajiguda, Hyderabad by the Honorable

OBJECTIVES

The Exchange was established on 18th Oct 1943 with its main objective to

create, protect and develop a healthy capital market in the state of Andhra Pradesh

to serve effectively towards the public and investor's interest.

The Property, Capital and Income of the Exchange, As per the memorandum

and Articles of Association of the Exchange, shall have to be applied solely towards

the promotion of the objects of the Exchange. Even in case of dissolution, the

surplus funds shall have to be devoted to any activity having the some objects, as

the high court of judication. Thus in short, it is a charitable Institution.

The Hyderabad Stock Exchange limited is now on its stride of completing its

66th year in the history of capital markets serving the cause of saving and

investments. The Exchange has made its beginning in 1943 and today occupies a

prominent place among the regional stock exchange in India.

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The Hyderabad stock Exchange has been promoting the mobilization of funds

in the industrial for the development of industrialization in the state of Andhra

Pradesh.

FUNCTIONS AND SERVICES OF STOCK EXCHANGE

The stock market occupies in the financial system, it performs several

economic functions and vendors invaluable services to the investors companies and

to the economy as a whole, they may be summarized as follows:

Liquidity and Marketability of securities.

Supply of long term funds.

Flow of capital to profitable ventures. Motivation for improved performance.

Promotion of investment.

Reflection of business cycle.

Marketing of new issues.

Miscellaneous services.

The stock exchange business operations are equipped with modern

communication system. Online computerization for simultaneously carrying out the

whole trading transactions.

The exchange has been displaying various quotations that takes place in the

screen in trading flower.

Growth:

The Hyderabad Stock Exchange Ltd. established in 1943 as a non-profitmaking organization,catering to the needs of investing population started its

operation in a small way in a rented building in Koti area.It has shifted to

Aiyanagar plaza, Bank Street in 1987. In Sep.1989, the Vice-President of India,

Honorable Shankar Dayal Sharma had innaugurated the ownbuilding of the Stock

Exchange at Himayathnagar.

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Later, in order to bring all the trading members under on roof, the exchange

still a larger premises situated 6-3-65/A,Somajiguda,Hyderabad-82,with a six

stored building and a constructed area of about 4,86,842 sft. Considerable there

has been a tremendous perceptible growth which could be observed from the

statistics.The number of members of the Exchange was 65 in 1943, 117in 1993 andincreased to 300 with 869 listed companies having paid up capital is

Rs.1236.52crores in 1999-2000.

The Exchange has got a very smooth settlement system.

Departments in HSE:

1. Listing Department.

2. Marketing Operation Department.

3. Electronic Data Processing Department.

4. Accounts department.

5. Administrative Department.

6. Surveillance Department.

7. Investor Services and Education Committee Department.

8. Screen Based Department.

Settlement Department:

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All transaction entered in exchange are on the basis of cash. The settlement

for the month will be notified in advance and circulated to all members. The

exchange has weekly settlement or several years. The settlement period is Monday

to Friday. All transactions are to be completed within 14 days, in case of first date

of transaction.

To assist the management of the exchange, the settlement committee shall

hear and settle the disputes arising between members in respect of non-delivery.

Listing Department:

Listing is primarily the formal approval of Stock Exchange for trading the

securities concerned on its trading floor. The main functions of listing department

are:

To provide a ready marketability to the securities of the company preliminary

screening of memorandum of association, Articles of Association, Prospectus.

Maintenance of listing files of all companies to see that company fulfills the pre-

issue formalities which knave to come from public issue.

Surveillance Department

Surveillance department of HSE started functioning from the year 1995.

The department is actively engaged in discharging the following functions.

Monitoring the price movements.

Checking of price rigging and manipulations.

Applying of circuit breakers where ever required.

Imposing special margins.

Payments of margins.

Suspension and revocation. Monitoring of violations of trading restrictions and limits.

Monitoring of broker's net position.

Administration Department

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Administration Department of HSE looks after the overall administration

matters of the exchange. Therefore one of its main functions is general

administration. It also deals with staff members related to appointment, pay scale

and payroll to staff.

It also looks into the

Appointment of members

Appointment of sub works

To maintain the list of active members

Accounts Department :

Accounts department is in charge of over all functions so accounting,

members security deposites,collection of listing fees, securities evaluation of

members and stationary verification. Out of the collected listing fees the accounts

department transfers 20% of listing fees to investors service cell and 5% to SEBI

guidelines. The Account department I headed by DGM who reports to governingboard.

E.D.P.Department:

The Electronic Data Processing (EDP) department is engaged in following

functions:

1. Generating computerized daily volume reports to all members for the

transaction done on a particular trading day.

2. It releases the daily quoted open high, low and close share price together

with the number of trades and volumes to the process.

3. All the information related to trading data/inputs/outputs of all members is

processed by the E.D.P.department.

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Computerization Department:

The HSE online securities trading system was built around the most

sophisticated state of art computers, communications system and the proven

VEVTOR software from CMC.This is one of the most powerful Subsystems in thecountry. Operating in WAN environment which is connected through 9.6 KBPS 2

wire leased lines from the offices of the members to the office of stock exchange in

the present building.

HSE is only stock exchange in the country to provide infrastructure to its

members for trading through WAN. The host system will enable the Stock

Exchange not only to expand its operation to other prime trading enters outside the

twin cities Hyderabad and Secunderabad, but also to link itself into inter-connected

market system (ICMS) proposed by the federation of India Stock Exchange (FISE)to inter-connect various regional stock exchange in various states.

Governing Board:

The exchange used to function on the principle of electing senior member to

the governing board along with 3 members nominated by the government of India.

Since 50th AGM, the strength of the governing board was revised to 13, including a

President, Vice-President,4 more elected directors, 3 central government

nominees,3 public nominees and 1 executive director. Making elected directors andgovernment nominees directors to 50:50 i.e.6:6 apart from the executive directors in

terms of Directors of Securities and Exchange Board of India.

Trading member directors

Sri Ram swaroop Agarwal

Sri Ghanshyam Das Gilada

Public representative directors

Sri Henry Richard(Registrar of companies,A.P)

Dr.B.Brahmaiah

Sri P.Murali Mohana Rao

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Executive Director

Sri G.Someswara Rao

Auditor

M/s M.Bhaskara Rao & co. hyd,A.P

Legal Advisors

Sri PVSSS Rama Rao

Sri Murali Narayan Bung

Bankers

Canara Bank

ORGANIZATIONAL STRUCTURE OF THE STOCK EXCHANGE

Board of Director

|

Chief executive Officer

| | |

Secretary Dgm (Accounts) EDP SR

Programmer

Survey Department |

Accounts Officer HW

Engineer

| | |

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Steno SR Assistants Data entry

operator

| | |

Office boy AssistantAssistant

|

Data entry operators

Office boy

___________________________________________________________________

__

| | | |

Administration (Dept) Listing (Dept) Investor service cell library

(Dept)

| | |

Main Officer Sr. Assistant Sr. Assistant

| | |

Stenos Assistants Office boys

Sr. Assistants Office boys

|

Office boys

|

Drivers

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Types of Shares in HSE:

In HSE all types of shares are traded .they are:

'A'GROUP: Specified shared or clear securities. (A share which represents large

and

well established companies having a broad investor base)

'B'Group : Specifies shares or non cleared securities

'B1' Group: Well traded script's among the groups.

B2Group: Not well traded script's among the B group

'C' Group: Cover the odd lot security in A, B1, B2 and Z groups.

'Z' Group: It is introduced in July 1999.It represented or covers the list of companies

(Which fails to complete within listing requirements and fail to resolve investors

complaints)

All these group scripts are traded in the stock exchange from Monday to Friday.

'F' Group: It is introduced in March 2001.It represents the debt market or fixed

income securities scripts. These scripts are traded from Thursday to Wednesday.

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But the traders are to be compulsory settled by all investors in demand made for all

groups of scripts.

Computerisation:

The stock Exchange business operations are equipped with moderncommunication systems. Online computerisation for simultaneously carrying out

the trading transactions, monitoring functions have been introduced at this

Exchange since 1988 and the settlement and delivery systems has become simple

and easy to the exchange numbers.

The HSE online securities trading systems was built around the most

sophisticated state of the art computers, communications systems, and the provenVECTOR Software from CMC and was one of the most powerful SBT systems in

the country, operating in a WAN environment, connected through 9.6KBPS 2Wire

leased lines from the offices of the members to the office of the stock exchange at

Somajiguda,where the central system CHALLENGE-LDESK SIDE_SERVER

made of silicon Graphics(SGI Model No.D95602-S2)was located and connected all

the members whop were provided with COMPAQ DESKPRO 2000/DESKTOP

5120.Computers connected through MOTOROLA 3.265 v.34 MANAGEABLE

STAND ALONE MODEMS(28.8Kbps) for carrying out business from computerterminals located in the offices of the members.

The Host Systems enabled the Exchange to expand its operations later to other

Prime trading centers outsides the twin cities of Hyderabad and Secunderabad.

Clearing House:

The Exchange set up clearing house to collect the securities from all the

Members and distribute to each member to, all securities due in respect of every

settlement. The whole of the operations of the clearing House were alsocomputerised.At present through DP all the settlements obligations are met.

Inter Connected Market System (ICMS):

The HSE was the convener of a committee constituted by the federation of

Indian Stock Exchange for implementing an inter Connected market Systems35



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(ICSM) in which the screen Based Trading Systems of various stock exchange

welcomed the creation of ICSM.

The HOST provided the net-work for HSE to hook itself into the ISE.The ISE

provide the members of HSE and their investors, access to a large national networkof Stock Exchanges. The Inter-Connected stock Exchange is a National Market

without any fee, which was a boon to the Members of an Exchange/Exchanges to

have the trading rights on National Exchange (ISE), without any fee or expenditure.

Online Surveillance

HSE pays special attention to Market surveillance and monitoring exposures of

the members, particularly the mark to market losses. By taking prompt steps tocollect the margins for mark to market losses, the risk of default by members is

avoided. It is heartening that there no defaults by members in any settlement since

the introduction of Screen Based Trading.

Improvement in the Volumes:

It is heartening that after implementing HOST


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Year Number of

Transactions

(In thousands)

Turn Over

(Rs. In Crores)

Market Capital

(Rs.In Crores)

1991-92 515.949 587.75 236 2740.56

1992-93 421.985 676.00 274 10228.48

1993-94 603.625 984.46 372 13156.71

1994-95 860.642 1160.48 668 18558.71

1995-96 720.521 1107.30 727 20159.31

1996-97 240.640 479.98 851 22050.69

1997-98 427.830 1860.86 852 18705.10

1998-99 513.168 1269.90 856 18753.93

1999-00 513.440 1236.51 869 19128.95

2000-01 427.205 977.83 934 14717.08

2001-02 34.326 41.26 932 13616.12

2002-03 4.203 4.58 928 14572.13

2003-04 2.227 2.73 856 22126.65

2004-05 4.401 14.13 820 14456.95

2005-06 13.203 97.79 792 12129.66

2006-07 13.094 91.92 778 16338.46

Settlement Guarantee Fund:

The Exchange has introduced Trade Guaranteed Fund on 25.01.2000.This

will insulate the trading Members from the counter-party risks while trading with

another member. In other words, the trading and his investors will be assured of the

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timely completion of the pay-out of funds and securities not with standing the

default of any members of Exchange. The shortfalls if any, arising from the default

of any members will be met out of the Trade Guarantee Fund. Several pay-ins with

of crores of rupees in all the settlement have been successfully completed after the

introduction of Trade Guarantor Fund, without utilizing any account from the TradeGuarantee Fund.

The Trade Guarantee Fund will be a major sep in re-building this confidence

of the members and the investors in HSE.HSE's trade Guarantee Fund has a corpus

of Rs 2.00initiallu which later be raised to Rs.5.00crores at present Rs3.20 crores is

stood in the credit of SGF.

Trade Guarantee Fund had strict rules and regulations to be complied with by

the members to avail the guarantee facility. The HOST system facilitatedmonitoring the compliance of members in respect of such rules and regulations.

Current Diversifications:

Depository Participant:

The Exchange has also become a Depository Participant with National

Securities Depository Limited(NSDL) and Central Depository Services

Limited(CDSL).Our own DP is fully operational and the execution time will come

down opening the accounts at Hyderabad of investors, members of the Exchange

and other Exchanges. The trades of all the Exchange having on-line trading which

get into National depository can also be settled at Hyderabad by this Exchange

itself. In short all the traders of all the investors and members of any Exchange at

Hyderabad in dematerialized securities can be settled by the Exchange itself as a

NSDL and CDLS.The Exchange has about 15,000 B.O.accounts.

Floating of a subsidiary company for the membership of major stock

exchanges of the country:

The Exchange had floated a subsidiary company in the name and style of

M/s HSE Securities Limited for obtaining the membership of both NSE and BSE

about 133 sub-brokers may registered with HSE's of which about 75 sub-brokers are

active. Turnover details are furnished here as bellow:

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Year NSE Cash

(Rs. In

Lakhs)

NSE F&O

(Rs. In

Lakhs)

BSE

(Rs.In Lakhs)

2001-02 338236.81 -------- --------

2002-03 426143.50 16657.08 -------

2003-04 617808.46 312203.71 17558.59

2004-05 484189.11 354370.71 39519.96

2005-06 366824.00 447276.00

2006-07 355338.00 432592.00 81058.00

Facility to trade at NSE, deravities trading, net trading:

The Exchange has incorporated a subsidiarys Securities Limited with a paid

up capital of Rs.2.50crores initially to take NSE Membership, so that the members

of the Exchange will also have equal opportunity of participating in such trading

likes any other NSE member.

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40


CHAPTER V

CONCEPTUAL FRAMEWORK

OF

ONLINE TRADING


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Before getting in to online trading we should know some

things about the internet, e-commerce and etc.

INTERNET:

Internet is a world wide, self-governed network connecting several other

smaller networks and millions of computers and persons, to mega sources

of information. This technology shrinks vast distances, accelerating the

pace of business reforms and revolutionizing the way companies are

managed. It allows direct, ubiquitous links to anyone where and anytime to

build up interactive relationships.

A combination of time and space called the internet promises to bring

unprecedented changes in our lives and business. Internet or net is an inter-

connection of computer communication networks spanning the entire

globe, crossing all geographical boundaries. It has re-defined the methods

of communication ,work study, education, business, leisure health, trade ,

banking commerce and what not it is virtually changing every thing and we

are living in dot.com age Net being an interactive two way medium,

through various websites , enables participation by individuals in business

to business and business to consumer commerce ,visits to shopping

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arcades games ,etc in cyber space even the information can be copied

,downloaded and retransmitted.

The use of Internet has grown 2000 percent in last decade and is

currently growing at 10%per month. In India, growth of Internet is of

recent times. It is expected to bring changes in every functional area of

business activity including management and financial services. It offers

stock trading at a lower cost. Internet can change the nature and capacity of

stock broking business in India.

E-COMMERCE:

Electronic commerce is associated with buying and selling over

computer communication networks .It helps conduct traditional commerce

through new way of transferring and processing of information.Information is electronically transferred from computer to computer an

automated way. E-commerce refers to the paperless exchange of business

information using electronic data inter change, electronic technologies. It

not only help reduces manual processes and paper transactions but also

helps organization move to a fully electronic environment and change the

way they operated.

PCs and networking attempts to introduce banks of the tools and

technologies required for commerce. The computers are either work

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stations of individual office works or serves where large data base and

information reside.

Network connects both categories of computers: the various operating

systems are the most basis program within a computer. It manages the

resources of the computer system in a fair and efficient manner.

Now we can enter in to the concept known as online trading.

In the past, investors had no option but to contact their broker to get real

time access to market data. The net brings data to the investor on-line and

net broking enables him to trade on a click of mouse .now information has

become easily accessible to both retail as well as big investor.

EVOLUTION OF BROKING IN INDIA:

The evolution of a broking in India can be categorized in three phases

Stockbrokers will offer on their sites features such as live portfolio

manager, live quotes, market research and news, etc. to attract more investors.

Brokers will offer online booking and relationship management by

providing and offering analysis and information to investors during broking andnon-broking hours based on their profile and needs ,i.e., customized services

Brokers (now e-brokers) will offer value management or services like

initial public offering online ,on-line asset allocation , portfolio management,

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financial planning , tax planning , insurance services, etc. and enables the

investors to take better and well considered decisions.

The actual definition ofonline trading is as explained below:

Online Trading is a service offered to the internet for purchase and sale

of shares. In the real world you place orders on your stockbroker either

verbally (personally or the stockbrokers website through your internet

enabled PC and place orders through the brokers internet based trading

engine. These orders are routed to the stock exchange without manual

intervention and executed there on in a matter of a few seconds

The net is used as a mode of trading in internet trading; Orders are

communicated to the stock exchange through website.

IN INDIA:

Internet trading started in India on 1st April 2000 with 79 members seeking

permission for Online trading .The SEBI committees on internet based

securities trading services has allowed the net to be used as an Order

Routing System (ORS) through registered stock brokers on behalf of their

clients for execution of transaction under the ORS, the clients enters his

requirement (security quantity, price BU/sell) on brokers site.

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OBJECTIVES:

Increase transparency in the markets

Enhance market quality through improved liquidity

Reduced Settlement risks due to open trade by elimination of mismatched

Providers management information system.

Introduce flexibility in system, so as to handle growing volumes easily andto support nationwide expansion of market activity.

Besides , through internet trading three fundamental objectives of

securities regulation can be easily achieved, these are:

Investor protection telephonically or in a written form (fax), In online

trading, you will access a

Creation of a fair and efficient market, and

Reduction of the systematic risks.

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Other requirements, which are necessary

First page of the bank pass book and last 6 month statement.

Bank managers signature along with banks seal, manager registration

code on photograph.

For stock brokers:

1. Permission from stock exchange for net trading

2. Net worth of Rs. 50 lack

3. Adequate back up system

4. System and reliable software system

5. Adequate , experienced and trained staff

6. Communication of order (trade confirmation to investor by e-mail)

7. Use of authentication technologies

8. Issue of contract notes within 24 hours of the trade execution

9. Setting up a web site.

The net is used as a medium of trading in internet trading .Orders are

communicated to the stock exchange through website. Internet trading

started in India on 1st April 2000 with 79 members seeking permission for

online trading. The SEBI committees on internet based securities tradingservices has allowed the net to be used as an Order Routing System (ORS)

through registered stock brokers on behalf of their clients for execution of

transaction.

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Under the Order Routing System the client enters his requirements

(security, quantity, price, and buy/sell) in brokers site. They are checked

electronically against the clients account and routed electronically to the

appropriate exchange for execution of the order. The customers portfolio

and ledger accounts get updated to reflect the transaction. The user should

have the user id and password to enter into the electronic ring. He should

also have demat account and bank account. The system permits only a

registered client to log in using user id and password. Order can be placed

using place order window of the website.

Procedure for net trading:

Step 1: Those investors, who are interested in doing the trading over

internet system i.e. NEAT-IXS, should approach the brokers and get them

self registered with the Stock Broker.

Step 2: A personal identification number (PIN)

Step 3: Actual placement of an order. An order can then be placed by

using the place order window as under:

(a) First by entering the symbol and series of stock and other parameters

like quantity and price of the scrip on the place order window.

(b) Second, fill in the symbol, series and the default quantity.

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Step 4: It is the process of review. Thus, the investor has to review theorder placed by clicking the review option. He may also re-set to clear the

values.

Step 5: After the review has been satisfactory, the order has to sent by

clicking on the send option.

Step 6: The investor will receive an order Confirmation message along

with the order number and the value of the order.

Step 7: In case the order is rejected by the Broker or the Stock Exchange

for certain reasons such as invalid price limit, an appropriate message will

appear at the bottom of the screen. At present, a time lag of about 10

seconds is there in executing the trade.

Step 8: It is regarding charging payment, for which there are differentmode. Some brokers will take some advance payment from the investor

and will fix their trading limits. When the trade is executed, the broker will

ask the investor for transfer of funds to his account.

Internet trading provides total transparency between a broker

and an investor in a secondary market. In the open outcry system, only the

broker knew the actually transacted price. Screen based trading provides

more transparency. With online trading investors can see themselves the

price at which the deal takes place.

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The time gap has narrowed in every stage of operation. Confirmation andexecution of trade reaches the investor within the least possible time,

mostly after registration, the broker will provide to them a log and personal

identification number (PIN).

The time gap has narrowed in every stage of operation. Confirmation

and execution of trade reaches the investor within the least possible time,

mostly in name, Password within 30 seconds. Instant feedback is available

about the execution. Some of the websites also offer;

News and research report

BSE and NSE movements

Stock analysis

IPO and mutual fund centers.

Step by step procedure in online trading:

Following steps explain the step by step approach to on-line trading:

Log on to the stock brokers website

Register as client/investor

Fill the application form and client broker agreement form on the

requisite value stamp paper

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Obtain user ID and pass word

Log on to the brokers site using secure user ID and password

Market watch page will show real time on-line market data

Trade shares directly by entering the symbol or number of the

security

Brokers server will check your limit in the on-line account and

demat account for the number of shares and execute the trade

Order is executed instantly (10-30 seconds) and confirmation can be

obtained.

Confirmation is e-mailed to investor by broker

Contract note is printed and mailed in 24 hours

Settlement will take place automatically on the settlement day

Demat account and the bank account will get debited and credited by

electronic means.

ONLINE TRADING HAS LED TO ADDITIONAL FEATURES

SUCH AS:

LIMIT / STOP ORDERS: Orders that can be go unfilled, but there

is an extra charge for this leeway facility since one need to hold a price.

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Market orders: Orders can be filled at unexpected prices, but this

type is much more risky, since you have to buy stock at the given price.

Cash account: Where funds have to be available prior to placing

the order.

Margin account: Where orders can be placed

against stocks, to increase purchasing power.

ONLINE TRADING ADVANTAGES:-

Trading online has revolutionized the stock markets.

The main benefit of trading online is speed.

There is no need dial up your broker, wait to speak somebody, and

have him or her enter the order on their computer.

As you can online imagine, the convenience of online trading

attracts many Investors

You can enter trade orders day or night, from any where in

Cyberspace.

The internet is full of advice, free technical analysis tools and

commentary.

You can formulate your own strategy and run investments yourself.

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Most online brokerages will take online orders for a commission of

about $5 to $40 US

ONLINE TRADING DISADVANTAGES:-

If you are going to trade online you are obviously the one making all

trading choices.

To make your trading decisions, you need to research

your stocks and constantly pay attention to market news.

This will require sometime as you pursue your sources of

market information and use online tools.

Meaning of demat:

A demat account allows you to buy, sell and transact shares without

the endless paperwork and delays. It is also safe, secure and convenient

What is Demat account?

Demat refers to a dematerialized account. Just as you have to open an

account with a bank if you want to save your money, make cheque

payments etc, you need to open a demat account if you want to buy or sell

stocks. So it is just like a bank account where actual money is replaced by

shares.

Why demat?

1. The demat account reduces brokerage charges.

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2. It enables quick ownership of securities on settlement resulting in

increased liquidity.

3. It avoids confusion in the ownership title of securities, and provides

easy receipt of public issue allotments.

4. It also helps you avoid bad deliveries caused by signature mismatch,

postal delays and loss of certificate in transit.

5. It eliminates risks associated with forgery, counterfeiting and loss

due to fire, theft or mutilation.

6. Demat account holders can also avoid stamp duty (as against 0.5

percent payable on physical shares), avoid filling up of transfer deeds.

Steps involved in opening a demat account:

Opening an individual demats account is a two-step process:

1. Approaching a DP and fill up the demat account-opening booklet.

The web sites of the NSDL and the CDSL list the approved DPs.

2. We receive an account number and a DP ID number

for the account.

The cost opening and holding a demat account:

There are four major charges usually levied on a demat account:

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1. Account opening fee

2. Annual maintenance fee

3. Custodian fee

4. Transaction fee.

Account-opening fee:

Depending on the DP, there may or may not be an opening account fee.

Private Banks, such as ICICI Bank, HDFC Bank and UTI Bank, do not

have one.

Players such as Karvy Consultants and the State Bank if India do so. This

fee is refundable.

Annual maintenance fee:

This is also known as folio maintenance charges, and is generally levied in

advance.

Custodian fee:

This fee is charged monthly and depends on the number of securities

(international securities identification numbers ISIN) held in the account

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It generally ranges between Rs 0.5 to Rs 1 per ISIN on which the

companies have paid one-time custody charges to the depository.

Transaction fee:

The transaction fee is charged for crediting/debiting securities to and

from the account on a monthly basis.

While some DPs, such as SBI, charge a flat fee per transaction, HDFC

Bank and ICICI Bank peg the fee to the transaction value, subject to a

minimum amount.

The fee also differs based on the kind of transaction (buying or selling).

Both Service tax is also charged.

Demat Benefits:

The benefits are enumerated below:-

A safe and convenient way to hold securities;

Immediate transfer of securities;

No stamp duty on transfer of securities;

Elimination of risks associated with physical certificates such as bad

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Reduction in paperwork involved in transfer of securities;

Reduction in transaction cost.

No odd lot problem, even one share can be sold;

Nomination facility;

Change in address recorded with DP gets registered with all

companies in which investor holds securities electronically eliminating the

need to correspond with each of them separately;

Transmission of securities is done by DP eliminating

correspondence with companies;

Automatic credit into demat account of shares, arising out of

bonus/split/consolidation/merger etc.

Holding investment in equity and debt instruments in a single

account

BROKERS ADVANTAGES:-

1. Despite the popularity of online trading, not everybody uses the

internet to trade stocks.

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2. A broker can do everything from making all your stock trading

decision for, to give you little advice on what to buy or sell.

3. If you want some investing help, or if you want somebody else to

deal with everything, using a broker might be right for you,

4. Brokers are stock professionals; they watch the market and deal with

customers like you everyday.

5. Brokers keep in touch with a network of other professional, so news

and knowledge constantly come their way.

6. Finally, your broker may offer services other than just trading

stocks. If you want you can find a broker that will manage your taxes

estate and business.

7. The personal attention available from broker who knows your full

financial situation is very calculable.

BROKERS DISADVANTAGES

1. Taking a percentage of your assets under management, making stock

traders taking a flat fee.

2. However I must stress that the brokerage industry is highly regulated

and most brokers act with integrity, nonetheless, it is best to be aware of

the risks.

3. Get a feel for how much time broker spends marketing and how

much attention your asset will receive.

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4. If your broker gets a paid commission for trading, keep in mind that

there may be a conflict of interest.

5. Make sure your broker can consistently justify and all stock trades.

6. Find out about your brokers background and interests to see if he or

she is a good match.

7. Finally, live brokers are more expensive than online brokers. Their

presence and personal attention command a price.

IMPACT OF ONLINE TRADING ON THE MARKET:-

On the number of transaction

The number of transaction has increased considerably after introduction

of the online trading system. The factor of influence could be:

1. The case of the operation from the point of view of both the

members and investors.

2. Facilities better monitoring of the market by the market operations

department.

3. The daily that the best price is achieved in buying and

selling.

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OUTCRY SYSTEM:

The broker has to buy or sell securities for which he has

received the orders. For this, the broker or his authorized representatives

goes to the stock exchange.

This method is called the open outcry system. Basically the

brokers shout while buying or selling the securities. The floor of the stock

exchanged is divided into a number of markets also known as post pit or

wing based on particular securities dealt there.

In the post pit or wing, the broker using open outcry methods

makes an offer or bid price. For making the necessary bargain, he quotes

his purchase or sale price, also known as offer or bid price. The dealer, to

whom the price is quoted, quotes his own price when the quotation of the

dealer suits the broker, he may loose the bargain. If he is not satisfied with

the quote price, he may turn to some other dealer. On the close of the

bargain, the dealer as well as the broker makes a brief note of the

particulars of the deal. Such notes are made on some pad and on it the

number of shares, the price agreed upon, the name of the party, what

membership number etc., are noted.

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61


CHAPTER VI

NATIONAL SECURITY DEPOSITORY

LIMITED

(NSDL)


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NATIONAL SECURITIES DEPOSITORY LIMITED (NSDL)

NSDL was inaugurated in 1996, as the first depository in the country to

avoid the myriad problems in settlements.

In the depository system, securities are held in securities (depository)

accounts, which is more or less similar to holding funds in bank account.

Transfer of ownership is done through simple account transfer.

Trading is dematerialized securities in quite similar to trading in

physical securities.

Exclusively Demat follows rolling settlement (T + 2) cycle and unified

segment follows account period settlement cycle.

From Jan 4, 1999, all categories of investors can deliver only in

dematerialized form with respect to a select list of securities.

In a span of about nine years, investors have switched over to electronic

[demat] settlement and National Securities Depository Limited (NSDL)

stands at the centre of the change. In order to provide quality service to the

users of depository, NSDL launched a certification programmed in

depository operations in May 1999. This certification is conducted using

NCFM infrastructure created by NSE and is called NSDL DepositoryOperations module.

The programmed is aimed at certifying whether an individual has adequate

knowledge of depository operations, to be able to service investors.

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Depository Participant are required to appoint at least one person who has

qualifies in the certification programmed at each of their service centers.

This hand book is meant to help the candidates in their preparation for the

certification programmed.

This handbook has been divided into four volumes for readers

convenience. The first volume gives an overview of the Indian capital

market and NSDL depository system. The second volume deals with

admission procedure for different business partners of NSDL, their

obligations practices, systems and procedures to be followed by them and

benefits and safety of depository system. The third volume helps in

acquiring a working level understanding of certain basic services offered

by NSDL like account opening, dematerialization, and transfer of

securities and related operations. The last volume deals with special

services offered by NSDL like pledge, Stock Lending and Borrowings,

Corporate Actions, National Savings Certificates / Kisan Vikas Patra

(NSC/KVP) IN DEMAT FORM, Warehouse Receipts, Market Participantsand Investor database (MAPIN) and Tax Information Network (TIN).

Procedures explained in the handbook are based on the Depositories Act,

Securities and Exchange Board of India (Depositories & Participants)

Regulations and Byelaws &Business Rules of NSDL. The book contains

illustrations, flow charts and checklists for better understanding of various

concepts and procedures.

A sample test paper is given at the end of the fourth volume to help the

candidates appearing for NCFM test form an assessment of their

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preparedness. A thorough understanding of this handbook will form a good

base for qualifying the certification test.

Readers may like to visit NSDL website www.nsdl.co.in for updates and

to know the new procedures introduced or changes brought about in the

existing procedures.

A feedback form is given at the end of the fourth volume. Readers may

give their feedback, which will be of great help in enhancing the value of

this Handbook in its subsequent editions.

FINANCIAL MARKET:

Financial markets are helpful to provide liquidity in the system

and for smooth functioning of the system. These markets are the centers

that provide facilities for buying and selling of financial claims andservices. The financial markets match the demands of investment with the

supply of capital from various sources.

According to functional basis financial markets are classified into two

types.

They are:

Money markets (short-term)

Capital markets (long-term)

According to institutional basis again classifies in to two types. They are:

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Organized financial market

Non-organized financial market.

The organized market comprises of official market represented by

recognized institutions, bank and government (SEBI) registered/

controlled activities and intermediaries.

The unorganized market is composed of indigenous bankers,

moneylenders, individual professional and non-professionals.

MONEY MARKET:

Money market is a place where we can raise short-term capital for a

period of less than one year. Some of the instruments money market are

given below.

Again the money market is classified in to types:

They are:

Inter bank call money market

Bill market and

Bank loan market etc.

E.g.; treasury bills, commercial papers ,CDs etc

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CAPITAL MARKET:

Capital market is a place where we can raise long-term capital.

Again the capital market is classified into two types and they are

Primary market and

Secondary market.

E.g.: Shares, Debentures, and loans etc.

PRIMARY MARKET:

Primary market is generally referred to the market of new issues or

market for mobilization of resources by the companies and government

undertakings, for new projects as also for expansion, modernization,

addition, and diversification and up gradation. Primary market is also

referred to as New and existing companies, further and right issues to

existing shareholders, public offers, and issues of debt instruments such

as debentures, bonds, etc.

The primary market is regulated by the Securities and exchange Board

of India (SEBI a government regulated authority).

FUNCTIONS:

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The main services of the primary market are origination, underwriting,

and distribution. Organization deals with the origin of the new issue.

Underwriting contract make the shares predictable and remove the

element of uncertainty in the subscription. Distribution refers to the sales

of securities to the investors.

The following are the market intermediaries associated with the market:

1. Merchant banker/book building lead manager

2. Registrar and transfer agent

3. Underwriter/broker to the issue

4. Adviser to the issue

5. Banker to the issue

6. Depository

7. Depository participant

Investors protection in the primary market:

To ensure healthy growth of primary market the investing public should

be protected. The term investors protection has a wider meaning in the

primary market.

The principal ingredients of investors protection are:

Provision of all the relevant information67



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Provision of accurate information and

Transparent allotment procedures without any bias.

SECONDARY MARKET:

The primary market deals with the new issues of securities. Outstanding

securities are traded in the secondary market, which is commonly known

as stock market or stock exchange. The secondary market is a market

where scrips are traded.

It is a market place which provides liquidity to the scrips issued in the

primary market. Thus, the growth of secondary market depends on the

primary market. More the number of companies entering the primary

market, the greater are the volume of trade at the secondary market.

Trading activities in the secondary market are done through the

recognized stock exchange which are 23 in numbers including Over the

Counter Exchange of India (OTCE), National Stock Exchange of India

and Interconnected Stock Exchange of India.

Secondary market operations involve buying and selling of

securities on the stock exchange through its members. The companies

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hitting the primary market are mandatory to list their shares on one or

more stock exchanges in India. Listing of scrips provides liquidity and

offers an opportunity to the investor to buy or sell the scrip.

The following are the intermediaries in the secondary market:

1. Broker/member of stock exchange buyers broker and sellers

broker.

2. Portfolio manager

3. Investment advisor

4. Share transfer agent.

5. Depository.

6. Depository participants.

REGULATORY FRAME WORK OF STOCK EXCHANGE:

A comprehensive legal frame work was provided by the Securities

Contract Regulation Act, 1956 and Securities Exchange Board of India

1952. Three tier regulatory structure comprising

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Ministry of finance

The securities and Exchange Board of India

Governing body

Members of the stock exchange:

The securities contract regulation act 1956 has provided uniform

regulation for the admission of members in stock exchanges. The

qualifications for becoming a member of a recognized stock exchange

are given below:

The minimum age prescribed for the member is 21 years.

He should be an Indian citizen.

He should be neither a bankrupt nor compound with the creditors.

He should not be convicted for fraud or dishonesty.

He should not be engaged in any order business connected with a

company.

He should not be a defaulter of any other stock exchange.

The minimum required education is a pass in 12th

standard examination.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI):

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The SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

was constituted in 1988 under a resolution of government of India. It

was later made statutory body by the SEBI act 1992 according to this

act, the SEBI shall constitute of a chairman and four other members

appointed by the central government. With the coming into effect of the

securities and securities and exchange board of India act, 1992 some of

the powers and functions exercised by the central government, in

respect of the regulation of stock exchange were transferred to the SEBI.

SEBI GUIDELINES TO SECONDARY MARKET:

(STOCK EXCHANGES);

Board of Directors of Stock Exchange has to be reconstituted so as to

include non-members, public representatives and government

representatives to the extent of 50% of total number of members.

Capital adequacy norms have been laid down for the members

of various stock exchanges depending upon their turnover of trade

and other factors.

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All recognized stock exchanges will have to

inform about transactions within 24 hrs.

ROLLING SETTLEMENT SYSTEM:

Under rolling system takes place n days (usually 1, 2, 3 or 5days)

after the trading day. The shares bought and sold are paid in for n days

after the trading day of particular transaction than under the fixed

settlement system.

The rolling settlement system is noted by T + N i.e. the settlement

period is N days after the trading day. A rolling period which offers a

large number of days negates the advantages of the system. Generally

longer settlement periods are shortened gradually.

SEBI made RS compulsory for trading selected on the basis of the

criteria that they were in compulsory demat list and had daily turnover

of about Rs.1 crore or more. Then it was extended to A stocks in

]

Modified Carry Forward Scheme, Automated Lending and Borrowing

Mechanism (ALBM) and borrowings and Lending Securities Scheme

(BELSS) with effect from Dec 31, 2001.

SEBI has introduced T + 5 rolling settlement in equity market from

July 2001 and subsequently shortened the cycle to T + 3 from April

2002. After the T + 3 rolling settlement experience it was further

reduced to T + 2 to reduce the risk in the market and to protect the

interests of the investors from 1st April 2003.

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Activities on T + 1:

Confirmation of the institutional trades by the custodian is sent to the

stock exchange by 11.00 am. A provision of an exception window

would be available for late confirmation. The time limit and the

additional changes for the exception window are dedicated by the

exchange.

The exchanges/clearing house/ clearing corporation would process and

download the obligation files to the brokers terminals late by 1.30 p.m.on T + 1. Depository participants accept the instructions for pay in

securities by investors in physical form upto 4 p.m. and in electronic

form upto 6 p.m. the depositories accept form other DPs till 8p.m for

same day processing.

Activities on T + 2:

The depository permits the download of the paying in files of

securities and funds till 10.30 am on T + 2 from the brokers pool

accounts. The depository processes the pay in requests and transfers the

consolidated pay in files to clearing House/clearing Corporation by

11.00am/on T + 2. The exchange/clearing house/clearing corporation

executes the pay-out of securities and funds latest by 1.30 p.m. on T + 2

to the depositories and clearing banks. In the demat mode net basis

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settlement is allowed. The buy and sale positions in the same scrip can

be settles and net quantity has be settled.

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75


CHAPTER VII

DATA ANALYSIS

AND

INTREPRETATION


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Q1.DO YOU TRADE ONLINE OR NOT?

OPINION Response

No

Yes

Total

20

80

100

DO YOU TRADE ONLINE OR NOT?

0

20

40

60

80

100

yes no

Series1

INTERPRETATION:

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The total number of people who trade online out of 100 is 80 people. The total

number of people who does not trade online 20.

Q2.DO YOU FEEL ONLINE TRADING IS SECURE?

OPINION RESPONSE

No

Yes

Total

15

85

100

DO YOU FEEL ONLINE TRADING

SECURE?

0

20

4060

80

100

yes no

Series1

INTERPRETATION:

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The 85 %people believe that online trading is secure. This shows that the online

trading has taken a good place in the minds of Indian stock traders and the Indian

consumer or investor is moving towards online trading faithfully.

Q3. IS SECURITY AN IMPORTANT FACTOR FOR ONLINE TRADING?

OPINION RESPONSE

Strongly agree

Agree

Neither agree nordisagree

Disagree

Strongly disagree

40

22

5

23

10

DO YOU FEEL ONLINE TRADING IS

Profile Hse

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