Project Report on Trading Around the Globe

Report on Summer Training

Trading Around the Globe

With reference to KOTAK TRADER

Submitted to Lovely Professional University

In partial fulfillment of the

Requirements for the award of Degree of

Master of Business Administration

Submitted by:

Name: Varun Puri

Registration no.: 10800464

DEPARTMENT OF MANAGEMENT

LOVELY PROFESSIONAL UNIVERSITY

PHAGWARA

(2008 - 2010)

Student’s Declaration

I, Varun Puri, student of M.B.A, hereby declare that project entitled “TRADING AROUND

THE GLOBE” submitted in the partial fulfilment of the degree for Master of Business

Administration to “Lovely Professional University” is of my own accurate work. I further

declare that all the facts and figures furnished in this project report are the outcome of my

own intensive research and findings.

Submitted By

Varun Puri

Acknowledgement

“Expression of feelings by words makes them less significant when it comes to make

statement of gratitude” It gives me pleasure to express my most profound regards and sense

of great indebtedness and sincere gratitude to my Company Guide Mr. Kapil Tandon (Cluster

Head, Kotak Securities Ltd. Jalandhar.).

I would thank to my project guide Ms. Anu Shital for her guidance in preparing this report. I

would also like to thank my co employees who gave guidance and support during the

completion of the project.

Varun Puri

EXECUTIVE SUMMARY

It is commonly said that

“Finance is the life & blood of economy”

So, to generate blood & to manage this blood, oxygen i.e. brokerage houses are there, A stock

broker or stockbrokerage house is a regulated professional broker who buys and sells shares

and other securities through market makers or Agency Only Firms on behalf of investors. In

modern world these organizations work as life & blood of the commerce system of an

economy.

Without practical training, management education is meaningless so long with theory;

practical training is provided to M. B.A. students to expose them to actual working

environment of any organization. Such training provides a framework of knowledge relating

to the concepts & practices of assigned topics in the organization.

The summer training is integral part of the course curriculum of two years full time Masters

of Business Administration course. In this the student is in the position to analyze the integral

working of an organization with mature eyes & understand the dynamics in a much better

manner.

This particular project has been conducted at Kotak Securities Ltd., Jalandhar. The basic

purpose is to know the customer perception about International stock trading, with reference

to their new product KOTAK TRADER, through which their clients can trade in worlds 24

stock exchanges. It begins with introduction of stock broking, Company profile of Kotak

Securities. Then details of the products offered by Kotak Securities ltd. has been given &

Data analysis of respondents.

This study has been conducted with a variety of important objectives in mind. The following

provides us with the chief objectives that have tries to achieve through the study. The extent

to which these objectives have been met could be judged from the conclusions & suggestions,

which appear later in the study.

The Chief objectives of the study are:

To study the product & services provided by Kotak Securities.

To know the consumer perception towards Kotak’s new product Kotak Trader.

To know about what are the considerations, that a investors keeps in his/her mind

while investing

To study the factors influencing the investment by investors

To study the unique constraints that would be faced by investors in International

Investment.

To get suggestions for the improvement or change in services of Kotak Securities Ltd.

Research Methodology

Research is defined as human activity based on intellectual application in the investigation of

matter. The primary purpose for applied research is discovering, interpreting, and the

development of methods and systems for the advancement of human knowledge on a wide

variety of scientific matters of our world and the universe. Research can use the scientific

method, but need not do so.

Research methodology means a “defining a problem, defining the research objectives,

developing the research plan, collecting the information, analyzing the information &

presentation of findings.” Such framework is called “Research Design”.

The research plan that was followed by me consisted following steps;

A) Defining the problem

B) Developing the research plan

C) Collection of data

D) Analysis of data

E) Presentation of findings

Defining the problem

My research problem is to study the new product launched by Kotak securities i.e. KOTAK

TRADER. In which an investor can trade in worlds 24 stock exchanges.

Developing the research plan

The development of research plan has following steps

1. Data source

2. Research approach

3. Research instrument

4. Sampling plan

i. Sample unit

ii. Sample size

iii. Contact methods

5. Questionnaire design

Data Source: The researcher can get two types of data:

a) Primary data

Primary data is a data which did not exist earlier & is being collected by the researcher

first time for his/her specific objectives. In other words, direct collection of data from the

source of information, technology including personal interview, telephonic interviews,

observations, Questionnaire & through schedules

b) Secondary data

Secondary data is data collected by someone other than the user. Common sources of

secondary data for social science include censuses, surveys, and organizational

records. Primary data, by contrast, are collected by the investigator conducting the

research. Such as:

Published statistics: Census, housing and social security data, and so on

Published texts: Theoretical work, secondary analyses by ‘experts’ and reports

Media: Documentaries for example, as a source of information

Personal documents: Diaries

Case studies and literature Reviews.

For collecting the secondary data, the literature review has been done, case studies

have been carried out, published texts and statistic have been used, and media

(especially internet) and personal contacts have also been utilized.

Research Approach

Survey is best suited for the descriptive & analytical research. Survey are undertaken to learn

about people’s knowledge, beliefs, preferences, satisfaction & so on & to measure these

magnitudes in the general public. Therefore, I have done survey for conducting my research

project.

Descriptive research includes surveys & fact finding enquiries of different kinds. The main

purpose is description of the state of affairs is noted down & analytical research used to

analyze the material & facts.

Research Instrument

Questionnaire: A questionnaire is a research instrument consisting of a series of questions

and other prompts for the purpose of gathering information from respondents. Although they

are often designed for statistical analysis of the responses, this is not always the case.

Sampling Plan

Sampling is that part of statistical practice concerned with the selection of individual

observations intended to yield some knowledge about a population of concern, especially for

the purposes of statistical inference. Each observation measures one or more properties

(weight, location, etc.) of an observable entity enumerated to distinguish objects or

individuals. Survey weights often need to be applied to the data to adjust for the sample

design. Results from probability theory and statistical theory are employed to guide practice.

In business, sampling is widely used for gathering information about a population.

The sampling plan calls for three decisions:

a) Sample unit – who is to be surveyed?

b) Sample size – how many people have to be surveyed?

c) Contact methods – how they will be contacted?

Questionnaire Design:

There are 14 questions in my questionnaire & I asked all these questions from 100

respondents in Jalandhar & Nakodar city.

Collecting Information:

After this I have collected the information from the respondents with the help of

questionnaire.

Data analysis & Interpretation

The next step is to extract the pertinent findings from the collected data. I have tabulated the

collected data & developed frequency distributions. Thus, the whole data was grouped aspect

wise & was presented in tabular form. Thus, frequency & percentages were prepared to

render impact of study. I have used the factor analysis method in order to know about the

various considerations of respondents about international stock trading.

LIMITATIONS OF THE STUDY

Due to constraints of time & resources, the study is likely to suffer from certain limitations.

Some of these are mentioned here under so that the findings of the study may be understood

in a proper perspective.

Awareness level of peoples affected the research. Lack of awareness of Stock market

among respondents.

The sample size taken may not be sufficient to predict the results with 100% accuracy.

For a study like this o ne a still bigger sample size would have been appropriate.

The information given by the respondents might be biased because some of them might

not be interested to give correct information.

Some of the respondents of the survey were unwilling to share information.

The research was carried out in a very short time period. Therefore the sample size and

other parameters were selected accordingly so as to finish the work within the given time

frame.

Findings of the study

From the above study it was clear that due to new product (Kotak Trader) maximum

of people are not aware of the International stock trading. Only 28 % people were

aware of it & the rest were unaware. & those who were aware are the online clients &

they too came to know about it from internet only.

From the above study it is clear Kotak securities’ majority of clients are ready to

invest in international market. About 56 % of respondents were in favor of investing

in global exchange & majority of them think it will be safe to invest in global market.

From the above study it is evident that Kotak securities Jalandhar. Branch is lacking

in marketing aspect as very few people knew about their new product KATAK

TRADER.

From my study we came to know that most of respondents trade during market hours,

so Kotak securities will have to make special arrangement to harmonize their clients

timing with the timing of the stock exchange in which he/she ids trading.

The study also indicates that the respondent who had experience of more than 4 years

think that, such a platform for global securities trading will help Indian market to

grow.

The study also helps the Kotak securities to know about the beliefs of investors they

have for the factors they will be considering while investing in international market.

For e.g. Majority of respondents said SECURITY, TIME ZONE DIFFERENCE,

AVAILEBILITY OF DATA ABOUT CO., is the most considerable factors.

The study also indicates that, when the respondents came to know about the new

product of Kotak trader, majority of them were ready to invest in international market.

About 56% said they would like to invest outside the country

From the study we came to know about the various obstacles, which investors will be

facing while trading in international market.

Some of these were: Time zone difference, Forex conversion, Clearing & settlement

etc.

Recommendations

Based on the study conducted the following suggestions are given to the Kotak Securities ltd,

Jalandhar branch.

24 hours securities trading should be inducted so as to facilitate the customers who

may be trading in the stock exchange which have difference in time zone.

More Relationship managers should be appointed to cover the marketing aspect

Kotak should bring out the brokerage structure in such manner that the investor is

attracted with its lower prices

In order to create awareness regarding the various products & services provided by

Kotak, various medium of media can be put to use to advertise about the same

New strategies should be made by Kotak which enables them to face the competition

with other brokerage houses like AnandRathi, Unicon, Religare & Indiabulls

The branch should promote cooperation & coordination among employees which help

them in efficient working

CONTENTS

CHAPTER 1: Introduction of Subject &Review of Literature 1- 45

Stock Exchange- An Introduction 1 The Meaning of Globalization 2 Trends Driving Globalization 3 The Evolution of Global Securities Market 6 International Stock Trading 6 Channels for International Stock Trading 7 Benefits of International stock trading 9 Unique Risks of and Institutional Constraints for

International Investment 13 Securities Market in India – An Overview 22 International scenario of Indian Market 23 Key Strengths of Indian securities market 26

Clearing & Settlement 35

CHAPTER 2: Overview of Industry & Company Profile 46 - 62 The Kotak Mahindra Group 46 Kotak Securities Limited 48 Awards and Reorganizations of Kotak Securities Ltd. 50 Key Developments of Kotak Securities Ltd. 51 Salient Features Offered by Kotak Securities for their investors 51 Kotak Research Products 52 Core strengths of Kotak Securities Ltd. 53 Products Range 54

CHAPTER 3: Objectives of the Study & Research Methodology 63 - 69 Objectives of the study 63

Research Methodology Defining the problem 63 Developing the research plan 65

o Data sourceo Research approacho Research instrumento Sampling plano Questionnaire design

Data analysis & Interpretation 67 Presentations of findings 68 Significance 68 Managerial Usefulness of Study 68 Scope of the Study 68

Limitations of the Study 69

CHAPTER 4: Data Presentation, Analysis & Interpretation 70 - 82Data Presentation, Analysis & interpretation 70

Chapter 5: Summary, Conclusions & Recommendations 83 - 86 Findings of study 83 Summary & Conclusion 84 Recommendations 85

Chapter 6: On the Job Training 87 - 88 Title of the On Job Training 87 Objectives 87 Target/ Task Assigned 87 Strategies Applied 87 Achievements 87 Limitations 88 Conclusion 88 Corporate learning 88

Appendix

Questionnaire Dummy Application form for KOTAK TRADER Bibliography

List of Tables

Tables

Table 1.1: Trading Cost Comparison for Equity Trades, 1999 20

Table 1-2: International Comparison: end December 2007 24

Table 1.3: Market Concentration in the World Index as on End 2007 24

Table 1.4: Market Capitalisation and Turnover for Major Markets 25

Table 1.5: Select Stock Market Indicators 26

Table 1.6: Savings of Household Sector in Financial Assets 28

Table 1.7: Resource Mobilisation from the Primary Market 28

Table 1.8: Market Participants in Securities Market 29

Table 2.1: 24 Stock exchanges in a Kotak client can trade in 59

List of Graphs

Chart 1.1: Clearing & settlement process at NSE 37

Chart 2.1: Journey of Kotak 46

Chart: 4.1: Experience held by investors/respondents 70

Chart 4.2: No. of Online & Offline clients 71

Chart 4.3: Trading hours preferred by investors 72

Chart 4.4: Is international stock trading safe 73

Chart 4.5: Investors preference to invest in international stock exchange 74

Chart 4.6: What do investors think about the effect of international

Trading on Indian Market 75

Chart 4.7: Investor’s trading preference 76

Chart 4.8: Factors considered by investors while investing 77

Chart 4.9: How many people knew about KOTAK TRADER 78

Chart 4.10: Will this new product will help Kotak in attracting new

Investors 79

Chart 4.11: How do investors get fundamental & technical analysis about

Companies 80

Chart 4.12: Obstacles faced by Investors 81

Chart 4.13: Brokerage clients are ready to pay 82

CHAPTER 1:

INTRODUCTION OF SUBJECT &

REVIEW OF LITERATURE


1 | P a g eLovely Professional University (2008-2010)

CHAPTER 1:

INTRODUCTION OF SUBJECT & REVIEW OF LITERATURE

Overview of Industry

Stock Exchange- An Introduction

The world's foremost marketplace New York Stock

Exchange (NYSE), started its trading under a tree (now

known as 68 Wall Street) over 200 years ago? Similarly,

India's premier stock exchange Bombay Stock Exchange

(BSE) can also trace back its origin to as far as 125 years

when it started as a voluntary non-profit making association.

The history of the earliest stock exchange, the French stock

exchange, may be traced back to 12th century when transactions occurred in commercial bills

of exchange. The first stock exchange in India, Bombay Stock Exchange was established in

1875 as 'The Native Share and Stockbrokers Association' and has evolved over the years into

its present status as the premier stock exchange in the country. It may be noted that BSE is

the oldest stock exchange in Asia, even older than the Tokyo Stock Exchange, which was

founded in 1878. The country's second stock exchange was established in Ahmadabad in

1894, followed by the Calcutta Stock Exchange (CSE). CSE can also trace its origin back to

19th century. From a get together under a 'Neem Tree' way back in the 1830s, the CSE was

formally established in May 1908.

India’s other major stock exchange National Stock Exchange (NSE), promoted by leading

financial institutions, and was established in April 1993. Over the years, several stock

exchanges have been established in the major cities of India. There are now 23 recognized

stock exchanges — Mumbai (BSE, NSE and OTC), Calcutta, Delhi, Chennai, Ahmadabad,

Bangalore, Bhubaneswar, Coimbatore, Guwahati, Hyderabad, Jaipur, Kochi, Kanpur,

Ludhiana, Mangalore, Patna, Pune, Rajkot, Vadodara, Indore and Meerut. Today, most of the

global stock exchanges have become highly efficient, computerized organizations.

Computerized networks also made it possible to connect to each other and have fostered the

growth of an open, global securities market.



CHAPTER 1:































CHAPTER 1:































Realizing there is untapped market of investors who want to be able to execute their own

trades when it suits them, brokers have taken their trading rooms to the Internet. Known as

online brokers, they allow you to buy and sell shares via Internet.

Investment in share markets are influenced by the analysis & reasoning which help in

predicting the market to some extent. Over the past years a number of technical & theories

for analysis have evolved, these combined with modern technology guides the investor. The

big players in the market, like Foreign Institutional Investors, Mutual Funds, etc. have the

expertise for various analytical tools & make use of them. Generally a small investor’s

investments are based on market sentiments, inside information, through grapevine, tips &

intuition. The small investors depend on brokers and brokerage house for his investments.

In recent years a large number of players have entered into his market. The project has been

carried out to have an overview of International stock trading and to understand investor’s

perception about international stock trading in the context of their trading preference, explore

investor’s risk perception & find out their preference over Top brokerage houses that provide

the same product.

The Meaning of Globalization

Foreign currency exchange and markets for government debt securities have long been

international. To the extent that there is still argument about the future of global securities

trading, it focuses on how quickly 24-hour trading will emerge, and to what degree it will

extend to corporate equities. A two-tier market system could develop, with international

electronic trading of the shares of 500 to 1,000 multinational corporations, and domestic

(country of domicile) trading on traditional exchanges and over-the-counter markets of most

other corporate securities. Or—although this is less likely—traditional exchange-based, face-

to face markets could lose out entirely to the competition of electronic systems.

There is growing evidence, especially since the October 1987 market break and the October

1989 break in America, that securities markets around the world are linked. They tend to

move in parallel in response to economic and financial news, and to react sharply to stress in

other markets. Although there has been relatively little response in other markets to sharp

declines in Tokyo Stock Exchange prices in early 1990, the anxious attention of market



observers around the world attests to the general recognition that this stability may be

precarious.

“Globalization of equity securities trading” is a term that covers a variety of related growth

trends. It includes the cross-listing of securities in several countries, cross-national portfolio

diversification and hedging, holding membership (generally through affiliates) in another

country’s exchanges, legal or contractual ties between exchanges, electronic systems for 24-

hour trading, “passing the book,” the development of cross-national stock index derivative

products, and related phenomena such as multinational primary offerings of stock and

international mutual funds. All of these are now growing, although at different rates.

There are nevertheless major obstacles, such as legal, regulatory, and cultural differences

between nations and markets. Some of these differences impose serious risks on investors,

market organizations, and other financial institutions. These new or aggravated risks are often

poorly understood by individual investors and perhaps by professional investment managers.

In the worst case, the failure of major market participants (e.g., securities firms or banks)

with heavy commitments in several countries could have gravely detrimental results for

national financial and payment systems and possibly for entire economies.

Trends Driving Globalization

Institutional investors, and to a lesser degree individual investors, trade in the markets of

more than one country in order to find higher rates of return at acceptable risk, to diversify

their portfolios, or to take advantage of other hedging techniques. The forces encouraging the

rapid expansion of international securities trading are:

1) The declining costs of international communications:

International securities trading require a system for efficient, rapid, and secure

transmission of market data, transactions messages, and payment instructions. The

infrastructure to do this has developed rapidly over the last 25 years and is continuing

its turbulent development. Four technological trends contributed to this development:



Expanding computer capability and declining costs;

Digitization of data, and the resulting convergence of computer and

telecommunications technologies;

Satellite communications development; and

Fiber optics development.

Improved computer performance and declining costs have resulted from improvements in

basic computer technology, very large-scale integration (VLSI) technology, materials (e.g.,

use of gallium arsenide in production of chips), and computer architectures and software.

In 1960, it cost about $75 to do 1 million computer operations; in 1980 it cost 0.1 cent. By

1997 a survey found that computer costs are expected to decrease still further. Computers

make it possible to use telephone systems to transmit, store, and distribute electronically

encoded information; they also control the switches that route information through a network.

“Digitizing’ is the translation of information from traditional analog forms such as pictures,

speech, or written/printed characters, into discrete binary-coded electronic signals for

processing, storage, or transmittal. This makes possible the fusion of telecommunication and

information-processing technologies. It allows man-to-machine communication not possible

with a conventional telephone, and has prompted the carriers to build multi-media

communications systems by combining facsimile, data, and video with voice transmittal

capability.

Advances in global communications infrastructure technologies will probably accelerate.

Nevertheless, there is some danger that network interdependence may slow innovation,

because once users have invested in equipment conforming to a particular standard, they will

be reluctant to purchase equipment that is incompatible even if it is otherwise superior.

2) Increasing world trade and interdependence among national economies:

World trade patterns in goods and services encourage world trade in securities. Not

only do multinational corporations become familiar in many countries, but they need

to raise capital in the local currency for plant, property, equipment, and daily

operating expenses. International trading of corporate securities grew sharply in the

1970s and 1980s. After the 1987 market crash, there was a temporary reduction in

international trading. Most agree that an international trading incorporate equity is



likely to be limited to stocks of “world class” corporations. There are already at least

500 corporations whose issues trade internationally.

World trade patterns in goods and services encourage world trade in securities. Not

only do multinational corporations become familiar in many countries, but they need

to raise capital in the local currency for plant, property, equipment, and daily

operating expenses. International trading of corporate securities grew sharply in the

1970s and 1980s. After the 1987 market crash, there was a temporary reduction in

international trading. Most agree that an international trading incorporate equity is

likely to be limited to stocks of “world class” corporations. There are already at least

500 corporations whose issues trade internationally.

International imbalances lead to a flow of capital across national boundaries that some

economists view with concern. In the United States, the growing Federal deficit has

been financed to a significant degree by foreign purchases of Treasury bonds.

3) Institutional Investors

The growth of institutional investment funds such as pension funds and insurance

funds, especially in the United States, is a major force encouraging international

securities trading. Public and private pension plans represent large concentrations of

funds that must be invested, and’ many institutional investment managers want to

diversify fund holdings outside of their own country to protect against both potentially

adverse currency fluctuations and domestic economic recessions.

4) Privatization

Another force encouraging the cross-national holding of equities has been the

privatization in the United Kingdom and Japan of-very large industries that had been

owned by the state. More stock had to be offered for sale than could be absorbed by

investors in a single country, so there have been many stock issues that are offered in

several countries at the same time, with each country’s allotment, or “tranche,”

consisting of millions of shares.



The Evolution of Global Securities Market

As national economies are linked together by the exchange of goods and services and by

public and private communications networks, global securities markets develop. Indian

securities markets, among the one of world’s most liquid, efficient, and fair, should stand out

in this expanded arena, provided they do not fall behind in technological and financial

innovation. But securities trading on a global scale brings with it new risks, as well as

beckoning opportunities. Indian investors and Indian regulators and policymakers are seeking

to understand these risks and appraise the demands that they will place on markets, market

participants, and their regulators.

This project describes the forces encouraging the development of international securities

markets, the obstacles that must be overcome, and the major sources of unnecessary risk. It

provides some estimates of the present extent of cross-border trading, and describes the

largest and most active organized markets-our competitors in providing securities-related

services in Japan, the United Kingdom, and the rest of the European & American

Community. It also describes the important clearing, settlement, and payment mechanisms

that support major markets. Finally, it outlines the questions to be faced as the span of

securities trading stretches beyond the scope of national regulatory regimes.

International Stock Trading

International online stock trading deals with trading of stock of different companies located

in various countries. With the help of a single online trading account, investors are able to

trade in a number of stock markets worldwide. Various mutual funds and exchange-traded

funds (ETFs) can also be traded online. Stocks can also be bought or sold away from the

physical stock exchanges, which is of significant benefit to investors.

A number of online trading brokers offer their services at a nominal cost to cater to the

multifarious investment necessities of numerous stock market investors. They also provide

valuable investment tips, which include stock market research, analysis, portfolio

management advice, and investment planning.

Buying and selling orders can be placed conveniently through facilities provided by stock

brokerage firms and the proceeds of the purchases or sales are debited or credited to the



customer's bank account. Investors also have the option to trade on their own without the help

of an online stockbroker. Free quotes are also provided by a number of companies from

which investors can choose their preferred stock.

Channels for International Stock Trading

Investors who wish to benefit from the ownership of foreign securities can implement their

portfolio strategy in a number of ways, each of which has its peculiar advantages and

drawbacks. The most direct way for an investor to acquire foreign securities is to place an

order with a securities firm in his home country which would then acquire the securities in

the market of the foreign issuer, usually with the aid of a securities broker operating in the

foreign country. Furthermore, the investor can establish an investment account with a

financial institution in a country other than his residence, and purchase securities either in

that country or in the countries of issue.

Because of cost, complex delivery procedures, and the difficulty of securing adequate

information about individual securities, the investor might be inclined to buy foreign

securities issued or traded in the market of the country in which he resides instead. In this

case, he only needs to pay the transaction costs of local brokerage and has the advantage of

the protection of local laws and regulations. A preferable alternative to all but large investors

consists of indirect investment via mutual funds specializing in foreign securities.

DIRECT FOREIGN INVESTMENT

Purchase of Foreign Securities in Foreign Markets

The most direct way to implement international investment is the purchase of foreign

securities directly in the respective local (foreign) market of the issuer. While restrictions on

outward international investment have been eliminated by many countries, theoretically

foreign investors could place orders through banks or securities brokers either in the domestic

or foreign country when they wish to purchase foreign securities. This is true for both

outstanding securities and new issues. When the securities have to be purchased in a

secondary market, it is usually in the domestic market of the issuing entity, i.e., the borrower.

At this point a number of problems arise. On a technical level, there are difficulties with the

delivery of the certificates. Also, there is the expense of making timely payment in foreign

funds. Finally, investors may find it difficult to secure good information on the situation of

the issuer, conversion and purchase offers, and rights issues, and to collect interest and



dividends. Many of these technical problems stem from a lack of international integration of

securities markets. Because of a combination of extensive regulation to protect the investing

public from fraud, conflict of interest, gross incompetence, or the resistance of entrenched

local institutions to competition, especially from abroad, organized securities markets have

been less open to securities firms operating on a multinational basis than, say, markets for

commercial banking services.

Trading and owning of foreign securities presents, however, several difficulties and problems

to investors. Among these are myriad settlement procedures, a high rate of trade failures,

unreliable interest and dividend payments, restrictions on foreign investment, foreign

withholding taxes, capital controls, differences in accounting rules and reporting

requirements and poor information flow.76 In order to avoid or overcome these complications,

investors might consider the purchase of foreign securities in the domestic market.

Purchase of Foreign Securities in the Domestic Market

In some countries, the possibility exists to purchase foreign securities in the domestic market

of the investor. This represents in many respects a convenient alternative to purchasing

foreign securities abroad. Foreign securities are available to the investor domestically as well,

if the issuing corporation sells its securities not only in the market of the country where it is

incorporated, but also in other markets. Such transactions are often accompanied by a listing

of the securities usually on one of the exchanges of the country where the securities are

placed. Normally, a minimum number of securities must be distributed among local investors

as a requirement for listing, or alternatively the listing is a prerequisite for the successful

placement of a substantial issue. Since the latter part of the 1980s, world financial markets

have witnessed a considerable volume of so-called ‘‘Global’’-equity issues, often in

connection with the privatization of state-owned enterprises. Local listing fees as well as

different disclosure requirements can make multiple listings quite expensive for corporations.

Nevertheless, the access to local investors may make this effort worthwhile.

All national and international securities markets must deal with the need to organize the

physical handling and delivery of traded securities efficiently. In national markets, the trend

seems to be moving toward central depositories of one form or another; in some markets, the

physical handling and shipping of securities has been virtually eliminated. Instead, a



computerized accounting system keeps track of transfers, while the securities themselves are

safely tucked away at the central depository, usually run by the securities brokers’

association.

While the basic idea is simple and appealing, it is difficult to implement in some markets,

since thorny issues regarding the nature of collateral and the fragmented structure of the

securities industry arise. Interestingly, some Continental European countries, whose securities

markets do not fare well in comparison with those of the United States, the United Kingdom,

or even Canada by most criteria, have transfer systems based on central depositories which

seem to be far ahead of those found in these otherwise superior markets.

The problems surrounding the physical transfer of securities multiply when extended to

international transactions. Complications range from such mundane matters as the length of

mailing time and the unreliability of mail in international transit, to arcane points of

contradictory or nonexistent provisions in the securities and commercial laws of the different

jurisdictions.

Benefits of International stock trading

There are several potential benefits that make it attractive for investors to internationalize

their portfolios. These perceived advantages are the driving force and motivation to engage in

IPI and will, therefore, be dealt with first i.e., before looking at the risks and constraints.

Specifically, the attractions of international investment are based on

1.) The participation in the growth of other foreign markets,

2.) Hedging of the investor’s consumption basket,

3.) Diversification effects and,

4.) Abnormal returns due to market segmentation.

All else being equal, an investor will benefit from having a greater proportion of wealth

invested in foreign securities

1.) The higher their expected return,

2.) The lower the variation of their returns,



3.) The lower the correlation of returns of foreign securities with the investor’s home

market, and possibly,

4.) The greater the share of imported goods and services in her consumption.

While there appears overall significant empirical evidence in support of benefits from

international portfolio diversification, the interpretation of the empirical results is generally

plagued by a set of crucial assumptions. In particular, it has to be considered to what extent

risk aversion among investors in various countries is different, to what degree results based

on past correlations are informative about the future, whether country indices reflect

securities that are actually accessible to foreign investors, and what the effect of inflation

(real interest rate differences) on the results would be.

Participation in Growth of Foreign Markets

High economic growth usually goes hand in hand with high growth in the country’s capital

market and thus attracts investors from abroad. International investments allow investors to

participate in the faster growth of other countries via the purchase of securities in foreign

capital markets. This condition applies particularly to the so-called ‘‘emerging market’’ of

India, Asia, the Mideast and Africa. Countries are classified as emerging if they have low or

medium income according to World Bank statistics, but enjoy rapid rates of economic

growth. Typical examples are India, Mexico or Turkey as well as newly industrialized

countries such as Korea or Taiwan.

Driven by the general economic expansion, the financial markets in these countries have

exhibited tremendous growth. This means that the security holdings of investors attained

values several times worth the original investment after just a few years. However, investors

seeking high growth should not limit their analysis to the fascinating and breath-taking

developments in emerging markets, but also take a close look at some of the well-developed,

industrialized countries like Japan, Denmark or the Netherlands. These countries can provide

interesting investment opportunities as well, because they do not only show above average

growth, but are also politically more stable.

A second issue that comes up, assuming that an investment in high growth country stocks can

be an attractive opportunity as some of them might not be correctly priced, is the concern that



foreign investors may not be able to fully participate in the growth potential since they are

expropriated by local, dominant managers-shareholders. In many emerging markets, foreign

investors not only lack protection from a local, dominant manager-shareholder, but they tend

to lose out in conflicts with the local power structure. As a result, foreign investors cannot

stop the company from reducing their fair share of the company’s success by means of

dividend policy, management compensation, and transactions with companies owned by

controlling shareholders, or other corporate decisions favouring the family and political

interests of the dominant local shareholders. Corporate governance tends to be a major issue

for portfolio investors in emerging markets.

Hedging of Consumption Basket

Since the (international) investor is at the same time a consumer of real goods and services,

the return of his (financial) investment must be related to his consumption pattern. This is a

source of considerable difficulty that bedevils formal models of international portfolio

investment. The temptation is to simplify and to assume that goods are homogeneous

(essentially one good). This implies that goods are perfect substitutes domestically as well as

internationally. If one assumes, realistically, that goods are not perfect substitutes, then

deviations from

1.) Purchasing Power Parity (PPP),

2.) The Law of One Price (LOP) is possible.

Future consumption can be curtailed by unexpected inflation, which can be caused by

exchange rate changes and/or shocks of domestic as well as international demand (monetary

policies) and supply (crop failure). Consequently, the type of risk that consumer-investors

may face is directly related to their consumption pattern and investment position. The nature

of the risk is also affected by the structure of markets for financial assets and real goods and

services, for example, whether or not PPP holds. Given that the typical investor can be

assumed to consume at least some foreign goods, she may derive benefits from international

portfolio investment in that she can hedge her internationalized consumption basket against

foreign exchange risk through the investment in foreign assets.

In addition to hedging the individual consumption basket against exchange rate risk,

international portfolio investment can be beneficial to the consumer-investor by reducing

‘‘domestic output risk.’’ Through the purchase of securities which are ultimately claims on



other countries’ output, consumption can in principle be smoothed when output is not highly

correlated across countries because of different shocks. Empirical evidence, however,

suggests the presence of a ‘‘consumption home bias’’ as consumption growth rates show

lower degrees of correlations than growth rates of output.

Some other Benefits:-

1. Instant execution of order: It is no news how orders are delayed in local stock

trading. I personally bought a public offer from a local company which took up to a

year to get those shares credited to my account. Placing a buy order you have to take

your time and stress going to your broker’s office to fill your order and then have to

wait for the next day for your order to be taken to the market. This is one beautiful

thing I enjoy about global stock trading you don’t need all those stress just by the

click of your mouse, ''buy or sell'' your orders are executed. This is possible because

the international stock broker will give you access to trade directly from his platform

through internet enabled computer which links you directly to the stock exchange.

Here you are trading the same way a broker should trade.

2. Access to information: Unlike the local stock trading where access to information is

most times restricted or delayed, international stock trading gives every investor an

access to real time information about the companies they are buying into making it a

less riskier to invest. There are countless of research institutions on the web ready to

provide enough information for the investors. Through financial search engines you

can source for information, current news releases, financial data or anything about the

company you want to invest in.

3. Higher yield on investment: Prices of stocks on Nigerian stock exchange are

regulated not to exceed 5% daily. But, global stocks are more volatile and can run

over 1000% returns on investment (ROI) a day depending on the stock type you

picked.

4. The advantage of leveraging your account: Leverage is borrowed money which

increases your buying power. It comes from your broker in the form of 1:2, 1:4 and so

on. If you are using 1:2 leverage, it means you’re investing amount let's say $1000

multiply by two which will give you a purchasing power of $2000.



5. The advantage of short trading: Short trading means opening a trade with a sell

position. This means that trade is not only open with a buy position but also with a

sell position. When a trader speculates a fall in share price of any company, he open a

position by selling their shares and close position by buying back to make his profit if

the price actually fall. The story is quite different with local stock trading where you

can only open a position with a buy order.

6. Access to your account: an investor has an access to monitor his account 24 hours.

This is quite unlike the local stock trading where access to view account is only

monthly or when demanded by an investor. Global stock trading allows you trade

directly from the floor and monitor your account just the same way a broker does;

through your brokerage account area given to you by your broker, you can access

virtually every stock traded on any stock exchange local in any part of the world.

Unique Risks of and Institutional Constraints for International

Investment

Although there are strong forces encouraging globalization, there are also many obstacles.

1) Lack of liquidity in smaller markets:

Market liquidity refers to the ability to buy or sell a particular asset without causing a

significant movement in the price. The essential characteristic of a liquid stock is that

there are a significant number of ready and willing buyers and sellers at all times.

Stock liquidity is an important consideration in short term share trading, as the lack of

liquidity can decrease your profit, or worse, increases your loss. Indicators that can be

used to assess the liquidity of a stock include: market depth, slippage, spread, stock

volume and stock turnover.

An illiquid asset is an asset which is not readily saleable due to uncertainty about its

value or lacking a market in which it is regularly traded. The mortgage related assets

which resulted in the subprime mortgage crisis are examples of illiquid assets as their

value is not readily determinable despite being secured by real property. Another

example is an asset such as large block of stock, the sale of which affects the market

value.



Speculators and market makers are key contributors to the liquidity of a market, or

asset. Speculators and market makers are individuals or institutions that seek to profit

from anticipated increases or decreases in a particular market price. By doing this,

they provide the capital needed to facilitate the liquidity. The risk of illiquidity need

not apply only to individual investments: whole portfolios are subject to market risk.

Financial institutions and asset managers that oversee portfolios are subject to what is

called "structural" and "contingent" liquidity risk. Structural liquidity risk, sometimes

called funding liquidity risk, is the risk associated with funding asset portfolios in the

normal course of business. Contingent liquidity risk is the risk associated with finding

additional funds or replacing maturing liabilities under potential, future stressed

market conditions. When a central bank tries to influence the liquidity (supply) of

money, this process is known as open market operations.

2) Currency Risk:

In what follows, the unique aspects of risk due to international diversification of

investment portfolios need to be analyzed in more detail. The major point is that

improved portfolio performance as a result of international stock investment must be

shown after allowing for these risk and cost components. For convenience as well as

analytical clarity, the unique international risk can be divided into two components:

exchange risk (broadly defined) and political (or country) risk. For example, if an

investor considers U.S. dollar denominated and euro-denominated Eurobonds listed

on the Singapore Exchange, one class of risks is attached to the currency of

denomination, dollar or euro, and another is connected with the political jurisdiction

within which the securities are issued or traded.

As foreign assets are denominated, or at least expressed, in foreign currency terms, a

security of foreign securities is usually exposed to unexpected changes in the

exchange rates of the respective currencies (exchange rate risk or currency risk).

These changes can be a source of additional risk to the investor, but by the same

token can reduce risk for the investor. The net effect depends, first of all, on how

volatility is measured, in particular whether it is measured in real terms against some

index of consumption goods, or in nominal terms, expressed in units of a base



currency. In any case, the effect ultimately depends on the specifics of the portfolio

composition, the volatility of the exchange rates, most importantly on the correlation

of returns of the securities and exchange rates, and finally on the correlation between

the currencies involved. If total risk of a foreign security is decomposed into the

components currency risk and volatility in local-currency value, exchange risk

contributes significantly to the total volatility of a security. Nevertheless, total risk is

less than the sum of market and currency risk.

3) Country Risk:

The fact that a security is issued or traded in a different and sovereign political

jurisdiction than that of the consumer-investor gives rise to what is referred to as

country risk or political risk. Country risk in general can be categorized into transfer

risks (restrictions on capital flows), operational risks (constraints on management and

corporate activity) and ownership-control risks (government policies with regard to

ownership managerial control). It embraces the possibility of exchange controls,

expropriation of assets, changes in tax policy (like withholding taxes’ being imposed

after the investment is undertaken) or other changes in the business environment of

the country. In effect, country risk are local government policies that lower the actual

(after tax) return on the foreign investment or make the repatriation of dividends,

interest, and principal more difficult.

Political risk also includes default risk due to government actions and the general

uncertainty regarding political and economic developments in the foreign country. In

order to deal with these issues, the investor needs to assess the country’s prospects for

economic growth, its political developments, and its balance of payments trends.

Interestingly, political risk is not unique to developing countries. In addition to

assessing the degree of government intervention in business, the ability of the labour

force and the extent of a country’s natural resources, the investor needs to appraise the

structure, size, and liquidity of its securities markets. Information and data from

published financial accounting statements of foreign firms may be limited; moreover,

the information available may be difficult to interpret due to incomplete or different

reporting practices. This information barrier is another aspect of country risk. Indeed,

it is part of the larger issue of corporate governance and the treatment of foreign



(minority) investors, mentioned earlier. At this point it is worth noting that in many

countries foreign investors are under a cloud of suspicion which often stems from a

history of colonial domination.

Perception of country risk is, therefore, a reason for the unwillingness of many

international investors to hold a portion of their securities in some of the less

developed countries and those that face political turmoil, despite evidence that

investments in these countries could contribute to improving the risk return

combination of a portfolio. By the same token, this fact is consistent with the

observation of disproportionately large (relative to the share of GNP) holdings of U.S.

securities in the portfolios of many non-U.S. mutual funds. Empirical evidence

supports the idea that stock markets are perceived differently in terms of political risk.

However, the data also show that diversification among politically risky countries

improves the risk-return characteristics of portfolios. Even greater benefits result from

combining securities from countries with high and low political risk due to generally

low correlation between these groups.

4) Taxation

When it comes to international stock investment, taxes are both an obstacle as well as

an incentive to cross-border activities. Not surprisingly, the issues are complex in

large part because rules regarding taxation are made by individual governments, and

there are many of these, all having very complex motivations that reach far beyond

simply revenue generation. In the present context, it is not details but a framework or

‘‘pattern’’ of tax considerations affecting International stock trading that is of

foremost interest.

It is obvious then, since tax laws are national, that it is individual countries that

determine the tax rates paid on various returns from portfolio investment, such as

dividends, interest and capital gains. All these rules differ considerably from country

to country. Countries also differ in terms of institutional arrangements for investing in

securities, but in all countries there are institutional investors which may be tax

exempt (e.g., pension funds) or have the opportunity for extensive tax deferral

(insurance companies). However, countries do not tax returns from all securities in the



same way. Income from some securities tends to be exempt in part or totally from

income taxes. Interest paid on securities issued by state and municipal entities in the

United States, for example, is exempt from Federal income taxes. A number of

countries, e.g., Japan, provide exemptions on interest income up to a specified

amount, but only on interest received from certain domestic securities. Almost all

countries tax their resident taxpayers on returns from portfolio investment, whether

the underlying securities have been issued and are held abroad or at home. This is

known as the worldwide income concept.

There are a significant number of countries, however, who tax returns from foreign

securities held abroad only when repatriated. The United Kingdom and a number of

former dependencies, for example Singapore, belong to this category. Obviously, such

rules promote a pattern of international investment where financial wealth is kept

‘‘offshore,’’ preferably in jurisdictions that treat foreign investors kindly. Such

jurisdictions are frequently referred to as ‘‘tax havens.’’

The point of all this is that the legal and illegal use of tax haven jurisdictions has led

to significant flows of International stock trading, creating an incentive for such

activities by both private and institutional investors, offsetting barriers that otherwise

exist. As often, the net effect is difficult to verify empirically; still when everything is

said and done, taxes and the uncertainties as well as the associated transactions costs

represent one obstacle to International stock trading.

5) Foreign Exchange Controls

While the effect of taxation as an obstacle to international stock trading is only

incidental to its primary purpose, which is to raise revenue, exchange controls are

specifically intended to restrain capital flows. Balance of payment reasons or the

effort to reserve financial capital for domestic uses lead to these controls. They are

accomplished by prohibiting the conversion of domestic funds for foreign moneys for

the purpose of acquiring securities abroad. Purchases of securities are usually the first

category of international financial transactions to be subjected to, and the last to be

freed from, foreign exchange controls. While countries are quite ready to restrict

undesired capital inflows and outflows, they prove reluctant to remove controls when



the underlying problem has ceased to exist, or even when economic trends have

reversed themselves. The classic example is provided by Japan where, during the

early seventies, exchange controls prevented Japanese investors from purchasing

foreign securities. At the same time, new measures were taken to prevent a further

increase in Japanese liabilities through foreign purchases of Japanese securities. At

times, countries have resorted to more drastic measures by requiring residents to sell

off all or part of their foreign holdings and exchange the foreign currency proceeds for

domestic funds.

6) Capital Market Regulations

Regulations of primary and secondary security markets typically aim at protecting the

buyer of financial securities and try to ensure that transactions are carried out on a fair

and competitive basis. These functions are usually accomplished through an

examining and regulating body, such as the Securities and Exchange Commission

(SEC) in the United States, long regarded as exemplary in guarding investor interests,

Supervision and control of practices and information disclosure by a relatively

impartial body is important for maintaining investors’ confidence in a market; it is

crucial for foreign investors who will have even less direct knowledge of potential

abuses, and whose ability to judge the conditions affecting returns on securities may

be very limited.

Most commonly, capital market controls manifest themselves in form of restrictions

on the issuance of securities in national capital markets by foreign entities, thereby

making foreign securities unavailable to domestic investors. Moreover, some

countries put limits on the amount of investment local investors can do abroad or

constrain the extent of foreign ownership in national companies. While few

industrialized countries nowadays prohibit the acquisition of foreign securities by

private investors, institutional investors face a quite different situation. Indeed, there

is almost no country where financial institutions, insurance companies, pension funds,

and similar fiduciaries are not subject to rules and regulations that make it difficult for

them to invest in foreign securities.



In the United States, for example, different state regulations severely constrain the

proportion of insurance company portfolios invested in foreign securities. In some

states, institutions, such as pension funds for public employees including teachers,

cannot invest in foreign securities at all. Similarly, state banking regulations specify

severe limits for commercial banks, and trustees of even private pension funds have

been plagued by the uncertainties of legal interpretation of the ‘‘prudent man’s rule,’’

effectively limiting the acquisition of foreign securities. In most other countries, there

are similar or even more binding restrictions.

7) Transaction Costs

Transaction costs associated with the purchase of securities in foreign markets tend to

be substantially higher compared to buying securities in the domestic market. Clearly,

this fact serves as an obstacle to International stock trading. Trading in foreign

markets causes extra costs for financial intermediaries, because access to the market

can be expensive. The same is true for information about prices, market movements,

companies and industries, technical equipment and everything else that is necessary to

actively participate in trading. Moreover, there are administrative overheads, costs for

the data transfer between the domestic bank and its foreign counterpart (be it a bank

representative or a local partner institution), etc. Therefore, financial institutions try to

pass these costs on to their customers, i.e., the investor. Simply time differences can

be a costly headache, due to the fact that someone has to do transactions at times

outside normal business hours.

However, transactions costs faced by international investors can be mitigated by the

characteristic of ‘‘liquidity,’’ providing depth, breadth, and resilience of certain

capital markets, thus reducing this constraint and as a consequence inducing

international portfolio investment to these countries. Issuers from the investors’

countries will then have a powerful incentive to list their securities on the exchange(s)

of such markets.

The development of efficient institutions, the range of expertise and experience

available, the volume of transactions and breadth of securities traded, and the



readiness with which the market can absorb large, sudden sales or purchases of

securities at relatively stable prices all vary substantially from country to country. The

U.S. and British markets have a reputation for being superior in these respects, and

have attracted a large amount of international portfolio investment as a result. These

markets can offer and absorb a wide variety of securities, both with regard to type

(bonds, convertibles, preferred shares, ordinary shares, money market instruments,

etc). And with regard to issuer (public authorities, banks, nonbank financial

institutions, private companies, foreign and international institutions, etc.)

Table 1.1: Trading Cost Comparison for Equity Trades, 1999



They offer depth, being able to supply and absorb substantial quantities of different

securities at close to the current price, whereas in Continental Europe and Asia one

often hears complaints about the ‘‘thinness’’ of the securities markets leading to

random volatility of prices. Therefore, all other factors being equal, investors are

attracted to markets where transactions are conducted efficiently and at a low cost to

borrower and lender, buyer and seller. Historically, New York has provided foreign

investors with one of the most efficient securities markets in the world. A comparison

of cost estimates for trading in the shares of the national stock-market index shows

that trading in U.S. stocks is in most cases still less expensive than trading in non-U.S.

Securities(Table 2.1).

8) Familiarity with Foreign Markets

Finally, investing abroad requires some knowledge about and familiarity with foreign

markets. Cultural differences come in many manifestations and flavours such as the

way business is conducted, trading procedures, time zones, reporting customs, etc. In

order to get a full understanding of the performance of a foreign company and its

economic context, a much higher effort has to be made on the investor’s side. He

might face high cost of information, and the available information might not be of the

same type as at home due to deviations in accounting standards and methods (e.g.).,

with regard to depreciation, provisions, pensions., which make their interpretation

more difficult.

However, multinational corporations increasingly publish their financial information

in English in addition to their local language and adjust the style, presentation and

frequency of their disclosure, e.g., of earnings estimates, to U.S. standards. Moreover,

major financial intermediaries provide information about foreign markets and

companies to investors as international investment gains importance; the same is true

for data services that extend their coverage to foreign corporations.74

Sometimes, existing or perceived cultural differences represent more of a

psychological barrier than a barrier of a real nature. As the benefits from international

investment diversification are known, it might be worthwhile to invest a reasonable

amount of time studying foreign markets in order to overcome barriers and take



advantage of the gains possible. Indeed, the perception of foreign market risk might

be higher than it actually is. To illustrate, just looking at volatility foreign markets

might appear very risky at first sight. Nevertheless, this might not be true when

assessing them in a portfolio context as foreign stocks might eliminate some more

diversifiable risk and only add little to total portfolio (market) risk.

Securities Market in India – An Overview

Introduction

We are living in exciting times, witnessing a process of ever-increasing globalization and

innovation in the financial markets. This is bringing with it sophistication and thus a need to

better understand financial risks and develop tools to manage them. The financial markets

and institutions have undergone significant changes keeping pace with the changing needs of

market participants. Alongside the rise of private finance, the financial markets are seeing an

enhanced role of National Governments through Sovereign Wealth Funds. Venture capital

funds and hedge funds have added new dimension to the market dynamics.

India has not remained untouched by these developments worldwide. With its growing and

increasingly complex market-oriented economy and increasing integration with global trade

and finance, India’s financial system has also innovated.

In the securities markets, organisational innovation has been witnessed with corporatisation

and demutualization of all the stock exchanges; institutional innovations in the form of

emergence of regulators, Self Regulatory Organizations and clearing corporations and more

recently, market innovations through a short selling and Securities Lending and Borrowing

Scheme, Direct Market Access, addressing of the legal, regulatory, tax and market design

issues in the development of the corporate bond market in the country, provision of a legal

framework for trading of securitized debt, quicker procedures for registration and operation

by FIIs, making PAN as the sole identification number for all transactions in securities

market and new derivative products such as currency futures.



Market Segments

The securities market has two interdependent and inseparable segments, the new issues

(primary) market and the stock (secondary) market.

The primary market provides the channel for creation and sale of new securities, while the

secondary market deals in securities previously issued. The securities issued in the primary

market are issued by public limited companies or by government agencies. The resources in

this kind of market are mobilized either through the public issue or through private placement

route. It is a public issue if anybody and everybody can subscribe for it, whereas if the issue

is made available to a selected group of persons it is termed as private placement. There are

two major types of issuers of securities, the corporate entities who issue mainly debt and

equity instruments and the government (central as well as state) who issue debt securities

(dated securities and treasury bills).

The secondary market enables participants who hold securities to adjust their holdings in

response to changes in their assessment of risks and returns. Once the new securities are

issued in the primary market they are traded in the stock (secondary) market. The secondary

market operates through two mediums, namely, the over-the-counter (OTC) market and the

exchange-traded market. OTC markets are informal markets where trades are negotiated.

Most of the trade’s in the government securities are in the OTC market. All the spot trades

where securities are traded for immediate delivery and payment take place in the OTC

market. The other option is to trade using the infrastructure provided by the stock exchanges.

The exchanges in India follow a systematic settlement period. All the trades taking place over

a trading cycle (day=T) are settled together after a certain time (T+2 day). The trades

executed on exchanges are cleared and settled

International scenario of Indian Market

International Scenario

Following the implementation of reforms in the securities industry in the past years, Indian

stock markets have stood out in the world ranking. India has the distinction of having the

second largest number of listed companies after the USA. As per Standard and Poor’s Fact

Book 2007, India ranked 8th in terms of market capitalization and 15th in terms of turnover



ratio as of December 2007. India posted a turnover ratio of 84% at end 2007. Table 1.2 below

present India’s position vice-a-versa major international markets.

Table 1.2: International Comparison: end December 2007

*Listed companies in India pertain to BSE.

Market Capitalisation Ratio is computed as a percentage of GNI 2006

Source: S&P Global Stock Market Fact book, 2008

A comparative study of concentration of market indices and index stocks in different world

markets is presented in the (Table 1.3). It is seen that the index stocks share of total market

capitalization in India is 77.5% whereas US index accounted for 78.1% as on end 2007. The

concentration levels in index stocks in 2006 were 81.6% for India and 89.5% for US. Thus,

there is a decline in concentration in 2007. The ten largest index stocks share of total market

capitalization is 26.8% in India and 12.4% in case of US.

Table 1.3: Market Concentration in the World Index as on End 2007(In Percentage)


The stock markets worldwide have grown in size as well as depth over the years. As can be

observed from (Table 1.4), the turnovers of all markets taken together have grown from US $

47.39 trillion in 2005 to US $ 98.82 trillion in 2007. US alone accounted for about 43.12 % of



worldwide turnover in 2007. The share of India in the total world turnover increased from

0.95% in 2006 to 1.12% in 2007.

Table 1.4: Market Capitalisation and Turnover for Major Markets (US $ million)


The market capitalization of all listed companies taken together on all markets stood at US $

64.56 trillion in 2007 up from US $ 53.38 trillion in 2006. The share of US in worldwide

market capitalization decreased from 36.39 % as at end-2006 to 30.90 % at end 2007, while

Indian listed companies accounted for 2.82% of total market capitalization as at end 2007 (an

increase from 1.53% at end of 2006). According to the ‘World Development Indicators

2008’, World Bank there has been an increase in market capitalization as percentage of Gross

Domestic Product (GDP) in some of the major country groups as is evident from (Table 1.5).

The increase, however, has not been uniform across countries. The market capitalization as a

percentage of GDP was the highest at 126.1% for the high income countries as at end 2006

and lowest for low income countries at 67%. The Middle income countries have shown a

remarkable improvement in market capitalization to GDP ratio from 49.5% in 2005 to 74.2%

in 2006.



Table 1.5: Select Stock Market Indicators

Source: World Development Indicators 2008, World Bank.

Market capitalisation as percentage of GDP in India stood at 89.8 % as at end 2006. The

turnover ratio, which is a measure of liquidity, was 150.2 % for high-income countries and

93.3% for low-income countries in 2007. The total number of listed companies stood at

30,016 for high-income countries, 13,195 for middle-income countries and 6,911 for low-

income countries as at end-2007.

Key Strengths of Indian securities market

The key strengths of the Indian capital market include a fully automated trading system on all

stock exchanges, a wide range of products, an integrated platform for trading in both cash and

derivatives, and a nationwide network of trading through over 4,000 corporate brokers. The

securities markets in India have made enormous progress in developing sophisticated

instruments and modern market mechanisms.

The real strength of the Indian securities market lies in the quality of regulation. The market

regulator, Securities and Exchange Board of India (SEBI) is an independent and effective

regulator. It has put in place sound regulations in respect of intermediaries, trading

mechanism, settlement cycles, risk management, derivative trading and takeover of

companies. There is a well designed disclosure based regulatory system. Information

technology is extensively used in the securities market. The NSE and BSE have most

advanced and scientific risk management systems. The growing number of market



participants, the growth in volume of securities transactions, the reduction in transaction

costs, the significant improvements in efficiency, transparency and safety, and the level of

compliance with international standards have earned for the Indian securities market a new

respect in the world.

Market Participants

In every economic system, some units, individuals or institutions, are surplus-generating,

who are called savers, while others are deficit- generating, called spenders. Households are

surplus-generators and corporate and Government are deficit generators. Through the

platform of securities markets, the savings units place their surplus funds in financial claims

or securities at the disposal of the spending community and in turn get benefits like interest,

dividend, capital appreciation, bonus etc. These investors and issuers of financial securities

constitute two important elements of the securities markets. The third critical elements of

markets are the intermediaries who act as conduits between the investors and issuers.

Regulatory bodies, which regulate the functioning of the securities markets, constitute

another significant element of securities markets. The process of mobilisation of resources is

carried out under the supervision and overview of the regulators. The regulators develop fair

market practices and regulate the conduct of issuers of securities and the intermediaries. They

are also in charge of protecting the interests of the investors. The regulator ensures a high

service standard from the intermediaries and supply of quality securities and non-manipulated

demand for them in the market.

Thus, the four important elements of securities markets are the investors, the issuers,

the intermediaries and regulators.

Investors

An investor is the backbone of the capital markets of any economy as he is the one lending

his surplus resources for funding the setting up of or expansion of companies, in return for

financial gain.

Households’ investment patternAccording to Reserve Bank of India (RBI) data, the household sector accounted for 80.5% of

the Gross Domestic Savings in Fixed Income investment instruments during 2007-08, as

against 84.5% in 2006-07 (Table 1.6). Mutual funds accounted for the bulk of securities



markets investments with an absolute amount of Rs 568,000 million in 2007-08 against Rs.

398,030 million in 2006-07. 2007-08 saw huge investments in mutual funds to take

advantage of the booming stock market. Besides, bank deposit rates were very low then.

Table 1.6: Savings of Household Sector in Financial Assets

Source: RBI. Annual Report 2007-08P: Provisional Figures# Preliminary Estimates

Issuers

Primary Markets

An aggregate of Rs. 5,788,150 million (US $ 144,812 million) were raised by the government

and corporate sector during 2007-08 as against Rs. 3,944,540 million (US $ 90,492 million)

during the preceding year, an increase of 46.74%. Private placement accounted for 71.75% of

the domestic resource mobilization by the corporate sector. (Table 1.7).

Table 1.7: Resource Mobilisation from the Primary Market



The Indian market is getting integrated with the global market, though in a limited way

through Euro Issues, since they were permitted access in 1992. Indian companies have raised

about Rs. 265,560 million i.e. US $ 6,644 million during 2007-08 through American

Depository Receipts (ADRs)/Global Depository Receipts (GDRs), an increase of 56.17% as

compared with Rs.170,050 million ( US $ 3901 million) during 2006-07. Of the total

resources mobilized through the primary markets, the share of resources raised by the

Government decreased from 51 % in 2006-07 to 42% in 2007-08. While the primary issues of

the Central Government increased from Rs. 1,793,730 million in 2006-07 to Rs. 1,882,050

million in 2007-08, the resources raised by State Governments increased by 225% from Rs.

208,250 million in 2006-07 to Rs.677, 790 million in 2007-08.

Intermediaries

The term “market intermediary” is usually used to refer to those who are in the business of

managing individual portfolios, executing orders, dealing in or distributing securities and

providing information relevant to the trading of securities. The market mediators play an

important role on the stock exchange market; they put together the demands of the buyers

with the offers of the security sellers. A large variety and number of intermediaries provide

intermediation services in the Indian securities markets. Table 1.8 presents an overview of

market participants in the Indian securities market.

Table 1.8: Market Participants in Securities Market



The market intermediary has a close relationship with the investor with whose protection the

Regulator is primarily tasked. As a consequence a large portion of the regulation of a

securities industry is directed at the market intermediary. Regulations address entry criteria,

capital and prudential requirements, ongoing supervision and discipline of entrants, and the

consequences of default and failure.

One of the issue concerning brokers is the need to encourage then to corporatize. Presently,

44% of the brokers are corporate. Corporatisation of their business would help them compete

with global players in capital markets at home and abroad. Corporatisation brings better

standards of governance and better transparency hence increasing the confidence level of

customers.

Regulators

The absence of conditions of perfect competition in the securities market makes the role of

regulator extremely important. The regulator ensures that the market participants behave in a

desired manner so that securities market continues to be a major source of finance for

corporate and government and the interest of investors are protected. The responsibility for

regulating the securities market is shared by Department of Economic Affairs (DEA),

Ministry of Company Affairs (MCA), Reserve Bank of India (RBI) and SEBI. The activities

of these agencies are coordinated by a High Level Committee on Capital Markets. The orders

of SEBI under the securities laws are appealable before a Securities Appellate Tribunal.

Most of the powers under the SCRA are exercisable by DEA while a few others by SEBI.

The powers of the DEA under the SCRA are also con-currently exercised by SEBI. The

powers in respect of the contracts for sale and purchase of securities, gold related securities,

money market securities and securities derived from these securities and ready forward

contracts in debt securities are exercised concurrently by RBI. The SEBI Act and the

Depositories Act are mostly administered by SEBI. The rules under the securities laws are

framed by government and regulations by SEBI. All these are administered by SEBI. The

powers under the Companies Act relating to issue and transfer of securities and non-payment

of dividend are administered by SEBI in case of listed public companies and public

companies proposing to get their securities listed. The SROs ensure compliance with their

own rules as well as with the rules relevant for them under the securities laws.



Policy debates

Regulatory Impact Assessment (RIA)

Regulations for the securities markets are made by the Government and regulators to achieve

the goal of a well functioning market area, with minimal conflicts of interests and ensuring

investor protection. However, regulations may create unintended and unavoidable barriers for

market players and may not be without costs of compliance. Also, these are reviewed from

time to time based on changing market practices, changing mindset and ideology of the

regulators.

However, when a new regulation in put in place or an existing regulation is reviewed, it may

perhaps be desirable to assess and understand the alternatives available, the costs of

compliance and enforcement, potential impact of new or changed regulation and whether it

would achieve the desired objectives. In essence, some relevant questions on these lines need

to be posed and answered to make any new regulation or revised regulation a success both

with the regulated and the regulators. RIA is a tool that helps do this. RIA facilitates

understanding of the impact of regulatory actions and enables integration of multiple policy

objectives, improves transparency and consultation, and enhances accountability of

governments and regulators. It not only brings the actions of decision-makers under public

scrutiny and highlights how their decisions impact society as a whole, but also mandates

greater information sharing by them.

RIA is essentially a document created before a new regulation is introduced or a regulation is

modified, systematically assessing the positive and negative impacts of the proposed

regulation. It serves as a tool for regulatory reform.

International Practice

RIAs are produced in many countries, although their scope, content, role and influence on

policy making vary. For example, The European Commission introduced an impact

assessment system in 2002, integrating and replacing previous single-sector type of

assessments. In the European Commission perspective, Impact Assessment (IA) is a process

aimed at structuring and supporting the development of policies. It identifies and assesses the

problem at stake and the objectives pursued. It identifies the main options for achieving the

objective and analyses their likely impacts in the economic, environmental and social fields.



It outlines advantages and disadvantages of each option and examines possible synergies and

trade-offs.

In the United Kingdom, RIAs have been a key tool in helping improve the quality of

regulation and reduce unnecessary burdens on business. RIAs have been produced by Central

Government departments for many years using guidance produced by the Better Regulation

Executive (BRE) in the Cabinet Office. In May 2007 a new system of Impact Assessments

(IAs) was introduced and made fully operational in November 2007. The aim of IAs is to

help improve policy making by placing a greater emphasis on quantifying benefits and costs

in the IA.

RIA has been adopted in most OECD (Organization for Economic Co-operation and

Development) countries. RIA has also been undertaken in middle-income developing

countries, especially South Korea and Mexico.

On the other hand, despite considerable interest in measuring the effectiveness of

development policy and in the design and implementation of regulatory measures, the

potential of RIA has neither been explored nor analysed in the developing countries and in

their organizations involved in the design and formulation of development policy.

Indian context

The High Level Expert Committee on Making Mumbai an International Financial Centre

(HPEC on MIFC), which submitted its report to the Government in February 2007, has,

among other things, recommended that adopting practice that is now normal in almost all

OECD countries, the Government of India should conduct-using independent, impartial

interlocutors, including regulators from other IFCs- a periodic RIA of the financial regulatory

regime. The RIA would aim to evaluate, using enhanced cost-benefit methodology, how

efficient and cost effective extant regulation is in meeting the main regulatory objectives, and

to understand what modifications are needed to improve it.

The Government and regulators need to decide on how to go about implementing this

recommendation. It may perhaps be better if the impact assessment is integrated into the

decision-making process from the stage of formulation of policies, acts and regulations,



instead of later in the process simply to comply with externally imposed requirements.

Among other things, integration would help the earlier consideration of alternative solutions

and help weigh each ones cost and benefits.

Comprehensive regulations for intermediaries

Various intermediaries in the securities markets, including depositories, depository

participants, custodians of securities, mutual funds, foreign institutional investors, credit

rating agencies etc., are regulated under various regulations of SEBI. As each of these

regulations was drafted in order to provide a framework which would enable SEBI to better

regulate and monitor intermediaries/entities, the broad framework of such regulations is very

similar to one another.

It was observed that every regulation seeking to regulate an intermediary incorporates some

basic provisions regarding registration, general obligations, inspection and investigation,

default etc. In addition to the above, the general requirements of the Code of Conduct

provided in almost all the regulations are also similar in nature. Except for the clauses

relating to the specific requirements of, and particular concerns in, each category, the content

of all the regulations is common either in language or in spirit, if not in both.

Given the overlap in content and the fact that many requirements and obligations of most

intermediaries are common, SEBI now proposes to consolidate the common requirements

under these regulations and put in place a comprehensive regulation which will apply to all

intermediaries and prescribe the obligations, procedure, limitations etc in so far as the

common requirements are concerned. Some of the highlights of the proposed comprehensive

regulations are:

• Registration is proposed to be made permanent for all intermediaries subject to

compliance with law, updating of relevant disclosures and payment of annual fees.

• As updating is required either promptly or annually, thus more accurate filing of

material developments is made available to SEBI and to the public.



• Conducting multiple activities by the same intermediary becomes a simpler process

without reducing the regulatory rigours previously imposed.

• Substantial amounts of filing details will enter the public domain, thus allowing

investors to assess the appropriateness of using the intermediary.

• The number of investor grievances not addressed beyond a particular period will

need to be disclosed, thus incentivising early resolution of complaints by the

intermediary.

• The code of conduct rules will be found in one place making compliance with the

code easier.

• Consistency across regulation of various intermediaries stand improved.

• Fit and Proper person requirements are rationalized and inserted into these draft

regulations.

• The intermediary shall prominently display the registration certificate and the name

and contact details of the compliance officer to whom complaint may be made.

• Rationalization of prior approval upon change in status and constitution of the

intermediary.

The draft proposal of SEBI on the above lines was put out in public domain in July, 2007,

seeking comments and suggestions before the same is finalized.



Clearing & Settlement

The transactions in secondary market pass through three distinct phases, viz., trading, clearing

and settlement. While the stock exchanges provide the platform for trading, the clearing

corporation determines the funds and securities obligations of the trading members and

ensures that the trade is settled through exchange of obligations. The clearing banks and the

depositories provide the necessary interface between the custodians/clearing members for

settlement of funds and securities obligations of trading members.

Several entities, like the clearing corporation, clearing members, custodians, clearing

banks, depositories are involved in the process of clearing. The role of each of these

entities is explained below:

• Clearing Corporation: The clearing corporation is responsible for post-trade activities

such as the risk management and the clearing and settlement of trades executed on a stock

exchange.

• Clearing Members: Clearing Members are responsible for settling their obligations as

determined by the NSCCL. They do so by making available funds and/or securities in the

designated accounts with clearing bank/depositories on the date of settlement.

• Custodians: Custodians are clearing members but not trading members. They settle trades

on behalf of trading members, when a particular trade is assigned to them for settlement. The

custodian is required to confirm whether he is going to settle that trade or not. If he confirms

to settle that trade, then clearing corporation assigns that particular obligation to him. As on

date, there are 11 custodians empanelled with NSCCL. They are Citibank N.A., Deutsche

Bank A.G., HDFC Bank Limited, HSBC Limited, ICICI Limited, IL&FS Limited, and

Standard Chartered Bank, State Bank of India, SHCIL, Kotak Mahindra Bank Ltd., DBS

Bank Ltd and Axis Bank.

• Clearing Banks: Clearing banks are a key link between the clearing members and Clearing

Corporation to effect settlement of funds. Every clearing member is required to open a

dedicated clearing account with one of the designated clearing banks. Based on the clearing

member’s obligation as determined through clearing, the clearing member makes funds



available in the clearing account for the pay-in and receives funds in case of a pay-out. There

are 13 clearing banks of NSE, viz., Axis Bank Ltd., Bank of India Ltd., Canara Bank Ltd.,

Citibank N.A, HSBC Ltd., HDFC Bank Ltd., ICICI Bank Ltd., IDBI Bank Ltd., Indusind

Bank Ltd., Kotak Mahindra Bank, Standard Chartered Bank, State Bank of India and Union

Bank of India

• Depositories: Depository holds securities in dematerialized form for the investors in their

beneficiary accounts. Each clearing member is required to maintain a clearing pool account

with the depositories. He is required to make available the required securities in the

designated account on settlement day. The depository runs an electronic file to transfer the

securities from accounts of the custodians/clearing member to that of NSCCL and vice-versa

as per the schedule of allocation of securities.

• Professional Clearing Member: NSCCL admits special category of members known as

professional clearing members (PCMs). PCMs may clear and settle trades executed for their

clients (individuals, institutions etc.). In such cases, the functions and responsibilities of the

PCM are similar to that of the custodians. PCMs also undertake clearing and settlement

responsibilities of the trading members. The PCM in this case has no trading rights, but has

clearing rights i.e. he clears the trades of his associate trading members and institutional

clients.

Clearing & Settlement in India

The clearing process involves determination of what counter-parties owe, and which

counter-parties are due to receive on the settlement date, thereafter the obligations are

discharged by settlement. The clearing and settlement process comprises of three main

activities- Clearing, Settlement and Risk Management.



The clearing and settlement process for transaction in securities on NSE is presented in

Chart1.1: Clearing & settlement process at NSE

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

2. NSCCL notifies the consummated trade details to clearing members/custodians who affirm

back. Based on the affirmation, NSCCL applies multilateral netting and determines

obligations.

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

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

5. Instructions to depositories to make securities available by pay-in-time.

6. Pay-in of securities (NSCCL advises depository to debit pool account of custodians/CMs

and credit its account and depository does it)

7. Pay-in of funds (NSCCL advises Clearing Banks to debit account of custodians/CMs and

credit its account and clearing bank does it)

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

and debit its account and depository does it)

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

debit its account and clearing bank does it)

10. Depository informs custodians/CMs through DPs.

11. Clearing Banks inform custodians/CMs.



The core processes involved in clearing and settlement include:

(a) Trade Recording: The key details about the trades are recorded to provide basis for

settlement. These details are automatically recorded in the electronic trading system

of the exchanges.

(b) Trade Confirmation: The parties to a trade agree upon the terms of trade like

security, quantity, price, and settlement date, but not the counterparty which is the

NSCCL. The electronic system automatically generates confirmation by direct

participants.

(c) Determination of Obligation: The next step is determination of what counter-parties

owe, and what counterparties are due to receive on the settlement date. The NSCCL

interposes itself as a central counterparty between the counterparties to trades and nets

the positions so that a member has security wise net obligation to receive or deliver a

security and has to either pay or receive funds.

The settlement process begins as soon as members’ obligations are determined through the

clearing process. The settlement process is carried out by the Clearing Corporation with the

help of clearing banks and depositories. The Clearing Corporation provides a major link

between the clearing banks and the depositories. This link ensures actual movement of funds

as well as securities on the prescribed pay-in and pay-out day.

(d) Pay-in of Funds and Securities: This requires members to bring in their

funds/securities to the clearing corporation. The CMs make the securities available in

designated accounts with the two depositories (CM pool account in the case of NSDL

and designated settlement accounts in the case of CDSL). The depositories move the

securities available in the pool accounts to the pool account of the clearing

corporation. Likewise CMs with funds obligations make funds available in the

designated accounts with clearing banks. The clearing corporation sends electronic

instructions to the clearing banks to debit designated CMs’ accounts to the extent of

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

credit accounts of the clearing corporation. This constitutes pay-in of funds and of

securities.



(e) Pay-out of Funds and Securities: After processing for shortages of funds/securities

and arranging for movement of funds from surplus banks to deficit banks through RBI

clearing, the clearing corporation sends electronic instructions to the

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

and clearing banks debit accounts of the Clearing Corporation and credit accounts of

CMs. This constitutes pay-out of funds and securities. Settlement is deemed to be

complete upon declaration and release of pay-out of funds and securities.

CLEARING AND SETTLEMENT: International Scenario

The most critical problems for international securities trading, but also the most concerted

efforts at problem resolution, are in the area of clearing and settlement. Clearing and

settlement systems for financial instruments differ greatly within and across countries, in

procedures, in timing of settlement, in the institutions involved, and in the degree, nature, and

locus of risks. These differences in countries’ systems are important because:

1) Systems traditionally used for domestic trading are now being called upon to

accommodate international participants;

2) The integrity and efficiency of a nation’s clearing, settlement, and payment system are

important to its internal financial and economic stability and its ability to compete

with other nations;

3) The failure of a foreign clearing entity could affect a U.S. clearinghouse through the

financial failure of a common clearing member;

4) The growing number of U.S. investors in foreign markets may be unaware that risk

levels in some foreign markets can be much higher than those in our domestic

markets.

To improve efficiency and reduce risks, the world’s clearing and settlement systems must be

coordinated with each other in a number of ways. Both the private sector and regulators in the

United States and other countries have begun to take, or are considering, actions to

accomplish the needed improvements. A number of international studies are in general

agreement on the types of improvements needed. These studies have been done by the

European Economic Commission, the Federation International des Bourses de Valeurs

(FIVB), the Group of Thirty, the International Society of Securities Administrators, and

Bankers Trust Co. (the last as contractor to OTA). One of the shared conclusions of these



studies is that the world’s major clearing and settlement systems should be “harmonized” in

selected ways in order to strengthen them and prepare for the emerging global trading

environment.

“Clearing and settlement” is the processing of transactions on stock, futures, and options

markets. It is what happens after the trade. “Clearing” confirms the identity and quantity of

the financial instrument or contract being bought and sold, the transaction price and date, and

the identity of the buyer and seller. It also sometimes includes the netting of trades, or the

offsetting of buy orders and sell orders. “Settlement” is the fulfilment, by the parties to the

transaction, of the obligations of the trade; in equities and bond trades, “settlement” means

payment to the seller and delivery of the stock certificate or transferring its ownership to the

buyer. Settlement in futures and options takes on different meanings according to the type of

contract.

Trades are processed differently depending on the type of financial instrument being traded,

the market or exchange on which it is traded, and the institutions involved in the processing

of the trade (i.e., an exchange, a clearinghouse, a depository, or some combination). The

clearing and settlement mechanisms and institutions in the United States, the United

Kingdom, Japan, and India are described in the appendix. The differences in countries’

clearing and settlement are important because clearing and settlement systems used for

domestic trading are now being called onto accommodate international participants. The

integrity and efficiency of a nation’s clearing and settlement systems are important to both its

internal financial and economic stability and its ability to compete with other nations.

Many markets have ‘clearinghouses’ that handle both the clearing process and some of the

settlement process. This is the most common system in the United States for exchange-traded

financial products. Many markets, including the Indian markets, have “depositories,” that

hold stocks and bonds for safekeeping on behalf of their owners.

Where clearinghouses do not exist (e.g., in some European markets), depositories may take

on functions of clearinghouses. Depositories may transfer ownership of stocks and bonds by

‘‘book entry” (a computer entry in the depository’s record books) instead of physical delivery

of certificates to the buyer, which saves time and money. There are also markets in which

exchanges perform some of the clearing and settlement functions (e.g., London’s



International Stock Exchange), and markets in which neither clearinghouses nor depositories

exist (e.g., until very recently, foreign exchange, or “forex,” markets).

The Goals of Clearing and Settlement

Differences in the clearing and settlement process among countries are often linked to

historical, economic, and cultural factors in their laws and customs. These differences can

expose international investors to extra risk in some instances. Perceptions of the purposes of

the clearing and settlement process vary widely among countries. In the United States and

Canada, where public policy supports broad public access to the markets, the reduction of

risk, through the clearinghouse as an intermediary, is a major goal of clearing and settlement.

These policies are reflected in a hierarchy of protections for the clearinghouse, including

minimum capital requirements for clearinghouse members.

In many other counties, risk reduction is imposed before trading takes place, by controls on

who is allowed to participate, or by the participants ‘knowing their trading partners,’ and, in

equities, by reducing the time allowed to settle a transition. In these markets, clearinghouse

guarantee funds are generally small or nonexistent, and settlement is seen merely as a

delivery function, rather than as a mechanism for risk reduction.

These different views of the purpose of clearing and settlement have become significant as

more investors begin trading in markets other than their domestic markets. Indian investors,

accustomed to domestic markets where safeguards are in place, may assume that the clearing

and settlement of their trades in a foreign market has risks comparable to those in the United

States, where there are guarantees provided by clearing and settlement organizations.

The chief aims of clearing and settlement in the India and some other countries are efficiency

and safety. The faster and more accurately a trade can be processed, the sooner the same

capital can be reinvested, and at less cost and risk to investors. Therefore, as markets become

global, one could expect that investment capital will flow toward markets that are most

attractive on a risk-return basis, and that also have efficient and reliable clearing and

settlement systems.



The soundness of clearing and settlement systems in one nation can also impact other nations.

The failure of a clearing member at a foreign clearinghouse could affect an Indian

clearinghouse through the impact on a common clearing member. To reduce the risk of such

an occurrence, different countries’ clearing and settlement systems must be coordinated with

each other, for example, by sharing risk information and harmonizing trade settlement dates.

Both the private sector and Federal regulators have begun to take steps in this direction. It is

doubtful that the private sector can achieve the needed changes without national governments

taking a prominent and concerted role.

Risks from Differences in Clearing and Settlement Mechanisms

These differences-the use of guarantee funds, the time allowed to settle a trade, etc.—in

countries’ clearing and settlement systems are a major constraint on global trading and may

impose risks on traders and investors. Defaults in a national clearing and settlement process

can propagate through other national systems, since multinational financial institutions may

be active in several national markets. Collapse of a major settlement system could endanger

financial systems in both its own and other countries.

Even in day-to-day operations, differences in clearing and settlement systems and in their

performances constrain some kinds of trading. For example, in Japan, settlement in equities

and bonds is normally on the third day after a trade (T+3) and in the United States it is

normally on the fifth day (T+5). An investor trading General Motors (GM) stock on both the

New York Stock Exchange (NYSE) and the Tokyo Stock Exchange (TSE) would have

trouble perfectly arbitraging his holdings. If the investor were to buy GM shares on the

NYSE and simultaneously sells them on the TSE, because the U.S. settlement period is 2

days longer, the GM shares would be delayed by 2 business days for the Japanese settlement.

If the investor were to buy GM stock on the TSE and sell GM stock that same day on the

NYSE, the shares could be available for the NYSE settlement because that is 2 days later

than Tokyo’s. The Japan Securities Clearing Corp. (JSCC)--through its link with

International Securities Clearing Corp. (ISCC) in the United States— holds the U.S. shares at

The Depository Trust Co. (DTC); therefore instead of physical movement of certificates there

simply would be a book entry delivery at DTC. The average number of days for settlement of

various financial instruments in different countries differs widely (figure 5-2). The number of



days for settlement varies widely among countries in each geographical region. As a result,

harmonized clearing and settlement is needed.

Trading in European markets, unlike in the United States, mostly does not rely only on stock

exchanges. In Japan, there is as yet no central depository, but there is a clearing and custody

system at TSE. Many European countries have depositories, but their functions vary from

country to country, and are often different from U.S. depositories.

There are three principal models for clearing and settlement in the world’s major stock

markets. The first model has no centralized depository or independent clearinghouse beyond

the stock exchange. The exchanges usually perform as many of the clearing and settlement

functions as are feasible. These include trade matching, confirmation, and some type of

settlement facility-usually a central location where market participants can deliver and

receive securities and payments. The equities market in the United Kingdom is an example.

The second model of clearing and settlement is one in which there is a central depository

structure, with trade matching and confirmation services provided by the exchanges. Once

trades have been matched and confirmed, the trade data are sent to the depository for

settlement. There are variations on this model with differing degrees of settlement services

provided by the depository. The depository may offer book-entry transfer of ownership of

immobilized securities, with limited provisions for varying payment methods. Or the

depository may provide book-entry transfer of dematerialized securities and the ability,

through direct links to local payment systems, to simultaneously and irrevocably transfer

funds for each settlement. An example is West Germany and its Deutscher Kassenverein

(KV) Depository system.

The third model has not only a stock market and a central depository, but also a

clearinghouse that stands between the stock market and depository to reduce risk. The stock

market, along with the clearinghouse, provides trade matching and confirmation services. A

trade is confirmed by the market participants and is then passed to the clearinghouse, which

substitutes itself as the counterpart to each trade. This gives a degree of financial assurance to

The markets since the clearinghouse will honour the obligations of a clearing member if

necessary. The clearinghouse then passes the trade information to the depository for delivery

versus payment on the settlement date. An example is the United States equities market.



In most European equities markets, there are no central clearing organizations that assume the

role of counterpart to every trade or provide other kinds of mechanisms to ensure the

financial integrity of all market participants in the clearing and settlement phase. Where there

is no third-party guarantee mechanism for trade settlement, market participants are forced to

choose their counterparties based on their own credit assessment.

But when a market ceases to be a closed structure with only a select group of participants

who know each other, the market must implement some standardized processes which can

offer a guarantee of financial integrity. When a national market encourages international

participation, it must try to ensure the continuing financial integrity of the market. The

current focus in Europe on the standardization or harmonization of clearing, settlement, and

depository systems is in preparation for the common market in 1992. The movement toward

increased coordination of clearing and settlement systems is, however, worldwide, stemming

from recognition of the increasing internationalization of securities trading.

Efforts to Reduce the Differences

Improvement of clearing and settlement for global or cross-border trading in equities is being

addressed by the Group of Thirty, an independent, non-profit organization of

businesspersons, bankers, and representatives of financial institutions from 30 developed

nations. The Group of Thirty addresses multinational financial and economic issues,

including Third World debt. The Group’s recommendations for the world’s securities markets

are aimed at ‘‘maximizing the efficiency and reducing the cost of clearance and settlement,”

and thereby reducing risk.

While the development of a single global clearing facility was not practical, agreement on a

set of practices and standards that could be embraced by each of the many markets that

makeup the world’s securities system was highly desirable, . . . and (reached) agreement that

the present standards were not acceptable.

Their recommendations are:

1.) All comparisons of trades between direct market participants (i.e., brokers, dealers,

and other exchange members) should be compared within 1 day after a trade is

executed, or “T+l.”



2.) Indirect market participants-institutional investors or any trading counterparties which

are not broker/dealers-should be members of a trade comparison system which

achieves positive affirmation of trade details.

3.) Each country should have an effective and fully developed central securities

depository, organized and managed to encourage the broadest possible industry

participation.

4.) Each country should study its market volumes and participation to determine whether

a trade netting system would be beneficial in terms of reducing risk and promoting

efficiency.

5.) Delivery versus payment should be the method for settling all securities transactions.

6.) Payments associated with the settlement of securities transactions and the servicing of

securities portfolios should be made consistent across all instruments and markets by

adopting the “same day” convention.

7.) A “rolling settlement” system should be adopted by all markets. Final settlement

should occur on T+3 by 1992.

8.) Each country should adopt the technical standard for securities messages developed

by the International organization for Standardization (ISO Standards 7775 and 6166).

CHAPTER 2:

Overview of Industry &

Company Profile



CHAPTER 2:

OVERVIEW OF INDUSTRY & COMPANY PROFILE

The Kotak Mahindra Group

Kotak Mahindra is one of India's leading financial institutions, offering complete financial

solutions that encompass every sphere of life. From commercial banking, to stock broking, to

mutual funds, to life insurance, to investment banking, the group caters to the financial needs

of individuals and corporate.

The group has a net worth of over Rs. 2,840 crore, employs around 7,800 people in its

various businesses and has a distribution network of branches, franchisees, representative

offices and satellite offices across 264 cities and towns in India and offices in New York,

London, Dubai and Mauritius. The Group services over 1.6 million customer accounts.

The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance

Limited. Uday Kotak, Sidney A. A. Pinto and Kotak & Company promoted this company.

Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and that's when the

company changed its name to Kotak Mahindra Finance Limited. Since then it's been a steady

and confident journey to growth and success.

Chart-3.1: Journey of Kotak

In October 2005, Kotak Group acquired the 40% stake in Kotak Prime held by Ford Credit International (FCI)and FCI acquired the stake in Ford Credit Kotak Mahindra (FCKM) held by Kotak Group. In May 2006, KotakGroup bought 25% stake held by Goldman Sachs in Kotak Capital and Kotak Securities.



1986 Kotak Mahindra Finance Limited starts the activity of Bill Discounting

1987 Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market

1990 The Auto Finance division is started

1992 Enters the Funds Syndication sector

1995 Brokerage and Distribution businesses incorporated into a separate company -Kotak Securities. Investment Banking division incorporated into a separatecompany - Kotak Mahindra Capital Company

1996 The Auto Finance Business is hived off into a separate company - Kotak MahindraPrime Limited (formerly known as Kotak Mahindra Primus Limited). KotakMahindra takes a significant stake in Ford Credit Kotak Mahindra Limited, forfinancing Ford vehicles. The launch of Matrix Information Services Limited marksthe Group's entry into information distribution.

1998 Enters the mutual fund market with the launch of Kotak Mahindra AssetManagement Company.

2000 Kotak Mahindra ties up with Old Mutual plc. For the Life Insurance business.Kotak Securities launches its on-line broking site (now www.kotaksecurities.com).Commencement of private equity activity through setting up of Kotak MahindraVenture Capital Fund.

2001 Matrix sold to Friday Corporation Launches Insurance Services

2003 Kotak Mahindra Finance Ltd. converts to a commercial bank - the first Indiancompany to do so.

2004 Launches India Growth Fund, a private equity fund.

2005 Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra Prime(formerly known as Kotak Mahindra Primus Limited) and sells Ford credit KotakMahindra.Launches a real estate fund

2006 Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company

and Kotak Securities

www.kotaksecurities.com



Kotak Securities Limited

Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, is the stock broking and

distribution arm of the Kotak Mahindra Group. The company was set up in 1994. Kotak

Securities is a corporate member of both The Bombay Stock Exchange and the National

Stock Exchange of India Limited & now the company is associated with SAXO Bank of

Singapore. Its operations include stock broking and distribution of various financial products

- including private and secondary placement of debt and equity and mutual funds. Currently,

Kotak Securities is one of the largest broking houses in India with wide geographical reach.

The company has four main areas of business:

(1) Institutional Equities,

(2) Retail (equities and other financial products),

(3) Portfolio Management and

(4) Depository Services.

Institutional Business: This division primarily covers secondary market broking. It

caters to the needs of foreign and Indian institutional investors in Indian equities (both

local shares and GDRs). The division also incorporates a comprehensive research cell

with sect oral analysts who cover all the major areas of the Indian economy.

Client Money Management: This division provides professional portfolio

management services to high net-worth individuals and corporate. Its expertise in

research and stock broking gives the company the right perspective from which to

provide its clients with investment advisory services.

Retail distribution of financial products: Kotak Securities has a comprehensive retail

distribution network, comprising approximately 7000 agents, 13 branches and over 20

franchisees across India. This network is used for the distribution and placement of a

range of financial products that includes company fixed deposits, mutual funds, Initial

Public Offerings, secondary debt and equity and small savings schemes.



Depository Services: Kotak Securities is a depository participant with the National

Securities Depository Limited and Central Depository Services (India) Limited for

trading and settlement of dematerialized shares. Since it is also in the broking

business, investors who use its depository services get a dual benefit. They are able to

use its brokerage services to execute transactions and its depository services to settle

these.

The company has been the first in providing many products and services which have now

become industry standards. Some of them are:

Facility of Margin Finance to the customers

Investing in IPO’s and Mutual Funds on the phone

SMS alerts before execution of depository transactions

Mobile application to track portfolios

Auto Invest - A systematic investing plan in Equities and Mutual funds

Provision of margin against securities automatically against shares in your De-mat

account



Awards and Reorganizations of the Kotak Securities Ltd.

Finance Asia Award (2006): Best Broker In India

Euro money Award (2005): Best Equities House In India

Finance Asia Award (2005): Best Broker In India

Asia Money (2004): Best Equity House in India

Finance Asia Award (2004): India's Best Equity House

Euro money (2004): Best Equity House in India

Prime Ranking Award (2003-04): Largest Distributor of IPOs



Key Developments of Kotak Securities Ltd.

Kotak Securities Ltd. and Saxo Capital Markets Pvt. Ltd. Launched Global Trading

Platform in Equities

05/29/2009

Kotak Securities Ltd. and Saxo Capital Markets Pvt. Ltd. have announced the launch of

Saxo's global trading platform in India. The company claim that the multi-award winning

platform would provide direct access to equities, ETF's and REITS spanning 24 stock

exchanges across the USA, Europe, Asia and Australia.

Kotak Securities Launches Online Trading Service

03/2/2009

Kotak Securities Ltd. has launched an online trading service to provide information on

currency derivatives and equity players. The platform will provide information on real time

basis, using the same trading system. The company now offers a single platform for

investments in equities, Mutual Funds and currency derivatives. Available margin can be

used for any of the three segments. The online trading service is expected to provide

opportunities to importers and exporters to hedge their future payables and receivables

facilitate borrowers who can hedge fiscal loans for interest and principal payments. The

service will also be a platform for resident Indians to hedge their offshore investments.

Salient Features Offered by Kotak Securities for their investors:

K.E.A.T: Kotak E-trading Access Terminal is the live terminal on your desktop. Wherever

you go, with you always. With K.E.A.T. you get live tick-by-tick updated rates.

Research & Advice: To assist you in your investment and trading, our team of experts and

professionals give you research reports on companies, industries and sectors for making

informed investment decisions research inputs and valuable recommendations.

SMS Alert: Get Free SMS alerts delivered to your mobile phone. This way you can be in

touch with market wherever you are.



Call & Trade: Call and Trade enables you to while or the move. Make a call from where

ever you are and get your market on your phone.

Portfolio Advice: Get Free Portfolio Advice and constantly monitor the value of your

portfolio with inputs from our expert advisor.

Margin Trading: To help you invest in your dream stocks, we offer you margin Trading

Facility.

Easy IPOs: With you easy IPO service, you can now apply for IPOs at a click of a button.

You can even place your bid over the phone. Which means, no more hassles of standing in

long queues and tedious paperwork.

Easy Mutual Funds: Easy Mutual Funds is a one stop-shop for multiple mutual funds. All

you have to do is log on our website or simple cause and invest in the Mutual Fund of your

choice. (Presently 8 Mutual Funds are available for investing)

Easy Payment: Kotak Securities, in collaboration with HDFC bank, UTI Bank, Citi Bank

and Kotak Mahindra Bank provides online payment facility. You can make and receive you

payment directly to your bank account. Therefore, no hassle of going to the bank and stand in

long queues, also hassle free transaction of your money at any time form anywhere across the

globe. Investment options for every one

They have a wide range of products according to investor’s requirements. One can choose

from the following list the plan best suited to your investment needs.

Kotak Research Products

Market Morning: A daily dose of vital market information with concise technical review of

the index along with technical support and resistance of the select stock.

Daily Morning Brief: The Daily Morning Brief features economy and corporate news

enabling buy/sell calls based on the company fundamentals. It also lists bulk deals, Nifty

gainers and losers and forthcoming corporate events.

Stock Ideas: A detailed report based on company fundamentals covering research team

analysis of several pick of the companies, which are primarily strong and offer high returns.



Sector Reports: The research team regularly studies various factors, which could impact a

particular sector. It provides a list of all stocks / companies which could either be affected

positively or negatively and give recommendations on the same.

Weekly Technical Analysis: A definitive tool that besides summarizing the calls for the

week.

Monthly Research Reports: A consolidated report of all the research calls \ given during the

month with insights that enable wise financial decisions in a time bound manner.

SMS Alerts: Critical information on the move. Get FREE SMS Alerts delivered to your

mobile phone and stay in touch with the market wherever you are.

Core strengths of Kotak Securities Ltd.

1. Convenience: Through these services investors care trade on a chair, he can buy and

sell shares self not depend upon any broken. In this system any cheque or paper is not

required.

2. Speed: One can get the latest quotes of scripts on Kotak Security.com and place an

order almost instantly.

3. KEAT: Software provide the best Terminal for the investors within the help of KEAT

investor get profile of any company and see sensex, share prices, nifty and up and

down market position.

Things you can do with KEAT –

Live ticker rates

Speedy transactions

Script alerts

Customize watch list

View status of orders

Intraday alerts and exchange messages.

Trade report, net position report, exercise report.

Company research



4. Satisfaction: Within Kotak investors satisfy within its services. They care transfer

funds from trading account to their saving account within only 30 seconds and

withdrawal by ATMs.

5. Centralized back office: We have a centralized back office in Mumbai, which has a

work force of over 500 dedicated people

6. Robust Direct Sales Force: Our strong and well-networked direct sales force of over

650 executives is available you to sound investment solutions in an ever changing

market environment.

<

Products Range

Kotaksecurities.com offers you a range of products and services to meet your

investing needs. Whether you are a savvy investor or just getting started, you would find our

services just right to meet your specific needs.

a) Kotak Gateway Account: If you are new to do trading, open a Kotak Gateway account

with kotaksecurities.com. It’s a basic account that always you to do trading over the

Internet and phone. Offering ease and convenience, Kotak Gateway Account allows you

to make smart investments through its research-based assistance.

You can activate Kotak Gateway Account with any amount less than Rs 1, 00,000/- as

margin, by way of cash.

With Kotak Gateway account you can avail of the following:

4 times exposure on the margin.

Access to K.E.A.T Desktop.

Research Reports on companies, industries and sectors for making informedinvestment decisions.

Research Advice via SMS.

Call and Trade facility.

Free news and updates on the markets.

Access to 8 mutual funds.



b) Kotak Value Account: The intelligent investor in you has always opted for something

smarter. Kotaksecurities.com offers you Kotak Value Account, an easy and convenient

account that allows you to trade over the Internet and phone. You can also avail of

Research-based reports to make smarter investments.

You can activate Kotak Value Account with any amount between Rs. 1, 00,000/- and Rs.

5, 00,000/- as margin, by way of cash.

With Kotak Value Account you can avail of the following:


Access to K.E.AT Desktop.

Research Reports on companies, industries and sectors for making informedinvestment decisions.


Call and Trade facility.

Lower delayed payment interest.

Margin finance.

Free news and updates on the market.

c) Kotak Privilege Circle: Why stop at anything when you can potentially do so much more

with your money. Open a Kotak Privilege Circle Account – make more, make most, with

all our premium services readily available for you.

You can activate a KPC Account any amount more than Rs. 10, 00,000/- as margin, by

way of cash or stock.

In the Kotak Privilege Circle you can avail of the following:


Access to K.E.A.T Premium.

Assistance in terms of Research Reports on companies, industries and sectors for

making informed investment decisions.


Call & Trade facility.

Lowest delayed payment interest.



Margin finance at attractive rates.

Dedicated KPC customer service desk available for assisting right from opening the

account to handling day-today problems.

Assistance from Relationship Managers for taking care of all your investment needs.

Free news updates from the market.


d) Kotak High Trader Account: Kotak High Trader Account offers you higher exposure. It

is an Auto Square Off product where only Intra-Day trading can be done and all open

orders will be automatically squared off at 3:10 pm.

You can activate Kotak High Trader Account with any amount less than Rs. 5, 00,000/- as

margin by way of cash or stock.

With Kotak High Trader Account you can avail of the following:



Assistance in terms of Research Reports on companies, industries and sector formaking informed investments.

Research advice via SMS.

Free news and updates from the market.

Access to mutual funds.

In this product you get charged the normal brokerage according to the slab you fall in. At the

start of the month you will get charged at the slab. At the end of the month based on your

volumes during the month, your effective slab will be calculated and you will be reversed the

brokerage if any.

e) Kotak Freeway Account: This product is designed for the intraday trader .One can pay a

flat fee of Rs.999 as brokerage and trade unlimited number of times.

You can activate Kotak Freeway Account with any amount less than 1, 25,000/-as margin, by

way of cash or stock



With Kotak Free way account you can avail of the following:



Assistance in the terms of Research Reports on companies, industries andsectors of making informed investments.

Research advice via SMS.

Free news and updates from the market.


Delivery transactions will be charged according to normal slab rates. Intraday transactions

will have a service charge of 0.03% on both sides. Brokerage Structure indicated as KPC

account in attached details.

f) Kotak Trader Account: Kotak Trader offered by Saxo Capital Markets is an easy-to-use,

fully customisable platform that integrates all of the trading, analysis, price monitoring

and updates all in one interface.

Kotak Trader offers many important features that help you trade more effectively.

Here is what you get:

Direct trading on live tradable prices on agreement with specific exchanges

Trades in Stocks, ETFs, ADRs & GDRs

Trading in 24 different exchanges across the globe

Market analysis from Saxo Capital Markets

News from AFX, Dow Jones Newswire, Market News International

2-way dealer chat - direct access to dealers at Saxo Capital Markets

Kotak Securities is the official introducing broker for Saxo Capital Markets Pte Ltd.

Singapore. This exclusive relationship gives you the power to trade in 24 International

Exchanges through a single trading platform, Kotak Trader - powered by Saxo Capital

Markets.



Awards are testimony to the fact that Kotak Trader offered by Saxo Capital Markets is among

the best trading platforms available. Easy to use and fully customizable, Kotak Trader

integrates trading, analysis, price monitoring and updates functions all into one interface

The Kotak Trader platform keeps you updated with the latest news updates and various

information with regards to the global markets.

Following are some frequently asked questions when I interacted with investors

How do I trade in international market?

Trading in International Capital Markets is very simple. You just need to open an account

with Saxo Capital Markets through Kotak Securities. Once your account is opened and funds

are transferred, you get access to trade on Kotak Trader through which you can trade in 24

different international exchanges. In addition to live trading and direct access to your

account, Kotak Trader offers a wealth of trading information such as real-time quotes, charts

and analysis to help you make successful trading decisions.

What are the products offered through Kotak Trader?

As per the remittance norm of the RBI, an Indian citizen can remit money for investments in

international capital markets under the liberalised remittance norm, subject to maximum US$

200,000.

Kotak Trader offers trading in equity market through 100% cash and carry system.

ETFs, ADRs & GDRs can be traded through Kotak Trader.

What is Kotak Trader?

Kotak Trader is a trading platform offered by Saxo Capital Market Pte to the clients

introduced by Kotak Securities Limited. With Kotak Trader, you get access to trade in 24

different international exchanges. In addition to live trading and direct access to your

account, Kotak Trader offers a wealth of trading information such as real-time quotes, charts

and analysis to help you make successful trading decisions. This trading Platform is owned

and managed by Saxo Capital Markets Pte. Your trade on Kotak Trader is processed through

Saxo Capital Market Pte without any interference of Kotak Securities Limited.



What are the advantages of Kotak Trader?

This trading platform offers many important features to help you trade more effectively. Here

is what you get:

Trading in 24 different exchanges across the globe

Direct trading on live tradable prices on agreement with specific exchanges

Market updates from Saxo Capital Markets

Analysis from the team at Saxo Capital Markets

News from AFX, Dow Jones Newswire, Market News International

2-way dealer chat - direct access with the dealers at Saxo Capital Markets

Which all international exchanges can I trade in?

You can trade in 24 exchanges across the globe,

Table 4.1: 24 stock exchanges

Country Exchange name ExchangeTradinghours(GMT)

BrokerageRate

United States ofAmerica

American Stock Exchange AMEX 04:00 - 04:00 0.75%


NASDAQ Capital Market NASDAQ SC 13:30 - 20:00 0.75%


NASDAQ Global Markets NASDAQ NM 13:30 - 20:00 0.75%


New York Stock Exchange NYSE 04:00 - 04:00 0.75%


NYSE ARCA NYSE_ARCA 13:30 - 20:00 0.75%


OTC Bulletin Board on NASDAQ OTCBB 13:39 - 20:00 0.75%


Other OTC on NASDAQ (PinkSheets)

OOTC 13:30 - 20:00 0.75%

United Kingdom London International Exchange LSE_INTL 08:00 - 14:40 0.75%

United KingdomLondon Stock Exchange SETSMarket

LSE_SETS 07:00 - 15:35 0.75%

Australia Australian Stock Exchange Ltd. ASX 14:00 - 14:00 0.75%

AustriaWiener Börse (Vienna) StockExchange

VIE 07:21 - 15:34 0.75%

Belgium Euronext Brussels BRU 07:00 - 15:35 0.75%

Denmark OMX Copenhagen CSE 07:00 - 15:00 0.75%

Finland OMX Helsinki HSE 21:00 - 21:00 0.75%

France Euronext Paris PAR 22:00 - 22:00 0.75%

Germany Frankfurt /Xetra Stock Exchange FSE 07:00 - 15:35 0.75%



Hong Kong Hong Kong Stock Exchange HKEX 02:00 - 08:00 0.75%

Italy Milano Stock Exchange MIL 22:00 - 22:00 0.75%

Netherlands Euronext Amsterdam AMS 22:00 - 22:00 0.75%

Norway Oslo Stock Exchange OSE 22:00 - 22:00 0.75%

Portugal Euronext Lisbon LISB 23:00 - 23:00 0.75%

SingaporeSingapore Exchange SecuritiesTrading Limited

SGX-ST 01:00 - 09:06 0.75%

SpainSistema De Interconexion BursatilEspanol

SIBE 07:00 - 15:35 0.75%

Sweden OMX Stockholm - First North SSE_FN 22:00 - 22:00 0.75%

Switzerland Swiss Exchange SWX 07:00 - 15:30 0.75%

Switzerland SWX Europe VX 07:00 - 15:30 0.75%

How do I remit money?

Once you provide the documents of due diligence and the same are approved by Saxo Capital

Markets, you will be informed that the account is ready for funding. On receiving this

information you can remit maximum of USD 200,000 annually from any of the authorised

banks in India to Saxo Capital Markets, Singapore.

Saxo Capital Markets accepts fund transfer through many major financial institutions around

the world. Saxo Capital Markets will only accept funds originating from a bank account held

in client's name. Funds from any third party's account will be rejected and returned less

Intermediary Banks fees. Saxo Capital Markets does not accept Bankers Drafts, Cheques or

Cash deposits.

You have to go to bank and fill up A2 Form and Remittance Request Form. Along with that

you need a PAN card copy. If the account is less than one year old you need submit the one

year tax return certificate. If the account in older than one year, only bank statement copy is

required.

Note: Actual requirement may vary from bank to bank, above given details are indicative of

the process generally followed.



How much time does it take to remit/withdraw money?

It will take around 24 to 48 hrs to remit money from your bank account to your account in

Saxo Capital Markets.

To withdraw money it will take around 48 to 72 hours from your account in Saxo Capital

Markets to your bank account.

How do I know that my funds have been transferred?

As soon as Saxo Capital Markets receives the funds, it will be credited to your trading

account. Once the funds are shown in your account you will be receiving an activation email

with a download link, User ID & Password.

In what currency can I remit money?

You can remit the money in as many as 13 currencies (Australian Dollar, Swiss Franc,

Danish Kroner, Euro, Pounds Sterling, Hong Kong Dollar, Japanese Yen, New Zealand

Dollar, Swedish Kroner, Singapore Dollar, Thai Baht, US Dollar). All your transactions will

be done in a base currency.

Do I get any kind of recommendations to trade or get updates on the international

financial markets?

Clients are updated by Saxo Capital Markets regularly on all the important moves in

international equity market. Experts at Saxo Capital Markets help clients by providing

recommendation to invest in international equity markets through various reports like Equity

Market Updates, Trading Strategies, Weekly Updates, and Global Reports etc...

Do I get latest news related to international equity markets and my investments?

At Kotak Trader you are provided with latest updates on the international financial markets.

The news that will affect your portfolio will be immediately flashed in the trader so that you

don't miss any opportunity. Three of the major and renowned news providers namely AFX,

DOW Jones Newswire and Market News International provide updates of the latest

happening in the market.



What services will I receive as a client trading in International Equity Market through

Kotak Trader?

Being a client of Saxo Capital markets you will receive all kind of support from them to

invest in the international equity market. Though you will be doing most of the activity online

but still you will be assigned with an Account Executive by them who will take care of all the

requirements related to your account to trade on Kotak Trader. Your Account Executive will

act as your primary contact person with Saxo Capital Markets and can be contacted through

online chat facilities available at Kotak Trader or by telephone or e-mail.

Kotak Securities in India

Andhra Pradesh Assam Bihar Chhattisgarh

Delhi Goa Gujarat Haryana

Jammu & Kashmir Jharkhand Karnataka Kerala

Madhya Pradesh Maharashtra Orissa Punjab

Rajasthan Tamil Nadu Uttar Pradesh Uttaranchal

West Bengal

CHAPTER 3:

Objectives of the Study &




CHAPTER 3:

OBJECTIVES OF THE STUDY & RESEARCH METHODOLOGY

Objectives

This study has been conducted with a variety of important objectives in mind. The following

provides us with the chief objectives that have tries to achieve through the study. The extent

to which these objectives have been met could be judged from the conclusions & suggestions,

which appear later in the study.

The Chief objectives of the study are:

To study the product & services provided by Kotak Securities.

To know the consumer perception towards Kotak’s new product Kotak Trader.

To know about what are the considerations, that a investors keeps in his/her mind

while investing

To study the factors influencing the investment by investors

To study the unique constraints that would be faced by investors in International

Investment.

To get suggestions for the improvement or change in services of Kotak Securities Ltd.


Research is defined as human activity based on intellectual application in the investigation of

matter. The primary purpose for applied research is discovering, interpreting, and the

development of methods and systems for the advancement of human knowledge on a wide

variety of scientific matters of our world and the universe. Research can use the scientific

method, but need not do so.

Research methodology means a “defining a problem, defining the research objectives,

developing the research plan, collecting the information, analyzing the information &

presentation of findings.” Such framework is called “Research Design”.

Research Methodology is search for knowledge objectives and systematic method of finding

solution to a problem in a research. It may be understood as a science to study how research

is done scientifically.



Research methodology is a way to systematically solve the research problem. The research

methodology includes various methods and techniques for conducting a research. D.Slesinger

and M.Stephenson in the encyclopedia of social sciences define research as" the manipulation

of things, concepts or symbols for the purpose of generalizing to extend, Correct or verify

knowledge, whether that knowledge aids in construction of theory or in the practice of art.

Research simply means the search for facts answer to the questions and solutions to

problems. It is a purposive investigation. It is an organized inquiry. In other words research

means search for knowledge and Research methodology is a way systematically solve the

research problems. It is science of studding how the search is actually done. It presents the

sources of data collection, the sampling procedures, and tools of investigation and limitations

of the study.

I decided to do the project in two parts. The first part of the project is comprised of the study

of Global securities market as a whole and the second part deals with the investor’s

perception regarding their investment preferences about investment in global market.

The first part of the project i.e. descriptive study comprises an overall study of global

securities market as what it is, why to invest and where to invest; risk factor associated with it

i.e. an overview of whole global securities industry.

The second part of the project that is related to investors’ perception about investment in

Global Securities Market. Indian Stock market has undergone tremendous changes over the

years. Investment in share market has become a major alternative among Investors. The

project has been carried out to understand investor’s perception about investing in companies

registered in other countries in the context of their trading preference and explore investor’s

risk perception. The first part of the project relating the study of Global securities market is

collected through secondary data obtained from internet & books whereas the second part

relating the Investors perception about investment in Global market is covered using primary

data.

The research plan that was followed by me consisted following steps;

A) Defining the problem

B) Developing the research plan

C) Collection of data

D) Analysis of data

E) Presentation of findings



Defining the problem

My research problem is to study the new product launched by Kotak securities i.e. KOTAK

TRADER. In which an investor can trade in worlds 24 stock exchanges.

Developing the research plan

The development of research plan has following steps

1. Data source

2. Research approach

3. Research instrument

4. Sampling plan

i. Sample unit

ii. Sample size

iii. Contact methods

5. Questionnaire design

Data Source: The researcher can get two types of data:

a) Primary data

Primary data is a data which did not exist earlier & is being collected by the researcher

first time for his specific objectives. In other words, direct collection of data from the

source of information, technology including personal interview, telephonic interviews,

observations, Questionnaire & through schedules

b) Secondary data

Secondary data is data collected by someone other than the user. Common sources of

secondary data for social science include censuses, surveys, and organizational

records. Primary data, by contrast, are collected by the investigator conducting the

research. Such as:

Published statistics: Census, housing and social security data, and so on

Published texts: Theoretical work, secondary analyses by ‘experts’ and reports

Media: Documentaries for example, as a source of information

Personal documents: Diaries

Case studies and literature Reviews.



For collecting the secondary data, the literature review has been done, case studies

have been carried out, published texts and statistic have been used, and media

(especially internet) and personal contacts have also been utilized.

Research Approach

Survey is best suited for the descriptive & analytical research. Survey are undertaken to learn

about people’s knowledge, beliefs, preferences, satisfaction & so on & to measure these

magnitudes in the general public. Therefore, I have done survey for conducting my research

project.

Descriptive research includes surveys & fact finding enquiries of different kinds. The main

purpose is description of the state of affairs is noted down & analytical research used to

analyze the material & facts.

Research Instrument

Questionnaire: A questionnaire is a research instrument consisting of a series of questions

and other prompts for the purpose of gathering information from respondents. Although they

are often designed for statistical analysis of the responses, this is not always the case.

A questionnaire was constructed for my survey

Sampling Plan

Sampling is that part of statistical practice concerned with the selection of individual

observations intended to yield some knowledge about a population of concern, especially for

the purposes of statistical inference. Each observation measures one or more properties

(weight, location, etc.) of an observable entity enumerated to distinguish objects or

individuals. Survey weights often need to be applied to the data to adjust for the sample

design. Results from probability theory and statistical theory are employed to guide practice.

In business, sampling is widely used for gathering information about a population.

The sampling plan calls for three decisions:

Universe: It constitutes all the elements of the population who are investing in

securities market. All the persons who are using on line or offline share trading

method for trading with shares.

Sampling Unit: Research sample unit refers to the geographical area that I have

covered while conducting the research. The sampling unit contains all Men and



Women of Business Class, Industrialist as well as the Small Investors who are the

residents of the Jalandhar.

Sample Size: This refers to the number of respondents to be selected from the

universe to constitute a sample. Large samples give more reliable results than small

samples. The sample of 100 respondents has been taken for this study. The sample

size contains all the Men and Women of Business Class, Industrialist as well as the

Small Investor who are residing in Jalandhar.

Sampling Technique: A sample technique is a plan for obtaining a sample from the

given population. It refers to the techniques or the procedure the researcher would

adopt in selecting the sample. The sampling technique which has been used for this

study is basically Convenience Sampling, which is basically a part of the Non-

Probability Sampling. The reason behind taking this technique was as we met only

those respondents who make investments

Questionnaire Design:

There are 14 questions in my questionnaire & I asked all these questions from 100

respondents in Jalandhar & Nakodar city.

Collecting Information:

After this I have collected the information from the respondents with the help of

questionnaire.

Data analysis & Interpretation

The next step is to extract the pertinent findings from the collected data. I have tabulated the

collected data & developed frequency distributions. Thus, the whole data was grouped aspect

wise & was presented in tabular form. Thus, frequency & percentages were prepared to

render impact of study. I have used the factor analysis method in order to know about the

various considerations of respondents about international stock trading.



Significance:

Significance of the project is to find out prospect investors of International stock trading and

also to provide key information about the investor’s perception and preferences by Global

securities market. The study will help in getting information about their performance at

distributors as well as at their own investment centre or why people will go for trading in

international stock exchanges. Study will also helps in finding out the problems related to

distribution.

Managerial Usefulness of Study:

The study also provides the problems related to trading in international stock

exchanges so that they can improve the service rendered by them as a distributor.

The study will also give information about prospective investors both individual as

well as institutional clients in areas of surrey where they can get lead.

The study provides the complete information about all close competitors in

brokerage houses who are providing the same service.

It provides the AMC a feedback from customers regarding their problems and

perception about investing in global exchanges so that they can improve their

services.

To study the global securities market industry in detail.

To study the Investment procedure in global securities market.

To study the investors Preference regarding Investment in international stock trading.

Scope of the Study:

In current scenario, the bank rates have been cut down rapidly due to severe

competition, so people are not going for contemporary deposits because that cannot

provide them the better returns or the desired interest rates. So, they can look for some

new investment options like investing in other countries, which can provide them

higher returns in medium to long term and can easily meet their financial goals.

To look out for new prospective customers who are willing to invest in global market



Limitations of the Study

Awareness level of peoples affected the research. Lack of awareness of Stock market

among respondents.

The sample size taken may not be sufficient to predict the results with 100% accuracy.

For a study like this o ne a still bigger sample size would have been appropriate.

The information given by the respondents might be biased because some of them might

not be interested to give correct information.

Some of the respondents of the survey were unwilling to share information.

The research was carried out in a very short time period. Therefore the sample size

and other parameters were selected accordingly so as to finish the work within the given

time frame.

CHAPTER 4:

Data Presentation,

Analysis & Interpretation



CHAPTER 4:

DATA PRESENTATION, ANALYSIS & INTERPRETATION

All the analysis has been made on the basis of the data collected through the questionnaire.

What is your experience in stock market?

Options: a) Less than a year, b) 2 to 3 years, c) More than 4 years

The motive behind having this question was to what experience the respondents have in share

market so that the further questions can be analyzed on the vary basis of the experience the

respondents have.

Chart: 8.1: Experience held by investors/respondents

25%

40%

Experience holded by Investors



CHAPTER 4:







respondents have.


35%

25%

Experience holded by Investors

Less than a year

2 to 3 years

More than 4 years



CHAPTER 4:







respondents have.


Less than a year

2 to 3 years

More than 4 years



Q 2: How do you trade?

Options: a) Online, b) Offline

The main idea behind keeping this question in the questionnaire was to study how do

investors/ respondents trade. If a respondent is using an online account to trade that would be

easy for him to avail the new product KOTAK TRADER, which can be availed only through

online trading.

Chart 8.2: No. of Online & Offline clients

Inference

It can be concluded from the graph that most of the respondents prefer to buy the stocks

online, & also the major online investors include investors who have experience of less than a

year while in case of investors having experience of more than 4 years are equal in number in

trading online & offline, this might be due to the reason, they don’t know how to operate

computer. So Kotak Securities will not face much problem as their new product can be

availed only through online account.

24

11

15

10

20 20

Online Offline

Online vs. OfflineLess than a year 2 to 3 years More than 4 years



Q 3: At what hours you trade?

Options: a) Office hours, b) Non office hours, c) Free hours only, d) Market Hours

The main idea of keeping this question was to study the preference of the trading hours. As

we talking of international trading so different time zone is one of the main constraints in it.

So this question was added to know what are the timings at which the Kotak will have to

provide facilities.

Chart 8.3: Trading hours preferred by investors

Inference

It can be concluded from the graph that most of the respondents prefer to trade on market

hours, but still a major chunk of new investors who are fresh in the market prefer non office

hours than market hours. So Kotak will have to make some information available to clients

about the timings of different stock exchanges so that the clients do not face any problem

regarding the timing.

5

20

0

10

0

5 5

15

41

3

32

Office hours Non office hours Free hours Market hours

Trading Hours prefferd by investors havingdiifrent exprience in market

Les than a year 2 to 3 years More than 4 years



Q 4: Do you feel international trading will be safe?

Options: a) Yes, b) No

The main motive of adding this question in questionnaire is to know the perception of

investors for the international stock trading.

Chart 8.4: Is international stock trading safe

Inference

It can be concluded from the graph that we have both type of respondents, one those who

think that international trading would be safe & others who think it would not be safe. The

major parts of total respondents who think that international stock trading will be safe are the

new investors who have less experience.

26

9

13 1212

28

Yes No

Is International stock trading safe?Less than a year 2 to 3 years More than 4 years



Q 5: Would you like to invest in International stock exchanges?


Chart 8.5: Investors preference to invest in international stock exchange

Inference

The conclusion that can be drawn from the data collected is that most of the respondents are

ready to invest in global market. Since there were some respondents who are not willing to go

for investment in global market but still the majority of the respondents are willing to do

trading in global market.

23

1211

14

22

18

0

5

10

15

20

25

Yes No

Les than one year 2 to 3 years More than 4 years



Q 6: Do you think international trading would help Indian stock market to grow?


Chart 8.6: What do investors think about the effect of international trading on Indian

Market

Inference

This chart is showing the perception of the investors for effect of international stock trading

on Indian Market. From the above graph it is clear that out 100 respondents, 15+11+23=49 so

49 % of respondents think it will help Indian market to grow, while 51% think this may not

have a positive effect.

15

20

11

14

23

17

0

5

10

15

20

25

Yes No

Les than a year 2 to 3 years More than 4 year



Q 7: Your trading preference is

Options: a) Speculation, b) Investment, c) Both

Chart 8.7: Investor’s trading preference

Inference

This chart is showing the trading preference of investors i.e. what do they like to do in stock

market either they like speculation or they like investment or both. From the above graph it is

clear that out 100 respondents, majority respondents prefer speculation specially the

fresher’s, that might be because of the speedy movement of money, while 35% of

respondents like investment( delivery) while the rest 16 % respondents have expressed their

preference for both.

27

53

12

7 6

10

23

7

Speculation Investment Both

Speculation Vs. InvestmentLess than one year 2 to 3 years more than 4 years



Q 8: What factors do you consider when you trade in securities market

Options: a) Security, b)Instant online transfers, c)Time Zone difference, d) Convenience,

e) Foreign Exchange, f) Availability of information about the company, g)Lot size,

a) Total investment, h) Popularity of security, i) Historical returns of company

Chart 8.8: Factors considered by investors while investing

Inference

As the above data is presented in simple bar graph chart. The conclusion that can be made is

that, most of respondents considered SECURITY, TIME ZONE DIFFERENCE, FOREIGN

EXCHANGE, AVAILABILITY OF INFORMATION ABOUT THR CO., are the most

considered factors while investing by the investors. So Kotak will have emphasise on such

things which will help investors in overcoming the constraints.

75

20

79

45

90 90

55 57

15 15 11

47

7

2127 25

1510

65

5 8 4

7973

1423

2 3 6 8 5

Factors considered by investors while investingMost Considered Moderately Considered May be Considered Not a Consideration



Q 9: Have you heard of new product of Kotak Securities in which their client can trade

in 24 stock Exchanges of World?


If yes from where...................................................................................................................

Chart 8.9: How many people knew about KOTAK TRADER

Inference

This is the response that can make Kotak officials to think something for their product. As the

graph is self explanatory. Only 28 % of respondents were aware of their new product that too

through some internet & a few were told by the customer care. Rest 78% were totally

unaware of the KOTAK TRADER. So I would recommend the relationship manger & the

marketing department of the organization to make strategies to communicate clients about

new product which is being offered.

28

72

0

10

20

30

40

50

60

70

80

Yes No

Invetors



Q 10: Do you think availability of such a platform where you can trade in worlds 24

stock exchanges will help in attracting new investors?


Chart 8.10: will this new product will help Kotak in attracting new investors

Inference

This question does not give us much useful data because 52 % of respondents said they think

it would help Kotak to attract new investors & on the other hand 48% said they don’t feel so.

So can’t be at some decision from this question but still we can say more people think that

this product can help the Kotak to attract new investors.

52

48

46

47

48

49

50

51

52

53

Yes No

Investors



Q 11: How do you find the fundamentals analysis & technical analysis of companies in

which you invest?

Options: a) Brokerage house, b) Co. Website, c) NSE Web Site, d) Professionals

Chart 8.11: How do investors get fundamental & technical analysis about companies

Inference

From the above graph it is clear that majority of the respondents have get information

regarding fundamental & technicals of the companies through brokerage housed, then co.

Website & then NSE website. Very few investors approach professionals for the investment

guidance.

0

5

10

15

20

25

30

Brokerage house Co. Web site NSE web site Professionals

Online

Offline



Q 12: What obstacles do you think you will face in international stock trading?

Options: a) Forex Conversion, b) Clearing & Settlement, c) Time zone,

d) Slow Processing, e) Unavailability of information, f) Difference in Accounting Standards

Any other: ............................................. . (Can choose more than one)

The goal behind keeping this question was to know the obstacles that, respondent’s think they

will face while making the international investments. One respondent can face more than one

obstacle in making international investment

Chart 8.12: Obstacles faced by Investors

Inference

From the above graph it is clear that majority of the respondents thinks the Forex Conversion,

Clearing & settlement & time zone difference will be the main obstacles that they would face

in international stock trading, but a very few think that the processing will be slow & same

was the response about accounting standards.

0

10

20

30

40

50

60

70

80

Forexcoversion

Clearing &settelment

Time zone Slowprocessing

Unavilebilityof

information

Diffrence inaccountingstandards

Obstacles

Obstacles



Q 13: What amount of brokerage you would be ready for international trading?

Chart 8.13: Brokerage clients are ready to pay

a)

1$, b) 2$, c) 1.5$, d) 3$, e) Can’t say

Inference

Majority of respondents/ investors didn’t have any idea about what amount of brokerage they

would be ready to pay. As we see in the char 83 % of investors said Can’t Say.

0

10

20

30

40

50

60

70

80

90

1$ 2$ 1.5& 3$ Cant say

Respondents

respondents

Chapter 5:

SUMMARY, CONCLUSION &

RECOMMENDATIONS



Chapter 5:

SUMMARY, CONCLUSIONS & RECOMMENDATIONS

Findings of the study

From the above study it was clear that due to new product (Kotak Trader) maximum

of people are not aware of the International stock trading. Only 28 % people were

aware of it & the rest were unaware. & those who were aware are the online clients &

they too came to know about it from internet only.

From the above study it is clear Kotak securities’ majority of clients are ready to

invest in international market. About 56 % of respondents were in favour of investing

in global exchange & majority of them think it will be safe to invest in global market.

From the above study it is evident that Kotak securities Jalandhar. Branch is lacking

in marketing aspect as very few people knew about their new product KATAK

TRADER.

From my study we came to know that most of respondents trade during market hours,

so Kotak securities will have to make special arrangement to harmonize their clients

timing with the timing of the stock exchange in which he/she ids trading.

The study also indicates that the respondent who had experience of more than 4 years

think that, such a platform for global securities trading will help Indian market to

grow.

The study also helps the Kotak securities to know about the beliefs of investors they

have for the factors they will be considering while investing in international market.

For e.g. Majority of respondents said SECURITY, TIME ZONE DIFFERENCE,

AVAILEBILITY OF DATA ABOUT CO., is the most considerable factors.

The study also indicates that, when the respondents came to know about the new

product of Kotak trader, majority of them were ready to invest in international market.

About 56% said they would like to invest outside the country

From the study we came to know about the various obstacles, which investors will be

facing while trading in international market.

Some of these were: Time zone difference, Forex conversion, clearing & settlement

etc.



Summary &Conclusion

At first sight, the idea of investing internationally seems exciting and promising because of

the many benefits of international portfolio investment. By investing in foreign securities,

investors can participate in the growth of other countries, hedge their consumption basket

against exchange rate risk, realize diversification effects and take advantage of market

segmentation on a global scale. Even though these advantages might appear attractive, the

risks of and constraints for international portfolio investment must not be overlooked. In an

international context, financial investments are not only subject to exchange risk and political

risk, but there are many institutional constraints and barriers, significant among them a

complexity of tax issues. These constraints, while being reduced by technology and policy,

support the case for internationally segmented securities markets, with concomitant benefits

for those who manage to overcome the barriers in an effective manner.

In this regard, the different channels available to acquire foreign securities come into focus.

The most obvious way to invest internationally consists in the purchase of foreign securities

directly/either abroad as a foreign direct share via a domestic or foreign broker, or at home in

case shares or DRs of foreign companies are traded in the domestic market. Although

investing in foreign securities is becoming easier every day as more and more investment

banks offer non-resident investment accounts to their clients and the number of companies

that are listed at several exchanges in the world is increasing, there are still significant

barriers and complexities to this strategy such as transactions costs and lack of information.

In the face of these obstacles to the acquisition of foreign securities, it might be most sensible

for the private investor to consider investing in international mutual funds, preferably those

that are linked to a world capital market index _with the problem still remaining as to what

appropriate index/benchmark would be. Thus, a maximum of diversification can be exploited

at low transactions cost and management fees. Finally, some ‘‘fine-tuning’’ will be necessary

to account for the consumption pattern of the investor by shifting the portfolio towards the

national index.

Kotak Securities Ltd. Lay emphasis on providing value added products & quality services

which are responsive to financial needs of customers. The Kotak Securities Ltd provides

various schemes & the latest one with the collaboration with the SAXO Bank of Singapore,

through which their online clients can trade in worlds top 24 stock exchanges. Kotak



Securities Ltd. Has emerged as one of the biggest players in the financial services distribution

industry in country. In short financial position as well as operating position of the Kotak has

improved. Kotak Securities has also adopted the latest technology of online trading; they

completed 9 years of online trading on 14th of august 2009. After conducting the study with

reference to their new product & the results we got from it, one can easily conclude that there

is good scope for their new product Kotak Trader. Many clients are ready to invest in global

market.

Recommendations

Based on the study conducted the following suggestions are given to the Kotak Securities ltd,

Jalandhar branch.

24 hours securities trading should be inducted so as to facilitate the customers who

may be trading in the stock exchange which have difference in time zone.

More Relationship managers should be appointed to cover the marketing aspect

Kotak should bring out the brokerage structure in such manner that the investor is

attracted with its lower prices

In order to create awareness regarding the various products & services provided by

Kotak, various medium of media can be put to use to advertise about the same

New strategies should be made by Kotak which enables them to face the competition

with other brokerage houses like AnandRathi, Unicorn, Religare & Indiabulls

The branch should promote cooperation & coordination among employees which help

them in efficient working

First Aid Kit for New Entrant into Securities Market: This will be a new step

towards a good service provider in this field. After all, this market depends on the

after sales service. After seeing such a boost in the share market, not only our Adult

generation but also the young generation is also so much excited to enter the share

market. Now the actual problem starts especially with the young ones in excitement

initially they invests the money & due to lack of experience they lose big block of

money in one go & later they blames the company about the loss. So, to make them



train in the field we should provide them the initial precautions that they should take

while enter into the market.

“The More You Care For Your Customer More the Faith

Will Get Develop From Customer Side”

Provision for Class Room training for the new: investors for the above reason same

thing to boost their moral and to give them something related to the market will help

them. Also some tips can also be given to this investor during the session as a

precaution.

Toll Free Number: Customers generally want to call to the respective branch for

asking some problems or give orders, a customer can save the money by dialling on

the toll free number. It gives a feeling to the customer that company care for them.

Customer Care for general query handle: Initially customer want to solve his or

her problem at the moment as it arises. Our relationship manager many times don’t

have that much time to discuss all that details on phone, they may sometime get busy

with the meeting with client. So for general query handle we can have a separate

section.

Note:

The recommendations which I have listed here above are strictly based on the knowledge of

the securities market that I have acquired during my training of two months duration.

All the recommendations are for the improvement in the functioning of the front end

operations of the Kotak Securities Ltd. (Jalandhar).

The recommendations are purely based on the problems that I had faced as a Management

Trainee.

CHAPTER 6:

ON THE JOB TRAINING



Chapter 6:

ON THE JOB TRAINING

Title

To generate leads by tele calling, canopies, presentations clients & also by personal meetings

and to close the deal along with the handling of the customer’s queries regarding share

trading, account opening and maintenance, software installation and demonstration .

Objectives

To create awareness among the people about the different products offered by the

company in the market through telecalling, canopies, presentations etc.

To generate leads for endorsement of deals.

To accompany the ‘relationship manager’ on his visits to the prospective clients.

To open De-mat accounts.

To learn how to work in a team.

To acquaint myself with the work culture.

To understand the operating terminals of both equity & commodity market.

To learn the trading procedures of equity & commodity market.

Target/Task

Overall Target: To generate business and gain experience in the tenure of six weeks of

summer internship project.

Strategy

To achieve a goal successfully one needs to sketch a perfect roadmap or strategy to the

destination and also need to follow the path strictly. The strategies applied to achieve the

above mentioned targets are –

Telecalling

Arranging Canopy

Personal Visits

Clients References

Promotional Activities



Limitation

Being a service industry, the quality is main concern in differentiation and it is not exactly

measurable.

Conclusions

In a nutshell, I have learned various practical aspects of trading in the stock market.

I have made about 50-100 calls per day in the initial days of training so as to generate

maximum leads.

In addition, I did personal meetings with clients in order to close the deals.

I handled the queries of both the new & existing clients of the company pertaining to

different issues like opening of accounts, trading procedures etc.

I also assisted in executing trades from the existing clients so as to get brokerage for

the company.

Corporate Learning’sTo be a part of Kotak Securities was the best opportunity for me to have:

A practical exposure of financial world.

Independently handling of clients.

Came to know the practical problems of clients.

Learnt the technical procedures and analysis of various research systems, such as

marketing research and equity research.

Learnt corporate culture.

APPENDIX

To know Consumer preference towards International Stock Trading.

Questionnaire

Dear Customer,

Please fill up & return the questionnaire which will be valuable input in our endeavour for

customer opinion regarding International Stock Trading.

General Instructions:-

1. Please tick in appropriate space.

2. Please answer all the questions

3. If you are unable to understand any question please ask the surveyor

4. The information given will be strictly confidential

5. Please fill neatly

Name: _ _ _ _ _ _ _ _ _ _ _ _ _ _ Income <50,000

Age: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 50, 000 – 100,000

Gender: _ _ _ _ _ _ _ _ _ _ _ _ _ <100,000

Occupation: _ _ _ _ _ _ _ _ _ _ _

Qualification: _ _ _ _ _ _ _ _ _ _

Address: _ _ _ _ _ _ _ _ _ _ _ _ _

_ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _

Contact No.:_ _ _ _ _ _ _ _ _ _ _

Q 1: What is your experience in stock market?

a) Less than a year c) 4 or > 4 years

b) 2 to 3 years

Q 2: How do you trade?

a) Online b) Offline

Q 3: At what hours you trade?

a) Office hours c) Free hours only

b) Non office hours d) Market Hours

Q 4: Do you feel international trading will be safe?

a) Yes b) No

Q 5: Would you like to invest in International stock exchanges?

a) Yes b) No

Q 6: Do you think international trading would help Indian stock market to grow?

a) Yes b) No

Comment......................................................................................................................................

......................................................................................................................................................

Q 7: Your trading preference is

a) Speculation b) Investment

c) Both

Q 8: What factors do you consider when you trade in securities market

Factors Most Considered Moderately

Considered

May be

Considered

Not a

Consideration

Security

Instant online transfers

Time Zone difference

Convenience

Foreign Exchange

Availability of

information about the

company

Lot size

Total investment

Popularity of security

Historical returns of

company

Q 9: Have you heard of new product of Kotak Securities in which their client can trade

in 24 stock Exchanges of World?

a) Yes b) No

If yes from

where...................................................................................................................................

Q 10: Do you think availability of such a platform where you can trade in worlds 24

stock exchanges will help in attracting new investors?

a) Yes b) No

Q 11: How do you find the fundamentals analysis & technical analysis of companies in

which you invest?

a) Brokerage house b) Co. Website

c) NSE Web Site d) Professionals

Q 12: What obstacles do you think you will face in international stock trading?

a) Forex Conversion c) Slow Processing

b) Clearing & Settlement d) Unavailability of information

e) Time zone f) Difference in Accounting Standards

Any other: ............................................. . (Can choose more than one)

<<<<<

Q 13: What amount of brokerage you would be ready for international trading?

a) 1$ b) 2$

c) 1.5$ d) 3$

e) Can’t say

Q 14: What facilities you think you want from Kotak securities for international

trading?

......................................................................................................................................................

......................................................................................................................................... .

Signature

Dummy Application Form for KOTAK TRADERDummy Application Form for KOTAK TRADERDummy Application Form for KOTAK TRADER

BIBLIOGRAPHY

Books

C. R Kothari, Research Methodology, New Delhi, New Age International (P)

Limited, Publishers, 2005.

National Stock Exchange of India Limited, Capital Market (Dealers) Module

Workbook, National Stock Exchange Limited, 2006.

Ahuja, Ritu, Security Analysis and Portfolio Management, (2007) Atlantic

Publishers & Distributors, New Delhi.

Michie, Ranald C., The Global Securities Market: A History,(2008), Oxford

University Press, USA

Hough, Peter, Understanding Global Security, (2008), Taylor & Francis, USA

Articles & Research Papers

U.S. Congress, Office of Technology Assessment, Trading Around the Clock:

Global Securities Markets and Information Technology--Background Paper, OTA-

BP-W-66 (Washington, DC: U.S. Government Printing Office, July 1990).

p 2, 3, 25-27, 28-29, 35, 55-68

Bartram, So¨Hnke M. And Dufey, Gunter, International Portfolio Investment:

Theory, Evidence, and Institutional Framework,(2000),

p 85, 93-101, 113-124, 125-129,

National Stock Exchange of India Ltd. (NSE), Indian Securities Market -A

Review,(2008) p 1-11, 117-119,

Wharton, (2002), Global Securities Markets Present Tough Challenges for

Investors and Regulators, Knowledge@Wharton magazine, New York.

Websites

http://www.kotaksecurities.com/internationaleq/homepage.htm

http://www.kotaksecurities.com/internationaleq/trader_intro.htm

http://www.kotaksecurities.com/internationaleq/faqs.htm

http://www.kotaksecurities.com/aboutus/index.html

http://www.kotaksecurities.com/research/kotakstreetresearchcenter.html

http://www.kotaksecurities.com/whatweoffer/index.html

http://www.kotaksecurities.com/accountsection/index.html

http://www.kotak.com/kotak_groupsite/default.htm

mailto:Knowledge@Wharton

http://www.kotaksecurities.com/internationaleq/homepage.htm

http://www.kotaksecurities.com/internationaleq/trader_intro.htm

http://www.kotaksecurities.com/internationaleq/faqs.htm

http://www.kotaksecurities.com/aboutus/index.html

http://www.kotaksecurities.com/research/kotakstreetresearchcenter.html

http://www.kotaksecurities.com/whatweoffer/index.html

http://www.kotaksecurities.com/accountsection/index.html

http://www.kotak.com/kotak_groupsite/default.htm

Project Report on Trading Around the Globe

Documents

Transcript of Project Report on Trading Around the Globe