Online Trading and Clearing & Settlements at Arihant Capital Market Ltd MBA Project

A STUDY ON ONLINE TRADING AND CLEARING & SETTLEMENTS AT ARIHANT CAPITAL MARKET Ltd.
Project report submitted in Partial fulfillment for the award of

MASTER OF BUSINESS ADMINISTRATION

Submitted in partial fulfillment for the award of the Master of Business Administration

DECLARATION I hereby declare that this project report titled ONLINE TRADING AND CLEARING & SETTLEMENTS AT ARIHANT CAPITAL MARKET Ltd. Submitted by me to the department of Business Management of XXXX is a bonafide work undertaken by me and it is not submitted to any other University or Institute for the Award of

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any degree diploma/certificate or published any time before.

Name:

Date:

XXXX

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XXXX sincerely acknowledge from bottom of my heart and express my thankfulness to my teacher and guide me ominous support and enthusiasm to carry out this project. I also express my thankfulness to XXXX Director of XXXX who was made dedicated efforts to make the students well versed with crucial aspects of education. Indeed, as he says “Education is not learning, but becoming”. I thank XXX, my class teacher and the

Department of Management Studies for making valuable contributions to the project.

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INDEX INTRODUCTION OF STUDY 6
? A STUDY ON STOCK EXCHANGE ? HISTORY OF STOCK EXCHANGE ? SECURITIES EXCHANGE BOARD OF INDIA ? NATIONAL STOCK EXCHANGE

COMPANY PROFILE OBJECTIVES OF THE STUDY 28 SCOPE OF STUDY METHEDOLOGY LIMITATIONS OF THE STUDY 31 ONLINE TRADING SYSTEM 32
? TRADING PROCEDURE BEFORE ONLINE

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? INTRODUCTION TO ONLINE TRADING ? OBJECTIVES OF ONLINE TRADING ? ADVANTAGES & DISADVANTAGES OF ONLINE TRADING

CLEARING AND SETTLEMENT MECHANISM 47
? TRADING CYCLE ? SETTLEMENT PROCESS ? TRADING SYSTEM IN ISE ? DEMATRALISATION ? NSDL

OBSERVATIONS 69

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CONCLUSIONS 70 SUGGETIONS 72 BIBLIOGRAPHY 74

INTRODUCTION TO THE STUDY
Stock exchange is an organized market place where securities are traded. These securities are issued b the go!ernment" semi# go!ernment bodies" public sector undertakings and companies $or borrowing $unds and raising resources. Securities are de$ined as an

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monetar claims &promissor notes or '.(.)* and also include shares" debentures" bonds and etc." i$ these securities are marketable as in the case o$ the go!ernment stock" the are trans$erable b endorsement and alike mo!able propert . The are tradable on the stock exchange. So is the case shares o$ companies. )nder the Securities +ontract ,egulation -ct o$ 1.56" securities/ trading is regulated b trading can take place onl the +entral 0o!ernment and such the in stock exchanges recognized b

go!ernment under this -ct. -s re$erred to earlier there are at present 23 such recognized stock exchanges in 'ndia. ($ these" ma1or stock exchanges" like 2omba Stock 3xchange &2S3*" 4ational Stock 3xchange &4S3*" +ulcutta" 5elhi" +hennai" 6 derabad and 2angalore etc. are permanentl recognized while a $ew are temporaril recognized. The abo!e act has also laid down that trading in appro!ed contract should be done through registered members o$ the exchange. -s per the rules made under the abo!e act" trading in securities permitted to be traded would be in the normal trading hours &17 -.8 to 3.37 9.8* on working da s in the trading ring" as speci$ied $or trading purpose. +ontracts appro!ed to be traded are the $ollowing: -. Spot deli!er deals are $or deli!eries o$ shares on the same da or the next da as the pa ment is made. 2. 6and deli!eries deals $or deli!ering shares within a period o$ % to 14 da s $rom the date o$ contract.

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+. 5eli!er through clearing $or deli!ering shares with in a period o$ two months $rom the date o$ the contract" which is now reduce to 15 da s. &,educed to 2 da s in demat trading* 5. Special 5eli!er periods as ma exchange. 3xcept in those deals meant $or deli!er on spot basis" all the rest are to be put through b the registered brokers o$ a stock exchange. The securities contracts &,egulation* rules o$ 1.5% laid down the condition $or such trading" the trading hours" rules o$ trading" settlement o$ disputes" etc. as between the members and o$ the members with re$erence to their clients. deals $or deli!ering o$ shares $or speci$ied longer be appro!ed b the go!erning board o$ the stock

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HISTORY OF STOCK EXCHANGES IN INDIA

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The origin o$ the Stock 3xchanges in 'ndia can be traced back to the later hal$ o$ 1.th centur . -$ter the -merican +i!il <ar &1;67#61* due to the share mania o$ the public" the number o$ brokers dealing in shares increased. The brokers organized an in$ormal association in 8umbai named =The 4ati!e Stock and Share 2rokers -ssociation in 1;%5>.later e!ol!ed as 2omba stock exchange . 'ncreased acti!it in trade and commerce during the ?irst <orld <ar and Second <orld <ar resulted in an increase in the stock trading. The 0rowth o$ Stock 3xchanges su$$ered a set a$ter the end o$ <orld <ar. <orld wide depression a$$ected them most o$ the Stock 3xchanges in the earl stages had a speculati!e nature o$ working without technical strength. -$ter independence" go!ernment took keen interest to regulate the speculati!e nature o$ stock exchange working. 'n that direction" securities and +ontract ,egulation -ct 1.56 was passed" this ga!e powers to +entral 0o!ernment to regulate the stock exchanges. ?urther to de!elop secondar markets in the countr " stock exchanges established at 8umbai" +hennai" 5elhi" 6 derabad" -hmedabad and 'ndore. The 2angalore Stock 3xchange was recognized in 1.63. -t present there are 23 Stock 3xchanges.

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Till recent past" $loor trading took place in all Stock 3xchanges. 'n the $loor trading s stem" the trade take place through open outcr s stem during the o$$icial trading hours. Trading posts are assigned $or di$$erent securities where b and sell acti!ities o$ securities took place. This s stem needs a $ace @ to @ $ace contact among the traders and restricts the trading !olume. The speed o$ the new in$ormation re$lected on the prices was rather than the in!estors. The Setting up o$ 4S3 and (T+3' &(!er the counter exchange o$ 'ndia* with the screen based trading $acilit resulted in more and more Sock exchanges turning towards the computer based trading. 2(AT &2omba on @ line Trading. S stem*. 8adras Stock 3xchange introduced -utomated 4etwork Trading S stem &8-4T,-* on (ctober %" 1..6 -part $rom 2omba Stock 3xchanges ha!e introduced screen based trading. FUNCTIONS OF STOCK EXCHANGE Maintain Activ T!a"in#$ Shares are traded on the stock exchanges" enabling the in!estors to bu and sell securities. The prices ma !ar $rom transaction to transaction. - continuous trading increases the liBuidit or marketabilit o$ the shares traded on the stock exchanges. 2S3 introduced the screen based trading s stem in 1..5" which known as

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Fi%ati&n &' P!ic ($ 9rice is determined b the transactions that $low $rom in!estors demand and the supplier/s pre$erences. )suall the traded prices are made known to the public. This helps the in!estors to make the better decision. En()! ( (a' an" 'ai! " a*in#($ The rules" regulations and b laws o$ the Stock 3xchanges pro!ide a measure o$ sa$et in!estors to get a $air deal. Ai"( in 'inancin# t+ In")(t!,$ - continuous market $or shares pro!ides a $a!ourable climate $or raising capital. The negotiabilit and trans$erabilit o$ the securities" in!estors are willing to subscribe to the initial public o$$ering &'9(*. This stimulates the capital $ormation. Di(( -inati&n &' In'&!-ati&n$ Stock 3xchanges pro!ide to the in!estors. Transactions are conducted under competiti!e conditions enabling the

in$ormation through their !arious publications. The publish the share prices traded on their basis along with the !olume traded. 5irector o$ +orporate 'n$ormation is use$ul $or the in!estor/s assessment regarding the corporate. 6andouts" handbooks and pamphlets pro!ide in$ormation regarding the $unctioning o$ the Stock 3xchanges. P !'&!-anc In")c !$ The prices o$ stocks re$lect the per$ormance o$ the traded companies. This makes the corporate more concerned with its public image and tries to maintain good per$ormance.

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S *'.! #)*atin# &!#ani/ati&n$ integrit

The Stock 3xchanges monitor the

o$ the members" brokers" listed companies and clients.

+ontinuous internal audit sa$eguards the in!estors against un$air trade practices. 't settles the disputes between member brokers" in!estors and brokers. REGULATORY FRAME 0ORK This Securities +ontract ,egulation -ct" 1.56 and Securities and 3xchange board o$ 'ndia &S321* -ct" 1..2" pro!ides a comprehensi!e legal $ramework. - 3#tier regulator structure comprising the ministr o$ $inance" S321 and the 0o!erning 2oards o$ the Stock 3xchanges regulates the $unctioning o$ Stock 3xchanges. Mini(t!, &' 'inanc $ The Stock 3xchange di!ision o$ the 8inistr o$ ?inance has powers related to the application o$ the pro!ision o$ the S+, -ct and licensing o$ dealers in the other area. -ccording to S32' -ct" The 8inistr o$ ?inance has the appellate and the super!isor power o!er the S32'. 't has powered to grant recognition to the Stock 3xchange and regulation o$ their operations. 8inistr o$ ?inance has the power to appro!e the appointments o$ executi!es chie$s and the nominations o$ the public representati!es in the go!ernment 2oards o$ the Stock 3xchanges. 't has the responsibilit o$ pre!enting undesirable speculation. T+ S c)!iti ( an" E%c+an# B&a!" &' In"ia

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The Securities and 3xchange 2oard o$ 'ndia e!en though established in the ear 1.;;. ,ecei!ed statutor powers onl on 37th Canuar 1..2. )nder the S32' -ct" a wide !ariet o$ powers are !ested in the hands o$ S32'. S32' has the powers to regulate the business o$ Stock 3xchanges" other securit and mutual $unds. ,egistration and regulation o$ market intermediaries are also carried out b S32'. 't has responsibilit to prohibit the $raudulent un$air trade practices and insider dealings. Takeo!ers are also monitored b protect the in!estors. T+ G&v !nin# B&a!" &' (t&c1 %c+an# ($ The 0o!erning 2oard o$ the Stock 3xchange consists o$ elected members o$ directors" go!ernment nominees and public representati!es. ,ules" b laws and regulations o$ the Stock 3xchange substantial powers to the executi!e director $or maintaining e$$icient and smooth da #to da orderl and well#regulated market. The 0o!erning bod o$ the Stock 3xchange consists o$ 13 members o$ which -. Six members o$ the Stock 3xchange are elected b the members o$ the Stock 3xchange. 2. +entral 0o!ernment nominates not more than three members. +. The board nominates three public representati!es. 5. S32' nominates persona not exceeding three and $unctioning o$ Stock 3xchange. The 0o!erning 2oard has the responsibilit to maintain and the S32' has the multi pronged dut to promote the health growth o$ the capital market and

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3. The Stock 3xchange appoints one 3xecuti!e 5irector. (ne third o$ the elected members retire at -nnual 0eneral 8eeting &-08*. The retired member can o$$er himsel$ $or election i$ he is not elected $or two consecuti!e himsel$ $or another two ears. The members o$ the go!erning bod elect the president and !ice#president. 't needs to appro!al $rom the +entral 0o!ernment or the 2oard. The o$$ice tenure $or the president and !ice#president is on ear. The can o$$er themsel!es $or re#election" i$ the ha!e not held $or two consecuti!e ears. 'n that case the can o$$er themsel!es $or re#election a$ter a gap o$ one# ear period ears. '$ a member ser!es in the go!erning bod $or two ears consecuti!el " he should re$rain o$$ering

NATIONAL STOCK EXCHANGE

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The 4ational Stock 3xchange &4S3* o$ 'ndia became operational in the capital market segment on third 4o!ember 1..4 in 8umbai. The genesis o$ the 4S3 lies in the recommendations o$ the pherwani committee &1..1*. -part $rom the 4S3. 't had recommended $or the establishment o$ 4ational Stock market S stem also. The committee pointed out some ma1or de$ects in the 'ndian stock market. The de$ects speci$ied are. 1. Aack o$ liBuidit in most o$ the markets in terms o$ depth and breadth. 2. Aack o$ abilit to de!elop markets $or debt. 3. Aack o$ in$rastructure $acilities and outdated trading s stem. 4. Aack o$ transparenc in the operations that a$$ect in!estors/ con$idence. 5. (utdated settlement s stem that are inadeBuate to cater to the growing !olume" leading to dela s. 6. Aack o$ single market due to the inabilit exchanges to $unction cohesi!el regulator $ramework. These $actors led to the establishment o$ the 4S3. T+ -ain &23 ctiv ( &' NSE a! a( '&**&4( 1*. To establish a nation wide trading $acilit $or eBuities" debt and h brid instruments 2*. To ensure eBual access in!estors all o!er the countr through appropriate communication network. 3*. To pro!ide a $air" e$$icient and transparent securities market to in!estors using an electronic communication network. o$ !arious stock with legal structure and

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4*. To enable shorter settlement c cle and book entr settlement s stem. 5*. To meet current international standards o$ securities market. 9romoters o$ 4S3: '52'" '+'+'" '?+'" A'+" 0'+" S2'" 2ank o$ 2aroda. +anara 2ank" +orporation 2ank" 'ndian 2ank" (riental 2ank o$ +ommerce. )nion 2ank o$ 'ndia" 9un1ab 4ational 2ank" 'n$rastructure Aeasing and ?inancial Ser!ices" Stock 6olding +orporation $o 'ndia and S23 capital market are the promoters o$ 4S3. MEMBERSHIP$ 8embership is based on $actors such as capital adeBuac " corporate structure" track record" education" experience etc. -dmission is a two#stage process with applicants reBuiring going through a written examination $ollowed b an inter!iew. - committee consisting o$ experienced people $rom the industr to assess the applicant/s capabilit to operate as an exchange member" inter!iews candidates. The exchange admits members separatel to <holesale 5ebt 8arket &<58* segment and the capital market segment. (nl corporate members are admitted on the debt market segment whereas indi!iduals and $irms are also eligible on the capital market segment. 3ligibilit criteria $or trading membership on the segment o$ <58 are as $ollows.

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1*. The persons eligible to become trading members are bodies corporate" companies institutions including subsidiaries o$ banks engaged in $inancial ser!ices and such other persons or entities as ma be permitted $orm time to time b ,2'DS32'. 2*.The whole#time directors should possess at least two ears experience in an acti!it related to banking or $inancial ser!ices or treasur . 3*.The applicant must possess a minimum net worth o$ ,s.2 crores. 4*.The applicant must be engaged solel ion the business o$ securities and must not be engaged in an $und#based acti!ities. T+ *i#i2i*it, c!it !ia '&! t+ ca5ita* -a!1 t ( #- nt a! 6

1*. 'ndi!iduals" registered $irms" bodies corporate" companies and such other persons ma be permitted under S+,-" 1.5%. 2*. The applicant must be engaged in the business o$ securities and must not be engaged in an $und#based acti!ities. 3*. The minimum net worth reBuirements prescribed are as $ollowsE a*. 'ndi!idual and registered $irms @ ,s.177 Aacs. b*.+orporate bodies @ ,s. 177 Aacs. .4*. The minimum prescribed Buali$ication o$ graduation and two ears experience o$ handling securities as broker" sub#broker" authorized assistant" etc must be $ul$illed b a* 8inimum two directors in case the applicant is a corporate b*. 8inimum two partners in case o$ partnership $irms and

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c*. The indi!idual in case o$ indi!idual or sole proprietar concerns. The two experienced director in a corporate applicant or trading member should hold minimum o$ 5F o$ the capital o$ the compan .

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P! ( nt T!a"in# M c+ani(The 4ational s stem pro!ides single" nation wide Securities. 't enables in!estors in one part o$ the countr to trade at the best Buotes with an in!estors located in an other part o$ the countr through the members o$ the stock exchanges and subseBuentl clears and settles the trade in an e$$icient and cost e$$ecti!e manner. The primar ob1ecti!e o$ the stock market is to pro!ide clear opportunit to the in!estors throughout the countr to trade an securities irrespecti!e o$ the size o$ the order or the broker through whom the order is routed. This pro!ides the $acilit to execute the bu out an extra cost to the in!estors. There will be no trading $loor in the exchanges. 'nstead" each trading member will ha!e a computer at his own o$$ice an where in 'ndia which will be connected to the central computer s stem at the 4S3 through leased lines or GS-T/s &Ger Small -perture Terminal*" $or an interim transition period o$ six months and subseBuentl b satellite link. GS-T/s are relati!el smaller dishes similar to dish antenna $or cable T.G and ha!e the bene$it o$ not being !er expensi!e. - satellite network makes it possible to connect almost all the parts o$ the nation Buickl as it is eas to install" as against the ground lines Such as dial up modems leased lines which are prone to disruptions" satellite links on other hands ensure high speed" a!ailabilit and Bualit o$ the connection. This code o$ trading is known as =(n#line Trading>.

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COMPANY PROFILE ARIHANT CAPITAL MARKETS LTD$ -rihant capital markets limited is a leading $inancial intermediar established in 1..4.- team o$ experienced and Buali$ied pro$essionals manages -rihant across all the le!el o$ management. 8r.-shok Humar Cain" a chartered -ccountant ha!ing more than 27 Iears o$ experience in capital markets" promotes the compan . -rihant has been on a growth path under his able leadership and !alues o$ integrit and transparenc ha!e been in culcated in compan emplo ees. (!er the all ears -rihant has pla ed a

success$ul role in client/s wealth creation.'n the process -rihant also re$ined itsel$" as an in!estment ad!isor and is poised to pro!ide complete 'n!estment 8anagement Solution to its !alued clientele. -rihant/s !alues o$ integrit and transparenc in all its

transactions are embedded deep into roots helps it to pro!ide excellent ser!ices" stead growth and complete satis$action to all its clients. -rihant strongl belie!es that success is onl the end result o$ client/s growth. -rihant has $ollowed a consistent growth path and is established as one o$ the leading broking houses o$ the countr with the support and con$idence o$ clients" in!estors" emplo ees" and associates.

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A2&)t t+ Mana# - nt -rihant is managed b a team o$ experienced and Buali$ied pro$essionals across all the le!els o$ management. The compan is promoted b 8r -shok Humar Cain" a +hartered -ccountant. The compan dedicatedl currentl emplo s more than 277J pro$essionals research" risk management" working in eBuit

marketing and wealth management. K , P !(&nn *

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M! A(+&1 Jain7 +hairman rihant has been on a growth path under his able leadership and rich experience. 6e is a +hartered -ccountant aged 57 ears ha!ing more than 27 ears o$ experience in capital markets. 6e has been our guide all throughout our success path. 6is !alues o$ integrit and transparenc ha!e been inculcated in all our emplo ees. 6e alwa s inno!ates new ideas" adapt latest technolog so as to pro!ide Bualit and unbiased in!estment solution to the in!estors. M( Anita Gan"+i76ead 'nstitutional 2usiness a +hartered -ccountant ha!ing o!erall 12 ears experience in ?inancial# Ser!ices and 6 ears o$ experience in the 8anu$acturing 'ndustr . She is with the organisation since Cune" 2772. She is instrumental in setting up 8utual ?unds 5istribution and ,esearch wing o$ the compan . She is o!erall in#charge o$ the 'nstitutional business o$ the +ompan .

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M! A!5it A#!a4a*7 +3(#6ead 98S - +hartered -ccountant with an experience o$ 5 ears in ?inancial Ser!ices" 8anagement +onsulting and ?inancial -udit. 6e 1oined -rihant in 4o! 2773 and pla ed an important role in new technolog initiati!es" business de!elopment and eBuit research. 6e is presentl handling port$olio management and in!estment ad!isor di!ision o$ the compan . M! Ra1 (+ Ga!#7 +(( 6is administrati!e and technical skills help us to continuousl impro!e our operations and pro!ide excellent ser!ices to all our clients. - +ompan Secretar b pro$ession" he has been in the $ore$ront o$ our technolog dri!e ensuring completel web#enabled back#o$$ice pro!iding prompt ser!ices to our clients.st to all in!estors" associates and acti!e traders. (!er the period o$ time -rihant has acBuired membership o$: K 4ational stock 3xchange &4S3*" K 2omba stock 3xchange &2S3*" K 4ational securities 5epositaries Aimited &4S5A*" K +entral 5epositor Ser!ices Atd &+5SA*" K 4ational +ommodities 3xchange &4+53L*" K 8ulti +ommodities 3xchange &8+L* and also ,egistered with S32' $or 9ort$olio 8anagement Seri!ces &98S*

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P+i*&(&5+,$ K 'ntegrit and transparenc in all transaction K 9ro!iding in!estment solutions based on Bualit and unbiased research. K 9ro!iding personalized ser!ice to all in!estors" institutions" business -ssociates. K -chie!ing success through clients/ growth. G'S'(4: To be recognized b our serice Bualit business. N To be $air" empathetic"M responsi!e in ser!icing our clients. N To respect M rein$orce our colleages M the sprit o$ teamwork. N To alwa s earn M be worth o$ our clients trust. N To stri!e " to impro!e what we do M how we do it. RESEARCH$ ?undamental 3Buit : O <e ha!e a strong team o$ anal sis co!ering large cap" mid cap" small cap compan s across sector. O (ur research team is credited with the disco!er o$ a number o$ multi baggers creating immense wealth $or in!estors. Technical 3Buit ,esearch: in!est insight M client relationship as the most trusted $irm in the $inancial ser!ice

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O (ur dedicated team $or technical anal sis pro!ide technical insights on !arious securites M markets. These are pro!ided to clients through our website M e#mail. O <e ha!e the latest M most sophisticated technical so$tware. 8utual ?und ,esearch: O <e ha!e a research team especiall our mutual $und di!ision . O The research team track $unds" new $und o$$ers &4?(* "sta in touch with $und manger M pro!ide insights M anal sis to clients to help them select the right in!estment based on their risk pro$ile.

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Strengths

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Mi* (t&n

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R (&)!c ($ 9eopleP. -rihant has alwa s in!ested in Bualit human resources continuousl stri!ing topro!ide best ser!ices to !alued clientele. -rihant"s strong pool consists o$ a team o$ 277J pro$essionals including +-s" +S"82-s". 3ngineers. -rihant"s customer relationship and back o$$ice operations. 'n$rastructureP 'n ts e$$orts to continuousl pro!ide !alue added ser!ice -rihant has adopted latest technolog and o$$ers excellent execution and post sales support at all branches.-rihant/s web enabled back o$$ice operations enables clients to ha!e online in$ormation about their transactions. -rihant ensures continuous in$ormation $low to clients on their mobile phones through S8S and on their desktops through email and chat. -rihant uses latest so$tware $or market anal sis in order to ensure continuous in$ormation $low to clients. -rihant also pro!ides trading terminals at client/s location through +T+A technolog pro!iding li!e at their own locations. research" in!estment ad!isor " deri!ati!e strategies" e$$icient execution" and

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N t4&!18 -rihant has a strong network M its o!erall nation wide presence is 27 states" .5Jcities" 2%7JbranchesDbusiness associates pro!iding ser!ices to a more than 5"7777J number o$ acti!e retail clients across the countr .-rihant pro!ides complete in!estment solutions to clients o$$ering a gamut o$ product nd ser!ices .-ll branches are eBuipped to pro!ide complete ad!isor to clients $or in!estments in eBuities" deri!ati!es" commodities" mutual $unds and bonds. R ( a!c+ : F)n"a- nta* E9)it, R ( a!c+8

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-rihant has a strong team o$ anal sts co!ering large cap" mid cap M small cap companies across sectors. -rihant research team is credited with the disco!er o$ a number o$ multi#baggers creating immense wealth $or in!estors. -rihantQs research reports ha!e clarit " accurac " in#depth co!erage and the latest in$ormation about companies. T c+nica* E9)it, R ( a!c+ -rihant pro!ides technical anal sis on !arious securities and markets on website as well as on e#mail to !alued clientele. -rihant also pro!ides R(n line market commentar R to make the intra da trading more pro$itable and $or minimizing the risk o$ in!estors. -rihantQs anal stsQ team keeps minute#to#minute track o$ the market and broadcasts bu and sell recommendations on the basis o$ market momentum. -rihantQs research team sends trading and in!estment call alerts on dail basis on mobile phones. This $acilit is a!ailable $ree o$ cost all in!estors" associates and acti!e traders. Ser!ices we o$$er: N 3Buit 2roking @4S3 and 2S3 N 5eri!ati!es ?utures and (ptions N 9ort$olio 8anagement Ser!ices N 5epositor Ser!ice @4S5A" +5SA N 8utual ?unds 'n!estment N 'nstitutional 2roking

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N 'nternet @Trading N 9riorit +lient 0roup&9+0* N 8erchant 2anking N +ommodities Trading#4+53L M 8+L N ,esearch &?undamental M Technical * N '9( M '9( ?inancing 'TS ,30'(4-A (??'+3S '4 : 8)82-' S3+)453,-2-5 2-40A(,3 +6344-' ,-'9), C-'9), -6835-2-5 H(AH-T-PP -d!antages o$ -rihant +apital 8arkets Atd: The $ollowing are the ad!antages o$ -rihant K Aow brokerage K (nline terminal K 3xpert unbiased ad!ice K -dditional margin le!ied K 'mmediate order execution K 'ndi!idual terminal $or online trader K (ne#stop shop $or all our in!estment needs K 'mmediate con$irmation" digitall and ph sicall .

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On.Lin T!a"in#$ -rihant is pro!iding on#line trading $acilit $or their clients to do trade on commodities" deri!ati!es" mutual $und and eBuities. <hat is on#line trading S Trading o$ securites commodities * Through 'nternet is called on#line trading. The ob1ecti!e o$ on#line trading is: N To $acilitate eas transaction processing. N 3as sur!eillance so that less scope o$ speculation. N To make the trading $ull automated and simple trading procedures. -rihant on#line trading are operated through <-4 & <ide -rea 4etwork * which is one o$ the special $eature o$ -rihant +apital 8arkets Atd. &2u ing and Selling o$ shares and

OBJECTIVES OF THE STUDY$ The ob1ecti!es o$ the stud are as $ollows: ? To know the on#line screen based trading s stem adopted b -+8 and about its communication $acilities $or the appropriate con$iguration to set network. This would link the -+8 to indi!idual brokersDmembers.

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? To stud

about the back up measures with respect to primar

communication $acilities" in order to achie!e network a!ailabilit and connecti!it back#up options. ? Stud about +learing M Settlements in the stock exchanges $or eas trans$er and error prone s stem. -lso stud about computerization demand process. ? To know about the settlement procedure in!ol!ed in -+8 and also 4S5A operations. ? +learing de$ining each and e!er trading procedures. term o$ the stock exchange

SCOPE OF STUDY$

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The scope o$ the pro1ect is to stud and know about (nline Trading and +learing M Settlements dealt in 'nter#+onnected Stock 3xchange. 2 stud ing the (nline Trading and +learing M Settlements" a clear option o$ dealing in stock exchange is been )nderstood. )nlike olden da s the concept o$ trading manuall is been replaced $or $ast interaction o$ shares o$ shareholder. 2 this we can access an where and know the present dealings in shares.

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DATA COLLECTION METHODS The data collection methods include both the primar collection methods. ? P!i-a!, C&** cti&n M t+&"($ This method includes the data collection $rom the personal discussion with the authorized clerks and members o$ the exchange. ? S c&n"a!, C&** cti&n M t+&"($ The secondar collection methods includes the lectures o$ the superintend o$ the department o$ market operations and so on." also the data collected $rom the news" magazines o$ the -+8 and di$$erent books issues o$ this stud and secondar

3.

LIMITATIONS OF THE STUDY The stud con$ines to the past 2#3 ears and present s stem o$ the trading procedure in the -+8 and the stud is con$ined to the co!erage o$ all the related issues in brie$. The data is collected $rom the primar stud includes in realit . 6ence accurac and correctness can be measured onl to the extend o$ what the sample group has $urnished. and secondar sources and thus is sub1ect to slight !ariation than what the

47

TRADING PROCEDURE BEFORE ON.LINE THE TRADING RING$ Trading on stock exchanges is o$$iciall done in the ring $or a $ew hours $rom 11.77 -.8 to 2.379.8. Trading be$ore or a$ter o$$icial hour is called H3,2 T,-5'40. 'n the trading ring space is pro!ided $or speci$ied and non#speci$ied sections. The members o$ their authorized assistants ha!e to wear a badge or carr with them identi$ cards gi!en b the exchange to enter the trading ring. The carr a Sauda book or con$irmation memos dul authorized b exchange. The stock exchanges operations at $loor le!el are highl technical in nature. 4on#members are not permitted to enter into stock market. 6ence" !arious stages ha!e to be completed in executing a transaction at a stock exchange. The steps in!ol!ed in the methods o$ trading ha!e been gi!en below: A:CHOICE OF BROKER$ The prospecti!e in!estor who wants to bu shares or the in!estor who wants to sell his shares cannot enter into hall o$ the exchange and transact business. The ha!e to act through onl member brokers. The can also appoint their bankers $or this purpose. Since" bankers can become members o$ stock exchange as per the present regulations.

41

So" the $irst task in transacting business on stock exchanges is to choose a broker o$ repute or banker. Such people/s can ensure prompt and Buick execution o$ a transaction at the possible price.

INTRODUCTION TO ONLINE TRADING 0one are the da s o$ trading on the $loor. Technolog has changed the landscape o$ the stock markets. The look o$ the stock exchanges has undergone metamorphic changes in the recent ears. 9rior to online trading" regional stock exchange was pla ing a !er important role in capital markets" as the were local in!estors. ,egional S3" which was unable to interact with other S3s started de!eloping this own screen based trading and connecting to other scrip/s which were not a!ailable with them. This also helped in accessing the Buotes and other market in$ormation $rom other stock exchange which pro!ed !ital in the $unctioning o$ the s stem as a whole.

42

The trading network is depicted in gi!en below 4S3 has main computer which is connected through Ger Small -perture Terminal &GS-T* installed at its o$$ice. The main computer runs on a $ault tolerant ST,-T)S main$rame computer at the 3xchange. 2rokers ha!e terminals &identi$ied as the 9+s in the gi!en picture* installed at their premises which are connected through GS-TsD leased linesDmodems. -n in!estor in$orms a broker to place an order on his behal$. The broker enters the order through his 9+" which runs under <indows 4T and sends signal to the satellite !ia GS-TDleased lineDmodem. The signal is directed to main$rame computer at 4S3 !ia GS-T at 4S3/s o$$ice. - message relating to the order acti!it is broadcast to the respecti!e member. The order con$irmation message is immediatel displa ed on the 9+ o$ the broker. This order matches with the existing passi!e order&S* otherwise it waits $or the acti!e orders to enter the s stem. (n order matching" a message is broadcast to the respecti!e member. TRADING NET0ORK

6)2 ANTENNA SATELITE

43

4S3 8-'4?,-83

BROKERS PREMISES

CORPORATE HIERARCHY The Trading member has the $acilit o$ de$ining a hierarch amongst its users o$ the 43-T s stem. The hierarch comprises:

+orporate 8anager

44

2ranch 1

2ranch 2

5ealer 1

5ealer 2

5ealer 11

5ealer 12

The users o$ the trading s stem can logon as either o$ the user t pe. The signi$icance o$ each t pe is explained below: A: C&!5&!at Mana# !$ The corporate manager is a term assigned to a user placed at the highest le!el in a trading $irm. The $acilit to set 2ranch order !alue limits and user order !alue limits is a!ailable to the corporate manager. B: B!anc+ Mana# !: The branch manager is term assigned to a user who is placed under the corporate manager. The branch manager can set user order !alue limits $or each o$ his branch. B: D a* !$ 5ealers are users at the lower most le!el o$ the hierarch . dealer can !iew and per$orm order and related acti!ities onl $or onesel$. OBJECTIVES OF ON.LINE TRADING$ ? ,educe and eliminate operational ine$$iciencies inherent in manual s stem. ? 'ncreased trading capacit in stock exchanges.

45

? 'mpro!e market transparenc " eliminate unmatched trades and dela ed reporting. ? 9ro!ides $or online and o$$line monitoring" control and sur!eillance o$ the markets. ? 9romote $airness and speed matching. ? 3nsure smooth market operations using technolog while retaining the $lexibilit o$ con!entional trading practices. ? Setup !arious limits rules and controls centrall . ? 9ro!ide brokers with their data on electronic media inter$ace with the brokers back o$$ice s stem. ? 9ro!ide public in$ormation on scrip prices" indices $or all users o$ the s stem. ? 9ro!ide anal tical data $or use o$ stock exchange in anal sis and reporting ? To $ace sti$$ competition $rom other stock exchange. ? +onsolidate trader/s data and inter$ace with clearing and settlement.

PLACEMENT OF ORDER$

46

The next step in planning o$ order $or the purchase or sale o$ Securities with the broker. The order is usuall b telegram" telephone" letter" $ax etc." or in person. To a!oid dela it is placed generall o!er the phone. The orders ma take an one o$ the $orms such as at best order" limit order" immediate or cancel order" discretionar discretionar order" open order and stop loss order. ENTRY OF ORDER INTO THE BOOKS$ -$ter recei!ing the order" the member enters them in his books and the purchase and sale orders are distributed among his assistants to handle them separatel in non#speci$ied and odd#lots. EXECUTION OF ORDER$ 2ig brokers transact their business through their authorized clerk. Small ones out their business personall . (rders are executed in the trading ring o$ the -rihant +apital 8arkets Atd. This works $rom 12:77 noon to 2:77 p.m discretionar order on all working da s $rom 8onda to ?rida and a special hour session on Saturda . The $loor o$ the stock exchange is di!ided into number o$ markets &pits* according to the nature o$ securit deal in. The authorized clerkDbroker goes to the pit and 1obbers o$$er two wa Buotes $or the scrips the deal in. the act as market makers and pro!ide liBuidit to the market. The s stem has been designed to get the bet lids and o$$ers $rom the 1obber/s book as well as the best bu and sell orders $rom the book. '$ the Buotation is not acceptable to the brokers" he ma make a counter bidDo$$er order" limited

4%

)ltimatel him" the broker ma

the bargains ma

be closed at a price mutuall

acceptable to both the parties. 'n case the Buotation is not acceptable to go to another dealer and make a bargain. -ll bargains on the stock exchanges are settled b word o$ mouth and there is no written contract signed immediatel b the parties concerned. (nce the transaction is $inalized" the deals are recorded in a +haupri ,ough notebook or transaction note or con$irmation memos. Soudha block books or con$irmation memos are pro!ided b the stock exchange. The details are recorded in these books also. The prices at which di$$erent scrips are traded on a particular da published on the next da in the newspapers. -n authorized representati!e o$ the stock exchange is also present in the hall to super!ise the trading. PREPARATION OF CONTRACT NOTES )suall " the authorized clerks enter the particulars o$ the business transacted during a particular da in THacha Sauda 2ook/ the are trans$erred to T9ucca Sauda 2ook/" which are maintained separatel $or the read deli!er contracts. Then the brokerDauthorized clerk prepares a contract note. - contract note is a written agreement between the broker and his client $or the transaction executed. 't contains the details o$ the contract made $or the purchaseDsale o$ Securities" the brokerage chargeable" name o$ the compan " number o$ shares boughtDsold" net rate" etc." it is prepared in a prescribed $rom and a cop o$ it is also sent to the client.

4;

? PLACING ORDER 0ITH THE BROKER$ The next step is placing an order $or the purchaseDsale o$ securities with the broker. The order is usuall placed o!er telephone" $ax. 't can also take the $orm o$ telegram or letter or in person. The order placed ma be an o$ the $ollowing !arieties &largel classi$ied on the basis o$ price limits that it imposes.* ? AT BEST ORDER ;OR< BEST RATE ORDER$ =2u 1777 LIU ltd.>" it does not speci$ an price. 't means bu LIU Atd. Securities at the pre!ailing market price. These are executed !er $ast as there is no price limits. ? LIMIT ORDER$ =2u 177 LIU Atd. -t ,s 177>" it is an order $or the purchase o$ shares at a speci$ied price b the client.&,s 177* ? LIMITED DISCRETIONARY ORDER$ =2u 1777 LIU Atd." around ,s.177>. it gi!es discretion to the broker. The price can be a little abo!e ,s 177. 6ow much discretion is implied depends on how the broker and client de$ine around. ? OPEN ORDER$ 't is an order to bu or sell without $ixing an time or price limit on the execution o$ the order.

4.

? STOP LOSS ORDER$ =2u 177 LIU Atd. V ,s 12 to stop ,s 17>. 't means bu 177 LIU Atd securities at the market rate o$ ,s. 12 but i$ on the same da the price $alls to ,s. 17 immediatel sell o$ the securities Dshares. Thus an attempt is made to limit the loss o$ sudden un$a!orable shi$t in the market. ? NET RATE ORDER$ =2u 1777 LIU Atd. V,s.37 net =would mean that the client is willing to bu 1777 LIU Atd. ?or no more than ,s.37 per securit inclusi!e o$ brokerage pa able to the broker. 4et rate is purchase or sale rate minus brokerage. ? MARKET RATE ORDER$ 8arket rate is net rate plus brokerage $or purchase and net minus brokerage $or sale. So" =2u 1777 LIU Atd. V,s.37 market> would mean that the client is willing to pa ,s.37 plus brokerage $or each securit o$ LIU Atd. CLEARING HOUSE

57

The exchange has a clearing house as a part o$ its 8arket (perations 5epartment to collect the securities $rom all members and distribute to each member" all the securities that are due to him in respect o$ e!er settlement. The whole o$ the operations o$ the clearing house are computerized. +6 is like are bank where all the members o$ -rihant +apital 8arkets Atd. maintain their accounts. +6 acts as a member between the bu er and seller. 't gets a record o$ all the transactions &bu ing and selling* done b pa ment on the pa #in da . (n the pa out da " the +6 gi!es the deli!er and the pa ment to the members according to their respecti!e positions. There are 5 counters in the -rihant +apital 8arkets Atd" +6 where bad deli!eries" auction" odd#lot shares transaction" spot transaction etc.." are dealt in respect o$ all the transactions done $rom 8onda to ?rida all the shares will ha!e to be deli!ered through the -rihant +apital 8arkets Atd. +6 as per the settlement program $ield" which is generall " a Saturda on next. NORMAL TRANSACTION$ 'n case o$ regular transaction" shares are deposited in clearing house on Tuesda and <ednesda . 9a out will be on Thursda . 5eli!eries will also be on Thursda . a particular week and process these transactions and directs the members to deli!er the shares or make

51

STOCK MARKET TRADING ON INTERNET

52

The ma1or e!ents that will take place in the 'ndian +apital 8arket are introduction o$ index#based $utures trading on internet. Trading on internet means that the in!estor/s will actuall bu and sell the stocks on# line through the net. - committee was setup b S32' to de!elop regulator parameters $or use internet trading. S32' appro!ed the report on the committee. S32' decided that internet trading could take place in 'ndia within the existing legal $ramework through use o$ order routing s stem" which will route order $rom client to brokers". ?or trade execution on registered stock exchanges. The broad also took note o$ the recommended minimum technical standards $or ensuring sa$et b the respecti!e stock exchanges. and securit o$ transaction between clients and brokers" which will be $orced

53

ADVANTAGES OF INTERNET TRADING ? 't will help in reducing transaction costs particularl $or o!erseas and remote located in!estors. ? 't will pro!ide real time Buotes and on#line trading $acilit at a much cheaper cost. ? ?acilit o$ transaction business $rom the terminal o$ the in!estors and will help him making rational 1udgment or decisions. ? 't will bring down the brokerages $ees and increases the trading !olumes. ? Wuick response in transaction i.e. gi!ing the order !eri$ication and acknowledgement. ? 't allows transparent companies o$ ser!ices and eas disco!er . ? 't is eas enough to set up either as indi!idual account $or margins trading or settle transactions b credit card. ? 't is eas $or brokers to monitor and maintain online accounts and the possibilit o$ miss#trading is less. ? Sur!eillance is eas as there is !er less scope $or speculation ? The in!estor is pro!ided with best o$$er ? Trading procedure is eas and $ull automated. price

54

Ea(i ! t!an(acti&n 5!&c ((in#. P!&'it in ti- $ 'n!estor can make pro$its b selling shares when the going is good. The do not ha!e to instruct their brokers on the cut o$$ price to sell shares. Ea( an" t!an(5a! nc,$ Since the broking" bank and demat account are all electronicall connected" all transaction get updated" demat account shows the latest stockholding statement while the bank account shows the balance amount a$ter bu ing or selling o$ shares. P! ca)ti&n: +heck $or hidden costs o$ broker/s age. 2eware o$ net seamstress. 4e!er double click the mouse during execution o$ trade a!oids c ber ca$es and change password regularl . L (( ' Shares traded online reBuire no human inter!ention to match bu s and sells. This means that commission costs are cut dramaticall $reBuent in!estor. $or the

55

PROBLEMS OF ONLINE TRADING ? -ll the stock exchanges in 'ndia were mechanized in the ear 1..4 4o!ember. That was the ear when the stock exchanges introduced screen based trading across the countr . ? <hile on line trading gi!es ou speed and price ad!antage" there is some risk and disad!antage to entering orders on#line. The page alerts ou to an pit$alls ou should watch out $or i$ ou want to use the internet to trade stocks. ? '$ ou do commit to trading online" ou must be care$ul when ou enter stock orders. 't is eas to make mistakes" but the market and our brokers ma not be s mpathetic. (nce an order is submitted" there ma be nothing ou can do to take it back i$ ou made a mistake. The !arious t pes o$ orders ou enter can be con$using. ? 'ndi!iduals are restricted to $irst hand $inancial guidance. This simpl means that the indi!idual is himsel$Dhersel$ alone to make the decisions. ? Tax &sales tax and !alue added tax* e!aluation becomes an issue" especiall when ou are trading internationall .

56

? +hanges are that one has no idea who is dealing with on the other end" so it is ad!isable to gather all the possible in$ormation about the part one is dealing with. 'n short are $ull knowledge is to be known. ? (nline trading as le$t indi!idual open to too much in$ormation. This is harm$ul since it lea!es brokerages wide open to sensiti!e data. <hen network crashes there will be problems and dela s due to a large in$lux o$ tra$$ic and rapid online trading criteria. ?or instance on 2%th (ct 1..% there was a one da crash" which caused online trading on the 4ew Iork Stock 3xchange to stop and brokers were unable to conduct business. '$ ou are going to trade online" ou were ob!iousl the one making all the trading choices. To make our trading decisions" ou need to research our stocks and constantl pa attention to market news. This will reBuire some time" as ou pursue our sources o$ market in$ormation and use online tools

5%

CLEARING & SETTLEMENT TRADING MECHANISM The clearing and settlement mechanism in 'ndia securities market has witnessed se!eral inno!ations during the last decade. These include use o$ the state#o$#art in$ormation technolog " compression o$ settlement c cle" dematerialization and electronic trans$er o$ securities" securities lending and borrowing" pro$essionalisation o$ trading members" $ine# tuned risk management s stem" emergence o$ clearing corporation to assume counterpart risk etc." though man these are et to permeate the whole market. Till recentl " the stock exchanges in 'ndia were $ollowing a s stem o$ account period settlement $or cash market transactions" expert $or transaction in a $ew acti!e securities" which were settled under tJ3 rolling settlement. The rolling settlement has been introduced $or all securities.

5;

<ith e$$ect $rom -pril 1" 2773 TJ2 rolling settlement has been introduced. The stock exchange were also o$$ering de$erral products to pro!ide le!erage to members to postpone their settlement obligations. The transaction are not settled immediatel but a$ter 2 da s a$ter the trade da . The members recei!e the $undsDsecurities in accordance with the pa #inDpa #out schedules noti$ied b the respecti!e exchanges. 0i!en the growing !olume o$ trades and market !olatilit " the time gap between trading and settlement gi!es rise to settlement risk. 'n recognition o$ this" the exchanges and their clearing corporation emplo risk management practices to ensure timel settlement o$ trades. The regulators ha!e also prescribed elaborate margining and capital adeBuac standards to secure market integrit and protect the interests o$ in!estors. The exchanges not pro!iding counter#part guarantee ha!e been ad!ised b S32' to set up trade guarantee $unds" which would honour pa #in liabilities in the e!ent o$ de$ault b a member. 'n pursuance to this" 16 out o$ 23 exchanges ha!e set up tradeDsettlement guarantee $unds. The trades are settled irrespecti!e o$ de$ault b a member and the exchange $ollows up the de$aulting member subseBuentl $or reco!er o$ his dues to the exchange. The market has $ull con$idence that settlements will take place in time and will be completed irrespecti!e o$ possible de$ault b isolated trading members. 8o!ement o$ securities has become almost instantaneous in the dematerialized en!ironment. Two depositories !iz." 4ational Securities 5epositories Atd. &4S5A* and +entral 5epositories Ser!ices Atd. &+5SA* pro!ide electronic trans$er securities and more then ..F o$

5.

turno!er is settled in dematerialized $orm. -ll acti!el traded scrip/s are held" traded and settled in demat $orm. The obligations o$ members are downloaded to membersDcustodians b the clearing agenc . The membersDcustodians make a!ailable the reBuired securities in their pool accounts with 5epositor 9articipants &59s* b the prescribed pa #in time $or securities. The depositor trans$ers the securities $rom the pool accounts o$ membersDcustodians to the settlement account o$ the clearing agenc . -s per the schedule determined b settlement account o$ the clearing agenc the same da $or all settlements. the depositor $rom the to the pool accounts o$

membersDcustodians. The pa #in and pa #out o$ securities is a$$ected on

TRANSACTION CYCLE - person holding assets &securitiesD$unds*" either to meet his liBuidit needs or to reshu$$le his holdings in response to changes in his perception about risk and return o$ the assets" decides to bu or sell the securities. 6e $inds out the right broker and instruct him to place bu Dsell order on an exchange. The order is con!erted to a trade as soon as it $inds a matching sellDbu schedule. order. The trades are cleared to determine the deli!ers $undsDsecurities and recei!es obligations o$ counterparties to deli!er securitiesD$unds as per settlement 2u erDseller

67

securitiesD$unds and acBuires ownership o!er them. - securities transaction c cle is presented gi!en below. T!an(acti&n c,c*

5ecision to Trade

9lacing order

?undsD Securities

Transaction c cle
Trade

3xecution

S tt* - nt( 5!&c (( Settlement o$ Trades

+learing o$ Trades

<hile 4S3 pro!ides a plat$orm $or trading to its trading members" the 4ational Securities +learing +orporation Atd. &4S++A* determines the $undsDsecurities obligations o$ the trading members and ensures that trading members meet their obligations. The clearing banks and depositories pro!ide the necessar inter$ace between the custodiansDclearing members &who clear $or the trading members or their

61

own transactions* $or settlement o$ $undsDsecurities obligations o$ trading members. The core $unctions in!ol!ed in the process are: a* T!a" R c&!"in#: The ke details about the trades are recorded to

pro!ide basis $or settlement. These details are automaticall recorded in the electronic trading s stem o$ the exchanges. b* T!a" C&n'i!-ati&n$ The counterparties to trade agree upon the

terms o$ trade like securit " price" and settlement date" but not the counterpart which is the 4S++A. The electronic s stem automaticall generates con$irmation b direct participants. The ultimate bu ersDsellers o$ securities also a$$irm the terms" as the $unds#securities would $low $rom them" although the direct participants are responsible $or settlement o$ trade.

c*

D t !-inati&n &' &2*i#ati&n: The next step is determination o$

what counter#parties owe" and what counter#parties are due to recei!e on the settlement date. The 4S++A interposes itsel$ as a central counterpart between the counterparties to trades and nets the positions so that a member has securit wise net obligation to recei!e or deli!er a securit and has to either pa or recei!e $unds. d* Pa,.in &! ')n"( an" S c)!iti The members bring in their $unds# securities to the 4S++A. The make a!ailable reBuired prescribed pa #in time. The depositories mo!e the securities a!ailable in the accounts o$ members to the account o$ the 4S++A. Aikewise members with $unds

62

obligations make a!ailable reBuired $unds in the designated accounts with clearing banks b the prescribed pa #in time. The ++ sends electronic instructions to the clearing banks to debit member/s accounts to the extent o$ pa ment obligations. The banks process these instructions" debit accounts or members and credit accounts o$ the 4S++A. e* Pa,.&)t &' F)n"( an" S c)!iti -$ter processing $or shortages o$

$undsDsecurities and arranging $or mo!ement o$ $unds $rom surplus banks to de$icit banks through ,2' clearing" the 4S++A sends electronic instructions to the depositoriesDclearing banks to release pa #out o$ securitiesD$unds. The depositories and clearing banks debit accounts or the 4S++A and credit accounts or members. Settlement is complete upon release o$ pa #out o$ $unds and securities to custodiansDmembers. The settlement process $or transactions in securities in the +8 segment o$ 4S3 is presented in the ?igure 3.3. $* Ri(1 Mana# - nt$ - sound risk management s stem is integral to

an e$$icient settlement s stem. The 4S++A ensures that trading members/ obligations are commensurate with their net worth. 't has put in place a comprehensi!e risk management s stem" which is constantl monitored and upgraded to pre#empt market $ailures. 't monitors the track record and per$ormance o$ members and their net worthE undertakes on#line monitoring o$ members/ positions and exposure in the market collects margins $rom members and automaticall disables members i$ the limits are breached.

63

SETTLEMENT PROCESS IN CM SEGMENT OF NSE

NSE
1

;

.

DEPOSITORIES
6

4S++A
%

CLEARING BANKS

2 5 17

3 4 11

CUSTODIAN(=CM(

E%5*anati&n($
&1* Trade details $rom 3xchange to 4S++A &real#time and end o$ da trade $ile*. &2* 4S++A noti$ies the consummated trade details to +8sDcustodians who a$$irm back. 2ased on the a$$irmation" 4S++A netting and determines obligations. &3* 5ownload o$ obligation and pa #in ad!ice o$ $undsDsecurities applies multilateral

64

&4* 'nstructions to clearing banks to make $unds a!ailable b pa #in time. &5* 'nstructions to depositories to make securities a!ailable b pa #in# time. &6* 9a #in o$ securities &4S++A ad!ises depositor to debit pool account o$ custodians. 8s and credit its account and depositor does it*. &%* 9a #in o$ $unds &4S++A ad!ises +learing 2anks to debit account o$ custodiansD+8s and credit its account and clearing bank does it*. &;* 9a #out o$ securities &4S++A ad!ises depositor to credit pool account o$ custodiansD+8s and debit its account and depositor does it*. &.* 9a #out o$ $unds &4S++A ad!ises clearing 2anks to credit account o$ custodiansD+8s and debit its account and clearing bank does it*. &17* 5epositor in$orms custodiansD+8s through 59s. &11* +learing 2anks in$orm custodiansD+8s.

65

T!a"in# S,(t - in ACM
Transactions $or the -rihant +apital 8arkets Atd &-+8* segment are routed $rom the Trader <ork Stations &T<S* to the central trading computer installed at -rihant +apital 8arkets o$$ice in Gashi" 4a!i 8umbai. The T<Ss are connected to the central trading computer o$ -rihant +apital 8arkets through leased lines" 'S54 lines" G94 connecti!it and GS-T network. The technolog in$rastructure optimizes and shares the s stem resources $or access to -rihant +apital 8arkets and 4S3 segments. -s $ar as access to the 4S3 segment is concerned" all orders are routed to 4S3 through the central order routing s stem installed at Gashi. This computer is connected to the 4S3 trading s stem through a 2mbps leased line acting as the primar link between -+8 and 4S3 and it also has a GS-T link as a backup. <ithin the 9articipating Stock 3xchange premises" the T<Ss reBuired $or -+8 and 4S3 segments are connected on A-4 segments to the GS-T in$rastructure alread established

66

CLEARING AND SETTLEMENT 'n tune with the S32' decision" -+8 has implemented TJ2 settlement c cle $rom -pril 1" 2773. The total deli!er #inDdeli!er # out and pa #inDpa #out o$ Traders and 5ealers are computed on a netted basis. -$ter netting" the net position $or each centre is computed. '$ there is a settlement position at a centre" then $unds or securities are mo!ed in and out $rom one centre to another" as the case ma be" so as to $ul$ill the total pa #in or pa #out position o$ $unds and securities. The mo!ement o$ $unds is through 65?+ 2ank and '+'+' 2ank. The settlement o$ securities takes place onl in a dematerialized mode using both the depositories in 'ndia" i.e. 4ational Securities 5epositor Aimited &4S5A* and the +entral 5epositor Ser!ices&'ndia*Aimited&+5SA*.9a #in o$ $unds is done b wa o$ direct debits to the settlement accounts maintained b the Traders and 5ealers with 65?+ 2ank and '+'+' 2ank. 'n the case o$ margins" debits are a$$ected on TJ1 b electronicall debiting the settlement accounts o$ Traders and 5ealers. Similarl " pa #out o$ $unds is a$$ected b the 3xchange through direct credits to the settlement accounts o$ the Traders and 5ealers.

6%

'n the case o$ operations on 'SS" the trading intermediaries &Sub#brokers o$ 'SS* are reBuired to maintain separate settlement accounts $or the +apital 8arket segment and ?utures M (ptions segment o$ 4S3 with an one o$ the designated +learing 2anks &65?+ 2ank and '+'+' 2ank at present*. Similarl " another settlement account will be reBuired $or the 3Buities segment o$ 2S3" when introduced. 8argin collection and re$und are through direct debits and credits b 'SS to the settlement accounts o$ the trading intermediaries. ?unds pa #in and pa #out likewise" are handled through the electronic $unds trans$er s stem. 'n the ?utures M (ptions segment" end clients are reBuired to maintain such accounts with the +learing 2anks and all debits and credits are e$$ected b 'SS to these accounts. -s $ar as securities is concerned a client o$ a trading member ha!ing a net deli!er position" can trans$er securities $rom his demat account either directl to the pool account o$ 'SS or route them through the account o$ the trading member. 9a #out o$ securities is alwa s e$$ected b same to their clients. 'SS into the account o$ the concerned trading members" who are then obligated to deli!er the

6;

INVESTOR PROTECTION -ll settlement liabilities amongst Traders and 5ealers o$ -+8 are guaranteed b the 3xchange/s Settlement 0uarantee $und. 'n addition" in!estors are protected against non#$ul$illment o$ commitments b TradersD5ealers through the 'n!estor 9rotection ?und.

,egion wise 5istribution o$ Traders and 5ealers &-s on ?ebruar 1" 277;* ,egistered 5ealers 1.4 ,egistered Traders 45 15 %4 11. 14 26% Total 34. ;6 151 137 23 62.

,egion States +o!ered <est

0oa" 0u1arat" 8aharashtra 6ar ana" Cammu M Hashmir" 4orth 5elhi" 9un1ab" ,a1asthan"%1 )ttaranchal" )ttar 9radesh -ssam" 2ihar" Charkhand" (rissa" 3ast %% <est 2engal -ndhra 9radesh" Herala" South 11 Harnataka" Tamil 4adu +entral +hattisgarh" 8adh a 9radesh . T(T-A 362

6.

DEMATERIALI>ATION
5ematerialization is a process b which ph sical shares o$ in!estors are con!erted to an eBui!alent number o$ Securities in electronic $orm and credited in the in!estor/s account with his 5epositor 9articipant. 5ematerialized trading is now compulsor $or all in!estors. 2eginning o$ $irst week o$ Canuar 1..." in!estor can trade in speci$ic scripts in the 5emoralization $orm. The changed $or these scripts. - depositor is an organization where Securities o$ 9articipant &59s*. The s stem is can pro!ide and recei!e deli!er onl in a 5ematerialized $orm and share certi$icate will not be

shareholder are held in the electronic $orm at the reBuest o$ the shareholder through 5epositor comparable to that in a bank. '$ an in!estor wants ser!ices o$$ered b a depositor " he would ha!e to open an account with it through a 59#

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similar to opening an account with an other branches o$ the bank in order to a!ail o$ its ser!ices. 5ematerialization is a process b which ph sical certi$icates o$ an in!estor are taken back b the compan Dregistrar and actuall destro ed and an eBui!alent number o$ Securities are credited in the depositor account o$ those in!estors. - 5epositor 9articipant is in!estor/s agent in the s stem. 6e maintains in!estor/s Securities account and intimates the status o$ holdings $rom time to time to the in!estor.

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Ba(ic T !-in&*&#i ( &n D -at S tt* - nt ,e$ers to the process whereb all those who ha!e made purchases make a pa ment and all those who ha!e made sales deli!er shares. The exchanges ensure that the bu ers who ha!e paid $or the shares purchased b pa ment $or the same. them recei!e the shares. Similarl sellers who ha!e gi!en deli!er o$ shares to the exchange recei!e

SETTLEMENT CYCLES: Settlement + cle re$ers to a calendar according to which all purchase and sale transactions done within the dates o$ the settlement c cle are settled on a net basis. 4S3 and 2S3 currentl $ollow dail settlement c cles. 'n a rolling settlement" each trading da is considered as a trading period and trades executed during the da are settled based on the net obligations $or the da . -t 4S3 and 2S3" trades in rolling settlement are settled on a TJ2 basis i.e. on the 2 nd working da . ?or arri!ing at the settlement da all inter!ening holida s" which include bank holida s" 4S3D2S3 holida s" Saturda s and Sunda s are executed. T picall trades taking place on 8onda are settled on <ednesda " Tuesda /s trades settled on Thursda and so on. PAY IN & PAY OUT:

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9a 'n re$ers to our obligations towards the exchanges and 9a (ut re$ers to exchange obligation towards ou. -ll 9a 'ns and 9a (uts take place on a =TJ2> da s basis" where =T> is the trading da and plus two more trading da s. So i$ ou bu some shares on 8onda " ou would ha!e to pa mone which is a 9a 'n and ou would recei!e shares" which is a 9a (ut. 2oth o$ these would take place ion <ednesda . LIMIT ORDER$ Aimit (rders allow ou to place a bu Dsell order at a price de$ined b ou. The execution can happen at a price more $a!orable than the price that has been de$ined b M non#market hours too. Ma!1 t O!" !($ 8arket (rders can be placed onl during market hours &i.e. when the exchange is open $or trading*. 8arket (rders ha!e di$$erent interpretations $or both 4S3 and 2S3. S?UARE OFF$ SBuare ($$ means bu ing and selling" selling and bu ing on the same da . ?or example" i$ ou ha!e bought 177 X shares o$ '4?T3+ toda morning and later on at the end o$ the da " i$ ou sell '4?T3+" 177 shares" it 1ust means that ou ha!e sBuared o$$ our order. @: OPENING CLEARING ACCOUNTS FOR SETTLEMENT OF TRADES$ ou. Iou can place limit orders during holida s

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-ll the trades executed at the exchanges are settled b the clearing member &+8*" as in the case o$ Securities in the ph sical $orm. To settle trades in 5emat segment each +8 should open one clearing account with an o$ the 59. The procedure $or opening clearing accounts is: ? ? ? ? ? ? -pproach a 59. ?ill up an account opening $orm. Sign on an agreement with the 59. -pplication is $orwarded to 4S5A b 59. 4S5A allots a number identi$ied as +8#29#'5. 59 opens account and an account number is pro!iding along with 5a!t($

+8#29#'5 to the clearing member. T+ c* a!in# acc&)nt c&n(i(t( &' t+! ? ? ? 9ool account 5eli!er account ,eceipt account
+A3-,'40 -++()4T

53A'G3,I -++()4T

9((A -++()4T

,3+3'9T -++()4T

S3AA'40 +A'34T %4

2)I'40 +A'34T

@: POOL ACCOUNT$ 't has two roles to pla in clearing o$ securities" ? 2e$ore pa in the selling client o$ the +8 trans$ers Securities $rom The +8 trans$ers the Securities $rom his pool account to the account his client account to the +8 pool account. ? o$ the bu ing client. A: DELIVERY ACCOUNT$ The +8 trans$ers the Securities in" $rom the pool account to the deli!er account be$ore pa in" at the time o$ pa # in 4S5A $lushes out the securities in the deli!er ++D+6. B: RECEIPT ACCOUNT$ (n pa @out da " the ++D+6 trans$ers Securities to the pool account through the account. +8 has to ensure that be$ore book closure or record date o$ an compan allowed. @: SETTLEMENT$ the Securities are mo!ed $rom +8 pool account to a bene$iciar account as holding in pool account $or longer period is not account and trans$ers the same to the

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'n the depositor s stem" an trade that is cleared and settled through the clearing corporation &++D+6* is called market trade. P!&c ")! '&! 5a,.in &' ( c)!iti ( ? 0i!e ,eceipt instruction to the 59 $or trans$er o$ Securities $rom client account to the pool account or gi!e a standing instruction $or the same. ? 5eli!er to ++D+6 instruction $or the trans$er o$ Securities $rom pool and account to deli!er account $or pa #in. +A3-,'40 53A'G3,I -++()4T 9((A -++()4T

2oth pa #in and pa #out happens to be on 5thworking da a$ter the trading and the instruction to trans$er the Securities $rom the pool account to deli!er account must be gi!en be$ore pa #in such that this trans$er is a$$ected be$ore pa #in. the trans$er instruction is taken as an authorit to trans$er the securit irrespecti!e o$ when the client gi!es the deli!er instruction" the Securities will be parked in the deli!er account till $inal pa #in and the $acilit o$ multiple instructions $rom the pool account is also pro!ided to the in!estors. 'n case o$ excess trans$er o$ shares to the deli!er account or excess deli!er to ++D+6 the instruction slip can be cancelled and issued new one or the ++D+6 will return the Securities at the time o$ pa #out respecti!el . P!&c ")! '&! 5a,.&)t &' ( c)!iti (

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?

Trans$er o$ Securities $rom ++D+6 to pool account through receipt 5eli!er instruction to trans$er $rom pool account to client on pa #

in account on pa #out. ? out. +A3-,'40 ,3+3'9T 9((A

(n the deli!er o$ the instruction $rom the client/s name" client/s 59" '5 and 59 name o$ the client must be mentioned and ensure that receipt instruction gi!en b client to recei!e the Securities bears the same execution date as gi!en in the deli!er instruction. 6owe!er" the broker can hold the Securities in the pool account until the client meets his obligations but be$ore the closure o$ books" the balances must be trans$erred as the balances in the pool account" which are not entitled $or an corporate bene$its. FLO0 CHART TO EFFECT CLEARING AND SETTLEMENT OF MARKET TRADES

Send receipt instruction $or trans$er $rom client account to pool account -n time be$ore pa #in 0i!e deli!er instruction to our 59 $or trans$er $rom pool account to ++

(n pa out ou will recei!e securities $rom ++ to our %% pool aDc automaticall

-n time be$ore or a$ter pa #out 0i!e deli!er instruction $or trans$er o$ securities $rom pool aDc to client aDcs

Int !.D 5&(it&!, T!an(' !(
- trans$er o$ securities $rom an account in one depositor to an account in another depositor is termed as an inter#depositor trans$er. This $acilit is Buite similar to the account trans$ers within 4S5A. 't can be done onl $or Securities that are a!ailable $or 5ematerialization on both the depositories. The account in 4S5A can be either a clearing account or a bene$iciar account. ?or debiting the clearing account or the bene$icial account with 4S5A" the $orm $or

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=inter#depositor deli!er instruction> is reBuired to be submitted b the clearing memberDbene$icial owner to its 59. ?or crediting the clearing account or the bene$icial account" the standard instruction gi!en $or automaticall crediting the account is applicable. 'n case the standard instructions are not gi!en" then the $orm $or =inter#depositor receipt instruction> is reBuired to be submitted b the clearing memberDbene$icial owner to its 59. -s both the depositories are connected to each other" the batches to e$$ect inter#depositor trans$ers are presentl exchanged twice on the working da . The issuerDregistrar and trans$er agent is in$ormed about the trans$er b accordingl . 0o!ernment Securities cannot be trans$erred $rom one depositor another using this $acilit . NATIONAL SECURITIES DEPOSITORY LIMITED 4S5A was inaugurated in 1..6" as the depositor in the countr to a!oid the m riad problems in settlement. 'n depositor s stem" Securities are held in securities &depositor * accounts" which is more or less similar to holding $unds in the bank to both the depositories and it amends its records

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accounts. Trans$er o$ ownership is done through simple account trans$er. This method does awa with all the risks and hassles normall associated with paper work. +onseBuentl " the cost o$ transaction in depositor en!ironment is considerabl lower as compared to transaction in ph sical certi$icates. Trading in dematerialized Securities is Buite similar to trading in ph sical Securities. The ma1or di$$erence is that at the time o$ settlement" instead o$ deli!er Dreceipt o$ Securities in the ph sical $orm" the same is a$$ected through account trans$er. +urrentl a!ailable at 4S3" 2S3 and +S3. 3xclusi!e 5emat segment $ollows rolling settlement &TJ2* c cle and the uni$ied &erstwhile#ph sical* segment $ollows account period settlement c cle. -ll in!estors" other than the institutional in!estors" can deli!er Securities either in the ph sical or dematerialized $orm in the market. ?rom Canuar deli!er onl 4" 1..." all categories o$ in!estors can in 5ematerialized $orm with respect to a select list o$ dematerializes trading is

securities. 6owe!er initiall this was applicable onl at those exchanges" which ha!e 1oined the depositor " but S32' has also speci$ied that this list is to be expanded in a phased manner. The settlement o$ trades in the stock exchanges is undertaken b the clearing corporation &++*Dclearing house &+6* o$ the corresponding stock exchanges.

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<hile settlement o$ 5ematerialized Securities is e$$ected through 4S5A" the $unds settlement is e$$ected through the clearing banks. The ph sical Securities are settled b the clearing members directl with the ++D+6.

BENEFITS OF DEPOSITORY SYSTEM

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'n the depositor s stem" the ownership and trans$er o$ Securities takes place b means o$ electronic book entries. -t the outset" this s stem rids the capital market o$ the danger related to handling o$ paper. 4S5A pro!ides numerous direct and indirect bene$its" like: 3limination o$ bad deli!eries#in the depositor en!ironment" once

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holding o$ an in!estor are 5ematerialized" the Buestion o$ bad deli!er does not arise i.e. the cannot be hold =under ob1ection>. ? 3limination o$ all risks associated with ph sical certi$icates#dealing in ph sical Securities ha!e associates securit risks o$ stocks" mutilation o$ certi$icates" loss o$ certi$icates during mo!ements through and $rom the registrars" thus exposing the in!estor to the cost o$ obtaining duplicate certi$icates and ad!ertisement" etc.." This problem does not arise in the depositor en!ironment. ? 4o stamps dut $or trans$er o$ an kind o$ Securities in the depositor . ? 'mmediate trans$er and registration o$ securities# in the depositor en!ironment" once the securities are credited to the in!estors accounts on pa #out" he becomes the legal owner o$ the securities. There is no $urther need to send it to the compan /s registrar $or registration. ? ?aster settlement c cle#the exclusi!e 5emat segment $ollow rolling settlement c cle o$ TJ2 i.e. the settlement o$ trades will be on the 2 nd working da $rom the trade da . This will enable $aster turno!er o$ stock and more liBuidit with the in!estor.

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?

,eduction in brokerage b

man

brokers $or trading in

5ematerialized Securities#brokers pro!ide this bene$it to in!estors as dealing in 5ematerialized Securities reduced their back o$$ice cost o$ handling paper and eliminates the risk o$ being the introducing broker. ? ?aster disbursement o$ non#cash corporate bene$its like rights" ,eduction o$ problems related to change o$ address o$ in!estor" bonus" etc.." ? transmission" etc." in case o$ change o$ address or transmission o$ 5emat shares" in!estors are sa!ed $rom undergoing the entire change procedure with each compan or registrar. 'n!estors ha!e to onl in$orm their 59 with all rele!ant documents and the reBuired changes are e$$ected in the database o$ all the companies" where the in!estor is a registered holder o$ Securities. ? ? 3limination o$ problems related to selling Securities on behal$ o$ a minor# a natural guardian is not reBuired to take court appro!al 5emat Securities on behal$ o$ a minor. 3ase in port$olio monitoring since statement o$ account gi!es a consolidated position o$ in!estment in all instructions.

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OBSERVATION The online in -+8 is introduced to reduce and eliminate all the discrepancies that arise out o$ manual trading s stem. 't has been de!eloped to computerize the trading acti!it o$ the broker. <ith the computerization o$ the trading acti!it " the number o$ transaction and the !olume o$ trading ha!e increased to a great extent. -+8 is dealing in both 2S3 and 4S3. The turno!er o$ -+8 has gone up during 1..; with the introduction o$ online trading s stem. The trading o$ -+8 o$ the $irst da was ,s. 3%.77 crores. 4ow the companies are also taking orders on phone call. (nl -+8 is not in phone order. Trading in U securities is not a!ailable. &U securities are those securities which are not traded regularl *. 2ank account $or instant trans$er is also not a!ailable" which all the companies dealing with online trading are gi!ing instant bank aDc. all companies are gi!ing o$$line option while -+8 is not gi!ing an o$$line options.

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9ort$olio !aluation is not a!ailable. 8oreo!er" onl go!t securities and bonds are allowed $or mutual trading.

CONCLUSION The comprehensi!e stud o$ on =online trading s stem and

+learing M settlements at -rihant +apital 8arkets Atd has been an enlightening experience stressing on the position aspects on securit trading. 5ematerialization o$ shares and online trading has done in whole lot o$ good to the issuer" in!estor" companies and countr . The 5epositor s stem has reduced the time lag in deli!ering and settlement o$ securities but also supported the cause o$ pro!iding more liBuidit to the securit holder" the need $or setting up o$ a depositor " paper less trading through online trading s stem and settlement became in e!itable and una!oidable $or the smooth and e$$icient $unctioning o$ the capital market. This s stem has pro!en its worth ness b increasing in the settlement will be done with in the da in $uture is in itsel$ an indication o$ how great a boon in this s stem o$ (nline trading.

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3#brokerages

pro!ide

con!enience"

encourage

increased

in!estor participation and lead to lower up $ront costs. 'n the long run" the will likel re$lect increased market e$$icienc as well. 'n short run" howe!er" there are a number o$ issues related to transparenc " in!estor/s misplaced trust" and poorl aligned incenti!es between e#brokerages and markets" that ma impede true market e$$icienc . ?or e$$icienc to mo!e be ond the user inter$ace and into the trading process" consumers need a transparent window to obser!e the actual $low o$ orders" the time o$ execution and the commission structure are !arious points in the trading process. 'n this regard" institutional rules" regulations and monitoring $unctions pla a signi$icant role in promoting e$$icienc and transparenc along the !alue chain in electronic markets. (ur anal sis con$irms that in the context o$ online stock markets" the need $or such inter!ention and o!ersight it particularl strong.

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SUGGETIONS The o!erall per$ormance o$ -+8" 59 and (4A'43 T,-5'40 is good. 6ere are the suggestions $or $urther impro!ements o$ the per$ormance in the $uture. ? Golume o$ paper work is small but it is !er updating data. ? 8ost o$ 59s do not ha!e the necessar in$rastructure to handle the high workload o$ transactions lending to man error b 59s" so b gi!ing $ull in$rastructure in$ormation to e!er 59 can a!oid this problem ? The pool aDc does not know the true owner o$ the shares and hence di!idends are paid to the broker instead o$ owners" b this broker can do an manipulations or an $raud with the owner" $or this the complicated to maintain data in s stem so tr to reduce that b regular audit and

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owner can loose his di!idend. 6ence $or this tr di!idend directl to the owner.

to pa

the

? '$ the shares are $akeD$orged which deli!ered b the broker the shareholder can loose that s stem and ha!e to recei!e another lot o$ issued shares $rom the broker in 21 da s" this s stem stands abused as soon as possible. ? The online trading is eas to work but it is costl to maintain and di$$icult to learn. ? 't should increase the speed o$ executing the orders. ? 8utual $unds trading $or other companies ha!e to be encouraged. '$ phone orders are encouraged" trading in z securities are allowed" bank account $or instant trans$er are pro!ided and o$$line option are gi!en then -+8 would be de$initel turno!er. ? 4ecessar steps should be taken b the exchanges to deal with the situation arising due to break down in online trading. ? 'nstant bank account should be pro!ided as the other companies are pro!iding" because this helps the -+8 in dealing directl with the in!estors. ? -nother important thing" which has to be taken into considerations" is port$olio management. 't should ha!e a separate department $or port$olio management and should guide the in!estors. '$ -+8 takes initiati!e steps $or port$olio !aluation o$ the in!estor/s .Then in!estors will be attracted towards the -+8 to a greater extent. impro!ing in the

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-+8 has to gi!e more ad!ertisement through the media stating the ad!antages to the in!estors b using -+8. Ae!erages should be pro!ided to the in!estors till settlement. Then onl it encourages the in!estors to take acti!e part in online trading o$ the stock exchange The so$tware or the s stem used in online trading should be ad!anced and the persons who operate should ha!e minimum knowledge or i$ the are !er well !ersed about the $unctioning o$ the s stem then it will be help$ul in smooth $unctioning o$ online trading. 'n -+8 in!estors cannot do their own trading on the s stem"

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e!er time the ha!e to consult the 59 members and has to tell to hold the shares b his name" instead o$ this pro!ide the web trading $acilit to in!estors b this the can do their own trading b sitting in $ront o$ internet. .

BIBLIOGRAPHY N 4(5a5 !$ 0 2.(it $ 3conomic Times o$ 'ndia www.nseindia.org www.iseindia.com www.nsccl.com

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-+8 ,eport

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