Chapter 1

OBJECTIVES AND METHODOLOGY

NEED FOR THE STUDY:

The present study to review the online trading procedure a

case study of ONLINE TRADING AT SHAREKHAN as

the exchange has changed it’s trading from the outcry mode

to online trading on 20th February 1997, there is need to

assess the performance of the capital market.

2
 OBJECTIVES OF THE STUDY:

• It is to analyze the changes in trading after the exchange shifted from outcry to
online trading system.

• It is to study the functions of SHAREKHAN through various departments.

• To know the online screen based trading system adopted by SHAREKHAN and
about its communication facilities. The appropriate configuration to set the
network, which would link the SHAREKHAN to individual / members.

To know about the latest and future development in the stock exchange

trading system.

3
METHODOLOGY OF THE STUDY:

The data collection methods include both primary and secondary collection methods.

Primary method: This method includes the data collected from the personal interaction
with authorized members of Sharekhan Securities limited.

Secondary method: The secondary data collection method includes:

The lecturers delivered by the superintendents of respective departments.
The brochures and material provided by Sharekhan Securities limited.
The data collected from the magazines of the NSE, economic times, etc.
Various books relating to the investments, capital market and other related topics.

Despite of the training my level best, there were still some limitation which I think
remains there to draw fruitful conclusion. There were some practical problem which
come across and could not be properly death with:

 The advisory services being promised by the brokers would be of little use to
investors looking for an insight into the market.

 As a client one will access the NSE through a server of the online brokerage
and this may involve queuing delays

If one like to ask his broker "Aaj kya achcha lag raha hai" he may not be able to do so. If
he want advice on a particular stock in his portfolio he may not even be able to get that.

4
 Chapter 2

COMPANY PROFILE

Sharekhan Ltd. is one of the leading retail stock broking house of SSKI Group which
is running successfully since 1922 in the country. It is the retail broking arm of the
Mumbai-based SSKI Group, which has over eight decades of experience in the stock
broking business. Sharekhan offers its customers a wide range of equity related services
including trade execution on BSE, NSE, Derivatives, depository services, online
trading, investment advice etc.
The firm’s online trading and investment site - www.sharekhan.com - was launched
on Feb 8, 2000. The site gives access to superior content and transaction facility to retail
customers across the country. Known for its jargon-free, investor friendly language and
high quality research, the site has a registered base of over one lakh customers. The
content-rich and research oriented portal has stood out among its contemporaries
because of its steadfast dedication to offering customers best-of-breed technology and
superior market information. The objective has been to let customers make informed
decisions and to simplify the process of investing in stocks.

On April 17, 2002 Sharekhan launched Speed Trade, a net-based executable application
that emulates the broker terminals along with host of other information relevant to the
Day Traders. This was for the first time that a net-based trading station of this caliber
was offered to the traders. In the last six months Speed Trade has become a de facto
standard for the Day Trading community over the net.

Share khan’s ground network includes over 1288 centers in 325 cities in India which
provide a host of trading related services.

Sharekhan has always believed in investing in technology to build its business. The
company has used some of the best-known names in the IT industry, like Sun
Microsystems, Oracle, Microsoft, Cambridge Technologies, Nexgenix, Vignette,
Verisign Financial Technologies India Ltd, Spider Software Pvt Ltd. to build its trading
engine and content. The Morakhiya family holds a majority stake in the company.
HSBC, Intel & Carlyle are the other investors.

With a legacy of more than 80 years in the stock markets, the SSKI group ventured into
institutional broking and corporate finance 18 years ago. Presently SSKI is one of the
leading players in institutional broking and corporate finance activities. SSKI holds a
sizeable portion of the market in each of these segments. SSKI’s institutional broking
arm accounts for 7% of the market for Foreign Institutional portfolio investment and

5
 5% of all Domestic Institutional portfolio investment in the country. It has 60
institutional clients spread over India, Far East, UK and US. Foreign Institutional
Investors generate about 65% of the organization’s revenue, with a daily turnover of
over US$ 2 million. The Corporate Finance section has a list of very prestigious clients
and has many ‘firsts’ to its credit, in terms of the size of deal, sector tapped etc. The
group has placed over US$ 1 billion in private equity deals. Some of the clients include
BPL Cellular Holding, Gujarat Pipavav, Essar, Hutchison, Planetasia, and Shopper’s
Stop.

PROFILE OF THE COMPANY

Name of the company: Sharekhan ltd.

Year of Establishment: 1925

Headquarter : Sharekhan SSKI

A-206 Phoenix House
Phoenix Mills Compound
Lower Parel
Mumbai - Maharashtra, INDIA- 400013

Nature of Business : Service Provider

6
 Chapter 3
VISION AND MISSION

VISION

To be the best retail brokering Brand in the retail business of stock market.

Mission

To educate and empower the individual investor to make better investment decisions
through quality advice and superior service.

Sharekhan is infact-
• Among the top 3 branded retail service providers
• No. 1 player in online business
• Largest network of branded broking outlets in the country serving more than
7, 00,000 clients.

Customer Service

Sharekhan limited’s customer service team will assist one for any help that one may require
relating to transactions, billing, demat and other queries. Its customer service can be
contacted via a toll-free number, email or live chat on www.sharekhan.com.

Investment Advice

Sharekhan has dedicated research teams of more than 30 people for fundamental and
technical researches. Its analysts constantly track the pulse of the market and provide
timely investment advice to its clients in the form of daily research emails, online chat,
printed reports and SMS on their mobile phone.

7
PRODUCTS AND SERVICES OF SHAREKHAN LIMITED

The different types of products and services offered by Sharekhan Ltd. are as follows:

• Equity and derivatives trading

• Depository services
• Online services
• Commodities trading
• Dial-n-trade
• Portfolio management
• Share shops
• Fundamental research
• Technical research

TYPES OF ACCOUNT IN SHAREKHAN LIMITED

Sharekhan offers two types of trading account for its clients

Classic Account (which include a feature known as Fast Trade Advanced Classic
Account for the online users) and Speed Trade Account

CLASSIC ACCOUNT
This is a User Friendly Product which allows the client to trade through website
www.sharekhan.com and is suitable for the retail investor who is risk-averse and
hence prefers to invest in stocks or who does not trade too frequently. This account
allow investors to buy and sell stocks online along with the following features like
multiple watch lists, Integrated Banking, Demat and digital contracts, Real-time
portfolio tracking with price alerts and Instant credit & transfer.

8
 This account comes with the following features:

a. Instant order Execution and Confirmation.

b. Single screen trading terminal for NSE Cash, NSE F&O & BSE.
c. Technical Studies.
d. Multiple Charting.
e. Real-time streaming quotes, tic-by-tic charts.
f. Market summary (Cost traded scrip, highest value etc.)
g. Hot keys similar to broker’s terminal.
h. Alerts and reminders.
i. Back-up facility to place trades on Direct Phone lines.

RESEARCH SECTION IN SHAREKHAN LIMITED

Sharekhan Limited has its own in-house Research Organisation which is known as
Valueline. It comprises a team of experts who constantly keep an eye on the share market
and do research on the various aspects of the share market. Generally the research is based
on the Fundamentals and Technical analysis of different companies and also taking into
account various factors relating to the economy.

Sharekhan Limited’s research on the volatile market has been found accurate most of the
time. Sharekhan's trading calls in the month of November 2007 has given 89% strike rate.

Out of 37 trading calls given by Sharekhan in the month of November 2007, 33 hit the
profit target. These exclusive trading picks come only to Sharekhan Online Trading
Customer and are based on in-depth technical analysis.

AWARDS AND ACHIEVEMENTS

• SSKI has been voted as the Top Domestic Brokerage House in the research
category, twice by Euromoney Survey and four times by Asiamoney Survey.

• Sharekhan Limited won the CNBC AWARD for the year 2004.

9
 CHAPTER 4
PROJECT ANALYSIS

OUTCRY SYSTEM

The broker has to buy or sell securities for which he has received the orders. For this,
the broker or his authorized representatives goes to the stock exchange. This method is
called the open outcry system. Basically the brokers shout while buying or selling the
securities. The floor of the stock exchange is divided into a number of markets also
known as ‘post pit’ or wing based on particular securities dealt there. In the post pit or
wing, the broker using ‘open outcry’ method makes an offer or bid price. For making
the necessary bargain, he quotes his purchase or sale price, also known as offer or bid
price. The dealer, to whom the price is quoted, quotes his own price when the quotation
of the dealer suits the broker, he may loose the bargain. If he is not satisfied with the
quote price, he may turn to some other dealer. On the close of the bargain, the dealer
as well as the broker makes a brief note of the particulars of the deal. Such notes are
made on some pad and on it the number of shares, the price agreed upon, the name of
the party, what membership number etc., are noted.

DISADVANTAGES OF OUTCRY SYSTEM:

• It lacks transparency.
• The scope of manipulation, speculation and mal practice is more.
• Signal were more important in the outcry system any member who could not
interpret the buy/sell signal correctly often landed himself in disaster situation.

• In audibility was another disadvantage of the outcry system.

• Due to the above disadvantages of the outcry system the SHAREKHAN has shifted
from outcry system to online trading from February 29th 1997.

10
MANUAL TRADING:

Trading procedure before introduction of online trading:

Trading on stock exchanges is officially done in the trading ring. In the trading ring the
space is provided for specified and non-specified sections, the members and their
authorized assistants have to wear a badge or carry with them an identity card given by
the exchange to enter the trading ring. They carry a sauda book or confirmation memos,
duly authorized by the exchange and carry a pen with them. The stock exchanges
operations are floor level are technical in nature .Nonmembers are not permitted to enter
in to stock market. Hence various stages have to be completed in executing a transaction
at a stock exchange.

DEMATERLIZATION:

Dematerialization is the process by which physical certificates of an investor are

converted to an equipment number of securities in electronic from and credited in the
investor account with his DP. In order to dematerialize the certificates, an investor has
to first open an account with a DP and then request for the Dematerialization Request
Form, which is DP and submit the same along with the share certificates. The investor
has to ensure that he marks “Submitted for Dematerialization” on the certificates before
the shares are handed over to the DP for demat. Dematerialization can only be done to
those certificates, which are already registered in your name and belong to the list of
securities admitted for Dematerialization at NSDL.

Most of the active scrip’s in the market including all the scrip’s of S&P CNX NIFTY
and BSE SENSEX have already joined NSDL. This list is steadily increasing.

Briefly, the process is as follows: after completion of transfer, the investor gets the
option to dematerialize such shares. Investor’s willing to exercise this option sends a
Demat request along with the option letter sent by the company to his DP. The company
or its R&T agent would confirm the Demat request on its receipt from the DP to reduce
risk of loss in transit.

Dematerialized shares do not have any distinctive or certificate numbers. These shares
are fungible-which means that 100 shares of a security are the same as any other 100
shares of the security. Odd lot shares certificates can also be dematerialized.

11
 Dematerialization normally takes about fifteen to thirty days. To get back
dematerialized securities in the physical form, request DP for Rematerialization of the
same is made.

Benefits of Demat:
• It reduces the risk of bad deliveries, in turn saving the cost and wastage of time
associated with follow up for rectification. This has lead to reduction in brokerage to
the extent of 0.5% by quite a few brokerage firms.

• In case of transfer of electronic shares, you save 0.5% in stamp duty. You avoid the
cost of courier / notarization.

• You can receive your bonuses and rights issues into your DA as a direct credit, this
eliminating risk of loss in transit.

• You can also expect a lower interest charge for loans taken against Demat shares as
compared to loans against physical shares.

• There is no lost in transit, thus the overheads of getting a duplicate copy in such
circumstances is reduced.

• RBI has also reduced the minimum margin to 25% for loans against dematerialized
securities as against 50% for loans against physical securities.

ONLINE TRADING

Before getting in to the online trading we should know some things about the internet,
e-commerce and etc.

12
ONLINE TRADING HAS LED TO ADDITIONAL FEATURES SUCH AS:
1) Limit / stop orders: orders that can be go unfilled, but there is an extra Charge for
this leeway facility since one need to hold a price.

2) Market orders: orders can be filled at unexpected prices, but this type is much more
risky, since you have to buy stock at the given price.

3) Cash account: where funds have to be available prior to placing the order.
4) Margin account: where orders can be placed against stocks, to increase Purchasing
power.

ADVANTAGES OF ONLINE TRADING:

1) Online trading has made it possible for anyone to have easy and efficient access to
more reports and charts than it was previously possible if one went to any brokers'
office. Thus we have access to a lot more information online.

2) Online trading has let room for smaller organizations to compete with multinational
organizations since it is no longer a leg it issue. Being online does not identify the
size of any particular organization, therefore, this additional power to the
underdogs.

3) Online trading has allowed companies to locate themselves where they want as
physical location is not an issue anymore. Companies can establish themselves
according to their gains and losses, for instance where tax (sales and value added
taxes) is best suited to them.

4) Online trading gives control to individuals and they can exercise it over accounts
thus comprehend what is going on when they trade. It is like going back to school
and re-educating oneself on how to trade online.

5) Individuals’ benefit by saving comparatively a lot more when trading online as the
cost per trade is less.

6) Individuals can invest in a variety of products, unlike earlier when people bought
bonds, mutual funds, and stock for long-term basis and sat on them. Now they can

13
 invest in stocks, stock and index options mutual funds, government, and even
insurance.
INVESTORS REASONS TO TRADE ONLINE:

1) They have control over their accounts, can make their own decisions and don’t have

to give reasons for their actions. They are independent.

2) They have a reason to participate in the market and learn about it.

3) It is interesting, cheap, easy, fast, and convenient.

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

in the trading world.

5) It will give investors a greater choice and better realization.

HERE ARE THE POSSIBLE DISADVANTAGES:

1) When network crashes, there will be problems and delays due to a large influx of

rapid online trading criteria.

2) Individuals are restricted to first-hand financial guidance. This simply means that

the individual is himself / herself alone to.

3) A tax (sales tax and value added tax) evaluation becomes an issue, especially when

you are trading internationally.

4) One has no idea with whom he is dealing with on the other end.

5) According to a study conducted by Mary Rowland, careful investor: is online

trading bad for your portfolio, the more one trades the less returns one gets, meaning

14
 that an addicted trader gets, carried away online and begins to trade for too much

which causes losses for him / her.

6) Individuals think that they are trading with the market directly and know what they

are doing, but the truth is that even though technology has taken over, the basic

rules of trading are the same. It seems that the middleman has been removed, but

that is not so. When the individuals click on the mouse, his trade goes through a

broker. The commissions online pertain to the intermediary.

7) There is a need for more effective communication links over the Internet and the

ability of the server to deal with a large volume of visitors.

TRADING AND SETTLEMENT AT SHARE KHAN

The NSE first introduced online trading in India. The Online trading system imparted
a greater level of transparency and investors preferred exchanges that offered Online
trading because of the following factors:

• The ease of operation from the view of the both members and the investors.
• Increase in the confidence of the investors because of higher level of transparency.

• Facilities better monitoring of the market by the exchange.

• The best price achieved in buying and selling.

All these resulted in ever-increasing volumes on the exchanges offering the online
trading.

TRADING PROCEDURE AT SHARE KHAN STOCK BROCKING

ShareKhan deals in buying and selling equity shares and debentures on the National
Stock Exchange (NSE), the Bombay Stock Exchange (BSE) and the Over-TheCounter
Exchange of India (OTCEI).

15
Share Khan is provided with a computer and required software from their registered
stock exchanges. These centers are called “Broker Work Stations”. These computers
are connected to the server at the stock exchanges through cable. The member or broker
sitting in his office can send the quotations, orders, negotiations, deals, in-house deals,
auction orders etc., through the computer. The Central trading system (CTS) will accept
these orders and send it for match. If there is any mistake in the order, CTS will reject
the orders and send respective error message to the member concern. All these
operations are in built. The main objective of CTS is to monitor the Stock Exchanges
operations.

Order placed by the broker will be sent for a match and if the match is found suitable,
the transaction will be executed. Otherwise, the order will be deleted automatically
after completion of trading time. The carry forward transactions (Good Till
cancellation) are forwarded to the next day. Even if the match is not found with in the
prescribed period, the order will not cancel.

Good till cancellation:

This order is forwarded to the last trading day of that settlement period. This is also
called as carry forward order like GFD; broker has to select the option of GTC for the
order. If the order finds match with in the trading settlement period, the order is
executed. If no match is found, the order is cancelled on the last day of settlement
period. This order is not carried forward to the next settlement period.
For example, if a member a place purchase order of 500 shares of SBI @ 690 per share
and selects the order as GTC and place an order. If the match is not found on that day
it will be forwarded to the next day until trading settlement period day.

SETTLEMENT OF TRANSACTIONS:

Clearing of transaction in the form of shares and cash is called settlement. Buyers will
take the delivery of shares through the depository participants like SHARE KHAN and
others.

16
Finally, the settlement is made by means of delivering the share certificates along with
the transfer deeds. The transferor (or the seller) duly signed transfer deed. It bears a
stamp of the selling broker. The buyer then fills up the certificates fills up the particulars
in the transfer deed. Settlement can be done in the following way.

Spot settlement: under this method, the delivery of securities and payment for them
are affected on the day of the contract itself.

Rolling settlement: Under this rolling settlement the trading is on “T+2”,basis i.e. if
Monday is trading day then Wednesday is the paying day . In case on non-delivery, the
securities will go for auction

DETAILS OF PROCEDURES:

Delivery in : The members who are in pay-out position delivers share certificates in
to clearing house within the settlement period along with the delivery Chelan filled in
with the details of share certificates which has folio numbers or distinctive numbers
etc.

Delivery out: The buyer of shares who made pay in position will take delivery of shares
from the clearing house.
Pay-in: The member who is in paying position shall pay for value of shares with in the
trading settlement period (T+2).

Payout: The cheques paid in the clearinghouse will be paid to members who are in
paying position.

17
Following diagram gives the structure of Indian financial system:

18
FINANCIAL MARKET:

Financial markets are helpful to provide liquidity in the system and for smooth
functioning of the system. These markets are the centers that provide facilities for
buying and selling of financial claims and services. The financial markets match the
demands of investment with the supply of capital from various sources.

According to functional basis financial markets are classified into two types.
They are:
 Money markets (short-term)
 Capital markets (long-term)
According to institutional basis again classified in to two types.
 Organized financial market
 Non-organized financial market.

The organized market comprises of official market represented by recognized

institutions, bank and government (SEBI) registered/controlled activities and
intermediaries. The unorganized market is composed of indigenous bankers,
moneylenders, individual professional and non-professionals.

MONEY MARKET:

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

Again the money market is classified in to
 Inter bank call money market
 Bill market and
 Bank loan market Etc.
E.g.; treasury bills, commercial papers, CD's etc.

19
 Again the capital market is classified in to two types and they are
 Primary market

 Secondary market.

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

PRIMARY MARKET:

Primary market is generally referred to the market of new issues or market for
mobilization of resources by the companies and government undertakings, for new
projects as also for expansion, modernization, addition, diversification and up
gradation. Primary market is also referred to as New Issue Market. Primary market
operations include new issues of shares by new and existing companies, further and
right issues to existing shareholders, public offers, and issue of debt instruments such
as debentures, bonds, etc.

The primary market is regulated by the Securities and Exchange Board of India

(SEBI a government regulated authority).

Function:
The main services of the primary market are origination, underwriting, and
distribution. Origination deals with the origin of the new issue. Underwriting
contract make the shares predictable and remove the element of uncertainty in the
subscription. Distribution refers to the sale of securities to the investors. The
following are the market intermediaries associated with the market:

1. Merchant banker/book building lead manager

2. Registrar and transfer agent
3. Underwriter/broker to the issue
4. Adviser to the issue
5. Banker to the issue
6. Depository
7. Depository participant

20
Investors’ protection in the primary market:

To ensure healthy growth of primary market the investing public should be protected.
The term investor protection has a wider meaning in the primary market.
The principal ingredients of investors’ protection are:
 Provision of all the relevant information
 Provision of accurate information and
Transparent allotment procedures without any bias.

SECONDARY MARKET

The primary market deals with the new issues of securities. Outstanding securities
are traded in the secondary market, which is commonly known as stock market or
stock exchange. “The secondary market is a market where scrip’s are traded”. It is a
market place which provides liquidity to the scrip’s issued in the primary market.
Thus, the growth of secondary market depends on the primary market. More the
number of companies entering the primary market, the greater are the volume of
trade at the secondary market. Trading activities in the secondary market are done
through the recognized stock exchanges which are 23 in number including Over The
Counter Exchange of India (OTCE), National Stock Exchange of India and
Interconnected Stock Exchange of India.

Secondary market operations involve buying and selling of securities on the stock
exchange through its members. The companies hitting the primary market are
mandatory to list their shares on one or more stock exchanges in India. Listing of
scrip’s provides liquidity and offers an opportunity to the investors to buy or sell the
scrip’s.

The following are the intermediaries in the secondary market:

1. Broker/member of stock exchange – buyers broker and sellers broker
2. Portfolio Manager
3. Investment advisor
4. Share transfer agent

21
STOCK MARKETS IN INDIA:

Stock exchanges are the perfect type of market for securities whether of government and
semi-govt bodies or other public bodies as also for shares and debentures issued by the
joint-stock companies. In the stock market, purchases and sales of shares are affected in
conditions of free competition. Government securities are traded outside the trading ring
in the form of over the counter sales or purchase. The bargains that are struck in the
trading ring by the members of the stock exchanges are at the fairest prices determined
by the basic laws of supply and demand.

Definition of a stock exchange:

“Stock exchange means any body or individuals whether incorporated or not,

constituted for the purpose of assisting, regulating or controlling the business of buying,
selling or dealing in securities.” The securities include:
 Shares of public company.
 Government securities.
 Bonds

History of Stock Exchanges:

The only stock exchanges operating in the 19 th century were those of Mumbai setup

in 1875 and Ahmadabad set up in 1894. These were organized as voluntary

nonprofit-marking associations of brokers to regulate and protect their interests.
Before the control on securities under the constitution in 1950, it was a state subject
and the Bombay securities contracts (control) act of 1925 used to regulate trading in
securities. Under this act, the Mumbai stock exchange was recognized in 1927 and
Ahmadabad in 1937. During the war boom, a number of stock exchanges were
organized. Soon after it became a central subject, central legislation was proposed
and a committee headed by A.D.Gorwala went into the bill for securities regulation.
On the basis of the committee’s recommendations and public discussion, the
securities contract (regulation) act became law in 1956.

22
Functions of Stock Exchanges:

Stock exchanges provide liquidity to the listed companies. By giving quotations to

the listed companies, they help trading and raise funds from the market. Over the
hundred and twenty years during which the stock exchanges have existed in this
country and through their medium, the central and state government have raised
crores of rupees by floating public loans. Municipal corporations, trust and local
bodies have obtained from the public their financial requirements, and industry, trade
and commerce- the backbone of the country’s economy-have secured capital of
crores or rupees through the issue of stocks, shares and debentures for financing their
day-to-day activities, organizing new ventures and completing projects of expansion,
diversification and modernization. By obtaining the listing and trading

facilities, public investment is increased and companies were able to raise more
funds. The quoted companies with wide public interest have enjoyed some benefits
and assets valuation has become easier for tax and other purposes.
I

23
 Chapter 5
INDUSTRY PROFILE

At present there are 23 stock exchanges recognized under the securities contracts
( regulation), Act, 1956. Those are :

Ahmadabad Stock Exchange Association Ltd.

Bangalore Stock Exchange

Bhubaneshwar Stock Exchange Association

Calcutta Stock Exchange

Cochin Stock Exchange Ltd.

Coimbatore Stock Exchange

Delhi Stock Exchange Association

Guwahati Stock Exchange Ltd

24
 Hyderabad Stock Exchange Ltd.

Jaipur Stock Exchange Ltd

Kanara Stock Exchange Ltd

Ludhiana Stock Exchange Association Ltd

Madras Stock Exchange

Madhya Pradesh Stock Exchange Ltd.

Magadh Stock Exchange Limited

Meerut Stock Exchange Ltd.

Vadodara Stock Exchange Ltd.

Out of these major stock exchanges were:

NSE (National Stock Exchange)

The National Stock Exchange of India Limited has genesis in the report of the High
Powered Study Group on Establishment of New Stock Exchanges, which
recommended promotion of a National Stock Exchange by financial institutions
(FI’s) to provide access to investors from all across the country on an equal footing.
Based on the recommendations, NSE was promoted by leading Financial Institutions
at the behest of the Government of India and was incorporated in November 1992 as
a tax-paying company unlike other stock exchanges in the country. On its
recognition as a stock exchange under the Securities Contracts (Regulation) Act,
1956 in April 1993, NSE commenced operations in the Wholesale Debt Market
(WDM) segment in June 1994. The Capital Market (Equities) segment commenced
operations in November 1994 and operations in Derivatives segment commenced in
June 2000

25
NSE's mission is setting the agenda for change in the securities markets in India. The
NSE was set-up with the main objectives of:

Establishing a nation-wide trading facility for equities and debt instruments.

Ensuring equal access to investors all over the country through an appropriate
communication network.
Providing a fair, efficient and transparent securities market to investors using
electronic trading systems.

26
BSE (Bombay Stock Exchange )

The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875
as "The Native Share and Stock Brokers Association". It is the oldest one in Asia,
even older than the Tokyo Stock Exchange, which was established in 1878. It is a
voluntary non-profit making Association of Persons (AOP) and is currently engaged
in the process of converting itself into demutualised and corporate entity. It has
evolved over the years into its present status as the premier Stock Exchange in the
country. It is the first Stock Exchange in the Country to have obtained permanent
recognition in 1956 from the Govt. of India under the Securities Contracts
(Regulation) Act 1956.The Exchange, while providing an efficient and transparent
market for trading in securities, debt and derivatives upholds the interests of the
investors and ensures redresses of their grievances whether against the companies or
its own member-brokers. It also strives to educate and enlighten the investors by
conducting investor education programmers and making available to them necessary
informative inputs.
A governing Board having 20
directors is the apex body,
which decides the policies and
regulates the affairs of the
Exchange. The Governing
Board consists of 9 elected
directors, who are from the
broking community (one third
of them retire ever year by
rotation), three SEBI

27
 nominees, six public
representatives and an
Executive Director & Chief
Executive Officer and a Chief
Operating Officer.

The Executive Director as the Chief Executive Officer is responsible for the day-to-day
administration of the Exchange and the Chief Operating Officer and other Heads of
Department assist him.

The Exchange has inserted new Rule No.126 A in its Rules, Byelaws pertaining to
constitution of the Executive Committee of the Exchange. Accordingly, an
Executive Committee, consisting of three elected directors, three SEBI nominees or
public representatives, Executive Director & CEO and Chief Operating Officer has
been constituted. The Committee considers judicial & quasi matters in which the
Governing Board has powers as an Appellate Authority, matters regarding
annulment of transactions, admission, continuance and suspension of
memberbrokers, declaration of a member-broker as defaulter, norms, procedures and
other matters relating to arbitration, fees, deposits, margins and other monies payable
by the member-brokers to the Exchange, etc.
REGULATORY FRAME WORK OF STOCK EXCHANGE

A comprehensive legal framework was provided by the “Securities Contract

Regulation Act, 1956” and “Securities Exchange Board of India 1952”. Three tier
regulatory structure comprising

 Ministry of finance
 The Securities And Exchange Board of India
 Governing body
Members of the stock exchange:
The securities contract regulation act 1956 has provided uniform regulation for the
admission of members in the stock exchanges. The qualifications for becoming a
member of a recognized stock exchange are given below:

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 • The minimum age prescribed for the members is 21 years.
• He should be an Indian citizen.
• He should be neither a bankrupt nor compound with the creditors.
• He should not be convicted for fraud or dishonesty.
• He should not be engaged in any other business connected with a company.
• He should not be a defaulter of any other stock exchange.
• The minimum required education is a pass in 12th standard examination.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

The securities and exchange board of India was constituted in 1988 under a
resolution of government of India. It was later made statutory body by the SEBI act
1992.according to this act, the SEBI shall constitute of a chairman and four other
members appointed by the central government.

With the coming into effect of the securities and exchange board of India act, 1992
some of the powers and functions exercised by the central government, in respect of
the regulation of stock exchange were transferred to the SEBI.

OBJECTIVES AND FUNCTIONS OF SEBI

• To protect the interest of investors in securities.

• Regulating the business in stock exchanges and any other securities market.
• Registering and regulating the working of intermediaries associated with
securities market as well as working of mutual funds.

• Promoting and regulating self-regulatory organizations.

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 • Prohibiting insider trading in securities.
• Regulating substantial acquisition of shares and take over of companies.

• Performing such functions and exercising such powers under the provisions
of capital issues (control) act, 1947and the securities to it by the central
government.
SEBI GUIDELINES TO SECONDARY MARKETS: (STOCK EXCHANGES):

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

non-members, public representatives and government representatives to the
extent of 50% of total number of members.

• Capital adequacy norms have been laid down for the members of various
stock exchanges depending upon their turnover of trade and other factors.

• All recognized stock exchanges will have to inform about transactions within
24 hrs.

TYPES OF ORDERS:
Buy and sell orders placed with members of the stock exchange by the investors. The
orders are of different types.

Limit orders: Orders are limited by a fixed price. E.g. ‘buy Reliance Petroleum at
Rs.50.’Here, the order has clearly indicated the price at which it has to be bought
and the investor is not willing to give more than Rs.50.

Best rate order: Here, the buyer or seller gives the freedom to the broker to execute
the order at the best possible rate quoted on the particular date for buying. It may be
lowest rate for buying and highest rate for selling.

Discretionary order: The investor gives the range of price for purchase and sale. The
broker can use his discretion to buy within the specified limit. Generally the
approximation price is fixed. The order stands as this “buy BRC 100 shares around
Rs.40”.

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Stop loss order: The orders are given to limit the loss due to unfavorable price
movement in the market. A particular limit is given for waiting. If the price falls
below the limit, the broker is authorized to sell the shares to prevent further loss. E.g.
Sell BRC limited at Rs.24, stop loss at Rs.22.

Buying and selling shares: To buy and sell the shares the investor has to locate
register broker or sub broker who render prompt and efficient service to him. The
order to buy or sell specifying the number of shares of the company of investors’
choice is placed with the broker. The order may be of any type. After receiving the
order the broker tries to execute the order in his computer terminal. Once matching
order is found, the order is executed. The broker then delivers the contract note to
the investor. It gives the details regarding the name of the company, number of shares
bought, price, brokerage, and the date of delivery of share. In this physical trading
form, once the broker gets the share certificate through the clearing houses he
delivers the share certificate along with transfer deed to the investor. The investor
has to fill the transfer deed and stamp it. The stamp duty is one of the percentage
considerations, the investor should lodge the share certificate and transfer deed to
the register or transfer agent of the company. If it is bought in the DEMAT form, the
broker has to give a matching instruction to his depository participant to transfer
shares bought to the investors account. The investor should be account holder in any
of the depository participant. In the case of sale of shares on receiving payment from
the purchasing broker, the broker effects the payment to the investor.

Share groups: The scrips traded on the BSE have been classified into
‘A’,’B1’,’B2’,’C’,’F’ and ‘Z’ groups. The ‘A’ group represents those, which are in
the carry forward system. The ‘F’ group represents the debt market segment (fixed
income securities). The Z group scrips are of the blacklisted companies. The ‘C’
group covers the odd lot securities in ‘A’, ‘B1’&’B2’ groups.

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ROLLING SETTLEMENT SYSTEM:
Under rolling settlement system, the settlement takes place n days (usually 1, 2, 3 or
5days) after the trading day. The shares bought and sold are paid in for n days after
the trading day of the particular transaction. Share settlement is likely to be
completed much sooner after the transaction than under the fixed settlement system.

The rolling settlement system is noted by T+N i.e. the settlement period is n days
after the trading day. A rolling period which offers a large number of days negates
the advantages of the system. Generally longer settlement periods are shortened
gradually.

SEBI made RS compulsory for trading in 10 securities selected on the basis of the
criteria that they were in compulsory demat list and had daily turnover of about Rs.1
crore or more. Then it was extended to “A” stocks in Modified Carry Forward
Scheme, Automated Lending and Borrowing Mechanism (ALBM) and Borrowing
and lending Securities Scheme (BELSS) with effect from Dec 31, 2001.

SEBI has introduced T+5 rolling settlement in equity market from July 2001 and
subsequently shortened the cycle to T+3 from April 2002. After the T+3 rolling
settlement experience it was further reduced to T+2 to reduce the risk in the market
and to protect the interest of the investors from 1st April 2003.

Activities on T+1: conformation of the institutional trades by the custodian is sent to

the stock exchange by 11.00 am. A provision of an exception window would be
available for late confirmation. The time limit and the additional changes for the
exception window are dedicated by the exchange.

The exchanges/clearing house/ clearing corporation would process and download the
obligation files to the broker’s terminals late by 1.30 p.m on T+1. Depository
participants accept the instructions for pay in securities by investors in physical form
upto 4 p.m and in electronic form upto 6 p.m. the depositories accept from other DPs
till 8p.m for same day processing.

Activities on T+2: The depository permits the download of the paying in files of
securities and funds till 10.30 a.m on T+2 from the brokers’ pool accounts. The
depository processes the pay in requests and transfers the consolidated pay in files to
clearing House/clearing Corporation by 11.00am/on T+2. The exchange/clearing

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 house/clearing corporation executes the pay-out of securities and funds latest by 1.30
p.m on T+2 to the depositories and clearing banks. In the demat mode net basis
settlement is allowed. The buy and sale positions in the same scrip can be settled and
net quantity has to be settled.

THE MAJOR PLAYERS IN ONLINE TRADING

1) SHAREKHAN.COM
2) 5 PAISA.COM
3) KOTAKSTREET.COM
4) INDIABULLS.COM
5) ICICIDIRECT.COM
6) HDFCSEC.COM.

Sharekhan online Trading Interfaces

The customer can choose the online trading interface that meets his requirement based
on his trading habits and preferences

CLASSIC / APPLET
The website is meant for customers who Invests in Equities

SPEEDTRADE
The speed trade is meant for customers who trade in Equities
DIAL-N-TRADE – Toll Free
The DNT is a value added services meant for all customers who Want
to transact but are not online.

DNT – TOLL FREE FERTURES

• Dedicated Toll – Free number for Order placements
• Automatic fund transfer with phone banking*
• Simple and secure IVR based system for authentication
• No wait time, on entry of Phone Id & TPIN, the call is transferred
• Trusted, professional advice of Tel-brokers who offer undiluted Sharekhan
Research Inputs

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 • After-hours order placement facility
• Transfer of money using phone banking is available with Citibank only
** Between 9 am to 9.55 am and 3.30p.m to 6 pm.

CLASSIC/WEBSITE FEATURES
• Facility to integrate choice of 4 Banks/DP/Trading Account
• Instant credit for shares sold from DP
• Automatic pick-up of shares from linked DP for pay – in
• Automatic deposit of shares into linked DP after pay-out
• 4 Times leverage on Margin Trades
• Margin Trading available for entire marker session
• Slab wise brokerage structure for delivery and margin trades, shortly
• Free calls for order placement on Toll-Free
Trusted, Professional advice of Tele-brokers
Facility to enter After Market Orders online & via Phone

CLASSIC/WEBSITE FEATURES
Daily Research newsletter (Investor Eye) Via e-mail
Access to new IPO without any paperwork
Advanced portfolio monitoring Tools
Integrated DP account with trading account
Option of linking additional 4 DP accounts to trading account

• Choice of linking 4 banks to trading a/c for online payments

• Cash and Derivatives trading in a single account
• E-mail confirmations for all transactions
• Choice of electronic/Physical contracts

SPEEDTRADE EXE FEATURES

ALL THE FEATURES OF CLASSIC

*Real – time streaming quotes using 2 Marker Watches
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 *Trade Execution in 2-3 seconds
* Instant Order/trade confirmations in the same window
*Hot keys similar to a Broker’s Terminal
*MULTIPLE Tic-by-Tic Intra-day charts with multiple indicators

Chapter 6

SWOT ANALYSIS

Strengths

1. Strong credibility among investors because of its heritage.

2. Excellent reputation among the business society.

3. Capability of providing superior customer service.

4. Quality research team.

5. Easier access to the customer due to largest ground network of 280 branded

share shops in 120 cities.

6. Abundant information about economy and companies.

7. Ability to attract and retain superior and quality personnel.

8. Highly sophisticated infrastructure.

9. Efficient research and analysis team, which by interpreting the economy and

company’s performance accurately is enhancing the profitability of the clientele.

Weaknesses

1. Limited customer appeal as the company product line does not include mutual funds

which is increasingly becoming a preferred customer investment option.

2. Inadequate product awareness among the retail investors.

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 3. Limited customer appeal as the company does not have access to the BSE online

space.

4. Brand awareness is low in the financial market.

5. Promotional activities conducted by the company are not at par with the other firms.

Opportunities

1. Hyderabad covers only 2% of investors which gives huge potential for the market

penetration.

2. Bullish phase of the market attracts investing public.

3. Access to the BSE online space for the retail investors creates opportunity to

increase clientele base.

4. Awareness campaigns about online trading create new market.

Threats

1. Availability of Unit Linked Insurance Policies (ULIP’s) and mutual funds in the

market.

2. Threat of entry is high in this industry as the manpower required is less and capital

requirement is medium.

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 Chapter 7
FINDINGS AND OBSERVATIONS :

1. Fluctuations are more in secondary market than any other market.

2. There are more speculators than investors.
3. Information plays a vital role in the secondary market.
4. Previously rolling settlement is T+5 days, now it changed to T+2 days and further
it will be changing to T+1 day.

5. It was also observed that many broking houses offering internet trading allow
clients to use their conventional system as well just ensure that they do not loose
them and this instead of offering e-broking services they becomes service
providers.

6. The number of players is increasing at a steady rate and today there are over a dozen
of brokerage houses who have opted to offer net trading to their customers and
prominent among them are SHARE KHAN, India bulls, kotakstreet, ICICI direct
and geojit.

The Bombay stock exchange sensex zoomed past the 7700 barrier for the first time in
history to achieve new all time high of 7800 intra day trade and ended at a historic close
of 7732 points.

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 CONCLUSION AND RECOMMENDATIONS

1. Things have changed for the better with the SHAREKHAN going on-line coupled
with endeavor to stream line the whole trading system, things have changed
dramatically over the last 3 to 4 years. New and advanced technologies have
breached geographical and cultural barriers, and have brought the countrywide
market to doorstep.

2. In the present scenario to compete with the Broker’s would require sound
infrastructure and trading as per international standards.

3. The introduction of on-line trading would influence the investors resulting in an

increase in the business of the exchange. It has helped the brokers handling a vast
amount of transactions and this can be an efficient trading, delivering, settlement
system with adequate protection to investors. The trading of SHAREKHAN of the
first day was Rs.1.8 crores.

4. Due to invention of online trading there has been greater benefit to the investors as
they could sell / buy shares as and when required and that to with online trading.

5. The broker’s has a greater scope than compared to the earlier times because of
invention of online trading.

6. The concept of business has changed today, this is a service oriented industry hence
the survival would require them to provide the best possible service to the clients.

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7. I recommend the exchange authorities to take steps to educate Investors about their
rights and duties. I suggest to the exchange authorities to increase the investors’
confidences.

8. I recommend the exchange authorities to be vigilant to curb wide fluctuations of

prices.

9. The speculative pressures are responsible for the wide changes in the price, not
attracting the genuine investors to the greater extent towards the market.
10.Genuine investors are not at all interested in the speculative gain as their investment
is based on the future profits, therefore the authorities of the exchange should be
more vigilant to curb the speculation.

11.Necessary steps should be taken by the exchange to deal with the situations arising
due to break down in online trading.

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 BIBLIOGRAPHY

Books:

1. Investment management
- V.K.Bhalla

2. Investment management
-Preethi Singh

 www.sharekhan.com

 www.economictimes.com

 www.moneycontrol.com

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