CHAPTER I

INTRODUCTION AND DESIGN OF THE STUDY

1.1 Introduction

Growing economy of any country is directly responsible for its development1

and, both depend on the country’s financial system. The financial system promotes
savings by providing a wide variety of financial assets to the general public.
Financial markets perform a crucial function in the financial system and it act as the
centre of providing facilities for buying and selling of financial assets. It consists of
two major segments namely money market and capital market. The capital market
consists of two inseparable segments, the primary and secondary market. Primary
market is a market for new issues or new financial claims. It provides opportunity to
corporates and the government to raise resources to meet their investment
requirements and to discharge their obligations. It deals with the securities which are
issued to the public for the first time. In the primary market the securities are
purchased by the investors directly from the issuer. In secondary market, the
investor purchases an asset from another investor rather than from the issuing
company. The stock exchange is a part of secondary market which provides a
trading platform where the buyer and seller can meet to transact in securities.

An investor plays the most important role in the securities market. In the
past, investment was confined to rich class, but today it is observed that investment
is very popular with people from all walks of life. The investors who buy and sell
the securities with the basic objective of getting good return on their investment and
they are influenced by various factors such as returns, appreciation of capital, safety,
liquidity, tax benefits, broker’s guidance etc. The first step in investing in the stock
market is, the investor has to choosing the stock broker who is a registered trade
member of stock exchanges.

1.2 Stock Market

The stock market in India is more than a century old and an organised
market. The stock exchanges play a major role in the stock market. The stock

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exchanges are the exclusive centres for trading of securities. The activities of stock
exchange are carried on by the members of the exchange and it is an association or
organization of members. The origin of the stock market in India dates back to the
end of the eighteenth century2 when long-term negotiable securities were first
issued. However, the real beginning occurred in the middle of the nineteenth century
after the enactment of the companies act in 1850 which introduced the feature of
limited liability and generated investor’s interest in corporate securities.

Until 1988, the stock exchanges were more or less self-regulatory

organizations supervised by the Ministry of Finance under the Securities Contracts
(Regulation) Act (SCRA). To prevent malpractices in trading, several committees3
examined and made recommendations to reform the organization of stock exchanges
such as the G.S. Patel Committee(1985), L.C. Gupta committee (1991), Pherwani
committee (1991), G.S. Patel committee (1995) and Varma committee(1997). The
Securities Exchange Board of India (SEBI) has been setup to ensure that the stock
exchanges discharge their self-regulatory role properly. As on 31st March 1993,
there were 21 stock exchanges in India. During 2014-15, 15 stock exchanges
functioned under equity segment and the same was 5 in 2015-164.

Today, market is instantly linked by the internet, allowing for faster

exchange of transactions which is beneficial to the investors. The Investors can
trade through the computerized trading screens available with the trading member or
the internet based trading facility provided to the trading members of the exchange.
The stock market in India is now well organized, fairly integrated, more global and
modernized. The Indian stock market is now getting integrated with global markets.
In India, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) are
the two major players in the securities market.

1.3 Investors in Stock Market

The main function of the stock exchange is to provide facilities to its

member’s i.e., the buyers and sellers to transact their business and to settle the
transaction. Thus buyers and sellers in a stock exchange can be classified into two
broad categories, namely Investors and Speculators. The investors buy the securities

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with a view to invest their saving in profitable income earning securities, and
investor interested in safety of their investments. A speculator buys securities in
expectation of an immediate rise in price of the securities. There were 3, 28, 07,641
investors registered under BSE as on 30th December 2016, out of which 73, 89,781
belong to Maharashtra5. The Table No.1.1 shows number of beneficial owner
account, one person can open more than one beneficial account, hence the total
number of demat account i.e Beneficial Owner account cannot be treated as the
number of investors in India. There are two depositories in India namely Central
Depository Service (India) Limited (CDSL) and National securities Depository
Limited (NSDL) and one of the main function of such depositories, is creation of
demat account. Following table shows the progress of beneficial owner account
from Financial Year (FY) 2006-07 to 2015-16.

Table No 1.1 Progress of Beneficial Owner Account

S.No Year CDSL NSDL Total

1 2006-07 23,68,101 78,49,497 1,02,17,598
2 2007-08 47,98,222 93,09,454 1,41,07,676
3 2008-09 55,27,479 96,79,833 1,52,07,312
4 2009-10 65,85,746 1,05,26,677 1,71,12,423
5 2010- 11 74,79,316 1,14,79,343 1,89,58,659
6 2011- 12 79,17,184 1,20,44,917 1,99,62,101
7 2012- 13 83,27,482 1,26,84,512 2,10,11,994
8 2013-14 87,77,049 1,30,53,656 2,18,30,705
9 2014-15 96,10,002 1,37,05,179 2,33,15,181
10 2015-16 1,07,90,738 1,45,62,941 2,53,53,679
Source: NSDL & CDSL

During the period from 2006 to 2016, there has been a continuous annual
increase in the number of demat (Beneficial Owner) accounts which denotes an
increase in the number of investors. The number of active depository accounts
increased from 1.37 crore accounts at the end of FY 2015 to 1.46 crore as on March
31, 2016 resulting in a net increase of 8.5 lakh accounts.

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1.4 Bombay Stock Exchange

Established in 1875, BSE (formerly known as Bombay Stock Exchange

Ltd.), is Asia's first & the Fastest Stock Exchange in world with the speed of 6 micro
seconds6 and one of leading and first stock exchange in India. Bombay Stock
Exchange (BSE) has facilitated the growth of the Indian corporate sector for more
than 142 years by providing it an efficient capital-raising platform and providing
platform to the investors to make profit on investment in stock market. A dozen
stockbrokers organized an informal association in the name of ‘The Native Share
and Stock Brokers Association’ Bombay in 1875. It was formed on 9th July 1875.
The Bombay Stock Exchange was recognized in August 1957 under Security
Contract (Regulation) Act (SCRA)7. BSE is the first and largest stock exchange in
India. BSE is a number one exchange in world with regards to number of listed
companies with 5,8208 listed as on 31st December 2016. BSE offers a list of
products for its members to trade in the Indian capital market.

BSE was migrated from the open outcry system to an online screen based
order driven trading system in 1995. The BOLT (Bombay Online Trading) system
has been introduced in the Bombay Stock Exchange. The BSE has proven trading
and settlement platform assuring efficient on-time transactions through BOLT
system. The BSE index is known as SENSEX which is referred to as the barometer
of the Indian economy9. Individual and corporate entities are members of BSE. The
BSE is currently housed in Phiroze Jeejeebhoy Towers at Dalal Street, Fort area in
Mumbai.

1.4.1 Progress of BSE

The BSE traces its history to the 1850s10 when four Gujarati and one Parsi
stock broker gathered under a banyan tree in front of Mumbai’s town hall. As the
number of the brokers increased, they started changing the venue of the meeting
constantly. Almost two decades later, they formed official group called, ‘The Native
Share & Stock Brokers Association’ on 9th July, in 1875. The annual membership
fee was Re. 111 for the first year, which was increased to Rs 3 for the next year and
then Rs 5 for the following year. By 1877, the membership increased to around 300

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and they mostly constituted of Gujrati Hindus and Parsees. Till 1900, there were no
agreements issued between the buyers and sellers and business worth lakhs was
conducted verbally. When the First World War broke out in 191412, the share market
was closed for some time till things eased out reopened in 1915. The next five years
were very lucrative for the market and the period experienced a boom due to war
profits.

The Bombay stock exchange developed the BSE SENSEX (S&P BSE
SENSEX) in 198613, giving the BSE a means to measure overall performance of the
exchange. Sensex is calculated out of 30 stocks on a daily basis. Currently, more
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than 417 cities and several towns of India that lie within the fold of the Bombay
Stock Exchange. BSE experienced a phenomenal growth during the financial year
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2004-05 and it turned out to be a fruitful time for the exchange. BSE is
corporatized and demutualized entity, with a board shareholder-base which includes
two leading global exchanges, Deutsche Bourse and Singapore Exchange as
strategic partners. BSE also has a platform for trading in equities of Small-and-
Medium Enterprises (SME). Through SME platform, Rs.431.6916 crore resources
was mobilised through IPO (Initial Public Offer) in the financial year 2016-17.

In the Financial Year 2015-16, the total turnover was 7, 40,088.59 crores,
and the number of shares traded was 2718.12 crores and the value of the same was
240700.22 crores17. The companies listed on BSE limited, commanded a total
market capitalization of 1,21,54,525.46, crores in 2016-17. In the FY 2016-17, the
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total turnover was 9,98,260.58 crores . Total quantity of shares delivered was
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4,32,112 Lakh and its value was 2,99,835 crore . The share of delivery quantity
with total trade quantity was 46.90% which shows that around 47% of the trading is
delivery i.e long term and short term was investment trading20. Out of the total
turnover of BSE, under equity cash segment 52.5% transaction was done in Mumbai
city21. It also provided other services to capital market participants like risk
management, clearing, settlement, market data services and education. BSE is the
second stock exchange in the world and first in India to acquire an ISO 9001:2000
Certification.

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1.4.2 Mode of Trading System in BSE

The information Technology has brought about revolutionary changes in

operations of stock exchanges in India. Nowadays, all the stock exchanges adopt
Screen Based Trading System (SBTS). Today almost 100 per cent trading will be
executed through electronic order matching. BSE has introduced BOLT system, all
scrip’s on BSE are being traded through BOLT. The following table denotes the
different modes of trading in BSE during December 2016.

Table No 1.2 Mode of Trading System in BSE

Mode of Trading December 2016

Algo 7.38%
Co-Location 25.04%
Direct Market Access 0.09%
Fow-Now 4.25%
Internet Based Trading 6.82%
Mobile 2.7%
Non-Algo(others) 52.05%
Smart Order Routing 1.67%
Source: BSE

Algorithmic trading is a method of executing a large order using an

automated pre-programmed trading instructions accounting for variables such as
time, price, and volume to send small slices of the order (child orders) out to the
market over time. During December 2016, 7.38% of the trade was executed through
Algo mode. Co-location service to BSE members is provided and managed entirely
by a third party data centre service provider. 25.05% of the trade was executed in
different Co-Location of the BSE in December 2016. Direct Market Access (DMA)
facility through various connectivity modes permits the trading members of BSE to
provide direct trading terminals to their DMA clients. Only 0.09% of the trader done
their transaction through DMA. 4.25% of the transactions were done through the
mode of Fow-Now. Online trading is basically the act of buying and selling financial
products through an online trading platform. These platforms are normally provided
by internet based brokers. 6.82% of the trade during December 2016 was done
through Internet Based Trading. After online trading; the latest and the most far

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reaching trade channel is predicted to be the ubiquitous mobile handset. A new
breed of clients has come up, equipped to trade at the convenience of their time and
place – using their mobile handset. No more waiting to get to a trading terminal or a
personal computer to trade. 2.7% of the transactions were executed through mobile.
Non-Algo means it is a mode of trading, other than above mentioned list and this
includes the trade made through stock brokers in the exchange. 52.05% of the
transactions were done through this mode and this is the highest sharing in mode of
transaction. Smart Order Routing (SOR) allows Brokers trading engines to
systematically choose the execution destination based on the factors like price, cost,
speed, likelihood of execution and settlement, size, nature or any other consideration
relevant to the execution of the order. 1.67% of the trade was executed through the
mode of SOR in December 2016.

1.5 Members in Stock Exchange

The stock exchange’s activities, are carried on by the members of the

exchange and it is an association or organization of members. The members and
their authorised clerks alone can enter the trading floor and conduct buying and
selling of securities. The members of the stock exchange may be classified in several
clearly defined groups. When the operators in a stock exchange are classified on a
functional basis, they include Brokers, Jobbers, Remisiers, Authorised clerks,
Taravaniwalas, the Odd Lot Dealers, the Badliwalas and the Arbitrageurs.

1.6 Stock Brokers

A broker is none other than a commission agent who transacts business in

securities on behalf of his clients who are non-members of stock exchange. Thus, a
non-member can purchase and sell securities only through a broker who is a member
of the stock exchange. A certificate of registration from the SEBI is mandatory to
act as a stock broker including sub-broker. Stock brokers are commission agents or
floor agents. The word stock broker include sub-broker also. A sub-broker acts on
behalf of stock broker as an agent or otherwise for assisting investors in buying,
selling, or dealing in securities though such brokers but he is not a member of a
stock exchange. The SEBI (Stock broker & Sub-broker) Rules, 1992 defines a stock

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broker simply as, a member of a recognized stock exchange and sub-broker as, any
person, not being a member of a stock exchange, who act on behalf of a stock broker
as an agent or otherwise, to assist the investors in buying selling or dealing in
securities through such a stock broker.

1.6.1 History and Origin of Stock Brokers

Stock market evolved along with capitalism. The history of stock exchanges
can be traced back to 12th century in France, where the first brokers were believed to
have originated trading in debt and government securities. In 11th century France,
the Courretiers De Change was concerned with managing and regulating the debts of
agricultural communities on behalf of the banks. As these men also traded in debts,
they could be called the first brokers.

In the middle of the 13th century22, Venetian bankers began to trade in

Government securities. In Europe, stock brokers unofficially established the market
in 1600s where brokers would meet outside or in coffee houses to trades. In 1602,
they formed Amsterdam Stock Exchange created which is the oldest stock exchange
in the world23. In 1602, the Dutch East India Company issued the first shares on the
Amsterdam Stock Exchange. It was the first company to issue stocks and bonds.
Since the 17th century, stock exchanges were constantly growing in importance and
complexity. In 1688, the trading of stocks began in a stock exchange in London24.
At the end of 17th century, an organized market existed in England. Brokers were
licensed by the Lord Mayor of the city of London, and carried a silver medal as
evidence thereof. The New York Stock Exchange was formed in 1792. Over the
years the number of stock exchanges and stock brokers grew substantially.

Indian stock brokers have a history which dates back to the eighteenth
century. Till the end of 19th century, brokers trading were unorganized. They started
their trading in Bombay and Calcutta, out of this two, Bombay trading was
comparatively too good. In Bombay (now Mumbai), initially stock brokers traded
bank shares and later on in 1930s, started stock and shares of cotton presses. In
1860-61, number of broker was only a dozen and their trading place was under a
banyan tree in front of the town hall in Bombay. In 1860, it was increased to 6025. In

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the prevailing share mania, the number of brokers increased to above 250, but in the
aftermath of the price crash they are hard-pressed to find a place for their regular
meeting. Due to the hectic and swift development of shares trading business by
1874, broker, used to gather at the Dalal Street, Bombay for transacting their
business. Consequently the stock brokers organized an informal association in 1875,
which was formed with 3,128 members who paid an entrance fee of 1 rupee. The
generis of the present day BSE is clearly traceable to their humble beginnings. A
premise was hired in 1875 so that the indignity of trading in public comes to an end.
Majority of the stock brokers during this period were Gujarati, Hindus and Parsis.
Minutes of BSE brokers’ meeting was kept in Gujarati till 192426.

The year 1880 witnessed the emergence of many cotton mill industries in
several parts of the country especially in Maharashtra and Gujarat. Because of that,
regional wise stock exchanges were started and many stock brokers also entered into
it. In 1920, Madras Stock Exchange was started with 100 brokers. In 1927, there
were 478 brokers in BSE. The authorities have been encouraging corporatization of
the broking industry. As a result, a number of brokers-proprietor firms and
partnership firms have converted themselves into corporate. At the end of March
2016, 3199 brokers accounting for nearly 87% of the total brokers were corporate
entities. Amongst those registered with NSE, around 92.5% of them were
corporatized followed by BSE with 83.6% corporate brokers. There were 34,942
sub-brokers registered with SEBI out of which 15,769 sub brokers were registered
under BSE and 19,173 were under NSE27.

1.6.2 Progress of Stock Brokers

The transition of stock brokers’ right from the inception of the BSE in 1850s
to the present day has been very interesting and fascinating. The growth of a few
traders who conceptualized the idea of a stock exchange to the present day iconic
status is a matter of pride for the Indian economy. The growth in the number of the
stock brokers is very interesting and the credit goes to the enterprising nature of the
people who wanted to conduct trade. The humble beginning from under a banyan
tree to the present day iconic structure is a matter of glory and highly commendable.
Initially the trade was done physically and the brokers used to be present during the

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trading sessions and at times the buyers and the sellers also used to be present.
Simultaneously, during this time the share broker also started trading in Gujarat but
the geographical location of Mumbai made them develop this stock exchange and
after 142 years it has reached the present day historic structure situated at Dalal
Street. The Bombay stock exchange and Ahmedabad Stock Exchange was
established in the same century i.e 1875 and 1894 respectively.

Since the trading picked up at BSE, stock exchanges were setup in Calcutta,
Madhya Pradesh, Madras, Hyderabad, Delhi, Bangalore and Guwahati between the
period from 1908 to 1984. At present there are 23 Stock Exchanges under different
segment functioning all over the country. Simultaneously the number of stock
exchange and stock brokers increased with the improving economy. Since there is a
lot of scope for business more and more people are entering the stock broking field.
The Securities Exchange Broad of India (SEBI) was formed in 1992. After that as
per SEBI regulation, all the stock brokers who want to deal with stock exchange has
to register under SEBI. The stock brokers or sub brokers cannot do trade without
registration with SEBI between the period from 1994-95 to 2012-13, the number of
stock brokers registered with SEBI increased from 6711 to 9150.

The National Stock Exchange (NSE) was started in 1992 and the number of
stock brokers registered at NSE is almost equal to BSE. Brokers before the advent of
telephone and cable used to be physically present in the stock exchange and did the
trade orally and had to personally contact the buyer and seller making the process
very slow and the brokers managed only couple of trade daily. With the advent of
the telephone around 1980, the trading procedure underwent a drastic change and
the physical presence of the stock broker was no longer required. This brought the
trading levels to the next stage. With the revolution in internet and information
technology in 1994-95, on-line trading was introduced by BSE in India and the
stock broker started trading online.

The retail investors are also taking advantage of online trading and reaping
the benefits. In 2000, brokers started to deal with equity derivatives. In 2001 they
entered the future market and in 2008 trade on currency derivative was also started.

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Initially the stock broker used to trade on individual basis, but later on due to scope
in broking they formed partnership companies to conduct broking business.

After the formation of SEBI, drastic changes in Indian stock broking

business. As in 1993, there were 529028 brokers registered in the cash segment and
the number steadily grew to 10,128 in 2012-13 and 3199 in 2015-16. The corporate
brokers were numbering 143 in 1994 and went to increase to 2,780 in 2015-16. The
number of sub-brokers also increased from 2002 in 1994 to 34,942 in 2015-16. The
derivative brokers numbered 440 in 2001 and went on to increase to 2,760 in 2015-
16. Similarly there was a steady increase in currency derivative brokers which in
2008 was 120229, and went on to increase to 1,985 in 2015-16.

With the increase in technology, the role and work of stock broker has also
increased. Apart from conducting business and earning commission on the trade
conducted, brokers had also donned the role of an advisor, portfolio management
service, investment advisory and also imparting education to investors.

1.6.3 Functions of Stock Brokers

A stock broker or a share broker is a regulated professional and their basic

function is buying or selling shares and other securities on behalf of the investor. A
broker may be employed by a brokerage firm. The functions of a stock broker are as
follows:

1. Act as an agent: A stock broker acts as the agent of an investor and represents his
clients to buy or sell stocks, derivatives and other securities. The primary role of a
stock broker is to execute transaction on behalf of his clients by buying and selling
securities in the stock market. As a representative of his clients, a stock broker seeks
the best deal while buying and selling stocks.

2. Seeks best deal: A client approaches the stock broker primarily to seek the best
deal in buying or selling stocks with the sole intention of making an investment or
profit respectively.

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3. Handling the trade: A broker takes an order from a client to buy or sell a stock,
passes it along through his brokerage firms network to a floor trader, who in turn
completes the transaction as per the client’s requirement.

4. Paid on commission: Stock Brokers earn their commission as per the transaction
or the value of the trade. The percentage earned by the broker is as per the
regulations laid down by SEBI. Commissions and fees depend on the service
provided to the investors by the broker.

5. Advice: Stock broker based on their research and experience, provides advice/tips
or recommendation to investors and helps them to choose the stocks for investment.
Broker also gives advice regarding the holding period, stop loss etc.

6. Spectrum of services offered:

6.1) Discount / online broker: The traditional discount/online brokers is an order

taker. They will take investor’s order either over the phone or online. On the other
hand, if investor is dealing with them online, the request is registered and the
transaction completed, hence no one will be there to actually talk to the investor
while conducting the transaction.

6.2) Discount/online with assistance broker: This variation offers some help to
customers that stops before offering full services consultation. This type of brokers
will provide the investor in the execution related issues and will not be wholly
involved in the major investment making decisions.

6.3) Full service broker: This variation of broker’s, provides the complete services
according to the need and requirement of the investors. He/she will provide every
help and guidance required in buying shares to managing the portfolio of the
investor. The traditional full service broker provides recommendation of specific
stocks for investor’s consideration. The broker begins with a financial assessment of
the investor’s personal situation to determine the investor’s need and suitability for
various investments.

7. Services of Products: Apart from dealing in stocks, brokers are offering various
other products to the investor. Often, various services of products such as mutual

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funds, debt instruments, shares, options, future, IPO, Systematic Investment Pan
(SIP), money market instruments and annuities are provided by the broker as per the
need of the investor.

8. Insurance protection: Most brokerage firms are members of the Securities

Investor Protection Corporation (SIPC) which provides insurance for losses suffered
in the event of financial difficulties and liquidation of brokerage firm, which means
that the investors are protected by the capital market regulator.

1.6.4 Services and Facilities provided by Stock Broker

The broker provides various services and facilities to the investors. The
services and facilities may vary from person to person and according to the needs of
the investors. The list of services and facilities provided by the stock brokers were
collected by the researcher while discussing with the brokers. The identified services
and facilities are briefly explained below. Following services are provided by stock
brokers to their clients.

 Services:
1. 3-in-1 account: It is also called a Trinity account. It includes Bank saving
account, Demat account and trading account. This service is provided by some
of the corporate brokers who an associated with a bank. Demat account is
needed to hold the shares and trade account is needed to execute the orders in
the stock exchange.
2. Online trading and Software: Brokers are providing software to their clients
to place an order. Such accounts are easy and convenient to use, and with the
increase in technology and the use of smart phones, many investors have
entered the market. This helps in the reduction of brokerage charges.
3. Equity research tips: The broker has a network of people working for him,
who study the trends in the market and conduct technical and fundamental
analysis. Based on the research, the investor is guided about the different stocks
and new issues, which help them to make profits out of their investment.
4. Products: Broker offers variety of products to the clients like IPO, Derivatives,
Currency, Mutual Fund, Insurance, fixed Deposits, Bonds, Loan, e-locker etc.

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5. Investment advisory services: Brokers provide advisory services like financial
planning, Retirement planning, estate planning, portfolio evaluation etc. Apart
from this, the brokers also provide tips and recommendations to invest in the
equity market.
6. Margin Funding: Brokers are providing margin fund to the speculator. Margin
trading is the popular method of speculative trading. It is carried on by the
clients with the funds borrowed from their brokers. This type of funding is
generally for a short period and is mostly for a period of one day only.
7. Technical Services: In this, the broker provides the following services:
Software, trade through the mobiles, auto invest, immediate delivery of contract
note through SMS etc.
8. Financial based and Other services: Other than the above mentioned, he
broker provides various financial services like loan against securities, margin
money etc. and Opening of demat account, Auto investment system, providing
information about stock market, calling to customer etc.

 Facilities
The brokers are providing different kind of value added services and facilities to
investors. They are briefly explained below.

1. Completion of formalities at door step: Door step services are provided by

the brokers at the convenience of the investors. The facilities are opening of
accounts, picking and dropping of cheques and other documents are also
included. The facilities are provided keeping in mind the convenience of the
investors which gives weightage to the saying that “Customer is King”.

2. Relationship Manager/Equity Advisor: Personalised services through phone

are provided to the investors by the brokers. In such a service, the corporate
brokers assign an employee to each client to give a personal touch for the
investment. The same person is also known as Personal equity Advisor.

3. Active Customer Care: The brokerage firms have a 24x7 call centre which
caters to the needs of the investors. The customer care helpline is always at the
beck and call of the investor and the number is always toll free.

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4. Intra- day Calls: Brokers regularly call high net worth account holders and
regular calls are made to the trader.

5. User Friendly Software: Broker’s website can be accessed 24x7. This helps
the investors to see their portfolio whenever he/she wants.

6. Easy Access of Account Statement: The accounts can be accessed from any
place and at the convenience of the investors.

7. Door step services: Free on line trading training, on line fund transfer, software
demo at home, collection of pay cheques at home etc. and home delivery of
documents come under this category of services.

8. Other faculties: Other than the above mentioned, brokers provides following
facilities also.

8.1. Multiple trading Platforms: Various type of platform provided by the

broker to the client according to the convenience of clients like online trading
and offline trading. Other than that they are providing following modes to
execute the trade.

8.2. Making a call to broker/employee and place the order (trade through phone
call),

8.3. Website: The investor can directly place the order on the broker’s website
through ID and password provided by the broker.

8.4. Trade on Mobile: Recently this type of trading is gaining popularity

amongst the investors, wherein they can execute their order through mobile app
which is provided by the brokers.

8.5. Broker dealer Desk: Proprietorship, Partnership and sub- brokers provide
this facility to the clients to execute the trade. The brokers allow the clients to
use the office and computers to place their order. For that the client has to go to
broker’s office during trading hours. Corporate brokers provide centralized help
desk, live chart etc. for the benefit of clients.

8.6 Others: In stock broking services, recent innovation in service is “Auto

Invest”. Under this service, specific number of shares of a particular company
for a specific period will be purchased at market price.

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 1.7 Stock Broking Industry in Equity Market
According to SEBI, stock brokers are classified into corporate brokers,
proprietorship and partnership brokers. In addition, to the list is sub-
broker. The following chart shows the investors and broker’s relationship under
different category of stock broker. The chart is prepared by the researcher based on
the inputs given by the brokers during the discussion held with them for research
purpose.

Chart No. 1.1 : Structure of Stock Broking Industry in Equity Market

Source: Researcher’s Compilation

The Stock Broking Industry in equity market is having three types of main
brokers, i.e Corporate Broker, Proprietorship Broker and Partnership Broker. The

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Corporate Brokers can be further divided into two type of broker based on their
business dealing, one type is the broking firm which is promoted by Bank.
Excample, Kotak Securities which was started by Kotak Mahindra bank. They
utilized their bank client for broking business and another type is started by private
entities. The other broker is private entities like Angel Broking or Motilal Oswal
which again breaks into sub-broker. The Bank based brokers deal with the investors
directly wherein the other brokers deals with the investors directly and also through
the sub brokers. The proprietorship brokers as well as partnership brokers deal with
the investors directly.

1.8 Stock Brokers in BSE

Stock brokers in BSE have undergone a sea change since the inception of
BSE to the current period. The process of conducting business orally to the current
on-line trading is due to the massive growth of technology and brokers initiatives. In
the present day trading system, brokers do the trading by getting an order form the
investors by phone calls or through online placing of order only. Through the new
system and technology, trading improved and the new means slowly caught up with
the trading community which embraced it whole heartedly. Initially a dozen stock
brokers organized an informal association. At present, there are 8,239 registered
brokers under different segments and 4,727 belongs to equity segments in all the
stock exchanges in India with BSE constituting 1,351 equity brokers making it one
of the highest with registered brokers. The following paragraphs explain the
progress of stock broker’s based on the categories of SEBI, over a period of twenty
years from 1996-97 to 2015-16.

a) Total Brokers

The Table No. 1.3 shows the total number of stock brokers registered under
equity cash segment in BSE for the period of twenty years.

17
 Table No 1.3 Total Number of Stock Brokers in BSE
Total Total
S.No. Year Brokers S.No. Year Brokers
(No.) (No.)
1 1996-97 628 11 2006-07 901
2 1997-98 651 12 2007-08 946
3 1998-99 637 13 2008-09 984
4 1999-00 631 14 2009-10 1003
5 2000-01 689 15 2010- 11 1301
6 2001-02 660 16 2011- 12 1376
7 2002-03 665 17 2012- 13 1361
8 2003-04 673 18 2013-14 1316
9 2004-05 726 19 2014-15 1323
10 2005-06 840 20 2015-16 1351
Source: SEBI

The Table No.1.3 shows that the number of stock broker has seen a marginal
increase since 1996 to 2005, and the number of brokers has increased substantially in
the period between FY 2004-05 to 2011- 2012. There has been an increase in the
number of brokers in all the years, with the sole exception being the period between
2012 to 2015, which witnessed a sharp decrease in the number of brokers, due to fall in
the worldwide economic situation. During the period between 1998-99, due to Pokhran
Nuclear test the market had gone down. The effect was witnessed in the progress of the
Broker’s in BSE also. Again in 2001-02, few brokers had quit the business, because in
the same period the market was bearish due to the attack on the Indian Parliament. In
the end of 2012, Kingfisher airlines had shut down and inflation was high during 2011-
12, both the events affected the stock market. Hence, some of the brokers had quit the
stock broking business.

b) Corporate Broker
The number of corporate brokers has increased over the years and the last
two decades has shown that the number of corporate brokers has increased from 71
in 1994-95 to 1162 in 2012-13. In the period 1997-98, there was a steep increase in
the number of corporate brokers and the increase was constant till 2011-12, after
which there has been a marginal decrease in the number, due to the economic

18
slowdown worldwide and inflation some brokers exited from the role of
intermediation in stock market. After the changes in leadership at the Central
Government, the performance of the stock market has improved, as well as some
new corporate brokers have also entered the market. The below table No.1.4 shows
the number of corporate brokers in the last two decades.

Table No 1.4 Number of Corporate broker in BSE

S.No. Year Corporate S.No. Year Corporate
Brokers(No.) Brokers(No.)
1 1996-97 97 11 2006-07 722
2 1997-98 311 12 2007-08 767
3 1998-99 352 13 2008-09 805
4 1999-00 385 14 2009-10 826
5 2000-01 463 15 2010- 11 1087
6 2001-02 463 16 2011- 12 1164
7 2002-03 468 17 2012- 13 1162
8 2003-04 479 18 2013-14 1120
9 2004-05 534 19 2014-15 1103
10 2005-06 661 20 2015-16 1129
Source: SEBI

c). Proprietorship Broker

Table No. 1.5 Number of Proprietorship broker in BSE

S.No. Year Proprietorship S.No. Year Proprietorship
brokers (No.) brokers (No.)
1 1996-97 NA 11 2006-07 148
2 1997-98 NA 12 2007-08 148
3 1998-99 NA 13 2008-09 148
4 1999-00 185 14 2009-10 147
5 2000-01 178 15 2010- 11 183
6 2001-02 158 16 2011- 12 181
7 2002-03 158 17 2012- 13 171
8 2003-04 157 18 2013-14 167
9 2004-05 156 19 2014-15 163
10 2005-06 148 20 2015-16 164
Source: SEBI

19
 The Table No. 1.5 shows the number of proprietorship brokers in the last two
decades. The number of proprietorship brokers has not changed much since 1999-
2000 and the change over the last decade has been very marginal. There has been a
steady marginal decrease from 2000-01 to 2009-10 and has seen an increase in
2010-11 after which there has been a marginal decrease till 2015-16. In 2010-11, the
market was bullish, due to that many people entered into the market as a stock
broker. Due to that there was around 24% of growth in the progress of
proprietorship brokers. In 2000-01, Technology boom was at it sight, due to that
some brokers were not able to compete with corporate and other brokers. Hence
there was a continuous decrease in 2000-01 and 2002-03 also.

d. Partnership Broker

The table No.1.6 below denote the progress of partnership broker in the last
two decades.

Table No. 1.6 Number of Partnership broker in BSE

S.No. Year Partnership S.No. Year Partnership

brokers brokers
(No.) (No.)
1 1996-97 NA 11 2006-07 31
2 1997-98 NA 12 2007-08 31
3 1998-99 NA 13 2008-09 31
4 1999-00 49 14 2009-10 30
5 2000-01 48 15 2010- 11 31
6 2001-02 39 16 2011- 12 30
7 2002-03 39 17 2012- 13 28
8 2003-04 37 18 2013-14 29
9 2004-05 36 19 2014-15 32
10 2005-06 31 20 2015-16 32
Source: SEBI

The number of partnership brokers has seen an increase since 1998-99

till 2010-11. Like proprietorship brokers, partnership brokers also exited from
the business during 2001-02, it may due to not being able to face the competition.
From the period 2011-12, there has been a steady decrease in the number of

20
partnership broker and the decrease continues till 2012-13. In 2013-14 and 2014-15,
it was increased by one number and 3 numbers respectively and no change in
2015-16.

e. Sub-Broker

Table No. 1.7 Number of Registered Sub-brokers in BSE

S.No Year Sub-Brokers S.No Year Sub-Brokers
(No.) (No.)
1 1996-97 NA 11 2006-07 13482
2 1997-98 NA 12 2007-08 20616
3 1998-99 2721 13 2008-09 30059
4 1999-00 3363 14 2009-10 33710
5 2000-01 5553 15 2010- 11 38124
6 2001-02 6495 16 2011- 12 33852
7 2002-03 6890 17 2012- 13 31635
8 2003-04 6600 18 2013-14 23835
9 2004-05 6917 19 2014-15 18559
10 2005-06 10691 20 2015-16 15769
Source: SEBI

The Table No. 1.7 denote the number of sub-brokers over a period of twenty
years. The number of sub-brokers has seen a steady increase since 1998-99 and the
increase is evident till 2011-12. The period 2005-06 has seen a steep increase in the
number of sub-brokers which is due to good market performance, which started to
increase because of changes in Central Government leadership and the same growth
in sub-brokers has continued till 2010-11. After the Global Economic Crises period
in 2008-09, around 49 % increase in the number of Sub-brokers was seen. After
2011, the number has gone done every year. Now the trend is continuously
decreasing because due to the technology growth and the use of same by the
investors. Corporate brokers are directly providing variety of services to mass group
of investors. Most of the sub brokers’ services are gradually replaced by Corporate
Brokers.

21
Brokers during 2015-16

The pie chart below shows that the corporate broker forms the majority in
the stock broking industry and numbers to 1129 (83.6%), whereas proprietor broker
numbers 164 (12.1%) and partnership broker numbers 32 (2.4%) of the total number
of brokers in BSE during 2015-16. This chart clearly interpret that stock broking
industry is completely dominated by corporate brokers. Compared with
proprietorship brokers and partnership brokers, corporate brokers have more
opportunities, availability of funds to operate the business, advantage of technology,
online trading are favourable to corporate brokers to stand and grow in the stock
broking firm industry.

Chart No. 1.2 Number of Brokers during 2015-2016

Partner, 32

Proprietor,
164

Corporate, 1129

Source: Compiled Excel output

1.9 Evolution of the Trading System

The Trading System has evolved dramatically over the last couple of
decades. Initially, when the trading was introduced in the stock market, the investor
had to get in touch with the broker in person and then conduct the trade. Most of the
trade conducted was face to face and the investor had to pay in cash for buying the
shares. The trading has seen a sea change in which trade is conducted. From person

22
to person trading, the trading has grown to such an extent that the investor can be in
one corner, the broker in another, still the trade is conducted and the money
remunerated/transferred through bank transfer within a matter of a few minutes. The
pictorial representation of evaluation of the trading system is prepared by the
researcher which is shown in Chart No.1.3.

i) Before dematerialisation

Before dematerialisation, the stock broker used to conduct face to face

transactions as the investor had to go to the broker office and inform the broker to
buy or sell shares. The share broker in turn would go to the trading house and buy
the shares on his client’s behalf after taking the money from the investor. Even if the
broker successfully purchased the shares, the actual share certificates would take a
few days to be delivered to the investor, in spite of making the payment in advance.
Similarly, if an investor wanted to sell the shares, the process was same and there
would be a time lag of few days before they could actually receive the money for
their shares sold.

ii) After dematerialisation

After dematerialisation, online trading was introduced by the stock

exchanges, few brokers contacted the investor face to face i.e., partnership broker,
proprietorship broker and sub broker. But the corporate broker communicated with
the investor through phones and mails and there is no face to face communication
between them. This was a step ahead in trading and was a convenient one for the
investor and also the broker. This type of trading was done on trust and the
relationship shared between the investor and the broker.

23
 Chart No 1.3 Evoluation of Trading System

Source: Researcher’s Compilation

iii) At Present

At present, the number of discount brokers is increasing and they simply

provide the software to the investors and no other communication takes place
through phone or emails. The investor, who does not prefer paying high brokerage
commission and has knowledge of the market, prefers the discount broker. There is
a lot of information available about the stock market and the company’s
performance, which helps the small time investor who wants to invest for a shorter
period of time and make some money on the side. Intra- day traders are gaining from
this kind of trading with low brokerage.

24
1.10 How the misdeed of a broker affects the stock market
At times, the share brokers become so powerful and invincible that they can
single handily ruin the market and make many investors incur losses. In the 1990s, a
well- known stock broker Harshad Mehta or the “Big Bull” manipulated the market
to such an extent that many investors lost their hard earned money. The modus
operandi that he adopted was that Mehta got huge amount of unsecured loans from
public sector banks which was pumped into stock market there by buying large
quantity of shares and artificially hijacking the stock prices and then selling it in the
market at a premium, thereby making huge profit. Mehta brought huge quantities of
shares of sick companies there by inflating the share prices and then selling the same
at a higher price.

The Big Bull was very famous in the stock market and was buying stocks
very rapidly and was investing very heavily in the beginning of 1990. The share of
Associated Cement Company touched Rs. 9000 which was the handiwork of
Harshad Mehta in the second half of 1991. Mehta was investing even more and the
people around him had no clue about his financial resources. Mehta needed banks
that could issue fake Bank Receipts (BR’s) and he used the Bank of Karad and other
banks who issued the BR’s for a commission. The trading on fake BR’s went on for
some time and before it could be known, the banking system lost money to the tune
of more than Rs. 300030 crores in 1992.

The small investor who was new to the market brought these shares at the
higher price which was artificially inflated by Mehta and when the small investors
planned to sell the shares in the stock market the prices fell down, thereby making
him lose his money. There were thousands of people who lost money in this manner
which lead the investors to stay away from the stock market which resulted in very
low trade volume in BSE during that period. The web of this scam was so to
intricate that it took many experts a very long time to decode the same and bring
Mehta under the law for his misdeeds. This was the first scam in the BSE.

Similarly a well know broker called Ketan Parekh (KP) also indulged in
similar trading which resulted in the new and retail investor losing their money after
which Ketan Parekh was banned from trading for some years. The company that

25
Ketan Parekh traded in was popularly known as KP-10. Ketan Parekh was convicted
in 2008 for his involvement in the Indian stock market manipulation scam in late
1999 -2001. Currently he has been debarred from trading in the Indian stock
exchange till 2017.

Ketan Parekh created fake demat accounts to the tune of hundreds and he
formed a network of brokers from smaller exchanges like the Allahabad Stock
Exchange and the Calcutta Stock Exchange. In the period from 1999-2000 there was
a dot com boom and Ketan Parekh’s fame increased during this period. Ketan
Parekh was arrested on December 2, 2002. Parekh had involved public sector banks
in his scam and had used them to open fake demat account in the names of people
living in shanties in Mumbai and when the dot com trade bubble burst, Parekh
started diverting money to Calcutta Stock Exchange to avoid detection.

Ketan was caught when Rs. 137 crore pay-order issued by Madhavpura
Mercantile Co-operative Bank bounced. The bear cartel leveraged a dip in the
NASDAQ to beat down stock price. SEBI investigated the scam and heads began to
roll. SEBI suspended all the broker- directors of the BSE in relation to the KP scam
on March 13, 2001.

1.11 Legislation and Regulation of Stock Broking Industry

Securities market face two major problems – cheating and instability. There are
many ways to cheat investors, and regulators have been increasingly active in protecting
them. To some extent, the regulation of securities markets is merely an extension of
fraud laws and consumer protection to the particular circumstances of the securities
market. However, the concerns of securities regulation really go beyond this. Several
legislations were made in the Indian capital market to create healthy and efficient
atmosphere and to protect the interest of investors. The Capital Issues (Control) Act,
1947 was the first piece of legislation passed in India to bring under control the capital
market. As a part of liberalization process, the Act was replaced in1992. Now, the
legislation laws governing Indian Securities Market are Indian Companies Act, 2013,
Securities Contract Regulation Act, 1956, Securities and Exchange Board of India Act,
1992 and Depositories Act, 1996.

26
 The main aims of regulators, is to protect the investors from fraud or deception
and to minimise the financial losses, enforce applicable laws to issue licences to the
financial service provider and to protect the clients. Regulators are in charge of
safeguarding the interest of investors. The responsibility for regulating the securities
market is shared by the Securities and Exchange Board of India(SEBI), Reserve Bank
of India (RBI), Department of Company Affairs(DCA) and Security Appellate
Tribunal(SAT).

The Capital Issues Control Act was replaced by the Securities and Exchange
Board of India Act of 1992. It is the apex regulatory body in the Indian Securities
Market. All financial institutions, agencies, and market intermediaries are now being
governed by the guidelines, rules, and regulations notified by the SEBI from time to
time. A process through which investors grievances against broker may find redressal
through a complaint to the SEBI has been put in place. The capital adequacy norms of 3
per cent of individual brokers and 6 per cent for corporate brokers introduced. It has
been made mandatory for the stock brokers to disclose the transaction price and
brokerage separately in the contract notes issued by them to their clients. It created
Stock brokers and Sub-brokers, 1992 regulatory.

1.12 Investors Grievance

The investor is protected against unfair trade, cheating and malpractices by

listed companies and brokers. For the purpose of protecting the investor’s interest,
the SEBI has introduced an automated complaints handling system to deal with
investors grievance. The SEBI regularly conducts investors awareness programme to
make them aware of the market functioning. To create awareness among the issuers
and intermediaries and the need to redress investors grievances quickly, the SEBI
has been issuing fortnightly press releases publishing the names of the companies
against whom maximum number of complaints have been received. The Table No.
1.8 shows the number of complaints received by SEBI and how many cases were
redressed by it.

27
 Table No. 1.8 Number of Grievances received and redressed

Year Grievances Received Grievances Redressed Cumulative

During the Cumulative During the Cumulative Redressal
period period Rate (%)
2006-07 26,473 25,62,047 17,899 23,95,895 93.5
2007-08 54,933 26,16,980 31,676 24,27,571 92.8
2008-09 57,580 26,74,560 75,989 25,03,560 93.6
2009-10 32,335 27,06,895 42,742 25,46,302 94.1
2010- 11 56,670 27,63,565 66,552 26,12,854 94.5
2011- 12 46,548 28,10,113 53,841 26,66,695 94.9
2012- 13 42,411 28,52,524 54,852 27,21,547 95.4
2013-14 33,550 28,86,074 35,299 27,56,846 95.5
2014-15 38,442 29,24,516 35,090 27,91,936 95.5
2015-16 38,398 29,63,454 35,145 28,27,081 95.4
Source: SEBI

During the period between 2006-07 and 2010-11, complaints received by

SEBI almost doubled i.e. 56,670. But in 2015-16 the same reduced drastically
and the cumulative redressal rate is 95.4%. The nature of complaints received by
SEBI is of market manipulation, price rigging, insider trading and other
malpractices. In such cases the action taken by SEBI results in warning, advice
letter issue, prohibitive actions taken and directions issued for refund/adjudication of
orders passed. In some cases SEBI has issued cancellation and suspension order
also.

The SEBI has also received complaints about stock brokers, sub-brokers,
authorized person and employees of the brokers. The complaints include delay in
payment, non-receipt of payments, non-settlement of accounts, non-receipt of
documents, excess brokerage, wrong execution of orders, unauthorized trade etc.
The Table No.1.9 shows the complaints received against stock brokers from 2011-
12 to 2015-16.

28
 Table No. 1.9 Number of complaints against Stock Brokers
S.No. Year Complaints Resolved through Complaints No.
received the Exchange of Companies
1 2011-12 2927 1923 246
2 2012-13 1656 1295 197
3 2013-14 1343 1187 183
4 2014-15 1773 1617 151
5 2015-16 1103 891 145
Source: BSE

In 2011-12, the number of complaints received was 2,927 out of which 1,923
complaints were resolved through the exchange in the same financial year. But
during 2015-16, the complaints came down to 1,103 out of which 891 were resolved
through the exchange. It can be rightly said that the complaints came down because
of timely action taken by the SEBI.

1.13 Statement of Research Problem

In India, household sector contributes to 75% of the total savings31. There
are different investment options available in India. One of the most lucrative types
is investing in the stock market. At present, investors mostly depend on hearsay and
the advice of friends, relatives, brokers etc. for their investment decision. An
Investor can invest only through a registered member of the stock exchange. Many
a time, the new or the small investor is not aware of the working of the stock
market and invests money at the spur of the moment or on the advice of friends or
other investors who have made some profit in the stock market.

Most of the investors are short term investors who are not ready to wait for
high returns and withdraw money from the market even if there is a minor loss or
profit. Such investors need the advice of the broker who in turn needs to provide the
right advice to the investor and help him/ her make a correct decision. Since the
investors in the urban, semi urban and the rural areas are not aware of the
functioning and working of the stock market, it is the duty of the stock brokers to
educate the investors and win their trust and confidence and make them long term
investors in the stock market as the market requires many such new to increase
liquidity.

29
 Following the liberalization of markets and financial deregulation, the scope
for stock brokers to deal with the various related market has increased. Big brokers
transact through their authorized clerks and the small/sub-broker carries out their
business personally. The institution of stock broker in India is in a growing stage.
The role of brokers is quite unique in the development of capital markets. Thus
brokers are the life-line of financial sector. With the increasing popularity of ‘scrip
less’ trading, many brokers are attempting to assess the possible impact of this type
of trading in their business practice.

Nowadays, Investor’s dependency on the broker is not only on investment

decision, but also for other related services, facilities and information. In this
situation, the researcher wants to identify the role of the stock brokers on the
investor’s investment decision as the number of well informed investors in the
current situation is very less. In order to prove the above stated research problem,
the following research questions are framed.

1. Is there interdependent effect between stock broker’s progress and trade size
and turnover?
2. Are the role and practices of the stock brokers appreciable?

3. Is retaining ability of stock broker an understandable one?

4. Is selection procedure of stock broker reasonable?

5. Is the service quality provided by stock brokers beneficial to investors?

6. Is there any positive impact on investment appreciation through stock

broker’s guidance?

1.14 Significance of the study

The present research “A Study on the Role of Stock Brokers on Investor’s

Investment Decision with Special Reference to BSE, Mumbai” has been carried out
to find out the role of stock brokers on investment decision. As per the researcher’s
knowledge goes, still, there are very few research works that deal with the stock
broker’s performance and their role on investment decision. And no study is combining
the primary and secondary information which is high lighting the importance and

30
significance of the stock broker’s role on investment. The study brings out the
numerical evidence which high lights the co-relation between the growth of stock
brokers and the investment size and value. On the other hand, it also measures the role
of stock brokers in different dimensions from an equity investor’s point of view.

This study is useful to equity market Investors, Regulatory Bodies, Stock

Exchanges, Stock Brokers and also the people who have not yet invested in the equity
market but now, wants to invest in shares. The socio – economic characteristics and
awareness level of investors may help the Regulators and other intermediaries to
conduct the investors’ education and financial literacy programme. This study will help
the equity investors to evaluate the performance and role of their stock broker. This
study will also help the investors to check the performance of stock brokers from
investor’s perspective. This study will help the broker to identify their weak points and
plans to improve their performance in future. Hence they can provide better and prompt
services to investors according to their needs. Brokers can also get the idea about the
investor’s behaviour towards investment. This study benefits the new investor to select
the right broker as a guide in his/her equity investment journey.

1.15 Objectives of the Study

The following are the objectives of the study,
1. To understand the performance of stock brokers in the Bombay Stock

Exchange in general.

2. To identify the interdependent effects between the stock broker’s progress

and the size of the trade and its value.

3. To measure the progress of stock brokers, with the trade size and volume of

investments during the period of twenty years from 1996-97 to 2015-16.

4. To evaluate the role of stock brokers specifically on their services and

facilities.

5. To assess the impact of stock broker’s contribution to the overall investment

achievement of investors.

31
1.16 Research Hypotheses
For any research, Hypothesis is considered to be the principle instrument. It
is a situation, which is an attempt to explain a fact or an occurring in a scientific
manner32. The test result of hypothesis may provide the solution to the research
problem. There are two types of hypothesis that is used namely, Null hypothesis and
alternative hypothesis. Most of the researchers use Null hypothesis for the purpose
of tests. In case, the result of the Null hypothesis analysis fails to support the
statement, then alternative hypothesis will be accepted. The researcher has
formulated the following null hypothesis to achieve the objectives of the study.

1. H0 : There is no significant relationship between increased Trade Size and

Turnover and Stock brokers in BSE.

2. H0 : There is no significant impact of stock brokers on Trade Size and

Turnover in BSE.

3. H0 : Investor’s major investment decisions do not depend on the stock

broker’s advice/recommendation.

4. H0 : There is no direct relationship between reputation and selection of the

stock broker.

5. H0 : There is no significant relationship in quality services of the stock

brokers and investors’ investment decision making.

6. H0 : There is no significant relationship between the stock broker’s guidance

and the investor’s profitability.

1.17 Scope of the Study

The purpose of this study is to highlight the role of stock broker on

investor’s equity investment. Investor’s pattern of investment differs from investor
to investor and is influenced by various factors, and one of the factors is Stock
broker’s services and guidance. The boundaries of the research work are based on
primary data and secondary data. The secondary data are focusing the progress of
brokers on the achievement of trade quantity and value. The primary data fully

32
cover the feedback measurement of the investors regarding the services provided by
the stock broker.

It brings to light, the stock broker’s role and practice in equity market in
Mumbai. The history of stock broker and progress of stock brokers are projected.
The growth of stock broker and stock market turnover and their association is also
projected. It highlights the evaluation of broker service quality, selection procedure
and ability to retain clients by the stock broker. It also highlights the basis on which
the investor is taking decision while selecting stocks, their attitude while selecting
investment mode and their general experience with the stock broker.

1.18 Research Methodology

The methodology of research indicates the general pattern of organization,

the procedure for gathering valid and reliable data for the purpose of research. The
following points describe the methodology applied by the researcher to carry out the
research.

1.18.1 Research design

Research design is the plan, structure and strategy of investigation conceived

so as to obtain answer to research questions and test the hypothesis. The study is
designed as a descriptive and quantitative one based on both secondary and primary
data. The span of secondary data for the period is 20 years, starting from April 1996
and ending in March 2016. For justification of the research study, the researcher has
classified the overall study into two parts. The first part, secondary data has been
taken to find the answer to research questions and test the hypothesis. The variables
for this part are Total Brokers, Corporate Broker, Proprietorship Broker, Partnership
Broker and investment i.e. Turnover & Trade Quantity of BSE. Here, Progress of
Brokers and Investment, relationship between Brokers and Investment and impact of
Brokers on Investment are analysed. Brokers and Investments are also forecasted for
next 4 years starting 2017 till 2020. The secondary data based test includes both
statistical and econometric procedures. The researcher has done the secondary
analysis with the aid of EViews 8 and R 3 Studio 3.4.2 program software. The next
part is analysis of primary data, which studies investor’s attitude towards investment

33
and broker, Brokers’ services and facilities and impact of brokers towards
investment achievement. The primary data was collected from the respondents from
2013-14 to 2015-16. For primary data analysis, IBM SPSS Statistics 21 software is
used. Excel is used to present the graph in a more understandable manner.

1.18.2 Justification for selecting BSE

The researcher has taken Bombay Stock Exchange for the study because of
the following reason. Firstly, BSE Exchange is the oldest stock exchange in Asia
and first Stock Exchange in India. Secondly, the BSE is a pioneer in several areas
over the decades like introduction of Free Float Index calculation, Launched website
in regional language, special platform for SME securities, Obtained ISO
Certificates, mobile based trading etc. Thirdly, S&P Sensex indicates the
performance of Indian Economy and it is the bench mark for equity market Index.
Finally, the BSE is the world’s fastest and number one exchange in terms of number
of listed companies. Along with that, BSE is the first listed stock exchange in India.

1.18.3 Secondary data sources

The secondary data brought out the progress of brokers, size of trade and
value during the period of twenty years from 1996-97 to 2015-16. The details of
Corporate Broker, Proprietorship Broker, Partnership Broker, Total Brokers, Sub-
Brokers, Trade Quantity and Turnover of BSE collected from Hand Book of SEBI
(2004 to 2017). Also verified and collected necessary information from
authenticated websites (BSE, CDSL & NSDL) and also printed documents has been
used.

1.18.4 Primary Data

The primary data brought out the opinion from equity market investors
towards their investment experience with stock brokers. Through the pilot study
experiences (explained in chapter 4) the researcher adopted interview schedule as a
tool for collection of data, because most of the investor’s informedness is very less.
Hence, they need certain confirmation before answering the questions. The
interview schedule is segregated into five groups. The first group deals with the

34
 personal details of investors, the second one analyses the role and practices of
brokers, and third one is the selection procedure of broker and their retaining
strength. The next one is analysing broker’s service quality. The last and final one
evaluates the monetary achievement of investors through the service, guidance and
advice of broker.

The population for the study are the equity market investors who reside in
Mumbai. There is no authenticated data available regarding the number of equity
investors who belong to the Mumbai geographical area. At this juncture, the
researcher found the leading 25 stock broking offices, including sub-brokers in
Mumbai, for which Judgement sampling technique was used and a total of 643
investors were selected from these broking offices. More than five years of
experience in equity market is the criteria for the selection of samples from broker’s
data base and answering ability, in-depth knowledge of the investment field were
considered while interviewing the investors for the selection of the respondents. The
Table No. 1.10 illustrates the samples selected for the study.

Table No. 1.10 Details of Samples Selection

S. Name of the No. of No. of S. Name of the No. of No. of
No Broking Resp. Resp. No Broking Resp. Resp.
Office met Selected Office met Selected
1 Angel Broking 37 24 14 Unique stock broker 26 13
2 ICICI Direct 30 25 15 Tradeplus 15 08
3 Motilal Oswal 25 14 16 AK Trading Firm 27 16
4 HDFC Security 33 21 17 Aditya Birla Money 20 09
5 Kotak Securities 41 28 18 Religara Securities 24 13
6 ShareKhan 37 22 19 UPSTOX 20 14
7 Reliance Money 28 16 20 IIFL 26 16
8 Ventura 32 19 21 Indiabulls 23 20
9 Karvy 23 13 22 Axis direct 29 22
10 Edelweiss 21 12 23 Networth direct 16 12
11 Time Investment 38 24 24 R K P Financial 15 09
Services Consultancy
12 Maverick 14 10 25 Shamma Shaikh 19 12
Investment Shares & Stock
Advisors Enterprises
13 SBI securitirs 24 11 Total 643 403
Source: Researcher’ Compilation

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 Out of 643 respondents selected from broking offices, 240 of the respondents
were rejected for not having in-depth understanding, poor answering ability and
particularly they are not in a position to reveal their investment details. Hence, the
researcher confined the sample size to 403.

1.18.5 Framework of Analysis

In order to measure the progress of stock brokers, investment size and value
trend analysis, correlation and regressions have been used. To identify the
interdependent effects between stock brokers and trade volume and size,
econometric models have been used. In primary data, to examine the demographic
profile of equity market investors, the frequency and percentage analysis have been
applied. In order to understand the trade practices of investors towards, type of
trading, investment decision and attitude while choosing an investment mode, the
mean and ratio has been employed. In order to evaluate the brokers’ role and
practice, selection procedure of stock broker, retaining the quality of brokers, service
quality and impact, Kruskal Wallis Test, Wilcoxon signed rank test, ANOVA, Chi-
square, frequency, mean rank, median and ratio have been used. The tools used by
the researcher, is briefly explained in the respective chapters.

1.18.6 Conceptual Frame work

i) Stock Exchange - Stock Exchanges are structured market place where affiliates of
the union gather to sell/ buy firm’s shares and other securities.

ii) Investment - Investment is the process of , ‘sacrificing something now for the
prospect of gaining something later’.

iii) Investors - A person who invests capital to earn gains.

iv) Investors Behaviour - It denotes the response of the investor and his related
actions, rational or irrational.

v) Equity Share - Equity shares represents ownership capital and its owners i.e.
equity shareholders share the reward and risk associated with ownership of
corporate enterprises.

36
vi) Informed investors - The investors who are rational are termed as well-
informed investors. These investors understand the market conditions, conduct
necessary technical and fundamental analysis before deciding on investing in
securities.

vii) Stock Broking - The process by which buyers and sellers of stock of securities
are brought together under a common platform, the stock exchanges, is known as
‘stock broking’.

viii) Corporate Broker - Stock broking activity is carried out by brokers who are
permitted by SEBI. If the registered company is doing the job of brokers it is called
as Corporate broker.

ix) Proprietorship Broker – If the same above broking activity is carried out by the
individual person, and then it is called as Proprietorship Broker.

x) Partnership Broker - The broking activity which is carried by the Partnership

firm, then it is called as Partnership Broker.

xi) Total Brokers – Total brokers include the total number of corporate,
proprietorship and partnership brokers.

xii) Sub-broker – Any person not a member of stock exchange but act as the agent
of stock broker to do broking activity.

1.19 Limitations of the Study

i. The study is based only on equity market investor.

ii. Primary data has been collected through interview, hence the limitation of
the interview will be applicable to this study also.

iii. Depending on one’s own experience, interest, will and pleasure some
respondents might have given biased information

iv. The study is limited to investors in BSE, who are residing in Mumbai city.

37
1.20 Chapter Arrangement

The subject matter of the present study is presented in five chapters. It is

arranged as follows:

Chapter 1: Introduction and Design of the Study

This chapter introduces Stock Market, history and growth of stock market
and stock broker, brief importance along with function of brokers. The study
includes the evaluation of the broking industry and regulations of the broking
industry. The statement of problem and significance of the study, research
questions, objectives of the study and research methodology are also there in this
chapter.

Chapter 2: Review of Literature

This chapter contains the review of previous studies which is relevant and
related to the present study. The review is discussed under individual investor’s
investment behaviour, working of stock broker/broking firm and investor’s attitude
towards stock broker.

Chapter 3: The Contribution of Stock Brokers on overall Investment Trade

Practices

This chapter deals with the analysis of secondary data. It contains the
progress of stock brokers with trade size and value. The test result of inter dependent
effects between the stock brokers investments over a period of twenty years.
It also discusses the impact of stock brokers on investments of BSE and the test
result of hypotheses.

Chapter 4: Evaluation of Practices of Stock Brokers and the Impact on

Investment

This chapter deals with the analysis of primary data. The results of the
primary data analysis are interpreted to test the hypothesis and find the answers to
the research questions. Here socio economic characteristics of the investor, trade
practices and their attitudes while selecting the investment mode are analysed.

38
Awareness of stock brokers towards stock broker’s practices and their experiences
with the stock brokers are evaluated. The service quality of the stock broker and the
impact on the investment achievement are discussed.

Chapter V: Findings, Suggestions and Conclusion

This chapter summarizes the various findings from secondary and primary
data analysis. The answers to the research questions are listed. Based on the findings
of the study, the researcher provided the suggestions and conclusion. This
chapter also includes, outlines of the implications of research, and suggests
recommendations for future research.

39
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