hse project 1

7/31/2019 HSE Project 1

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CONTENTS

1. INTRODUCTIONA Study on Stock Exchange

History of stock exchange

SEBI

National stock exchange

2. PROFILE OF HSEHyderabad Stock Exchange

Objective of Study

Need of the study

3. ONLINE TRADINGIntroduction

Online equity trading

Advantages

The online trading process

Online trading at H.S.E

4. DEMATERIALISATION

Introduction

Dematerialisation

Cdsl

Nsdl

4. CONCLUSION5. BIBLIOGRAPHY


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INTRODUCTION


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Stock exchange is an organized market place where securities are

traded. These securities are issued by the Government, Semi-Government

bodies, Public Sector undertakings and companies for borrowing funds andraising resources. Securities are defined as any monetary claims

(promissory notes or I.O.U) and also include shares, debentures, bonds and

etc., if these securities are marketable as in the case of the Government

stock, they are transferable by endorsement and alike movable property.

They are trade able on the stock exchange. So is the case with the shares of

the companies.

Under the Securities Contract Regulation Act of 1956, securities

trading is regulated by the Central Government and such trading can take

place only in Stock Exchanges recognized by the Government under this

Act. As referred to earlier there are at present 23 such recognized stock

Exchanges in India. Of these, major Stock Exchanges, like Bombay ,

Calcutta, Delhi, Chennai, Hyderabad, Bangalore etc. are permanently

recognized while a few are temporarily recognized. The above act has also

laid down that trading in approved contracts should be done through

registered members of the Exchange. As per the rules made under the

above act, trading in securities permitted to be traded would be in the

normal trading hours (10 A.M. to 4 P.M) on working days in the trading

ring, as specified for trading purpose.

Contracts approved to be traded are the following;

a- Spot delivery deals are for delivery of shares on the same day orthe next day as the payment is made.

b- Hand delivery deals for delivering shares within a period of 7 to14 days from the date of contract.


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c- Delivery through a clearing for delivering shares within a periodof two months from the date of the contract, which is now

reduced to 15 days.

d- Special delivery deals for delivering of shares for specified longerperiods as may be approved by the governing board of the Stock

Exchange.

Except in those deals meant for delivery on a spot basis, all the rest

are to be put through by the registered brokers of a Stock Exchange. The

securities Contracts (Regulation) rules of 1957 laid down the conditions for

such trading, the treading hours, rules of trading, settlement of disputes, etc. as

between the members and of the members with reference to their clients. The

eligibility and qualifications for members, elections for Governing Board,

method of administration of the Stock Exchange and all matters relating to the

working of the Stock Exchange and its registered members/brokers are set out

in what are called the rules.

HISTORY OF STOCK EXCHANGES IN INDIA

The origin of the Stock Exchanges in India can be traced back to the

later half of 19 century. After the American Civil War (1860-61) due to the

share mania of the public, the number of brokers dealing in shares increased.

The brokers organized an informal association in Mumbai named The NativeStock and Share Brokers association in 1875.

Increased activity in trade and commerce during the First World War

and Second World War resulted in an increase in the stock trading. The

Growth of Stock Exchanges suffered a set back after the end of World War.

World wide depression affected them most of the Stock Exchanges in the early

stages had a speculative nature of working without technical strength. After


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independence, government took keen interest to regulate the speculative nature

of stock exchange working. In that direction, securities and Contract

Regulation Act 1956 was passed, this gave powers to Central Government to

regulate the stock Exchanges. Further to develop secondary markets in the

country, stock exchanges in Mumbai, Chennai, Delhi, Hyderabad, Ahmedabad

and Indore. The Banglore Stock Exchange was recognized in 1963. At present

there are 23 Stock Exchanges.

Till recent past, floor trading took place in all the Stock Exchanges.

In the floor trading system, the trade take place through open outcry system

during the official trading hours. Trading posts are assigned for different

securities where by and sell activities of securities took place. This system

needs a face to face contact among the traders and restricts the trading

volume. The speed of the new information reflected on the prices was rather

slow. The deals were also not transparent and the system favored the brokers

rather than the investors.

The setting up of NSE and OTCEI (Over the counter exchange of

India) with the screen based trading facility resulted in more and more Stock

exchanges turning towards the computer based trading. BSE introduced the

screen based trading system in 1995, which known as BOLT (Bombay on line

Trading System).

Madras Stock Exchange introduced Automated Network Trading

System (MANTRA) on October 7, 1996. Apart from Bombay Stock

Exchanges have introduced screen based trading.


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FUNCTIONS OF STOCK EXCHANGES

Maintain Active Trading: Shares are traded on the stock

exchanges, enabling the investors to buy and sell securities. The prices may

vary from transaction to transaction. A continuous trading increases the

liquidity or marketability of the shares traded on the stock exchanges.

Fixation of Prices: Price is determined by the transactions that flow

from investors demand and the suppliers preferences. Usually the traded prices

are made known to the public. This helps the investors to make the better

decisions.

Ensures safe and fair dealings: The rules, regulations and bylaws

of the Stock Exchanges provide a measure of safety to the investors.

Transactions are conducted under competitive conditions enabling the investors

to get a fair deal.

Aids in Financing the Industry: A continuous market for shares

provides a favorable climate for raising capital. The negotiability and

transferability of the securities, investors are willing to subscribe to the initial

public offering (IPO) . This stimulates the capital formation.

Dissemination of Information: Stock Exchanges provideinformation through their various publications. They publish the share prices

traded on their basis along with the volume traded. Directory of Corporate

Information is useful for the investors assessment regarding the corporate.

Handouts, handbooks and pamphlets provide information regarding the

functioning of the Stock Exchanges.


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Performance inducer: The prices of stocks reflect the performance

of the traded companies. This makes the corporate more concerned with its

public image and tries to maintain good performance.

Self-regulating organization: The Stock Exchanges monitor the

integrity of the members, brokers, listed companies and clients. Continuous

internal audit safeguards the investors against unfair trade practices. It settles

the disputes between member brokers, investors and brokers.

REGULATORY FRAME WORK:

This Securities Contract Regulation Act, 1956 and Securities and

Exchange board of India (SEBI) Act,1992, provides a comprehensive legal

framework. A 3-tier regulatory structure comprising the ministry of finance,

SEBI and the Governing Boards of the Stock Exchanges regulates the

functioning of Stock Exchanges.

Ministry of finance: The Stock Exchange division of the Ministry

of Finance has powers related to the application of the provision of the SCR

Act and licensing of dealers in the other area. According to SEBI Act, The

Ministry of Finance has the appellate and the supervisory power over the SEBI.

It has powered to grant recognition to the Stock Exchanges and regulation of

their operations. Ministry of Finance has the power to approve the

appointments of executive chiefs and the nominations of the public

representatives in the Governing Boards of the Stock Exchanges. It has the

responsibility of preventing undesirable speculation.

The Securities and Exchange Board of India: The Securities and

Exchange Board of India even though established in the year 1988, received

statutory powers only on 30 January 1992. Under the SEBI Act, a wide variety

of powers are vested in the hands of SEBI. SEBI has the powers to regulate the


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business of Stock Exchanges, other security and mutual funds. Registration

and regulation of market intermediaries are also carried out by SEBI. It has

responsibility to prohibit the fraudulent unfair trade practices and insider

dealings. Takeovers are also monitored by the SEBI has the multi pronged

duty to promote the healthy growth of the capital market and protect the

investors.

The Governing Board: The Governing Board of the Stock

Exchange consists of elected members directors, government nominees and

public representatives. Rules, by laws and regulations of the Stock

Exchange substantial powers to the executive director for maintaining

efficient and smooth day-to day functioning of Stock Exchange.The

Governing Board has the responsibility to maintain and orderly and well-

regulated market.

The Governing body of the Stock Exchange consists of 13 members of

which

a- Six members of the stock exchange are elected by the membersof the stock exchange.

b- Central Government nominates not more than three members.

c - The board nominates three public representatives.

c- SEBI nominates persons not exceeding three and

d- The Stock Exchange appoints One Executive Director.


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One third of the elected members retire at annual general meeting

(AGM). The retired member can offer himself for election if he is not elected

for two consecutive years. If a member serves in the governing body for two

years consecutively, he should refrain offering himself for another two yeas.

The members of the governing body elect the president and vice-

president. It needs to approval from the Central Government or the Board.

The office tenure for the president and vice-president is on year. They can

offer themselves for re-election, if they have not held for two consecutive

years. In that case they can offer themselves for re-election after a gap of one-

year period.

INSTRUMENT FOR TRADED ON THE STOCK EXCHANGE:

The instruments traded are securities that are quoted after being listed by

the companies that issued them to the public. The securities issued by the

central and state government, semi-government bodies are also listed and

quoted on the Stock Exchanges as per the rules. The broker members are

eligible to deal in them also. In fact some members specialized in Government

securities market, but public are not in general interested in these securities,

and they are less attractive to the public. Only banks, financial institutions,

insurance companies etc, deal in Government securities market. But for

individual investors, corporate securities are relevant as they have higher rate

of interests and higher returns due to capital appreciation and dividends.

The corporate securities in which individual investors are invested and

are traded on the exchanges are as follows:


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Equity Shares: These are ownership capital and have a variable

dividend, depending on the net earnings and dividend policy of the company.

The prices of these shares vary widely and with a face value of Rs.10/- (or

Rs.50/- or Rs.100/-) they are normally quoted at a premium, which leads to

capital appreciation.

Preference Shares: These are also ownership capital but with a fixed

dividend, now a days preference shares are not popular and have no public

interest in them; only financial interests hold them.

Convertible or Partly Convertible Debentures: The debentures are

popular only if they are convertible into equity shares after a period. Non-

convertible debentures carry a fixed rate of interest. But as there is now no

ceiling on such interest rates, they have also become attractive to the investors.

They have to choose only good companies with a good credit rating so that

there would be no problem in getting there interest warrants and repayment of

principal. Convertible debentures are now popular both with companies and

investors as they have advantages of both fixed income up to a period and

capital appreciation later on due to conversion into equity.


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NATIONAL STOCK EXCHANGE:

The National Stock Exchange (NSE) of India became operational in the

capital market segment on third November 1994 in Mumbai. The genesis of

the NSE lies in the recommendations of the pherwani committee (1991). Apart

from the NSE, it had recommended for the establishment of National Stock

market System also. The committee pointed out some major defects in the

Indian stock market. The defects specified are.

1. Lack of liquidity in most of the markets in terms of depth andbreadth.

2. Lack of ability to develop markets for debt.

3. Lack of infrastructure facilities and outdated trading system.

4. Lack of transparency in the operations that affect investorsconfidence.

5. Outdated settlement system that are inadequate to cater to thegrowing volume, leading to delays.

6. Lack of single market due to the inability of various stock exchangesto function cohesively with legal structure and regulatory framework.

These factors led to the establishment of the NSE.

The main objectives of NSE are as follows:

1). To establish a nation wide trading facility for equities, debt

instruments and hybrids.


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2). To ensure equal access investors all over the country through

appropriate communication network.

3). To provide a fair, efficient and transparent securities market to

investors using an electronic communication network.

4). To enable shorter settlement cycle and book entry settlement

system.

5). To meet current international standards of securities market.

Promoters of NSE: IDBI,ICICI, IFCI, LIC, GIC, SBI , Bank of Baroda,

Canara Bank, Corporation Bank, Indian Bank , Oriental bank of commerce,

Union Bank of India, Punjab National Bank, Infrastructure Leasing and

Financial Services, Stock Holding Corporation of India and SBI capital market

are the promoters of NSE.

MEMBERSHIP:

Membership is based on factors such as capital adequacy, corporate

structure, track record, education, experience etc. Admission is a two-stage

process with applicants requiring going through a written examination followed

by an interview. A committee consisting of experienced people from the

industry to assess the applicants capability to operate as an exchange member,

interviews candidates. The exchange admits members separately to Wholesale

Debt Market (WDM) segment and the capital market segment. Only corporate

members are admitted on the debt market segment whereas individuals and

firms are also eligible on the capital market segment. Eligibility criteria for

trading membership on the segment of WDM are as follows.


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1). The persons eligible to become trading members are bodies

corporate, companies institutions including subsidiaries of banks

engaged in financial services and such other persons or entities as

may be permitted from time to time by RBI/SEBI.

2). The whole-time directors should possess at least two years

experience in any activity related to banking or financial services

or treasury.

3). The applicant must possess a minimum net worth of Rs.2 crores.

4). The applicant must be engaged solely in the business of securities

and must not be engaged in any fund-based activitites.

The eligibility criteria for the capital market segment are;

1). Individuals, registered firms, bodies corporate, companies and

such other persons may be permitted under SCRA, 1957.

2). The applicant must be engaged in the business of securities and

must not be engaged in any fund-based activities.

3). The minimum networth requirements prescribed are as follows;

a). Individual and registered firmsRs.75 Lakhs.

b). Corporate bodiesRs.100 Lakhs.

In the case of registered partnership firm each partner should contribute

at least 5% of the minimum net worth requirement of the firm.


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4). A corporate trading member should consist only of individuals

(Maximum of 4) who should directly hold at least 405 of the

paid-up capital in case of listed companies and at least 51% in

case of other companies.

5). The minimum prescribed qualification of graduation and two

years experience of handling securities as broker, sub-broker,

authorized assistant, etc must be fulfilled by

a). Minimum two directors in case the applicant is a corporate.

b). Minimum two partners in case of partnership firms and

c). The individual in case of individual or sole proprietary

concerns.

The two experienced director in a corporate applicant or trading member

should hold minimum of 5% of the capital of the company.


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PROFILE OF HSE


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HYDERABED STOCK EXCHANGE

ORIGIN

Rapid growth in industries in the erstwhile Hyderabad State saw efforts

at starting the Stock Exchange. In November, 1941 some leading bankers and

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

Mohammed, the Finance Minister formed a Committee for the purpose of

constituting Rules and Regulations of the Stock Exchange. Sri

Purushothamdas Thakurdas, President and Founder Member of the Hyderabad

Stock Exchange performed the opening ceremony of the exchange on

14.11.1943 under Hyderabad Companies Act, Mr. Kamal Yar Jung Bahadur

was the first President of the Exchange. The HSE started functioning under

Hyderabad Securities Contract Act of No.21 of 1352 under H.E.H. Nizams

Government as a Company Limited by guarantee. It was the 6th

Stock

Exchange recognized under Securities Contract Act, after the Premier Stock

Exchanges, Ahmedabad, Bombay, Calcutta, Madras and Bangalore stock

exchange. All deliveries were completed every Monday or the next working

day.

The Securities Contracts (Regulation) Act, 1956 was enacted by the

Parliament, passed into Law and the rules were also framed in 1957. The Act

and the Rules were brought into force from 20th

February, 1957 by the

Government of India.

The HSE was first recognized by the Government of India on 29th

September, 1958 as Securities Regulation Act was made applicable to twin

cities of Hyderabad and Secunderabad from that date. In view of substantial

growth in trading activities, and for the yeoman services rendered by the

Exchange, the Exchange was bestowed with permanent recognition with effect

from 29th September 1983.


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The Exchange has a significant share in achievements of erstwhile State

of Andhra Pradesh to its present state in the matter of Industrial development.

OBJECTIVES

The Exchange was established on 18th

October, 1943 with the main

objective to create, protect and develop a healthy Capital Market in the State of

Andhra Pradesh to effectively serve the Public and Investors interests.

The property, capital and income of the exchange, as per the

Memorandum and Articles of Association of the exchange, shall have to be

applied solely towards the promotion of the objects of the exchange. Even in

case of dissolution, the surplus funds shall have to be devoted to any activity

having the same objects, as exchange or be distributed in Charity, as may be

determined by the exchange or the High Court of judicature. Thus, in short, it

is a charitable institution.

The Hyderabad Stock Exchange limited is now on its stride of

completing its 59th

year in the history of Capital Markets serving the cause of

saving and investments. The Exchange has made its beginning in 1943 and

today occupies a prominent place among the Regional Stock Exchanges in

India. The Hyderabad Stock Exchange has been promoting the mobilization of

funds into the Industrial sector for development of industrialization in the State

of Andhra Pradesh.

GROWTH

The Hyderabad Stock Exchange Ltd., established in 1943 as a Non-

profit making organization, catering to the needs of investing population started

its operations in a small way in a rented building in Koti area. It had shifted


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into Aiyangar Plaza, Bank Street in 1987. In September,1989, the then Vice-

President of India, Honble Dr. Shankar Dayal Sharma had inaugurated the

own building of the Stock exchange at Himayathnagar, Hyderabad. Later in

order to bring all the trading members under one roof, the exchange acquired

still a larger premises situated 6-3-654/A; Somajiguda, Hyderabad82, with a

size storied building and a constructed area of about 4,86,842 sft (including

cellar of 70,857 sft). Considerably, there has been a tremendous perceptible

growth which could be observed from the statistics.

The number of members of the exchange was 55 in 1943, 117 in 1993

and increased to 300 with 869 listed companies having paid up capital of

Rs.19128.95 crores as on 31/03/2000. The business turnover has also

substantially increased to Rs.1236.51 crores in 1999-2000. The exchange has

got a very smooth settlement system.

GOVERNMENT BOARD

At present, the Governing Board consists of the following:

MEMBERS OF THE EXCHANGE

Sri Hari Narayana Rathi

Sri Rajendra V. Naniwadekar

Sri K. Shiva Kumar

Sri R.D. Lahoti

Sri Ram Swaroop Agrawal


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Sri Dattatray

SEBI NOMINEE DIRECTORS

Sri N.S. Ponnunambi -- Registrar of Companies [Govt. of

India]

PUBLIC NOMINEE DIRECTORS

Dr. N.R.Sivaswamy (Chairman, HSE) -- Former CBDT Chairman

Justice V. Bhaskara Rao -- ssRetd. High Court Judge.

Sri P. Muralimohan Rao -- Mogili & Co.-Chartered Accountants

Dr. B. Brahmaiah -- G.M.JNIDB

EXECUTIVE DIRECTOR

Sri S. SARVESHWAR REDDY

COMPUTERIZATION

The Stock Exchange business operations are equipped with modern

communication systems. Online computerization for simultaneously carrying

out the trading transactions, monitoring functions have been introduced at this

exchange since 1988 and the Settlement and Delivery System has become

simple and easy to the exchange members.

The HSE On-line Securities Trading System was build around the most

sophisticated state of the art computers, communication systems, and the

proven VECTOR Software from CMC and was one of the most powerful SBT


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Systems in the country, operating in a WAN environment, connected through

9.6 KBPS 2 wire Leased Lines from the offices of the members to the office of

the Stock Exchange at Somajiguda, where the Central System CHALLENGE-L

DESK SIDE SERVER made of Silicon Graphics (SGI Model No.D-95602-S2)

was located and connected all the members who were provided with COMPAQ

DESKPRO 2000/DESKTOP 5120 Computers connected through

MOTOROLA 3265 v. 34 MANAGEABLE STAND ALONE MODEMS (28.8

kbps) for carrying out business from computer terminal located in the offices of

the members.

The HOST System enabled the Exchange to expand its operations later

to other prime trading centers outside the twin cities of Hyderabad and

Secunderabad.

CLEARING HOUSE

The Exchange set-up a Clearing House to collect the Securities from all

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

every settlement. F the operations of the Clearing House were also

computerized. At present through DP all the settlement obligations are met.

INTER-CONNECTED MARKET SYSTEM (ICMS)

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

of Indian Stock Exchanges for implementing an Inter connected Market

System (ICMS) in which the Screen Based Trading systems of various Stock

exchange was inter-connected to create a large national Market. SEBI

welcomed the creation of ICMS.


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

The ISE provided the members of HSE and their investors, access to a large

national network of Stock exchanges.

The Inter-connected Stock exchange is a National Exchange and all

HSE Members could have trading terminals with access to the National Market

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

to have the trading rights on National Exchange (ISE) without any fee or

expenditure.

ONLINE SURVEILLANCE

HSE pays special attention to Market Surveillance and monitoring

exposures of the members, particularly the mark to market losses. By taking

prompt steps to collect the margins for mark to market losses, the risk of

default by members is avoided. It is heartening that there have been no

defaults by members in any settlement since the introduction of Screen Based

Trading.

IMPROVEMENT IN THE VOLUMES

It is heartening that after implementing HOST, HSEs daily turnover has

fairly stabilized at a level of Rs.20.00 crores. This should enable in improving

our ranking among Indian Stock Exchange for 14th position to 6th position. We

shall continuously strive to improve upon this to ensure a premier position for

our exchange and its members and to render excellent services to investors in

this region.

The number of transactions, turnovers of the exchange, number of listed

companies and the paid up capital listed have grown up substantially as may be

seen from the following figures.


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YEAR NUMBER OF

TRANSACTIONS

IN Thousands

TURNOVERS

Rs. In Crores

LISTED

COMPANIES

MARKET

CAPITAL

Rs.In

Crores

1991-92 515.949 587.75 236 2740.56

1992-93 421.985 676.00 274 10228.48

1993-94 603.635 984.46 372 13156.15

1994-95 860.42 1160.48 668 18588.71

1995-96 720.521 1107.30 727 20159.311996-97 240.64 479.98 851 22050.69

1997-98 427.83 1860.86 852 18705.10

1998-99 513.168 1369.90 856 18753.93

1999-00 513.440 1236.51 869 18753.93

2000-01 427.205 977.83 934 14717.08

2001-02 34.326 41.26 - -

2002-03 4.203 4.58 - -

2003-04 2.277 2.73 856 22126.65

2004-05 4.401 14.13 820 14456.95

SETTLEMENT GUARANTEE FUND

The Exchange has introduced trade guarantee fund on 25/01/2000. This

will insulate the trading member from the counter-party risks while trading

with another member. In other words, the trading member and his investors

will be assured of the timely completion of the pay-out of funds and securities

not withstanding the default, if any, of any trading member of the exchange.

The shortfalls, if any, arising from the default of any member will be met out of

the Trade Guarantee Fund. Several pay-ins worth of crores of rupees in all the


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settlements have been successfully completed after the introduction of Trade

Guarantee Fund, without utilizing any amount from the trade guarantee fund.

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

confidence of the members and the investors in HSE. HSEs Trade Guarantee

Fund has a corpus of Rs.2.00 crores initially which will later be raised to

Rs.5.00 crores. At present Rs.3.20 Crores is stood in the credit of SGF.

The Trade Guarantee Fund had strict rules and regulations to be

complied with by the members to avail the guarantee facility. The HOST

system facilitated monitoring the compliance of members in respect of such

rules and regulations.

CURRENT DIVERSIFICATIONS

A). DEPOSITORY PARTICIPANT

The exchange has also become a depository participant with National

Securities Depository Limited (NSDL) and Central Depository services

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

come down substantially. The depository functions are undertaken by the

exchange by opening the accounts at Hyderabad of investors, members of the

exchange and other exchanges. The trades of all the exchanges having On-line

trading which get into National depository can also be settled at Hyderabad by

this exchange itself. In short all the trades of all the investors and members of

any exchange at Hyderabad in dematerialized securities can be settled by the

exchange itself as a participant of NSDL and CDSL. The exchange has about

15,000 B.O. accounts .


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B). FLOATING OF A SUBSIDIARY COMPANY FOR THE

MEMBERSHIP OF MAJOR STOCK EXCHANGE OF THE COUNTRY

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

M/s. HSE Securities limited for obtaining the membership of NSE and BSE.

The subsidiary had obtained membership of both NSE and BSE. About 113

sub-brokers may registered with HSES, of which about 75 sub-brokers are

active. Turnover details are furnished here under.

YEAR NSE CASH Rs.

In Lakhs

NSE F&O Rs.In

Lakhs

BSE CASH Rs.

In Lakhs

2001-02 338236.81 -- --

2002-03 421643.50 16657.08 --

2003-04 617808.46 312203.56 17558.59

2004-05 484189.11 354370.71 39519.96

C). FACILITY TO TRADE AT NSE, DERIVATIVES TRADING, NET

TRADING ETC

The exchange has incorporated a subsidiary HSE securities Limited

with a paid up capital of Rs.2.50 crores initially to take NSE Membership, so

that the members of the exchange will have access to the NSEs Trading

Screen as sub-brokers, Derivatives Trading and Net Trading etc. The members

of this exchange will also have equal opportunity of participating in such

trading like any other NSE member.


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Objective of the study

1). To study the nature and structure of the share market.

2). To know the function of Hyderabad Stock exchange.

3). To provide the way of approach for the investor to invest in invert

wisely in the market.

4). To know the ONLINE TRADING PROCEDURE

5). To know the Advantages of Demoralization of shares

By introduction of depositors would improve the market efficiency of

through adopting criteria for describing scrip depositors eligible. It is also

expected to arrest the prolonged depression in the stock market. How the

depository would help to the review the stock market has been analyze in this

project.

PURPOSE OF STUDY:

1). To purpose of doing this project is mainly to know the facts that

effects the company.

2). To assess the EPS of the company.

3). To examine the internal and external factors affecting the future pirce

of the company.

4). The purpose of doing this project to know the advantages of online

trading and dematerialization.

5). The purpose includes assessing the future market strength of the

company.


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NEED OF THE STUDY:

Stock exchange is integral part of the capital market. It is the most

perfect type of market for Security whether of Government or Semi-

Government bodies or other public bodies as also for shares and debentures

issued by joint stock enterprises.

Knowing about the latest and future development in the stock exchange

trading system.

To know how the online trading process helps investors and brokers.

Latest and future development in the Stock Exchange Online trading system.

Online trading is useful for immediate settlement.

Easy transfer of Demat shares.


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ONLINE TRADING


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INTRODUCTION

Technology has changed the landscape of the stock markets. They now

dont require a trading floor & can, from a single location any where can

service investors across the country.

Before screen based trading was introduce Regional Stock Exchange

were playing a very important role in the Capital Market as they were localinvestors. Now they are all developed screens based trading is connecting

floors with other stock exchanges.

When you place an order to buy or sell stock, you might not think about

where or how your broker will execute the trade. But where and how your

order is executed can impact the overall costs of the transaction, including the

price you pay for the stock. Heres what you should know about trade

execution:

Trading Practices

Manual Mode of Trading

Prior to introduction of Online Trading, trading of shares used to be

done manually which process was very laborious and cumbersome with lot of

paper work at every stage right from order booking, order execution to Back

Office work. The process involved the following steps:


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Placing of the order by the client, order can be placed as limit order,best market price or open order.

Entry in order book by the broker. Execution of order.

Preparation of contract note.

Entry in settlement registrar, client registers. Actual delivery ofshares by brokers or clients.

Preparation of bill or order delivery note.

Entry in client ledger, scrip ledger.

Payments

Drawbacks of the Manual System:

Lack of Transparency

The scope for Manipulation and frauds

Time consumingTechnology is revolutionizing every field of human endeavor and

activity. The rapid growth in number, volume and value of securities in the

Indian capital market exposed the limitation of handling and dealing in

securities in physical / paper mode; the shortcomings of the market became

manifest in terms of bad deliveries, delays in transfer and irregular settlement

etc.


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The National Stock Exchange (NSE) followed by The Stock Exchange,

Mumbai (BSE) in 1995, first introduced electronic medium of trading.

There was a time when an individual investor had to go to an exchange

trading ring to have his order executed. Today the premier exchanges of the

country want to come to his doorstep, or rather his desktop. Relationship

marketing is really gaining momentum! The countrys two biggest exchanges

the BSE and the NSE have embraced the Internet in an effort to leverage the

power of this medium to reach out to the hitherto untapped masses.

Says NSE former Managing Director, Mr. RH Patil; Our internet

initiative is in line with our basic thrust which we have been following

from day one, when we were conceived as a national exchange with a

mission to spread every where, to be as close to investors as possible.

In India Geojit Securities, a leading brokerage house has the distinction of

being the first to offer online trading for cash as well as for derivatives.


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ONLINE EQUITY TRADING

Generally, online trading refers to buying and selling securities via the

Internet or other electronic means such as wireless access, tough-tone,

telephones and other new technologies. With online trading, in most cases

customers access a brokerage firms Web Site through their regular Internet

Service Provider. Once there, customers may consult information provided on

the Web Site and log into their accounts to place orders and monitor account

activity.

Through the Internet, investors can quickly find affordable market

research, stock information and economic news. They often can have their

broker/ dealers execute trades almost instantaneously, while generally incurring

lower commissions. These facilities for online investing can thus provide

significant benefits to many investors.

At the same time, investors should recognize that online trading might

present special risks. For example, investors should understand that execution

of their orders might be delayed during times of high market trading volume.

Investors should appreciate the usefulness of limit orders, and they should treat

bulletin boards and chat room commentary with skepticism.

E-broking or trading of stock market shares on the Internet has captured

the minds of individual investors worldwide. Reports say more than seven

million American investors have gone online in the last 4-5 years, and this

number is likely to double in the next two years. In many other countries,

including India, individual investors have come out in open support of this

new trading system. The Internet has democratized the investing world by


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giving every Web-enabled individual access to a rich reservoir of data and

analyses on the stock market.

In India, exchanges have been very pro-active. Rather than waiting,

they have chosen to be the harbingers of change by allowing members who

fulfill the criteria to take advantage of the Internet by facilitating a computer-

to-computer trading link. Using the Internet, a broker can set up a NSE

Trading facility in a remote town at a far lower cost, which makes penetration

of capital markets easier in rural areas.

BSE has already embarked on a campaign of investor education and

awareness about the benefits of online trading and the security features built in

to the Internet trading system to be effected via the exchange trading plaza.

There is a tremendous potential for growth in the online trading market as

more and more brokers are going online. Both BSE and NSE are trying to

provide a cost-effective solution for their members to provide a standards-

based Internet trading facility to their clients at a fraction of the cost, of what it

would cost the broker if he went alone. The typical cost of setting up a decent

sized internet trading solution is between Rs. 10 to 15 crores, which a large

number of brokers are unlikely to be able to afford. The BSE therefore plans to

offer an exchange-based system that leverages the economies of scale to offer

order routing via a centralized engine with the addition of content of

companies, available with the exchange. BSE has introduced an Application

Service Provider Model, which has been widely accepted.

NSE has formed a 50:50 Joint Venture with i-Flex Solutions to offer the

exchange trading solutions. The JV christened Dotex International in addition

to providing access to the exchanges order matching system will also allow

access to fundamental analysis, balance sheet analysis and any other relevant

company information. The BSE too is offering tools like technical analysis and


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scrip related information etc on the site at a cost, which is 10 to 20% of the cost

of the broker going solo.

In India quite a number of websites today, offer online trading and e-

broking over the Internet. These are either wholly specialized services or are

being offered as an extension to an already existing offline business model.

Popular websites like ICICI Direct.com, Investsmartindia.com,

Geojitsecurties.com, 5paisa.com, Kotaksteet.com, Sharekhan.com offer basic

online buying and selling of shares through major stock exchanges like the

BSE, NSE and other regional stock exchanges. Although, in principle it is very

much like how it is done traditionally and physically through a broker or

broking firm, it differs from the way that the automation is built into the

system, with the individual maintaining control of the path of transaction till

the stage of execution. Only demat (dematerialized) shares can be traded on

the Internet.

Following are the salient features and benefits offered to individuals

who desire to trade online through various e-broking firms.

Convenience Liquidity advantages Tracking Technology benefits

In order to stay ahead in the competition e-broking firms have to provide

their members with innovative schemes and clearly visible advantages in terms

of hassle-free transacting and more obviously low brokerage rates. On line

trading is a battle for the Indian investors purse. The entry of competitive

price on line broking services has brought the excitement back in a rather

lackluster market. It has exposed the investors to the dynamics of day trading.


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Online trading also has a role to play in economic factors such as the

mobilization of savings. From a macroeconomic perspective in the US, about

15% of savings were invested in equities in 1996. The concept of online

trading is eminently flexible due to scalability of infrastructure and other

evolving product offerings. Consequently the many benefits of online trading

will continue to attract investors, which in turn in economic of massive scale

from the going mass of transactions. In turn, this will enable Web manages of

online trading sites to constantly upgrade their product offerings can enhance

the quality of online trading experience, on a continuous basis.

THE DRIVERS

The global drivers for online success have been simplicity services,

security and savings. What also helped was the prolonged Bull Run fuelled by

the dotcoms. It even drove conservative investors like those in Germany to the

markets. Now with the down turn in the market sentiment for technology

stocks in particular, it was only a matter of time before the Indian bourses

replicated the NASDAQ. This has been a setback for online broking. Going

by the domestic market structure the majority of trades are speculative in

nature, it is evident that most Indian market players already enjoy relatively

simple means when it comes to executing stocks in the market. On an average

only around 10% of the trades done on the major Indian exchanges end in

delivery. In other words trading is the domain of speculators. This is in sharp

contrast to the western markets where typically delivery based trades account

for 30 to 40% of total trades.

SAFETY OF TRANSACTIONS ON THE INTERNET

The safety of transactions on the Internet depends on the encryption

system used. The better this transactions system, the more difficult it is for any

person to hack the site.


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Internationally, the best system available today, is the 128-bit

encryption, a system which even the pentagon uses. Since in the online

business, the orders placed have to pass through the network of public carriers,

there exists a risk of data being intercepted or modified by a hacker or anyone

with malicious intensions. According to industry experts, in future when the

quantum of funds managed by the on line brokers reach significant levels,

security related issues would take the center stage. However, most of the

domestic players use some kind of security features to enable safe transactions

on the net. Encryption, build on the Secured Socket Layer (SSL) protocol

developed by Netscape, provides sufficient amount of security to the

customers. Although, a majority of players offer 40 bits encryption method,

ICICI and Invest smart have already graduated to 128-bit encryption

technology. Though the data transmitted in the form of plain text is quite

vulnerable, encrypted data has a much better level of protection.

It is true that pricing is still the unique selling proposition at the moment, but

security could be the trump card for tomorrow. Security and trust are the two

important parameters, which will be crucial in determining a clients long-term

relation with the broker.

Points out Mr. Anup Bagchi, COO at ICICI Direct,

Brokerages are practically a non-issue, going by the US experience.

What matters more are things like trust and security especially because

the service involves dealing with peoples cash as well as stocks.

The customer is also largely responsible for ensuring safety of online

transactions. He normally gets a secured user ID and password, the secrecy of

which is to be maintained entirely by him.

If the transaction system requires no manual intervention, it becomes

safer. Among the Indian sites, ICICI Direct.com, Investsmart India

Ltd.,Sharekhan, Indiabulls.com are among the few fully integrated online


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trading sites. It enables the elimination of the possibility of any manual

intervention. Thus, orders can be directly sent to the exchange, ensuring that

the investor gets the best and right price.

Securities of money, demat shares and transaction documents.

In online systems, the broking, banking and demat accounts are

completely integrated, therefore, the investors money remains in his own bank

account and does not get transferred to the brokers pool account.

Is trading through the Internet a difficult and cumbersome process?

The experience of trading through the Internet depends a great deal on

the type of product offered by the site. Say, for example, one may get tired of

the paperwork involved after every trade in writing cheques.

In online trading sites, the greater the back-end integration of the

system, the greater the amount of work the sites do for the user, therefore

greater the convenience available to him.

In case of online trading, in some integrated sites the broking account,

bank account and demat account are linked electronically.

Is any special skill in computers or finance required for online trading?

Contrary to common perceptions, trading through the Internet does not

require either any expertise in working on the computer, or any special

financial skills. Most of the online trading sites are equipped with a demo

(demonstration), which explains the trading process in a lucid manner. One

can also attend the demonstration sessions held by these website in various

cities. For example, sharekhan holds seminars on every Saturday to educate its

customers.


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TRADING ENGINES

Trading engines are the heart of various sites. The software is used by

many sites and is provided only after arduous and hard work, and there are

essentially a lot of differences in the software different firms use.

Is online trading viable in India?

The high cost involved in setting up a comprehensive online brokerage

infrastructure, a dismally low investor awareness and Internet penetration level

in the country havent kept players from embracing this new medium.

The motivation is quite simple and clear. Convenience and transparency would

result in more clients and better volumes. However, the prophets of doom

appear to be skeptical about the very viability of these projects in India.

According to industry experts, it would cost up to Rs.5 crores to set up a

modest portal with reasonably attractive content and back end support

systems. With increase in competition even the most established players with

relatively high brand awareness requires to incur substantial recurring expenses

for customer acquisition.

On the other hand, intese competition has initiated a price war. For

instance, 5 paisa.com (promoted by Indiainfoline) started off with a brokerage

of 5 paisa for each trading transaction of Rs.100 within the settlement. Its

sustainability in the long run was questioned at that stage, because there would

be a stiff resistance by clients to any upside price changes at a later stage.

According to Arjun Kapoor a former Delhi stock exchange, President and a

leading broker, a typical online broker would have to acquire a critical mass of

about 20000 active clients to break even which could take any where about 3 to

4 years. However, COO of ICICI web trade Anup Bagchi has a quite contrary

view. He believes that the increase client base would require additional

investment in infrastructure like hardware and software up gradation as well as

substantial increase in the recurring expenses.


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The key to success is to provide an entire spectrum of products and

services for the investor. This strategy has two distinct benefits for the

company. First, the bundling of its products and services in banking and retail

division would enable ICICI to cater to a wider requirement of the online

customer. Secondly, the cost of customer acquisition would get shared across

various business divisions in the company.

Content, an important factor in determining the portal success,

constitutes a sizeable portion of the operational expenses thereby further

putting pressure on the margins. Moreover, unlike the global experience,

contents like news, research reports and other value added information cum as

freebies with every subscription. Most of the online players have to make

additional investments in customer support systems like call centers and

interactive voice response systems.

In the mature markets like USA, the top ten online brokerage firms

account for over 90% of the total business. Another notable but concerning

feature of the online brokerage business there is the extremely low percentage

of profitable ventures. According to a recent report, about 95% of over 100

online brokerage firms are still struggling to wipe the red of their books. For

instance, E-Trade Group, the third largest online brokerage firm could get into

the black only due to severe cost cutting initiatives. It managed to report razor-

thin earnings of just 5.7 million dollars for the third quarter ended June,2000

despite huge total revenue of 330 million dollars for the same period.

ADVANTAGES OF ONLINE TRADING

Many customers, who have chosen to trade shares online today, had at

one point of time been trading through offline brokers. After realizing the

advantages of trading shares online, they have switched over to online trading


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now. However, before choosing an online trading site, all these sites should be

compared in order to form a decision.

Advantages

It eliminates the risk of bad deliveries, which in turn eliminates all costsand wastage of time associated with follow up for rectification.

This reduction in risk associated with bad delivery has lead to reductionin brokerage to the extent of 0.5% by quite a few brokerage firms.

Screen-based trading facilitates the investor to keep a track of thetransaction from the source to the end. He can punch in the orders and

see the results at the bottom of the screen. Thus, one can get instant

trade confirmation.

Internet has brought the market at the desktop of an investor and he doesnot have to take the pain of going to the stock exchange or to his

brokers office. He can also do away with the need of calling up his

broker frequently only to enquire about the prices of various scripts.

Internet trading connects the stock exchanges directly to the investor,

who should make sure that the online trading site, he selects provides

him the trading screen, which uses the Push technology to display

prices. Using the push technology the trading screen displays the real

time prices of 10 to 15 scripts at a every time one needs the price.

Internet has made it possible for broking firms to transmit key marketinformation to all their clients at one go. Market Watch Screen gives

live tick by tick update on the desktop, whereby the investor can set a

number of scripts of his choice, which will keep ticking through

streaming quotes without manual intervention.


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Clients find it easier and convenient to interact with their broker in aWeb-enabled environment. In the past there were instances of brokers

misreading the information given to them by their clients, because of

communication lags. This had in effect ruined several investors. The

internet ensures speedy and correct flow of information between all

users.

Online trading sites provide professional advice to investors. Manyinvestors are not knowledgeable about the stock markets and need

advice about their investment decisions. Some of them also need some

hand holding especially when the markets are falling and enmeshed in

rocky times. The investor can also send e-mail with his queries and can

expect a timely response.

Many people derive a substantial portion of their income from trading inthe stock markets. For an experienced trader Internet broking can prove

to be a land of plenty. Besides information research and professional

advice, online trading will also offer technical advice that can help all

who engage in trading.

In the past there are instances that small investors encountered asituation when he desperately wanted to place an order, but his brokers

lines were constantly engaged. When he finally managed to get through

his broker, he could not get the best price. Online trading can eliminate

his problem. All he has to do is log on to the site and place the order.

Also, on the Internet a customer who is one meter away and a customer

who is thousand kilometers from his broker are equally placed. Thus,

brokers who would not otherwise entertain outstation clients. Even if

one person is at Ludhiana and the client is at Cochin, trade can be put

through easily.


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For example, Geojit Securities, which does 10% of its business through

the net has a lot of non-resident Indians from the gulf as its clients and

nearly 50% of the internet volume comes from the NRI clients.

Even when the market is closed, an online investor can make his trade.Although, his trades will not be executed at that time but at least he can

act immediately. Many a times, his next morning schedule might not

permit him to go to the brokers office or even phone him for placing the

order. Then, there are always the hassles of calling up the broker a

couple of times for confirmation. Rather, he can now place his order the

previous evening, knowing that it will go through automatically first

thing in the morning.

Online trading also helps in portfolio management. An investor cancontrol the whole process, from research to order entry, at his own

convenience. He can track the performance of the portfolio, as to how it

is faring vis--vis the market. If it is not performing well, he can also

get advice on restructuring it.

Other services that one gets by trading shares online

Internet has brought to the retail investors what was till sometime ago

the sole prerogative of large brokerage houses and high net worth individuals.

At the online trading sites one can access a multitude of resources to arrive at

his stock picks. Reliable research with an enviable track record is available

free of cost. Most of the e-broking sites offer research reports on most of the

top companies and have data like balance sheets and profit and loss accounts.

An investor can now access these websites and do his fundamental and

technical analysis, by getting an access to real time quotes, knowing what other

leading brokers think about a company and whether a particular scrip is a buy

or sell.


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Indiainfoline.com Managing Director Mr. Nirmal jain notes,

Sites like ours also offer investors technical analysis tools which

enable even relatively detailed analysis like an intra day share price

charting, using the tools developed in association with Singapore based

Asian bourses.

The investor can also access live news from international news agencies

such as Reuters, CNBC, read about what the leading CEOs think about the

state of the economy and the capital market. Thus, the Internet helps the

investors in shaping their investment decisions.

Sites like Sharekhan.com and Investsmartindia.com allows the facility to

receive updates on mobile phones and via e-mail, for stocks bought through

their sites. The clients can get automatic updates on any news development,

price targets met, any new updates on the stocks posted by the site or any

circuit limits reached on the stock via mobile and e-mail for free.

Indiabulls.com also offer similar facilities like short messaging services

(SMS) on mobile phones of their clients and thus keep them updated. Using

the net, investors now have access to latest news from diverse sources and

online market commentary for free. Earlier, even something like Reuters news

feed was beyond the reach of most small investors due to its prohibitively high

cost. The democratization of information has empowered investors to choose

and adopt a trading and investing style best suited to their risk returns

aspirations and skill levels.


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DISADVANTAGES OF ONLINE TRADING

The ease and speed of online trading can give the investor a false senseof security and encourage him to trade more frequently without paying

any heed to market basics like, researching a company or knowing the

risk he is going to assume.

The concept of chat rooms, which has become very popular with theinvestors, may provide them with misleading information. Chat room

participants are often paid to highlight certain stock.

On line trading is not always instantaneous. In a rapidly changingmarket, orders may not get executed at the price shown on the computer

screen. This is because even a nanosecond delay can put one out of the

race for that particular stock at that particular price. Delays in execution

usually arise due to various technological choke-points like the Internet

slowing down due to heavy traffic or if the modems, computer orInternet Service Provider (ISP) is malfunctioning. If the investor does

not factor in these technological lags while entering into a volatile

market, he may suffer heavy losses.

The investor should familiarize himself with the order entry screen andthe software provided to him. Any mistake made while inputting an

order can cause him significant financial loss. Moreover, he will be

responsible for any losses caused by lack of knowledge and/or

experience. When an order is placed and executed, he becomes liable

for payment of the securities.


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Active trading is dependant upon a number of specialized softwaresystems. Disruptions or failure of any of the electronic systems utilized

may leave the investor with an open position at which time losses can

occur.

Customers trading on-line may have difficulty accessing their accountsdue to high Internet traffic or because of systems capacity limitations.

Customers trading through brokers at full-service or discount brokerage

firms or through brokers at full-service or discount brokerage firms or

through representatives of on-line firms, when on-line trading has been

disabled or in not available because of system limitations, may have

difficulty reaching account representatives on the telephone during

periods of high volume.

Trouble Shooting

From the Investors point of view

To prevent any technological choke point, the investor can place a limitorder and not a market order when entering a volatile market. A limit

orders gets executed only at a specific price. That is, a buy limit order

can only be executed at the limit price or lower, and a sell limit order

can only be executed at the limit price or higher. By entering a limit

order rather than a market order, he will not be caught buying a stock at

a price he hadnt planned for due to the problems faced with bandwidth.

Security is a key requirement for the investors protection. It isabsolutely essential to protect the user identification and password. He

must also protect against computer entry by someone other than himself

after initializing his system. The system should not be left unattended

and must be properly shut down when he is not actively using it. The


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investor is responsible for all trades entered under his user identification

and password. For his protection, frequent changing of password is

recommended.

It is very important that he reconciles his account on a daily basis.

From the brokers point of view

In the absence of any direct interface between the organization and theclients, online share trading firms should maintain seamless

communication with their clients. But, this is not always the case.

Customers orders can be slowed down for reasons outside of a firms

control. But explaining clearly to customers rather than merely

disclaiming liability through complex and legalistic language would go a

long way towards shoring up the customers confidence in the firm.

THE ONLINE TRADING PROCESS

To avail of Online Trading Services the following steps may be

followed:

Step:1 Register on the Web site

Step:2 Complete Registration Documentation

Step:3 Open Depository Account

Step:4 Open Bank Account.


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The flow chart given below clearly explains the process of online trading.

You are now ready to trade

FLOW CHART DESCRIBING THE ONLINE TRADING PROCESS

Login

Buy Transaction Sell Transaction

The System will check your

Buying Limits.

The System will check your

Dp account for quantity

Order Accepted Rejected orders would be

communicated to you along with

reasons

Order Accepted

Your Order is transmitted to

the exchange for execution

Pending Buy orders

would be displayed on

Your screen

On Execution of Your Orders

(Confirmation)

Pending Sell Orders

would be displayed on

yours screen

You may edit

your pendingorders

You may

delete yourpending orders

You may edit

your pendingorders

You may delete

your pendingorders

Flashed on your

screen

Confirmation

could be sent to

your e-mail and

mobile.

Contract note would

be sent to you by mail

or hand dellvery


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OBSERVATIONS & FINDINGS

In India Internet Trading has not really taken off as volume ofonline business is estimated to be Rs.55 to 65 crores every trading day,

which is less than 2% of the total volume of about Rs.3500 to 4000

crores of the two bourses-BSE and NSE. According to NSE the highest

volume was recorded in February,2001 when the average trading

volume reached the level of Rs.72 crores a day. It averaged to Rs.55

crores in December,2001 and Rs.65 crores in January this year.

Records show that against a volume of Rs.72 crores inFebruary,2001, the business through the net tumbled to Rs.20 crores by

July,2001.

According to Mr. Manish Sukhla of Motilal Oswal Securities,many clients who registered themselves for online trading ended up

using the offline system.

It was also observed that many broking houses offering Internettrading allow clients to use their conventional system as well just to

ensure that they do not lose them and this instead of offering e-broking

they become service providers.

The number of players is increasing at a steady rate and todaythere are over a dozen of brokerage houses who have opted to offer net

trading to their customers and prominent among them are ICICI Direct,

Indiabulls, Sharekhan Kotakstreet, Investsmart, Hometrade,

Indiainfoline besides Motilal Oswal Securities and Geojit.


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Stock Exchange have offered small brokers a common platformthrough which they can route their orders.

ICICI Direct is undisputedly the Market Leader with a marketshare of about 60% of the total 2.3 lakhs investors, who have registered

themselves for net trading, nearly 1.45 lakhs belong to ICICI Direct.

PROBLEM AREAS

When Internet trading was first launched in February 2002, the stock

markets were experiencing an unprecedented boom and it held out a lot of

promise. However, two years down the line we find that the system has

failed to deliver up to its potential. The main reasons for decline in volume

of trading are:

Bearish Marketing

The poor performance in the online market segment can be attributed to

lack of a bull run in the stock market. This is the reason for which the

overall trading volume has come down. Almost ever since Internet trading

has started, the markets have remained bearish. This relationship between

the mood of the market and interest in trading indeed gets reflected in the

volumes.

Bursting of the Dotcom bubble

The July,2001 market crash can also be attributed to the bursting of the

Dotcom bubble, when most of the IT companies registered an

unsatisfactory performance and the tech. Stocks slipped in fear.


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Poor Penetration of the Internet

Besides the bearishness in the equity market, another reason for low

acceptance of net trading could be poor penetration of the Internet. In India,

it is a fact that Internet has not been able to spread its tentacles in rural areas

and small towns.

The very basis of net trading is based on two factors:

1. An Equity Market in good shape.2. Deep penetration of the Internet.

Poor Internet Connectivity

In the Indian context the quality of Internet connection also comes into

play for determining the reasons for the lack in response. Here, we have

connectivity problems and there are instances of clients panicking as they

could not execute their trades. Many times at particularly at places other

than Mumbai, sudden stoppage of electricity results in disconnection.

Long Supply Chain

In case of conventional or offline trading the chain is small as the clients

directly interact with the brokers. But in case of Internet trading the chain

is quite long as it involves a client, an Internet Service Provider, server,

Stock Exchange, Depositor and a Broker and a problem can crop up at anystage of the chain, breaking down the entire system.

A Costly Affair

Other than the technological hassles, there is an element of cost as well.

For active traders, doing online trading he has to remain connected all the

time and the cost of connecting through dial up can work out to Rs.3500 per


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month, which is over and above the brokerage and other service charges.

This is the reason brokers offering online trading facility allows the clients

to use the conventional system as well in order to retain them. Apart from a

dealing room, most broking houses have a separate room for the clients,

where the Stock Exchange terminals are kept for their use.

Low Investor Confidence

Investor confidence in the country has been badly hurt due to the

escalating Indo-Pak tensions and communal riots in Gujarat. This

sentiment has got reflected in the stock markets, which have gone down.

The global recession has also dampened the mood of the stock market.

Although, the US economy is showing signs of recovery, but any tangible

outcome is yet to be felt.

Online Trading at HSE

The NSE first introduced online Trading in India in mid 1990s. The Online

Trading System imparted a greater level of transparency and investors

preferred exchanges that offered Online Trading facilities because of the

following factor.

The ease of operation from the point of view of both theMembers and the investors.

Increase in the confidence of the investors because of the higherlevel of transparency.

Facilitates better monitoring of the market by the Exchange.

The best price is achieved in buying and selling.All these resulted in ever increasing volumes on the Exchanges

offering the Online Trading. This prompted HSE to go in for

Online Trading from March,1997.


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Online Trading Procedure at HSE

The HSE had introduced screen based trading system named as HOST

(Hyderabad Online Trading System) from 20th

Feb,1997. Representatives of

M/s. TATA ELEXI (INDIA) Ltd were done the installation of computers,

earthing up and related works. The software installation is VECTOR

(Versatile Engine for Centralized Trading and Online Reporting) product

developed by CMC to implement a fully automated trade execution system.

System:

The system is built around a central computer, which will be called the

central trading system placed at the exchange. The brokers interact with the

CTS through the Brokers Work Station (BWS).

Objectives:

The VECTOR system has been developed to help the HSE in meeting the

following objectives.

Reduce and eliminate operational inefficiencies inherent in manual

systems.

Increase Trading capacity in the stock exchange.

Improve market transparency, eliminate unmatched traders and delayed

reporting.

Promote fairness and speedy matching.

Provide for online and offline monitoring control and surveillance of the

market.


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Smooth market operations using technology while retaining the

flexibility of conventional trading practices.

Set up various limits, rules and controls centrally.

Consolidate the trades data and interface with clearing and settlement.

Provide brokers with their trade data on electronic media to interface

with the brokers back office system.

Provide public information on scrip prices, indices for all users of the

system.

Provide analytical data for use of the stock exchange.

System Overview:

The VECTOR system has been developed to computerize the trading

activity of the brokers as well as some of the allied activities of the stock

exchange relating to the trading function.

In the computerized scenario the broker / trader sit within their own

office and send their quotes, order traders, negotiated deals, in house deals,

auction orders to the Central Trading Station (CTS) using the BWS.

The Best Bid and the Best Offer (based on price and time priority in the

market form what is known as the BBO (Best Bid and Offer) for each scrip.

News feeds from other stock exchange are also received at the CTS and

broadcast to all the user workstations. News related to Board meetings, rights /

bonus / dividend, record dates / book closure dates, financial results, other scrip

related information, Stock Exchange news, political and other news will be


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received and entered by the market operations and broadcast to all the user

work stations.

Other market news is also available at the BWS.

Trading Session:

The trading session is from 10:00 a.m. to 3.30 p.m. on all weekdays ie.,

from Monday to Friday.

Broker Work Station:

At the BWS the best BBOs, the last traded price, the days opening

price, previous days closing price, highest and lowest prices, the weighted

average price, the total traded value and the total traded volume will be

available and continuously, as the BBO for each scrip.

Other information will be available on query from the BWS. These

include top (n) gainers / losers of the day. Trader-wise scrip wise net position,

client wise net positions, top (n) scrips by volume / value, market summary,

etc.

Orders:

Order can be entered into the system either one at a time or in a batch made.

The submitted order will be accepted at the CTS after validation. If

found invalid for any reason the order is returned back to BWS, with the

appropriate error message. If accepted at the CTS it will be added to the local

pending order book.

The order will then be taken up for matching if it is a buy order the

system tries to find a sell order, which fits the requirements of the buy order

when such a match is found a trade, gets executed. Each trade involves two


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brokers and respective traders who sent the order. Both these traders are

informed of the trade getting executed at their respective BWS (s).

At the BWS the trade is added to the local trade book, land the pending

quantity decreased by the trade quantity in the local pending order book.

Limit Orders:

A limit order is received at the CTS and kept on hold till it finds a

match. The retention period can be till end of-date or till end-of-settlement.

At the end of the day, pending orders that fall within the criteria for removal

will be cancelled from the CTS.

Market Orders:

For a market order, an immediate match is sought. Market order will

not be executed if the price at which the trade could be executed deviates from

the BBO price beyond the market order protection percentage limit for the scrip

as specified by the BWS.

Back Office Operations:

After the close of the trading hours the back office work is undertaken.

The transactions executed are loaded on to a floppy and this is inserted into the

back office computer to generate Contract Notes of the clients showing their

purchases and sales with quantities and rates and also brokerage charged and

service tax. (Service tax is levied at 5% of the brokerage payable). This

Contract Note is then served on the client. The Back Office System also takes

care of the accounting part affecting the necessary debits / credits.

Unique Features of BWS:

The BWS has a unique feature, which facilitates opening of multiple

windows on different planes on the BWS screen.


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BWS application has multiple screens for order entry, quote entry,

display of pending order etc., when many windows are opened the screen at the

same time, they overlap and cause operational in convenience. The screen

space is to be utilized at its optimum and at the same time maximum possible

information needs to be displayed. The BWS provides for multiple pages ie.,

one can flip between different pages (like switching television channels) and

watch different set of screen windows.

SUMMARY OF LEARNINGS

The various things I have learnt

From the Organisation

1). Attitudes of the Employees in the Organisation:

The attitude of the employees in the organization is very positive and

encouraging. As a trainee I felt as if I was an employee of the organization. I

could learn many things from them . Especially the HSE helped me in all ways

he could. They never disappointed me whenever I approached them with

doubts.

2). The importance of systems:

In the organization the employees are very systematic and follow the guidelines

unscrupulously.


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From the Project

1). About Derivatives:

I learnt about the Derivatives, the new instrument that has been

introduced in the Indian markets. This market has taken the center stage now a

days.

2). About Online Trading:

Online Trading was a great boost for the Stock Exchange because

people found it easy and comfortable way to deal in securities. It was an

amazing feeling for me when I first saw the process and the way it goes on. I

learnt many things about Online Trading.

INTER-CONNECTED MARKET SYSTEM (ICMS);

The Exchange has set-up a Clearing House to collect the Securities from

all the Members and distributed to each member, all the Securities that are due

to him in respect of every settlement. The whole of the operation of the

clearing house are also computerized.

In this age of electronic trading, online information on rates from other

major markets is an essential input for efficiency. HSE provides online from

NSE and BSE which not only enhanced the ability of the HOST Terminals to

attract the investors but has also enables the member to avail arbitraging

opportunities between exchanges. It provides the access to the national market

without any fees, which will be a boom to the members of an exchange.

Exchange to have the trading rights on a National Exchange without any fee or

expenditure.


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The ICMS arranges for concurrent display electronically of the current

quotes of eligible shares. The broker has a choice to put his deal in another

exchange he has to put his order or commitment of trade in the electronic

system. This is valid for a fixed period at that specified price.

ONLINE SURVEILLANCE

HSE has been paying special attention to market surveillance and

monitoring exposures of the mark to market losses. By taking prompt steps to

collect the margins for mark to market losses, the risk of default by member is

avoided. It is heartening that there have been trading.

ONLINE TRADING WITH BROKERS

Online trading is also useful for intra day trading. Now a days brokers

also providing terminal to their client at their home only this is internet trading

we can say with the help of the broker the investor or Speculator can get

terminal at home and he can deal with stock without concerning any broker.

This internet trading is very useful for making money and taking a quick

decision at home or office. This terminal is useful to knowing the exact present

rate of the share.

BEARISH SIGNAL

When to sale

Sell before or at the beginning of the down trend. Sell after the formation of double top. Sell after formation of bear gap. Sell before the formation of bear flag. Sell at resistance line or to the resistance line. Sell when the price of share falls below moving average chart. Sell when number of declines are more than no of advances.


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Sell when the share price show down turn in momentum. Sell when the price chart completed the formation of head and shoulder

pattern.

Sell when the relative strength of a share is weaker than other shares.BULLISH SIGNAL

When to buy

Buy after the formation of double bottom. Buy after the formation of bull gap. Buy before the formation of bull flag. Buy when the share price falls above moving average chart. Buy when advances are more than declines. Buy at the formation of rising wedge. Buy when the share price show upward turn in movements. Buy when the price chart completes the formation of inverted head and

shoulder pattern.

Buy after the formation of triangle. Buy when relative strength of a share is stronger than other shares.


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DEMATERIALISATION

OF

SHARES


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INTRODUCTION

The term depository is defined as a central location for keeping

securities on deposit.

A depository can be defined as an institution which transfers the

ownership to securities in electronic mode. Ie., in DEMAT.

DEMATERIALISATION

Dematerialization trading in now compulsory for all investors.

Beginning first week of January,1999 investor can trade in specific script only

in the dematerialization from. They can provide and receive only in the

dematerilisation form and share certificates will not be changed for these

scripts.

A depository is an organization where securities of a shareholder are

held in the electronic from at the request of the shareholder through depository

participants (DPs). If an investor wants services offered by a depository, he

would have to open an account with it through DP-similar to opening a bank

account.

BASIC CONCEPT OF DEPOSITORY:

PRODUCTS:- The depository will be designed to permit inclusion of multiple

products, eventually encompassing all securities traded in the exchanges such

as equities, preference shares, warrants, debentures, bonds and etc.,


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DEPOSITORY ELIGIBLE SECURITIES:- Securities that have been

selected by the depository to be eligible for the book entry movement within

depository are named Depository eligible.

OBJECTIVES OF DEPOSITORY SYSTEM:-

Immobilization of securities. Book-entry accounts Confidentiality. Detailed listing of investor holdings by securities type. Handling of corporate actions. Delivery versus payment. Links to other depository systems.

DEPOSITORY SYSTEM FUNCTIONS:

The depository system is a new clearing and settlement system. Under

depository system, the current practice of holding and moving scrip of quoted

shares, is replaced by a safe and dependable computerized book-entry system.

FUNCTIONS OF DEPOSITORY:-

CORPORATE ACTION:

The depository will track the benefits due to the clients, and will do the

job of timely collection of benefits like rights issues, bonus dividends

redemption, warrants etc.,

BOOK ENTRY SETTLEMENT / ACCOUNTING:

Depository will accomplish settlement work via computerized

accounting systems. The book keeping entry will ensure elimination of the

physical packaging and movement of share certificate.


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SAFE KEEPING:

Safe keeping function involves the storage of securities in a secure

location.

PLEDGING:

Depository will allow securities to be used as collateral to secure loans/

options/ future contracts and other form of credit.

TRANSFER AND REGISTRATION:

The use of single nominee name by the depository for all physical

security holding of its participant members accelerates transfer process. In a

dematerialized system elimination of all movement of securities is done and it

reduces the transfer process to a book entry activity.

FUNDS HANDLING:

The involves handling of funds be it collecting funds from issuing

companies such as dividend, interest or distribution of funds to participants

connected with the settlement of securities transactions.

LEGAL ISSUES:

Implementation of depository system would require some legal issues to be

resolved before they could be implemented. The issues pertain to:

Settlement by Book-Entry. Vesting of beneficial owner rights. Pledges and release of pledges.

BENEFITS OF DEPOSITORY SYSTEM:

To the nation:-

Growing and more liquid capital markets provide financing anddevelopments stemming from efficient post-trade systems with reduced

transaction costs.


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Improved prospects for privatization of public sector units by creating aconductive environment.

Restoration of faith in the capital markets and the participants withsystems to minimize settlement risk and fraud.

Considerable reduction in the delay in registration which can currentlyimpact trading.

TO THE INVESTING PUBLIC:

Reduction of risks associated with loss, mutilation, theft and forgery ofphysical scrip.

Elimination of financial loss owing to loss of physical scrip.

Greater profits from increased trading volume mad possible by NCDsystems with reduced operat

hse project 1

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