A PROJECT ON ONLINE TRADING AND DE-MATERLISATION CONDUCTED AT ITI FINANCIAL SERVICES LTD BY DOKIPARTHI SANTHOSH KUMAR ROLL.NO: 09JE1E0046 Submitted in partial fulfillment of award of Degree of MASTER OF BUSINESS ADMINISTRATION ESWAR COLLEGE OF ENGINEERING, KESANUPALLI (V), NARSARAOPET (M), GUNTUR (DT) 1
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A
PROJECT
ON
ONLINE TRADING AND DE-MATERLISATION
CONDUCTED AT
ITI FINANCIAL SERVICES LTD
BY
DOKIPARTHI SANTHOSH KUMAR
ROLL.NO: 09JE1E0046
Submitted in partial fulfillment of award of Degree of
MASTER OF BUSINESS ADMINISTRATION
ESWAR COLLEGE OF ENGINEERING,
KESANUPALLI (V), NARSARAOPET (M),
GUNTUR (DT)
1
CERTIFICATE
This is to certify that the project entitled “INVESTMENT IN EQUITIES WITH
REFERENCE TO ITI FINANCIAL SERVICES LTD” submitted to the JNTU
KAKINADA UNVERSITY in partial fulfillment for the award of degree of Master of
Business Administration has been carried out by Mr. BADIRI SAI BABU Hall-Ticket
Number 09KP1E0005, who is a bonafide student of NRI INSTITUTE OF TECHNOLOGY
(NRIIT), VISADALA ROAD, GUNTUR for the academic year 2009-11.
HEAD PRINCIPAL
2
CERTIFICATE
This is to certify that the project report titled “INVESTMENT IN EQUITIES WITH
REFERENCE TO ITI FINANCIAL SERVICES LTD” submitted in partial fulfillment for
the award of MBA Programme of Department of Business Management, JNTU KAKINADA
UNVERSITY, KAKINADA, was carried out by Mr. BADIRI SAI BABU, under my
guidance. This has not been submitted to any other university or institution for the award of
any degree / diploma / certificate.
Name and Address of the Guide Signature of the Guide
3
DECLARATION
I hereby declare that this project report titled “INVESTMENT IN EQUITIES
WITH REFERENCE TO NRI INSTITUTE OF TECHNOLOGIES”
submitted by me to the Department of Business Management, JNTU
KAKINADA UNVERSITY, KAKINADA, is a bonafide work undertaken by
me and it is not submitted to any other university or institution for the award of
any degree / diploma / certificate or published any time before.
Place:
Date:
(BADIRI SAI BABU)
4
ACKNOWLEDGEMENT
I express my gratitude to Mr. Shiva Kumar for giving me this opportunity to carry
out the project work on “INVESTMENT IN EQUITIES” in Ventura Securities.
I also express my sincere thanks to the Staff Of ITI FINANCIAL SERVICES LTD
who were of ready help in answering my various quires related to the project work.
It is with great pleasure that I Express my gratitude to Mr.DEEPU, under whose
inspiring guidance and advice this study has been carried out.
(BADIRI SAI BABU)
5
TABLE OF CONTENTS
TOPIC
INTRODUCTION TO THE STUDY
NEED FOR THE STUDY
LITERATURE REVIEW
COMPANY PROFILE
DATA ANALYSIS
SUMMARY
FINDINGS
SUGGESTIONS
CONCLUSIONS
BIBILIOGRAPHY
6
INTRODUCTION
Online trading symbolizes the perfect synergy between technology and
the mind numbering intricacies of stock markets in bringing about a paradigm shift in the
way financial markets operate in recent times. It facilitates faster and efficient transaction
of stocks and share through the internet, while keeping the basic principles of share
trading intact. In addition to replication the traditional stock trading business on the net,
online trading has led to the mushrooming of a plethora of peripheral business units in the
form of e-broking firms, web-advisors, e-consultants, etc.
Across the globe, bulk of the trading is being done through the net, provding
online trading to be an instant success among the investors and intermediaries. It also
renders a harmonic integration of investors, e-broking firms, banks, stock exchanges and
the depositories with the possibility of a ‘single window system’, in the near future. Such
a system will enable the execution of trade at‘t+o’, rather then the existing ‘T+2’ time
cycle. The emergence of high-tech mechanisms like straight. Through processing (STP),
Continuous Linking System (CLS) and Direct Access Trading (DAT) platform is sure to
make the dream of an investor, getting his orders executed with the click of a mouse in
20-30 seconds, a reality.
In the last decade, online trading has spread far and wide across the globe, with
varying degrees of adoption in terms of percentage of trade carried out online, economic
giants like the US and Japan where online trading had its origin, are yet to completely
transform the stock business through the net, while, India and china, despise their inherent
infrastructural limitations are fast progressing towards a scenario where a big chunk of
the transactions would be online, though online trading has made cross border trading
much easier, the tendency of the investors to trade in their own currencies and
securities, limits the spread and success of it.
7
However, European investors are best placed in cross border online trading given
their historical and geographical associations with other nations, and also due to the single
trading currency, the euro.
The emergence and spiraling growth of online trading have thrown up a lot of
challenges and opportunities for all major elements, viz, investors, brokers and internet
portals, of the trading mechanism. In the current scenario, online trading portals are
slowly replacing the physical presence of traditional brokers and sub brokers. The role of
these brokers, henceforth, could be restricted to online counseling and web-advising to
the investors. The online portals or the e-broking firms, as they are know, are connected
to the stock exchanges 24 hours a day to execute the orders placed by the investors. They
also provide the vital market information technical analysis and various other innovative
services to the investors. It is learnt that, at present, the market of e-broking is little over-
crowded and hence over-brokered, making it hugely difficult for the new entrants to
negotiate the entry barriers. However, when the markets move in upward trends and trade
volume increases, it is expected that these firms will get enough to share.
The presence of a wide array of e-broking firms has drastically cut down the
brokerage cost for the investors. The cost effectiveness and the fascination of online
trading are enticing millions of retail traders to the stock markets. These investors, armed
with the variety of market information and intelligence provided by online portals and
consultancies, directly involve in the trade just by sitting in any corner of the world. The
introduction of futures and options trading in the recent past has made online trading
more attractive. But this situation could be a double edged sword. All these market
information and the easy trading opportunities have created an illusionary
knowledge and over confidence among the investors, leaving them like a bunch of sitting
ducks on the highway of market fluctuations and uncertainties.
8
Online trading has also given way to a new breed of investors known as ‘Day
Traders’ who gamble in the market, trying to make money out of the minute-by-minute
fluctuations in share prices. To their dismay most of them end up bankrupt and simply
disappear. These day traders are also responsible for most of the day to day price
variations that are beyond the rational expectations prevailing in the market. Another
important worrying factor of online trading is the safety and regulation issues of stock
business. It is very difficult to have a foolproof system of trading, considering that the
entire business is done on a seamless and a very fluid platform. It needs the evolution of a
blend of well-tested technology and trading mechanism to make online trading universal
and complete. All said and done, investors and people involved in stock trading should
keep in mind that the stock market is not a Mexican casino to gamble, but a means of
capital mobilization and equitable distribution in achieving the ends of economic growth.
TRADING PROCEDURE BEFORE ON-LINE
THE TRADING RING:
Trading on stock exchanges is officially done in the ring for a few hours from 11.00
A.M to 2.30P.M. Trading before or after official hour is called KERB TRADING. In the
trading ring space is provided for specified and non-specified sections. The members of their
authorized assistants have to wear a badge or carries with them identify cards given by the
exchange to enter the trading ring. The carry a Sauda block book or confirmation memos duly
authorized by exchange and carry a pen with them. The stock exchanges operations at floor
level are highly technical in nature. Non-members are not permitted to enter into stock
market. Hence, various stages have to be completed in executing a transaction at a stock
exchange. The steps involved in the methods of trading have been given below:
9
CHOICE OF BROKER:
The prospective investor who wants to buy shares or the investor who wants to sell
his shares cannot enter into hall of the exchange and transact business. They have to act
through only member brokers. They can also appoint their bankers for this purpose. Since,
bankers can become members of stock exchange as per the present regulations.
So, the first task in transacting business on stock exchanges is to choose a broker of repute or
banker. Such people’s can ensure prompt and quick execution of a transaction at the possible
price.
At present there are 4500 authorized brokers in ISE.
PLACEMENT OF ORDER:
The next step in planning of order for the purchase or sale of Securities with the
broker. The order is usually by telegram, telephone, letter, fax etc., or in person. To avoid
delay it is placed generally over the phone. The orders may take any one of the forms such as
at best order, limit order, immediate or cancel order, discretionary order, limited discretionary
order, open order and stop loss order.
PLACING ORDER WITH THE BROKER:
The next step is placing an order for the purchase/sale of securities with the broker.
The order is usually placed over telephone, fax. It can also take the form of telegram or letter
or in person. The order placed may be any of the following varieties (largely classified on the
basis of price limits that it imposes.).
10
INTRODUCTION TO ONLINE TRADING
Gone are the days of trading on the floor. Technology has changed the landscape of
the stock markets. The look of the stock exchanges has undergone metamorphic changes in
the recent years. Prior to online trading, regional stock exchange was playing a very
important role in capital markets, as they were local investors. Regional SE, which was
unable to interact with other SE’s started developing this own screen based trading and
connecting to other scrip’s which were not available with them. This also helped in accessing
the quotes and other market information from other stock exchange, which proved vital in the
functioning of the system as a whole.
The trading network is depicted in given below NSE has main computer which is
connected through Very Small Aperture Terminal (VSAT) installed at its office. The main
computer runs on a fault tolerant STRATUS mainframe computer at the Exchange. Brokers
have terminals (identified as the PCs in the given picture) installed at their premises, which
are connected through VSATs/ leased lines/modems. An investor informs a broker to place
an order on his behalf. The broker enters the order through his PC, which runs under
Windows NT and sends signal to the satellite via VSAT/leased line/modem. The signal is
directed to mainframe computer at NSE via VSAT at NSE’s office. A message relating to the
order activity is broadcast to the respective member. The order confirmation message is
immediately displayed on the PC of the broker. This order matches with the existing passive
order (S) otherwise it waits for the active orders to enter the system. On order matching, a
message is broadcast to the respective member.
11
TRADING NETWORK
HUB
ANTENNA
SATELITE
NSE MAINFRAME BROKERS PREMISES
12
OBJECTIVES
To study the conceptual framework of online trading and de-materlisation.
To study about online trading procedure followed in ITI Financial Services Limited.
To study the advantages of online trading system over manual system.
To study how online trading system helps in improving market transperancy .
To study how online trading system helps in smooth market operaton while retaining
the flexibility of conventional trading practices.
To compare the transaction changes of similar firms. To study the entire mechanism
of trading online and dematerialization.
To study various benefits of depositories.
To study the concept of dematerialization of shares that is procedure, Demat a/c, transfer
of securities and trading and settlement of Demat securities.
To study the services provided by NSDL and CSDL.
To study the procedure of online trading of Demat securities.
13
NEED OF THE STUDY
In outcry the broker has to buy or sell securities for which he has received the
orders .for this, the broker or his authorized representatives goes to the stock exchange.
Basically the broker shouts while buying or selling the securities. The floor of the stock
exchange is divided in to a number of market also ‘post pit’ or wing based on particular
securities dealt there.
In the post pit or wing, the broker using ‘open outcry’ method makes an offer or
bid price. For making the necessary bargain, he codes his purchase or sales price, also
known as offer or bid price. The dealer, to whom the price is quoted, quotes his own price
quotation of the dealer suits the broker, he may lose the bargain. If he is not satisfied with
the quote price he may turn to some other dealer .On the close of the bargain, the dealer
sell as well as the broker makes a brief notes of the particulars of the deal. Such notes are
made on some pad and on it the number of shares, the price agreed upon, the name of the
party, what membership number etc., are noted.
The disadvantages of outcry system are it lack transparency, the scope of
manipulation, Inaudibility and also speculation and malpractice is more, in order to
overcome the above problems, online trading came in to existence. Hence the need to
study the advantages of online trading system and its importance in making the market
operations and smooth while retaining the flexibility of conventional trading practices.
14
Scope of the study
The scope of the project is to study and know about Online Trading and Clearing &
Settlements dealt in ITI FINANCIAL SERVICES LTD. By studying the Online Trading and
Clearing & Settlements, a clear option of dealing in stock exchange is been understood.
Unlike olden days the concept of trading manually is been replaced for fast interaction of
shares of shareholder. By this we can access anywhere and know the present dealings in
shares.
The scope of the study is limited to ON-LINE trading mechanism of stock broking firm
in particular ITI Financial Services Limited, Secundrabad.
15
IMPORTANCE OF THE STUDY
Stock exchange is an integral part of capital market it is the most perfect
type market for securities wether govt or semi govt bodies or other public bodies also for
shares and debentures issued by joint stock enterprises.
Stock exchange provides liquidity to the listed company they give quotations
to listed companies and help in trading and raising funds from the market. Stock
exchange provides ready marketability and unequalled of ownership of stocks, shares and
securities.
Stock market in India is more than a centuary old and has been functioning
effectively through the medium of recognized stock exchange the stock market which is
an integral part of the capital market has been major impact on the functioning of the
economy. In turn, the agriculture industries growth and performance of corporate sector
in particular , reflecting the fundamentals in the economy would be influenced the tone of
capital and stock markets, and since the capital market is playing major role in Indian
economy from the past several years. There is need to study the capital market in India.
The present scenario to complete and survive the regional stock exchange
would require sound infrastructure and trading system as per international standards,
due to the following reasons.
With the introduction of online trading liquidity will improve considerably
which is very much essential for attracting small companies to the exchange. Before the
introduction of the online trading, Outcry prevalent. Here the member or the broker
Would stand at specifies spot in trading hall. He is required to shut out the
name of the company, number of shares he has and the price of the shares ultimately the
deal would be made between the buyer and seller and transfer of the shares take place.
With the use of the online trading surveillance be came easy as there is very less scope for
speculation. The invester is provided with best offer. Also transparency is observed in
transactions
16
RESEARCH AND METHODOLOGY
Data source: -
The data source utilized to under taker the project is both primary and secondary data.
Primary data: -
The data is collected by personal interaction with autherised members of ITI Financial
Services Limited.
Secondary data: -
The secondary data is collected from various sources like the brochures and material
provided by ITI Finaicial Services Limited.
17
LIMITATIONS OF THE STUDY
The study is confined to online trading procedure only.
Problems of listing are not covered due to limited time and to keep the study in
manageable limits
The data is collected from the primary and secondary sources and thus is subject to
slight variation than what the study includes in reality
The study was restricted in Hyderabad.
The observations drawn are of past and present years only.
Detailed study on the topic was not possible due to limited size of the project.
There was a constraint with regard to time allocation for the research study i.e. for a
period of two months.
Data collection was strictly confined to secondary source of data. No primary data is
associated with the project.
18
REVIEW OF LITERATURE
Online trading marks a watershed in the application of technology in conducting
trading business in stock markets. This book is divided into four sections. The first
section deals with fundamentals and framework, the second section focuses on the
implication of online trading the third section describes the implications for online
investors. The fourth section is about the technology advancements in online trading. The
first section on fundamentals and Framework deals with the evolution of online trading,
basic concepts, background and trading mechanisms involved. The opening article, “share
trading: Moving to the Net”, by Dr. T R Rajarajan traces the evolution of securities
trading from traditional system to trading through the internet. It discusses the trading
mechanism through the major components of online trading, viz, banking, depositories,
technology and other infrastructure.
Information technology has replaced the age-old share trading method with the
faster and more accurate online stock trading. The second article. “Online trading:
Trading @ the speed of light,” By Mayura jaiswal, deeepad vashist and Abhay Kumar,
traces the growth of online trading from the year 2000 using statistics on volume of
online trading from the year 2000 using statistics on volume of online trading, number of
e-broking firms, brokerages and demographic patterns. Online trading has dramatically
changed the way stock business has been conducted over the years. In the next article,
“online trading: Issues and concerns”, by Anup Bagchi, the author suggests that online
trading should balance a technology centric approach to transactions with the human
factor for a successful transition from traditional to online trading. In his interview, jade
smith (HSBC treasury and capital markets) discusses various aspects of online trading:
the types of transactions conducted online, different value propositions in the online
marketing and the future trends in e-trading.
19
The process of payment and settlement is an issue of importance in online stock
trading. The sixth article, “ payments in India: The journey so far and the road ahead”, by
Vinod Madhavan looks at how the multiple payment systems have developed in India and
considers the need for technology and a legal framework to ensure that an electronically
linked payments and clearing system, including cheque truncation, can be implemented in
future. In the next article, ‘clearing & settlement system at NSDL’, the structure of a
clearing account is described along with the process of settling trade in markets.
EVOLUTION OF ONLINE TRADING:
Online trading had its origin in the US where the first E-trading of stocks began in
1983. Primarily used in the form of e-commerce to place and receive orders for
commodities; slowly it entered the financial markets as an alternative to the traditional
system. By the late 1990’s, most of the stock exchanges had been automated, and the
“open outcry” method of trading had been slowly done away with. Most stock exchanges
began to use computers to replace the market makers or the floor traders who execute the
trade on the floor.
With the emergence and growth of the internet, the floor trader’s started taking
computer orders from brokers and executed the trade. Subsequently, when the stock
exchanges used software technology to interconnect brokers, depositories and banks, the
internet order place by clients were firs route through the stock brokers’ computer
systems where the matching of orders took place and the trade was executed. This gradual
up scaling of technology has led to the rise in popularity and acceptance of online broking
as a major way of stock trading.
With the book in software technology, the online trading platform became faster
and faster with a lot of sophistication and increased security. Now the thrust is on making
the entire trading process completely seamless and risk free.
20
TRADING MECHANISM:
The mechanism in online trading Is the replication of trading of physical securities
through the internet in a much faster and convenient way. Basic principles and logic of
stock trading remain the same as before; only, the investors feel more empowered and are
served with plenty of information. The diagram 1 and 2 depict both selling and buying of
securities online.
There are primarily 5 components in any online trading mechanism.
1. Investor
2. broker/ E-broking firm
3. DP Accounts
4. Bank Account
5. The Exchange
The process of online trading is driven by a front-end software which the stock
exchange employs through satellite (like V-SAT) connections. This software technology
provides the necessary interface between the brokers, depositories and the banks. The
investor is required to trade through any of the approved brokers, and brokers of trading
members can only trade with the exchange.
The investor places the order with the broker and the broker gets the order executed
from the exchange. Each broker, who has to be a trading member, is connected to the
exchange through sophisticated software. In the same way, each investor has to trade only
through the broker and needs to have a demat account and a broker’s account. Each
investor will be given a login account and a password in the broker’s site. Investors can
log in and lace orders anytime that will be sent to exchange and will be compared with all
the orders and executed as per the prices.
21
In this linear chain of investor-broker-exchange channel, there are two more
important players, viz, depositories and banks. Depositories (DP) handle the holding and
selling of demat securities. All brokers are embers and account holders of DPs. The
depositories function in liaison with the stock exchange and act as an online store for
shares and stocks. The transaction of cash is taken care of by banks. The investor’s
money is transferred to the account with the broker and used for transactions, and
similarly, the credits for the investor can be directly to the investor’s bank account.
The whole mechanism is interconnected and the speed of transaction depends on how
well all these components operate in harmony with each other. The technology used for
interlinking these components and the security issues play a major role in the speed of
transactions. When these issues are addressed, the transactions can be executed in real-
time (T+0), instead of the present T+2 days time period.
22
BUY TRANSACTION (TABLE-1)
23
Broker buys 100 xyz @ market rate
Yes, hold
Funds transferred
Share transferred
Hold Rs.30, 000
NSE
Bank server
Order accepted and goes to exchange
DP server
Trade done
CUSTOMER APPROACH THROUGH PHONE/INTERNET KIOSK
SELL TRANSACTION (TABLE-2)
24
Trades done
Orders accepted and goes to exchange
Yes, Hold
Bank Server
Funds Transferred
BROKER SELLS 100 XYZ @ Rs.300/-
DP server
Hold100 xyz shares
Share transferredNSE
CUSTOMER APPROACH THROUGH PHONE/INTERNET KIOSK
SETTLEMENT SYSTEM
The schedule of setting the trade Is governed by the stock exchange rules. The
following details are available in the depository software of the DP.
The pay in time decided by the stock exchanges for each settlement is
the NSDL deadline time. The significance of NSDL time is that securities can be moved
from the client account to the clearing account (client to clearing member), or from
clearing account to the stock exchange (clearing member to stock exchange) or from one
settlement to another (inter-settlement) only till the NSDL deadline of the relevant
settlement. Securities cannot be transferred to a settlement after the NSDL deadline for
that settlement is over.
No.of
day
Transactions day Party with
Obligation
Activity
Day 1 T (if, Monday) Customer Trading
Day 2 T+1 (Tuesday) Customer Securities pay in to member
broker
Day 2 T+1 (Tuesday Customer Funds pay in to member broker
Day 3 T+2(Wednesday) Member
broker
Securities pay in to the stock
exchange
Day 3 T+2(Wednesday) Member
broker
Funds pay in to the stock
exchange
25
Day 3 T+2(Wednesday) Stock
exchange
Payout of securities to member
broker
Day 3 T+2(Wednesday) Stock
exchange
Payout of monies to member
broker
Day 4 T+3 (Thursday) Member
broker
Securities deposited into demat
account of customer
Day 4 T+3 (Thursday) Member
broker
Funds transferred into client’s
bank account.
26
MAJOR ADVANTAGES OF ONLINE TRADING
With the February 2003 announcement of Gilts trading available online, capital
market reforms in India have outpaced all other sectors in the post-liberalization era. The
options available for investments today are many. The mutual funds industry is doing
well, IPO market is received and derivatives trading are catching on in India. If these
investments can be made by the click of the mouse then the investment process will be
the easiest. Investors can save time and make money. Online trading, which is the way the
developed world is investing, is now the mantra of investment markets in India. To
combine the speed of the internet and the intricacy of the trade and provide an interactive
and integrated trading environment for all investments is the ultimate goal.
Online trading started in India in February 2000:
Online trading is of 2 categories: Discount online brokers and the other one is the
full service online broker. Discount online brokers allow one to trade via the internet
through the broker at reduced (less than offline brokerage charges) rates. Full service
online brokerage is linked to existing brokerage directly through the internet. These
brokers allow their clients to place online orders with the option of chatting to brokers if
advice is needed.
27
FOR THE INVESTORS:
Online trading has created a new wave of changes among the investors because of
its convenience and the sense of empowerment attached with executing the trade on their
own If has also thrown in plenty of options to the investors in the form of various online
broking firms which provide a whole lot of advisory and counseling services. The biggest
advantages of online trading is the equitable treatment of investors, irrespective of small
or big, In terms of offering the service, making the information available and the benefits
of the stock trading were highly concentrated with a particular group of investors who
could afford the technical and advisory services. The stock market used to be a black box,
now it is open to all those who are willing and capable of investing because of the simple
and user friendly ways of online trading. In a nutshell,
The internet made the stock market operations transparent.
Cost of execution of trade for small quantities can be done in proportionate fractions
as that of big transactions.
Data and information are their for everyone and available everywhere.
Investors are empowered.
28
FOR THE BROKERS:
Brokers can gain on two accounts.
Surge in the volume of transactions will increase the profit even though the cost per
transaction is less in case of online trading.
Marketing the investor accounts and transaction of demat securities has manifold
conveniences compared to the traditional method of transactions in physical securities.
ONLINE TRADING BENEFITS
Advent of online trading can shift the trading power from stock brokers to
individual investors. The e-trading concept ensures that the investor, howsoever small,
could be a more active participant in the decision rather than leaving his portfolio at the
sole discretion of his broker. Online trading provides.
BEST PRICE FOR INVESTORS:
Online trade offers the best price for the buying and selling transactions of the
investors, by ensuring proper matching of their orders within the communications
network itself. Also due to the high level of transparency with regard to display of
information the investors are able to get the best quote for the shares.
BROKERAGE IS THE LOWEST:
As the process of online trade is thoroughly automated the transaction costs are low,
also with competition among the online service providers the brokerage charges are at
their lowest in India.
29
LIQUIDITY TO THE INVESTORS:
When online trade and online banking are available, liquidity of the investments are
very high as it is only a click away to disinvest and release the funds. Conversely, if the
investor spots some opportunity to invest, he could immediately allocate money from his
savings account and make his transactions.
TRANSPARENCY:
Online trading gives greater transparency to the investors by providing them an audit
trail. This involves a complete integrated electronic chain starting from order placement,
to clearing and settlement and finally ending with a credit to the depository account of the
investor. All these stages were subject to inspection, thus bringing in transparency into
the system.
HASSLE FREE TRADING:
Online trading integrates the bank, the brokerage firm and the stock accounts (demat
account) which lead to easy and paperless trading for the client.
QUICK TRADING:
The investor is able to execute the entire trading transaction, right from logging on
the broker’s site, to the execution and settlement of his bank account, in a very short
period of time.
LEVEL PLAYING FIELD:
Trading on the net, gives even the smallest retail investor access to information that
earlier was available only to the big traders. This provides a level playing field for all
investors In the securities market.
REDUCES THE SETTLEMENT RISK:
This method of trading reduces the settlement risk for the investor, as in this case no
short sale is possible, i.e., the seller will not be able to sell the securities unless he has
their actual possession. This reduces the settlement risk for the buyer. Who is assured of
the delivery of the securities.
30
OUTCRY SYSTEM:
The broker has to buy or sell securities for which he has received the orders. For this,
the broker or his authorized representatives goes to the stock exchange. This method is
called the open outcry system. Basically the brokers shout while buying or selling the
securities. The floor of the stock exchange is divided into a number of markets also
known as ‘post pit’ or wing based on particular securities dealt there.
In the post pit or wing, the broker using ‘open outcry’ method makes an offer or bid
price. For making the necessary bargain, he quotes his purchase or sale price, also known
as offer or bid price. The dealer, to whom the price is quoted, quotes his own price when
the quotation of the dealer suits the broker, he may loose the bargain. If he is not satisfied
with the quote price, he may turn to some other dealer. On the close of the bargain, the
dealer as well as the broker makes a brief note of the particulars of the deal. Such notes
are made on some pad and on it the number of shares, the price agreed upon, the name of
the party, what membership number etc., are noted.
31
DISADVANTAGES OF OUTCRY SYSTEM:
It lacks transparency.
The scope of manipulation, speculation and mal practice is more.
Signal were more important in the outcry system any member who could not interpret
the buy/sell signal correctly often landed himself in disaster situation.
In audibility was another disadvantage of the outcry system.
Due to the above disadvantages of the outcry system the ITI Financial Servicees
Limited has shifted from outcry system to online trading.
MANUAL TRADING
Trading procedure before introduction of online trading
Trading on stock exchanges is officially done in the trading ring. In the trading
ring the space is provided for specified and non-specified sections, the members and their
authorized assistants have to wear a badge or carry with them an identity card given by
the exchange to enter the trading ring. They carry a sauda book or confirmation memos,
duly authorized by the exchange and carry a pen with them. The stock exchanges
operations are floor level are technical in nature .Non-members are not permitted to enter
in to stock market. Hence various stages have to be completed in executing a transaction
at a stock exchange .The steps involved in this method of trading have given below:
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Choice of broker:
The prospective investor who wants to buy shares or the investors, who wants to sell
shares and transact business, have to act through member brokers only. They can also
appoint their bankers for this purpose as per the present regulations.
Placement of order:
The next step is the placing order for the purchase or sale of securities with a broker.
The order is usually placed by telegram, telephone, letter, fax etc or in person. To avoid
delay, it is placed generally over the phone. The orders may take any one of the forms
such as At Best Orders, Limit Order, Immediate or Cancel Order, Limited Discretionary
Order, and Open Order, Stop Loss Order.
Execution of order or contract:
Orders are executed in the trading ring of the BSE. This works from 11:30 to 2.30
P.M on all working days Monday to Friday, and a special one-hour session on Saturday.
The members or the authorized assistants have to wear a badge given by the exchange to
enter into the trading ring. They carry a sauda Block Book or conformation memos,
which are duly authorized by the exchange when the deal is struck; both broker and
jobber make a note in their sauda block books. From the sauda book, the contract notes
are drawn up and posted to the client. A contract note is written agreement between the
broker and his clients for the transaction executed.
Drawing Up and Bills:
Both sale and purchase bills are prepared along with the contract note and it is posted
on the same day or the next day. This in a purchase transaction, once the shares are
delivered to the client effects payment for the purchases and pays the stamp fees for
transfer, a bill is made out giving the total cost of purchase, including other expenses
incurred by the broker in the price itself. With this, the process ends.
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DEMATERLIZATION:
Dematerialization is the process by which physical certificates of an investor
are converted to an equipment number of securities in electronic from and credited in the
investor account with his DP. In order to dematerialize the certificates, an investor has to
first open an account with a DP and then request for the Dematerialization Request Form,
which is DP and submit the same along with the share certificates. The investor has to
ensure that he marks “Submitted for Dematerialization” on the certificates before the
shares are handed over to the DP for demat. Dematerialization can only be done to those
certificates, which are already registered in your name and belong to the list of securities
admitted for Dematerialization at NSDL.
Most of the active scrip’s in the market including all the scrip’s of S&P CNX
NIFTY and BSE SENSEX have already joined NSDL. This list is steadily increasing.
Briefly, the process is as follows: after completion of transfer, the investor gets the option
to dematerialize such shares. Investor’s willing to exercise this option sends a Demat
request along with the option letter sent by the company to his DP. The company or its
R&T agent would confirm the Demat request on its receipt from the DP to reduce risk of
loss in transit.
Dematerialized shares do not have any distinctive or certificate numbers. These
shares are fungible-which means that 100 shares of a security are the same as any other
100 shares of the security. Odd lot shares certificates can also be dematerialized.
Dematerialization normally takes about fifteen to thirty days. To get back dematerialized
securities in the physical form, request DP for Rematerialization of the same is made.
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Benefits of Demat:
It reduces the risk of bad deliveries, in turn saving the cost and wastage of time
associated with follow up for rectification. This has lead to reduction in brokerage to the
extent of 0.5% by quite a few brokerage firms.
In case of transfer of electronic shares, you save 0.5% in stamp duty. You avoid
the cost of courier / notarization.
You can receive your bonuses and rights issues into your DA as a direct credit,
this eliminating risk of loss in transit.
You can also expect a lower interest charge for loans taken against Demat shares
as compared to loans against physical shares.
There is no lost in transit, thus the overheads of getting a duplicate copy in such
circumstances is reduced.
RBI has also reduced the minimum margin to 25% for loans against
dematerialized securities as against 50% for loans against physical securities.
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DEMAT ACCOUNT
What is Demat account and why it is required?
Securities and Exchange Board of India (SEBI) is a board (corporate body) appointed
by the Government of India in 1992 with its head office at Mumbai. Its one of the function is
helping the business in stock exchanges and any other securities markets. Demat (short form
of Dematerialization) is the process by which an investor can get stocks (also called as
physical certificates) converted into electronic form maintained in an account with the
Depository Participant (DP).
DP could be organizations involved in the business of providing financial services
like banks, brokers, financial institutions etc. DP’s are like agents of Depository.
Depository is an organization responsible to maintain investor's securities (securities
can be stocks or any other form of investments) in the electronic form. In India there are two
such organizations called NSDL (National Securities Depository Ltd.) and CDSL (Central
Depository Services India Ltd.)
Investor’s wishing to open Demat account has to go DP and open the account.
Opening the Demat account is as simple as opening the bank account with any bank. As we
need bank account to save our money, make cheque payments etc, likewise we need to open a
demat account if we want to buy or sell stocks. All stocks what we possess will show in our
demat account. So we don't have to possess any physical certificates. They are all held
electronically in our demat account. As we buy and sell the stocks, accordingly our stocks
will get adjusted in our account.
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Is a demat account must?
The market regulator, the Securities and Exchange Board of India (SEBI), has made it
compulsory to open the demat account if you want to buy and sell stocks.
So a demat account is a must for trading and investing.
How to start to open a Demat account?
We have to approach a DP to open a Demat account. Most banks are DP participants
so we may approach them.
A broker and a DP are two different people. A broker is a member of the stock
exchange, who buys and sells stocks on his behalf and also on behalf of his customers.
Following are the documents required to open Demat account.
When we approach any DP, we will be guided through the formalities of opening an
account. The DP will ask to provide some documents as proof of our identity and address.
Below is a list but we may not require all of them.