Broking Basics

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Title

Introduction

to Broking

Last updated: 15/02/2010


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Investment

Money earned is partly spent and the rest

saved for meeting future expenses.

Investing money to get return on it in the future

is Investment.

Inflation: Rise in the general level of prices of

goods and services in an economy over a

period of time.


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Investment OptionsPhysical Assets Financial Assets

Gold/ Jewellery Fixed Deposits

Real Estate Small SavingsInstruments (NSC)

Commodity Public Provident Fund

Pension Fund

Insurance

Bonds/ Debentures

Shares/ Equity


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The Risk & ReturnInvestment Type Risk Return

Gold/ Jewellery Low Moderate

Real Estate Low Moderate

Fixed Deposits Low Low

Small Savings Instrument Low Low

Public Provident Fund Low Low

Pension Fund Low Low

Mutual fund Moderate* Moderate*

Commodities High High

Equity Market High High


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Investment Instruments ReturnSaving Account 3%

Fixed Deposit 7%Insurance, MF, PPF, NSC etc 10%Equity 20%Commodity 16%Gold 4%


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Why Equity?


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LONG TERM BENEFIT ANDHIGH RETURN ON

INVESTMENT

LIQUIDITY

DIVIDENDEARNING

BONUSSHARES


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DIVERSIFIED FUND

HIGHRETURN

CAPITAL GAIN TAX ADVANTAGE

LOWINVESTMENT


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Equity/Share

Total equity capital of a company is

divided into equal units of small

denominations, each called a share.

The holders of such shares are

members of the company and havevoting rights.


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How is Equity Traded?

Company wants to raise Capital

Issues Initial Public Offering (IPO) in Primary Market.

Shares Issued in IPO are then Traded in SecondaryMarket.

Lets understand how it is Traded


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NEED FOR CAPITAL

Banks & FIs

(Loans, Debts)

Primary Markets IPO

(Equities)

Self Financing

Secondary Market - NSE & BSE(Listing of Shares In Stock Exchanges Like NSE and BSE)

General Public/Investors

Buyer

Trading Member /Broker

Trading Member /Broker


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STOCK EXCHANGE

A common platform where buyers and

sellers transact in stocks and shares.

The Bombay Stock Exchange (BSE)

and the National Stock Exchange

(NSE) are the two leading Exchanges.

There are 23 other regional

Exchanges.


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Regulation of SecuritiesMarket

The responsibility for regulating the securities market is shared by

Department of Economic Affairs (DEA)

Department of Company Affairs(DCA)

Reserve Bank of India (RBI) &

Securities and Exchange Board of India (SEBI).


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Regulation of StockExchange

The Securities and Exchange Board of

India (SEBI) is the regulatory authority

in India

ROLE :-

Protecting the interests of investorsin securities

Promoting the development of the

securities market

Regulating the securities market.


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Depository

A depository is like a bank

wherein the deposits aresecurities in electronic form.

Two main Depositories in India: Central Depository Services

Limited (CDSL)

National Securities Depository

Limited (NSDL).


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Advantage ofDepository

Immediate transfer of securities

No stamp duty on transfer of securities

Elimination of risks associated with physical certificates such as bad delivery, fake securities, etc.

Reduction in paperwork involved in transfer of securities

Reduction in transaction cost

Depository Participant(DP): A depository participant is an agent appointed by the depository to provide its services

to investors Eg:- Banks, Financial Institutions and SEBI Registered Trading Members can

become DPs.

Angel Broking Ltd. Is a Depository Participant registered with CDSL.


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USPs of Angel Broking as a DP

Lowest Transaction charges in the Country.

Minimum Rs 11/- for transfer from Demat to Pool or any other Demat.

No charges if shares kept in Pool Account.

No separate Demat A/c required.

Shares kept in Pool Account can be used as Margin for trading.

No interest charged till T+4 days on non delivery of Shares.


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BROKER

A broker is an intermediary of the

Stock Exchange.

Only registered members can

operate in the stock market.

One can trade by executing a deal

only through a registered broker or

through a SEBI-registered sub-

broker.


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Our Membership on StockExchanges

Memberships

On

Exchanges

BSE

Angel Broking Ltd.

Cash Segment

NSE

Angel Capital &

Debt Market

Cash , Derivatives &

Currency Future

Segment

NCDEX

Angel Commodities

Broking (P) Ltd.

Commodities

Segment

MCX

Angel Commodities

Broking (P) Ltd.

Commodities &

Currency Future

Segment

C i l M k S


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Depository

23 Regional Exchanges

Exchanges

Sub Brokers

Customers

Capital Market Structure

Customers

Customers Customers Customers

Sub Brokers

Customers Customers
http://www.uniply.in/images/nse_logo.gifhttp://www.moneycontrol.com/news_image_files/sebimg.gif


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Trading on the Exchange

To Buy & Sell Shares, the customer needs

Demat Account

Trading Account


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Demat Account

Demat is an abbreviation of Dematerialization.

Securities like shares, debentures are converted from the "material"

(paper documents) into electronic data.


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Trading Account

Trading Account is an account required for Buying & Selling Shares.

Trading accounts needs to opened with a Broker .

Each account holder is assigned unique client code .


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Types of Customers

Experienced Investor- Regularly Invests money into various

Investment products

Trader- Continuously buys and sells securities

First Time Investor Wishes to Invests in financial Instruments &

earn profits but has not yet started Investing.


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THE TRADING NETWORK

VSAT

Orders

Confirmation

orders

Confirmation


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Types of Trades

Intra Day Trade:- Both

Buying and selling is done

on the same day .

Delivery Based Trading :-Buy today Sell anytime

BTST :- Buy Today Sell

Tomorrow


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When the market goes up it is called a

bullish trend

When the market goes down it is called a

bearish trend.
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Clearing & Settlement


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Settlement Cycle

Trading Day Buying / Selling T

Settlement Pay-in / Pay-out T+2

Auction T+3

Auction Settlement Pay-in / Pay-out T+4 (BSE)

T+5 (NSE)


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Example

Trade Date RAM SHYAM

T+0 1-Sep-08

Buys 10 shares of

RIL @ Rs 2100

(Thru Angel broking)

Sells 10 shares of RIL

@ 2100

(Thru Angel Broking)

T+1 2-Sep-08

Issues Cheque in

Favor of

Angel Brkg Clearing

A/c# For 21000

Transfer 10 RIL Shares

from his DEMAT B.O

A/C to Angel Broking

Pool A/c

T+2 3-Sep-08

Receives 10 RILshares in his

DEMAT B.0 A/c

Receives creditamount of 21000 in leader

Account


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RAMs Bank A/c

Angel Bank A/c(Clearing)

NSCCL(T+2)

Angel BrokingBank A/c (Clearing) Shyams Bank A/c

ShyamsBeneficiary A/cDemat A/c

Angel Broking Pool A/c

NSCCL(T+2)

Angel Broking Pool A/c``

RAM Beneficiary A/cDemat A/c

PAYOUT OF FUNDS

PAYOUT SHARES

PAYIN OF FUNDS

PAYIN SHARES


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The Trading Process

Pay-in day: The securities sold are delivered to the exchange by the sellers and fundsfor the securities purchased are made available to the exchange by the buyers.

Pay-out: The securities purchased are delivered to the buyers and the funds for the

securities sold are given to the sellers by the exchange.

This is also called as Rolling Settlement. It happens on 2nd working day (T+2)

Auction - On account of non-delivery of securities by the trading member on the Pay-

In day, the securities are put up for auction by the Exchange.

This ensures that the buying trading member receives the securities.


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Margin Amount

Margin Amount is the Amount that needs to be deposited by an Investor while

opening a Demat & Trading account with a BROKER.

More Margin Amount implies more Exposure which ultimately helps Investor do

more Trading & earn more PROFITS.


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Contract Note

Contract Note is a confirmation of trades done on a particular day on behalf of the

client by a trading member.

A valid contract note should be in the prescribed form, contain the details of trades,

stamped with requisite value and duly signed by the authorized signatory.

Contract notes are kept in duplicate, the trading member and the client should keep

one copy each.


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Brokerage

As per SEBI guidelines, a STOCK BROKER/DP can charge maximum brokerage

Amount of 2.5% (on both sides) to his Clients.

As per SEBI guidelines, a SUB-BROKER can claim maximum brokerage Amount of

1.5% (on both sides) from his Broker.

Recommended Brokerage


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Recommended BrokerageRates

ExpectedTurnover /

month

InitialMargin

Delivery Intraday FnO

0-4 lacs 10000 0.50% 0.10% 0.10%

5-25 lacs 25000 0.40% 0.08% 0.08%

26-60 lacs 50000 0.30% 0.06% 0.06%

61-100 lacs 100000 0.25% 0.05% 0.05%

101-200 lacs 300000 0.20% 0.04% 0.04%

Note: The table above is shown as a reference variations possible due to local market conditions.


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Charges Applicabl

e on

Intraday

Charges %

Delivery

Charges %

Futur

e

Optio

ns

TurnoverTax

OnTurnover

0.0035% 0.035% 0.002%

0.05%

STT On

Turnover

0.025% (Only

Selling Side)

0.125% (Both

Side)

0.017

%

0.0017

%StampDuty

OnTurnover

0.002% 0.01% 0.002%

0.002%

SEBI Tax On

Turnover

0.0001% 0.0001% 0.0001

%

0.0001

%ServiceTax

OnBrokerage

10.30% 10.30% 10.30%

10.30%


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Brokerage Calculation

If client has sold 10000 shares of a scrip @ 50,What is the brokerage that the clientcan be charged? (brokerage rate 0.50p)

Ans:-

Brokerage= Brokerage rate * Value of the transaction

= 0.50p * (10000 shares * 50).

= 2500/- Rs.


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The client buys 10000 shares of a scrip @ 225.25 and does intraday at 275.10.

What is the brokerage that the client can be charged?(Intraday brokerage- 0.07p)

Ans:-

Maximum brokerage= Brokerage rate * Value of the transaction

= 0.07p * (10000 shares * 275.10).

= Rs. 192.57


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The client buys 1250 shares at the price of 190 and sells 980 shares at the priceof 210 then What is the Delivery and intraday brokerage client will be charged?

(Del:- 0.45 p; Intra:-0.08 p).

Delivery brokerage= Brokerage rate * Value of the transaction

= 0.45p * {(1250-980) shares * 190).

= Rs. 230 .85p

Intraday brokerage = Brokerage rate * Value of the transaction

= 0.08 * (980 shares * 210).

= Rs 164 .64p


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Debt Instruments

Debt instrument:A contract whereby one lends money to another on pre-

determined terms

Debt Market is Regulated by RBI(Reserve Bank of India)

Bond: Debt instrument issued by Central and State governments & Public

Sector Organizations.

Debenture: Debt instrument issued by Private Corporate Sector.


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Derivatives (F&O)

Derivative is a product whose value is derived from the value of one or more basic

variables, called underlying. Equity, Index, FOREX, Commodity can be the underlying

asset.

Derivative products initially emerged as hedging devices.

The financial derivatives came into spotlight in post-1970.

By 1990s, they accounted for about two thirds of total transactions in derivative

products.

NSE is the largest STOCK EXCHANGE(volume) in the world for STOCK FUTURES.


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Types of Derivatives

Forwards : A forward Contract is a customized contract between two entities,

where settlement takes place on a specific date in the future at todays pre

agreed price.

Futures : An agreement between two parties to buy or sell an asset at a certain

time in the future at a certain price.

Options : A contract which gives the right, but not an obligation, to buy or sell the

underlying at a stated date and at a stated price.

Types of Options:

Calls give the buyer the right but not the obligation to buy a given

quantity of the underlying asset, at a given price on or before a given

future date.

Puts give the buyer the right, but not the obligation to sell a given

quantity of the underlying asset, at a given price on or before a given

future date.


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Option Premium

At the time of buying an option contract, the buyer has to pay apremium.

The premium is the price for acquiring the right to buy or sell.

It is price paid by the option buyer to the option seller for acquiring theright to buy or sell.

Option premiums are always paid upfront.


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Miscellaneous

R d i i t


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Redressing investorgrievances

Complaints can be lodged through the Investor Grievances Cell of the Exchange

Arbitration is an alternative dispute resolution mechanism provided by a stock

exchange If no amicable settlement could be reached through the normal grievance

redressal mechanism

Investor Protection Fund (IPF) is maintained by NSE to make good investor claims,

which may arise out of non-settlement of obligations by the trading member


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Thank You

Published in FYI 2009. Angel Broking 2009-10.

Angel Broking All rights reserved. corporate Off: 612, Acme Plaza, M.V. Road, opp sangam cinema, Andheri east, Mumbai 400059,India.Tel.: +(91) 022 39527100/ 4000 3600

This report is for information purposes only and does not construe to be any investment, legal or taxation advice. It is not intendedas an offer or solicitation for the purchase and sale of any financial instrument. Any action taken by you on the basis of theinformation contained herein is your responsibility alone and Angel Broking and its subsidiaries or its employees or directors,associates will not be liable in any manner for the consequences of such action taken by you. We have exercised due diligence inchecking the correctness and authenticity of the information contained herein, but do not represent that it is accurate or complete.Angel Broking or any of its subsidiaries or associates or employees shall not be in any way responsible for any loss or damage thatmay arise to any person from any inadvertent error in the information contained in this publication. The recipients of this reportshould rely on their own investigations. Angel Broking and/or its subsidiaries and/or directors, employees or associates may haveinterests or positions, financial or otherwise in the securities mentioned in this report.

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Broking Basics