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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