Motilal Oswal- Priyadarshini-06036

MOTILAL OSWAL SECURITIES LTD.

M.P. BIRLA INSTITUTE OF MANAGEMENT Page 1

AN INTERNSHIP REPORT

ON ORGANISATION STUDY

& STUDY ON “t+1 settlement cycle”

AT MOTILAL OSWAL SECURITIES

A Report submitted to MPBIM Bangalore in partial fulfillment of the requirement for the award of

MASTER OF BUSINESS ADMINISTRATION (MBA) BANGALORE UNIVERSITY

By

PRIYADARSHINI .R O6XQCM6033

Under the Guidance and Supervision

Of

B.Srinivasan Mr. Shivanna T. R. Professor Branch Manager MPBIM Motilal Oswal Securities Shantinagar, Bangalore



DECLARATION

I hereby declare that this report titled, “AN INTERNSHIP REPORT ON

ORGANIZATIONAL STUDY AT MOTILAL OSWAL SECURITIES”

is a record of independent work carried out by me, towards the partial

fulfillment of Master of Business Administration (MBA) program of

Bangalore University at M. P. Birla Institute of Management. This is my

original work and has not been submitted for the award of any other degree,

diploma, fellowship or other similar title or prizes.

Place: Bangalore PRIYADARSHINI.R

Date: 06XQCM6063



PRINCIPAL’S CERTIFICATE This is to certify that the internship report titled, “AN INTERNSHIP

REPORT ON ORGANIZATIONAL STUDY AT MOTILAL OSWAL

SECURITIES” has been prepared by Ms. PRIYADARSHINI.R, bearing

registration number 06XQCM6063, under the guidance of Prof.

SRINIVASAN, M P Birla Institute Of Management, Associate Bhartiya

Vidya Bhavan, Bangalore.

Place: Bangalore Principal

Date: Dr. N.S.Mallavalli



GUIDE’S CERTIFICATE

This is to certify that the internship Report entitled, “AN INTERNSHIP

REPORT ON ORGANIZATIONAL STUDY AT MOTILAL OSWAL

SECURITIES” done by Ms. PRIYADARSHINI.R bearing Registration

No.06XQCM6063 is a bonafide work done under my guidance in a partial

fulfillment of the requirement for the award of MBA degree by Bangalore

University. To the best of my knowledge this report has not formed the basis

for the award of any other degree.

Place: Bangalore Prof B.SRINIVASAN Date: (internal guide)





ACKNOWLEGDEMENT

This is the moment, which gives me opportunity to thanks everyone who has

contributed in my practical training at MOTILAL OSWAL SECURITY

LTD, as part of my study.

First of all I would like to express my gratitude to beloved principal for

boosting moral during the training period. I would like to express my sincere

thanks to Prof. B.SRINIVASAN (internal guide) for helping me in various

aspects the study.

I am deeply indebted to Mr. SHIVANNA T. R. (Br. Manager, MOSt,

Shanthinagar) for giving me an opportunity and guidance, invaluable help

and cooperation to successfully complete the project.

I am grateful to Mr. VIJAY KUMAR (Business Development Manager,

Most) for his help and cooperation. I am very thankful to the management

and staff of Motilal Oswal securities for their invaluable cooperation during

my study.

Last but not the least I would like to express my profound gratitude to my

family and friends who have indirectly encouraged me in completing this

study.



PART:A

Chapter no. Topic particulars Page

no

DECLARATION 2

PRINCIPAL’S CERTIFICATE 3

GUIDE’S CERTIFICATE 4

EXTERNAL GUIDE’S CERTIFICATE 5

ACKNOWLEDGEMENT 6

Chapter:1

Organizational

study

Executive summary 12

Brief profile about organisation 14

MOSt history 16

People behind the organisation 17

MOSt shareholding pattern 19

MOSt management 21

Milestones 22

Location matrix 30

MOSt vision 31

MOSt guiding principles 32

Investment philosophy 33

Management team 34

Wealth creation study & awards 35

MOFSL customer & retail business 36



MOSt research based advisory 36

products 41

Services � EAG � BUSINESS ASSOCIATE � E-BROKING � PORTFOLIO MANAGEMENT SERVICE 1. Bull’s Eye PMS 2. Value Hedging PMS � MUTUAL FUNDS � COMMODITIES

42

Chapter:2 Organizational Structure

organizational hierarchy 60

Chapter:3 Operational Aspects of Different Functional Department

Functional Departments � MARKETING � ACCOUNTS � HR & ADMINISTRATION � SUPPORT & FUNCTION � ADVISORY SERVICES

63

Chapter:4 Performance Evaluation

SWOT ANALYSIS 67

Chapter:5 Problem Areas Observed

Findings 72

Chapter:6 Recommendations Recommendations 76

Chapter:7 Conclusion Conclusion 79

BIBILOGRAPHY

PART :B

A Microscopic Study On t+1 settlement cycle



Chapter: 1

Organisation Profile



Motilal Oswal Financial Services Ltd

Motilal Oswal Financial Services Ltd consists of four companies.

Motilal Oswal Investment Advisors Pvt. Ltd. is our Investment Banking

arm with collective experience of over 100 years in investment

banking/corporate banking and advisory services

Motilal Oswal Commodities Broker (P) Ltd. has been providing

commodity trading facilities and related products and services since 2004.

Motilal Oswal Venture Capital Advisors Private Limited has launched

the India Business Excellence Fund (IBEF), a US$100 mn India focused

Private Equity Fund.



Motilal Oswal Securities Ltd. (MOSt) our services include equities,

derivatives, e-broking, portfolio management, mutual funds, commodities,

IPOs and depository services.



Motilal Oswal Securities Ltd.

An Executive Summary

MOFSL strongly believes in Buffett's following two principles,

Rule 1: Never lose money.

Rule 2: Never forget rule one.

Motilal Oswal Securities is a leading research and advisory based stock

broking house of India, with a dominant position in both institutional and

retail broking. Asia money Brokers Poll 2005 has ranked them the best

Indian brokerage firm. There are various other categories where they have

been rated number one - most independent research, sales and service etc by

the Brokers Poll.



For a more unbiased opinion, in March 2006, AQ Research (a UK-based

firm that analyses the accuracy of a broker’s research call) declared Motilal

Oswal the best research house for Indian stocks.

Motilal Oswal Securities has witnessed rapid organic growth due to

favorable market conditions as well as efforts put in by the company itself.

FY05 and FY06 saw the company grow inorganically through acquisition of

three significant regional broking firms from Karnataka, Kerala and U.P.

Over a period of time many more regional broking firms may be acquired to

gain solid footing in various regions of India.



Brief profile about organization:

Introduction:

The company was founded in 1987 as a small sub-broking unit, with just

two people running the show. Focus on customer-first-attitude, ethical and

transparent business practices, respect for professionalism, research-based

value investing and implementation of cutting-edge technology have enabled

us to blossom into an almost two thousand-member team.

Our institutional business unit has relationships with several leading foreign

institutional investors (FIIs) in the US, UK, Hong Kong and Singapore. In a

recent media report we were rated as one of the top- 10 brokers in terms of

business transacted for FIIs.

The retail business unit provides equity investment solutions to more than

200000 investors through 1160 outlets spanning over 363 cities. These

solutions are provided by a force of over 2000 employees and over 780

Business Associates. We provide advice-based broking (equities and

derivatives), portfolio management services (PMS), e-Broking, depository

services, commodities trading, IPO and mutual fund investment advisory

services.



Our Value PMS Scheme gave a 402.74% return since inception (Feb 2003)

(Sensex is 270.69% & Nifty is 245.11%). The performance of Value

Hedging since inception (Oct 2005) is 32.76%.

Such an outstanding performance can be only attributed to our single-indeed

focus on research-based value investing. Motilal Oswal Securities invests

almost 5-10% of its revenue on equity research and hires and trains the best

resources to become advisors to its valued clients.

Our unique Wealth Creation Study, authored by Mr. Raamdeo Agrawal,

Managing Director, is now in its eleventh year. Investors keenly await this

annual study for the wealth of information it has on how companies created

wealth during the preceding five years.

The organization finds its strength in its team of young, talented and

confident individuals. Qualified professionals carry out different functions

under the able leadership of its promoters, Mr. Motilal Oswal and Mr.

Raamdeo Agrawal. Stringent employee selection process, focus on

continuous training and adoption of best management practices drive the

quest to achieving there Vision.



Motilal Oswal Securities Ltd (MOSt) History:

The story of MOSt goes back many years, when Mr. Motilal Oswal and Mr.

Raamdeo Agrawal met each other as students in a Mumbai suburban

hostel in the early eighties. Both the young chartered accountants hailing

from a rural & an unpretentious background had a common dream viz'to

build a professional organization with strong value systems, to provide

reliable & honest investment advice to investors'. Thus was born their first

enterprise called "Prudential Portfolio Services" in 1987.



People behind the organization:

Mr. Motilal Oswal

Chairman and Managing Director

Mr. Motilal Oswal is the promoter of Motilal Oswal Securities Ltd. He is a

member of Institute of Chartered Accountants of India and started the

business along with the co-promoter Mr. Raamdeo Agarwal in 1987.

“Service is required in everything, in research, in execution and in

settlement. It is going to be the key to survival. If you give good service and

value to your clients, it will translate into good business”

He has received the Rashtriya Samman Patra awarded by the Government

of India for being amongst the top 50 income tax payers in the country. He

was elected as a Director of BSE and joined its governing board in 1998. He

is currently a member of various committees of CDSIL and SEBI. He is

currently a member of the NSE committee for F&O and a member of the

Managing Committee of Indian Merchant Chambers.



Mr. Raamdeo Agrawal

JMD MOSt & portfolio

Profile of Raamdeo Agrawal

Date of Birth: 5th April 1957 Educational Qualification: Chartered Accountant Achievements: - Co-Author of the book "CORPORATE NUMBERS GAME" in 1986 Joint Managing Director of Motilal Oswal Securities Ltd Author of annual "Wealth Creation Study * "



MOFS Shareholding pattern:

1st Qtr: Promoters & Promoter group [78.67%]

2nd Qtr: Directors and employees [11.85%]

3rd Qtr: New Vernon Private Equity Limited [7.20%]

4th Qtr: Bessemer Venture Partners Trust [2.27%]



Top ten shareholders as on the date of filing of the Draft Red Herring Prospectus with SEBI:



MOSt Management

Name Designation Qualification

Mr. Motilal Oswal Chairman and

Managing Director

B. Com, CA

Mr. Raamedeo

Agrawal

Joint Managing

Director

B. Com, CA

Mr. Navin Agarwal Director B.Com CA, CS, ICWA, CFA

Mr. Hitungshu

Debnath

Director - Retail

Business

Post Graduation in Marketing Management

Mr. Ashutosh

Maheshvari

CEO - MOIA B.tech.(IIT-k),MBA

Mr. Vishal Tulsyan CEO - MOVC B. Com, CA



Milestones:

2007

Mr. Motilal Oswal - Chairman and Managing Director has been

appointed as a member of the Managing Committee of Indian Merchant

Chambers.

Motilal Oswal Financial Services Ltd files for an IPO

Motilal Oswal Financial Services Ltd. features as a case study in Harvard

Business School

Motilal Oswal Financial Services Ltd ties up with Punjab National Bank

to offer online trading to its customers



2006

Places 9.29% with two leading private equity investors – New Vernon

Private Equity Limited and Bessemer Venture Partners

Issues 14% of companies equity to employees as ESOPs

Acquires a leading south Indian brokerage firm – Peninsula Capital

Markets

Enters Private Equity and plans entry into Investment Banking

businesses

Value PMS gives 390% returns to its investors between Feb 2003 and

March 2006

Re launches its e-Broking service through a nationwide campaign.

First advice-based online trading proposition in the Indian markets

Another milestone in distribution - 1017 outlets, 375 cities, serving

1.61 lakh clients

Has a 1400 member team working to achieve the company's vision.



2005:

Asia money Brokers Poll 2005 rates Motilal Oswal Securities - Best

Local Brokerage, Most Independent Research House, Best in Sales

and Service

Launches two new Portfolio Management Schemes - Value

Hedging for derivatives and Discover Value for the Rs5 lakh to Rs50

lakh category

Acquires local brokerage Gayatri Capitals from Andhra Pradesh and

Varghese from Bangalore

Deepest distribution in the stock broking segment with 700 outlets in

320 cities and 1.2 lakh clients

2004:

Presence expanded to 270 outlets in 150 cities and 20 states

Value PMS delivers a whopping 160% post tax returns for the period

ended April 2004

Bulls Eye PMS - A momentum based PMS launched

Start of the Solid Research Solid Advice campaign



2003:

MOSt Portfolio Management Services launched with Mr. Raamdeo

Agrawal as the Portfolio Manager. Uniquely structured performance

related fees.

Inquire team is successful in capturing the uptrend in Banking, Auto

and Infrastructure sectors.

15,000 Depository clients acquired.

9 own branches setup at 7 cities to provide Equity Advisory Services.

More in the pipeline.

150 outlets in 110 cities across 18 states & one Union Territory in

India manned by 1000 people servicing over 15,000 Retail and

Institutional Investors.

2002:

Mr. Navin Agarwal, Head of Equity Research & Institutional sales, is

inducted in the Board of Directors

MOSt consolidates its retail operations & upgrades its IT / Back

Office infrastructure to cater to its growing network of branches,

Franchisees and Channel Partners.



Retail network completes coverage of 100 cities in India. Direct

servicing of HNI clients is initiated.10,000 Depository clients

acquired.

2001:

Legendary marketing guru Shunu Sin’s services taken to revitalise

retail marketing strategy and branding efforts.

Starts offering Derivatives products and advisory services on both

BSE as well as NSE

2000:

Both Mr. Motilal Oswal and Mr. Raamdeo Agrawal receive Rashtriya

Samman Patra from Central Board of Direct Taxes for being amongst

the top 50 tax payers in India from FY94-FY98

Acquires its 100th Franchisee / Channel Partner and emerges as a

leading player in the Indian Broking Sector

Becomes a Depository Participant of Central Depository Services

Limited (CDSIL)



1999:

Mr. Raamdeo Agrawal starts attending legendary billionaire investor

Warren Buffett’s Annual General Meetings of Berkshire Hathway Inc.

He still continues to attend it every year.

The Wealth Creation Study started in 1996 culminates into Wealth

Creation Seminar and Awards function in 1998.

First Stock Broking house to brand its services as a research and advice

based broker.

“Wealth Creation” Campaign started.

www.MotilalOswal.com launched. First broking house in India to go on

the web.

Becomes a Depository Participant of National Securities Depository

Limited (NSDL).

Inducts Mr. Ivan Mathias, former country head of Watson Wyatt

Worldwide, on its Board to Directors to shape HR initiatives.



1998:

Mr. Motilal Oswal joins the Governing Board of The Stock

Exchange, Mumbai.

1996:

Wealth Creation Study started. First of its kind study initiated to

identify biggest and fastest wealth creating companies in Indian Stock

markets.

1995:

Motilal Oswal gets incorporated as Motilal Oswal Securities Ltd.

1994:

MOSt acquires NSE Membership and plans for major expansion of its

retail network.

Inquire (Indian Equity Research) is formally created at a 2500 sq. ft

office in South Mumbai with bigger and better quality infrastructure

than the corporate office. Since then nearly 20% of revenue is

allocated to research. First Domestic Stock broking house to have

such a strong Research focus

.Motilal Oswal. enters Institutional Broking business



1990:

After just three years in the business, “Motilal Oswal” is formed

through acquisition of membership on The Bombay Stock Exchange

(BSE). Three more memberships taken in later years.

1987:

Mr. Motilal Oswal and Mr. Raamdeo Agrawal lay the foundation of a

great partnership by starting a sub-broking firm. The venture stands

out from the rest due to their approach of Research-based broking

even when sub-brokers.



LOCATION MATRIX



MOST VISION



Our Core Purpose:

To be a well respected and preferred global financial services organization

enabling wealth creation for all our customers.

Values: Integrity: A company honoring commitment with highest ethical and

business practices.

Team Work: Attaining goals collectively and collaboratively.

Meritocracy: Performance gets differentiated, recognized and rewarded in

an apolitical environment.

Passion & Attitude: High energy and self motivated with a “Do It” attitude

and entrepreneurial spirit.

Excellence in Execution: Time bound results within the framework of the

company’s value system



Quintessential Investment Philosophy of MOSt

Emphasis on return on net worth

A focused approach to investing

Patience is an invaluable virtue

Pick high quality companies

Invest for the long term

Investing is the art of controlling emotions

Find good companies that are currently out of favour

Companies that generate sustainable cash flow are safer

If you make a mistake, admit it and get out

Look for sufficient 'margin of safety

Consistent portfolio returns over time lead to substantial wealth

creation



Management Team

MOSt management team is regularly engaged in finding ways to improve

operational efficiencies and customer satisfaction. You will find CAs, CFAs,

ICWAs, CSs, MBAs and IT professionals managing crucial functions, to

bring you best products and services - from research & advice to trade

execution & settlement. At MOSt we practice meritocracy and each of the

team members is provided extensive training.

Training & Manpower Development

MOSt conducts various training and development programs regularly to

enhance the capabilities of its team. As much as 5% of the salary bill is spent

on such programs, which is amongst the highest for a broking organization

in India. MOSt is truly a learning organization with lead being taken by the

Directors, who regularly participate in top management learning programs

like Strategic Management Program at Indian School of Business,

Hyderabad, Strategy Summits with Management Gurus like Tom Peters and

Dr. Lester Thurow, Dean, Sloan School of Management, (MIT) and Brand

Management Seminar by Al Ries etc



MOSt Wealth Creation Study and Awards function

MOSt Wealth Creation Study and Awards function has become a key event

in the Indian Capital Market. The Wealth Creation Study, initiated, in 1996

is widely appreciated in the investment community and the Indian Corporate

Sector. This annual study identifies the fastest and the biggest wealth

creators in the Indian markets over the last 5 years and felicitates them at a

public event, attended by several leading investors and equity specialists.

The 10th Wealth Creation Awards function was held at the Grand Hyatt,

Mumbai on Dec, 2005.

Foundation Day

Arising from its deep respect for Knowledge & Value Addition, MOSt

celebrates its Foundation Day in a truly unique manner. Not only are the top

performing team members and Business Partners rewarded for their

contributions, but they are also provided training on important subjects like

Customer Profiling, Selling, Investment Advising etc. Lot of learning takes

place through sharing of successful practices by MOSt Business Partners.



Wealth Creation Seminars

MOSt conducts Wealth Creation Seminars across the country regularly to

educate individual investors about there research products, derivatives

market, investment strategies and latest opportunities in the stock markets.

There senior executives, research analysts and investment strategists address

the audience and personally interact with the investors.

End to End Equity Solutions

MOSt provides end-to-end equity solutions to all categories of its valued

clients by using a combination of its numerous products and services. It

offers world-class research-based investment and trading ideas coupled with

efficient and reliable trade execution & settlement. Its "default free" record

since inception is a unique and exceptional feature in the Indian Stock

Markets.

MOSt values client trust and is committed to upholding it at all costs. They

believe that no automated system can be a substitute for the human touch.

MOSt combines its Research, IT strengths, ethical business practices and

"Customer First Attitude " to provide end-to-end equity solutions.





MOSt Business segments



MOFSL Customer & reach Retail Business



MOSt Research Based Advisory



PRODUCTS:



Services:

Depository Services

In the times of T+2 having a demat account linked to your trading account

becomes really convenient. The non-trading members also can avail of our

Depository services. You receive regular account reports and an efficient

service at all times. MOSt is a member of both NSDL and CDSL and the

service is available at all our outlets in India.

Depository Service Provided By MODES

Account Opening

Dematerialization

Rematerialization

Account Transfer

Transmission

Nomination

Pledging and Hypothecation

Account Closures



Derivatives

Derivatives (Futures & Options) are ideal instruments to protect your

portfolio against risk. You can trade with index movements, hedge and

leverage your portfolio by limiting risk but keeping your upside unlimited.

Equity Research

Equity Research is an inherent strength of MOSt. MOSt believes in picking

investment opportunities where the underlying value is higher than the

market price. A feather in the cap, Asiamoney Brokers Poll 2005 has ranked

us the best Indian brokerage firm.



MOSt EAG:

In keeping with its tradition of personalized service, Motilal Oswal

Securities Limited set up MOSt EAG to provide customized and integrated

equity solutions to High Networth Investors.

Equity Research is an inherent strength of MOSt. We believe in picking

investment opportunities where the underlying value is higher than the

market price.

Most EAG team has highly trained equity professionals, who act as your

Relationship Managers (RMs). Most RMs proactively helps you take

informed equity investment decisions and build a healthy portfolio.



Client Profiling

MOSt RMs determines each EAG client's profile before deciding the ideal

asset allocation. Profiling takes into consideration issues like your attitude

towards risk, investment horizon, life stage, return expectation and

investment objectives

Investments & Trading:

MOSt RMs are experts in providing value based investment solutions as

well as advising you in positional trading, as per your profile.

Portfolio Tracking Software:

Client’s portfolio is continuously monitored using Portfolio Tracking

Software.

Integrated Approach:



They use integrated approach in there investment strategy using a

combination of cash, derivatives and other leverage products to help client

reach there investment goal.

Benefits

MOSt EAG team has highly trained equity professionals, who act as client’s

Relationship Managers (RMs). MOSt RMs proactively help there client take

informed equity investment decisions and build a healthy portfolio. The

RMs keep a close watch on the performance of each stock in client’s

portfolio and suggest changes as and when there is a significant trend

reversal or deterioration in a company's performance. This is to help client

reach there investment goal. The RM doesn't stop at just that, he goes a step

further to ensure that client’s trades are settled and stocks credited in there

Demat account in a timely manner. This allows MOSt to give client’s a

convenient single window service and client’s RM becomes the single point

contact for all equities related matters.

Clients will receive regular portfolio valuation reports to enable them to

monitor performance and view the progress towards the investment

objective.

Clients can avail of there services from all there branches in Mumbai,

Ahmadabad, Bangalore, Chennai, Delhi, Hyderabad, Kochi, Kolkata, Surat,

Vadodra.



BUSINESS ASSOCIATE

MOSt Business Associate

Motilal Oswal Securities Ltd. (MOSt) is arguably one of the best brands

among Indian Domestic broking houses enjoying an unmatched and

unparallel brand recall. Financially sound, with an excellent track record of

consistent market growth in all key business segments. MOSt is spread

across 24 states in 375 cities through 300 Business Associates and 52

branches.

To reach out to more investors across India, MOSt builds partnership with

high caliber and like minded individuals and companies who share similar

business philosophy, ethics and values, a sound client base and having the



zeal and potential to capture a larger market share within their allotted

territory.

How do Business Associates benefit

Access to world-class research, daily, fortnightly, monthly & annually

Strong technology and infrastructure support with regular exclusive

training on risk management and IT systems

Strong national brand name and continuous marketing support

through advertisements, PR, exclusive training programs, marketing

collaterals, wealth creation seminars, etc

A bouquet of equity investment solutions to facilitate cross selling of

products and services-

Advice-based broking on BSE / NSE (Cash, Derivatives

and Commodities*)

Portfolio Management Services (PMS)

E-Broking

Depository Services (MODES)

Mutual Funds & IPOs



E-BROKING

MOSt E-Broking

There is nothing more exhilarating, more daring and more rewarding than

making the right trade at the right time. E-Broking platform brings a world

class experience of online investing. Buying and selling of shares is now just

a click away.

A multitude of resources like live quotes, charts, research, advice and online

assistance helps you take informed decisions. Our robust risk management

system and 128 bit encryption gives you a complete security about money,

shares, and transaction documents.



Benefits of Trading Online

Single screen order/trade entry, without going through the hassles of

giving transfer instruction, writing cheques.

Instant order/trade confirmation gives you similar trading experience

as exchange based software without the burden of overhead and

maintenance cost

A refreshing experience of getting outstanding research based advice

on intra day and delivery trades on the same screen

Live quotes of NSE-Cash/Derivative, BSE Cash, Commodity. Create

multiple market watches, default market watch - NIFTY, SENSEX,

and Industrial. You can add NSE-Cash, Derivative & BSE script on

the same market watch

Get access to various online reports like margin report, Demat A/c

details, trades executed, turnover report, net position report with mark

to market profit/loss and realized profit

Online transfer of funds through HDFC Bank

Access to latest research reports, daily market dairy, pivot points,

derivative dairy

View top 20 shares by value or volume traded, along with top gainers

/ losers



PORTFOLIO MANAGEMENT SERVICE

MOSt PMS Motilal Oswal Securities runs two types of PMS schemes meant for

investors with different investment preferences. While our Value PMS

scheme is meant for investors with long-term interest in the market, there

Bull's Eye PMS scheme is meant for investors who want to take moderate

risk and generate healthy returns from the equity market from time to time.

Its clients, investor community and some of the most prestigious

publications like Asia money and Institutional Investors amongst others

acknowledge Motilal Oswal Securities as one of the leading research based

equity broking house in India. With about 15% of our revenue invested in

our research capability, we have some of the sharpest resources that produce

excellent research insights on companies. The same is then passed to our



highly rated portfolio management and investment advisory team that works

on its personalized investment strategy.

FOR WHOM

Portfolio Management Service (PMS) is meant for investor with long-term

time horizon. Low portfolio churn and capital preservation will be key to

success. Our investment decision will cushion in high .margin of safety. So

that it leaves sufficient room for investor to be invested and nurture his

portfolio.

PMS is a product wherein a customised investment portfolio is created to

suit the investment objectives of a client. In PMS, the responsibility of

creating and tracking the portfolio is handled by the portfolio manager. Idea

generation, order execution, settlement and performance reporting is all

assumed by the PMS provider. This service is particularly advisable for

investors who cannot afford to give time or don’t have those expertises for

day-to-day management of their equity portfolio. They would prefer Mr.

Raamdeo Agarwal, Portfolio Manager, to manage the same. The client

derives the benefit of the professional expertise and experience of Mr.

Raamdeo Agarwal.



Bull’s Eye PMS

Bull's Eye strategy to better returns . . .

Here is the investment strategy MOSt employ to generate desired returns

through there Bull's Eye PMS scheme. They believe Investing = Hunting.

It’s about identifying the right stocks, picking and exiting at the right times

and then continuing the cycle.

Identifying the right stocks: There strong, proven Fundamental

Analysis skill allows them to understand the profile and the



performance of various companies. This allows them to pick the

wheat from the chaff.*

Determining Entry and Exit Points: After identifying the companies

for investment, they resort to technical analysis, read the market

condition and pick up the stocks in opportune sectors. They believe

that apart from the right entry levels, selling at the right time is

equally important. Therefore, they employ similar strategy while

exiting the stock. And this completes there hunt for good returns.

Moderate risk is the key philosophy: they take moderate risk while

making any investment. Duration of the investment is one to six

months. So even while a stock may look fundamentally strong, the

age of there investment in it may depend on the reality based on

technical research along with the prevailing market conditions.



Value Hedging PMS

Value Hedging PMS is a promising scheme that may be a unique and

pioneering effort in its segment. Not only will there clients benefit from

there exceptional stock-picking ability, but also capitalise on short-term

price volatility.

Through this scheme they offer that delicate balance between long-term

returns and short-term gains.

The Value Hedging PMS is primarily a hedging based discretionary PMS

product. They will do the following to bring best results:

They will pick stocks based on there value investing philosophy



Various derivatives strategies will be used to hedge portfolio based on

prevailing market conditions. For example, in a bearish market they

can hedge position by writing the calls and collecting premiums and at

the same time they can buy the puts to avoid the fall in asset value vis-

a-vis market fall.

Needless to say, most of the stocks they pick will have to be on the

derivatives list. With an increasing list, almost every important stock will be

a part of the derivatives segment. The Value Hedging PMS might also invest

in some non-F&O stocks in case the investment rationale is very compelling.

Value Hedging PMS is managed by Mr. Jigar Shah. Mr. Shah has a proven

track record of more than 5 years advising top High Networth Clients on

their equity investments.



MUTUAL FUNDS

Emergence of Mutual Funds

Markets are increasingly becoming more sophisticated and

complex

investors need a financial intermediary who provides the

required knowledge and professional expertise on successful

investing



Incremental flow of funds into mutual funds rather than

traditional avenues

Started in India since 1964.

MOSt Mutual

To enable clients diversify their investments Motilal Oswal Securities

Limited has added another product in its bouquet and will now offer mutual

funds.

MOSt mutual team is in close contact with various fund houses and

interactive sessions are held with fund managers. They provide client with

regular updates on products and new schemes. Being one of the stock

brokers they keep a close watch on the markets. Based on client risk

appetite, investment horizon and there existing investments team will

suggest investment in mutual fund schemes, which are best, suited to client.

The fund and scheme selection is done after an in-depth research on

parameters like risk adjusted returns, rolling returns, volatility and portfolio

churn. Team advises a mature and long-term view on mutual fund

investments. MOSt Mutual doesn't stop at just that, they go a step further to

ensure that client get the right NAV, there dividends are credited on time

and there account statements are regularly received.



COMMODITIES

Commodities are a integral part of our life.

They form a part of the:

Food we eat (Pulses, Food grains, Oil & Oil seeds)

Clothes we wear (Cotton, Silk)

Precious Metals (Gold & Silver)

Investors looking for a fast-paced dynamic market with excellent liquidity

can trade in Commodity Futures Market. The Commodity Exchange is a



Public Market forum and anyone can play in these vital Commodity

Markets. Motilal Oswal Commodities Broker (P) Ltd can provide an entry to

the Commodity Markets. MOCB is a registered trading-cum-clearing

member of NCDEX. MOCB offers advice on investments, strategy &

provide research with trading advice.

Chapter: 2 Organizational Structure



The basic organizational structure is as follows:



The branch has divisions in-



- Marketing,

- Advisory &

-Support & Function.

Each of these fields has separate hierarchy followed. The split takes place

right after Regional Manager.

The internship was undertaken at Shanthinagar Branch of MOSt. The

following was the organizational structure at this branch:



Chapter: 3 Operational Aspects of

Different Functional

Department

Functional Departments



MARKETING

In this department where the demat account as well as Mutual Funds is

marketed, marketing executives are seeks for prospective customers, they

helps in opening of an account and also these executives collects AMCs and

provide other services.

ACCOUNTS

Maintaining the purchases of stores department

Internal auditing

Payments and receipts

HR & ADMINISTRATION

PAY ROLL MAINTAINANCE: maintenance of employee details like

salary incentives, bonus, and performance records etc

RECRUITMENT DEPARTMENT: this department helps in assessing the

needs of Labor force and recruiting the needs of Labor and giving the

orientation programme to new employees.



HRD:

Maintain good relation ship with the employees

Identifying the demotivated employees and providing the necessary

motivation

Accepting problems of the workers and helps in solving them,,

SUPPORT & FUNCTION

FRONT OFFICE

In front office the following services are done.

· Account opening

· Holding enquiries

· Transfer of physical shares to demat form

· Transfer of demat shares to physical form

· Transformations of shares from demat to trading account etc...

BACK OFFICE



· Maintenance of all demat account

· Giving intimation related to the due of AMC’s to their account holders

· Sends quarterly information to the holders related to the holdings

ADVISORY SERVICES

This is the main function done by the department, MOSt gives every

financial advisory service to investors e.g.: portfolio management, equity

tips, tax planning etc.



Chapter: 4 Performance Evaluation

SWOT ANALYSIS:



Strength

Large and diverse distribution network

MOSt financial products and services are distributed through a pan-India

network. The business has grown from a single location to a nationwide

network spread across 1,160 Business Locations operated by them and their

Business Associates in 363 cities and towns.

Strong research and sales teams

28 equity research analysts covering 208 companies in 25 sectors and 5

analysts covering 18 commodities.

In 2006, Asia money rated a member of their sales team as the best sales

person for Indian equities.

Experienced top management

Both of Promoters, Mr. Motilal Oswal and Mr. Raamdeo Agrawal, are

qualified chartered accountants with over two decades of experience each in

the financial services industry. In addition, our top management team

comprises qualified and experienced professionals with a successful track

record

Well-established brand



Motilal Oswal is a well-established brand among retail and institutional

investors in India. They believe that their brand is associated with high

quality research and advice as well as our corporate values, like integrity

and excellence in execution.

Wide range of financial products and services

Healthy Financial Market

Excellent Infrastructure

1 of the top 5 broker in the country

MOFSL’ presence in the field of finance for a long time.

Weakness The main concern with the brokerage business is cyclicality. Trading volumes drop sharply during a downturn. When the Indian stockmarket enters the bear phase, Motilal Oswal will be affected.

Leading firms are better placed to weather a downturn and may even be able to accelerate industry consolidation by rolling up smaller firms that have been affected to a much larger extent.

Dependency on third parties exposes us to losses caused by financial or other problems experienced by them.

MOFSL operate on leased premises.

MOFSL have entered into a number of related party transactions.

Opportunities



Good Customer Base

Rising consumer incomes will translate into disproportionately higher

allocation of these funds into equities.

Right now, under 3% of India's retail assets are invested in stock

markets. Cash, bank deposits, real estate and gold dominate the pie-

chart on how Indians invest their wealth. As economies develop, there

is all possibility that this % rises.

Further, the stock broking industry is highly fragmented and seeing a

gradual consolidation. Motilal Oswal's growth has outpaced that of the

industry and the company should continue to gain from this

consolidation in stock markets.

Growing IPO issues

Can make use of sustained growth in retail segment of financial

Product.

Economic growth in India

Rising of FDI

Growing consumer awareness about equity related product.

Threats



Existing Competitors

Market Uncertainty

Political instability or changes in the government could delay the

liberalisation of the Indian economy and adversely affect economic

conditions in India generally, which could impact our financial results

and prospects.

Broad economic factors like inflation etc.

We have reputational risks in respect of our distribution of third party

products Downturns or disruptions in the securities markets could reduce

transaction volumes, and could cause a decline in the business and

impact profitability.



Chapter: 5 Problem Areas

FINDINGS:



Motilal Oswal Financial Services (MOFSL), a financial services company

focused on wealth creation for all its customers such as institutional and

corporate clients, HNI and retail customers, proposes to enter capital

markets with an initial public offering (IPO) of 29, 82,710 equity shares of

Rs 5 each for cash at a price band between Rs 725 and Rs 825 per share with

100% book building process.

The company is going to raise Rs 216.25 crore in lower end of the price

band and Rs 246 crore at higher band, as per its DRHP filed with Sebi.

The issue comprises a net issue to the public of 2,840,400 equity shares of

Rs 5 each and a reservation of 142,310 equity shares of Rs 5 each for

subscription by eligible employees at the issue price. The issue will

constitute 10.50% and the net issue will constitute 10.00% of the post issue

paid-up equity capital of the company.

The equity shares are proposed to be listed on the BSE and NSE. Citigroup

Global Markets India Pvt Ltd is the book running lead manager and In time

Spectrum Registry is the registrar to the issue.

MOFSL is the holding company of Motilal Oswal Securities Limited

(MOSL-broking business), Motilal Oswal Commodities Brokers Pvt. Ltd



(MOCB-commodity business), Motilal Oswal Investment Advisors Pvt. Ltd

(MOIA-investment banking business) and Motilal Oswal Venture Capital

Advisors Pvt. Ltd (MOVC-venture capital advisory).

In the year 2006, private equity investors New Vernon Private Equity

Limited and Bessemer Venture Partners Trust bought a 9.47% stake in the

company for Rs 518.9 per share (the face value per share being Rs 5).

Motilal Oswal Financial Services Ltd proposes to infuse funds into MOSL

and in MOCB in the form of a subscription for their equity shares, unsecured

loan or any combination thereof. Such capital infusion will help strengthen

their respective balance sheets and thus enable them to increase trading

volumes in the equities and commodities market. MOFSL provides a

financing facility to its retail broking customers. MOFSL proposes to

enhance this financing facility.

MOSt is one of the leading broking houses in the Equity Market. MOSt has

good success rate as lead managers. It has Branches all over country. Its

biggest strength is their presence in the field of finance for a long time.

PROBLEMS AREAS



The market, in which the organization is a part, is volatile. Risk is the major

concern which is of prime concern in the trading associated with the cash

market.

Lack of penetration in market of Mutual funds.

Advices related to equity market are given to HNI clients only.

Advertisement policy of MOSt is not as effective as it should be.

MOSL contributed 99.99% and 91.95% of our total consolidated

revenues for the Financial Year 2006 and nine months ended

December 31, 2006, respectively. We are substantially dependent on

MOSL and any decline in MOSL’s revenues and profit margins will

adversely affect our consolidated results.



Chapter: 6

Recommendations

RECOMMENDATION:



Providing Multi department skill, Multi work skill training to

employees in order to give the tough competition to competitors and

also employees become more skilled.

Should pay more attention to the market of Mutual Funds.

Most of the existing investors not aware about the different products

of MOSt, so there is urgent need to publicize the services.

Addressing the customer’s queries and receiving constant feedback is

a must because MOSt is an online portal and there is very less

exchange of communication between the customers and the principal.

The company can start its own mutual fund and start investing in

stocks, debts and government securities. It has a special and dedicated

Research Desk who are into constant monitoring of the share markets.

It can take advantage of this and start a separate mutual fund. People

will have good confidence in this and the business can also be

profitable.

Continuing to build our brand, particularly in our new businesses, like

investment banking and venture capital management will be critical to

achieving widespread recognition.



Chapter: 7 Conclusion

Conclusion



Investment in India has become more of a security necessity than a business

lifestyle. As the interest rates all over are dropping, people are switching to

other avenues which fetch better results. The risk band that initially existed

as been eased out and people are on the lookout for new and better stuff. In

olden days, one could invest only in a few companies, but the present day

has given people to try a wide range of companies. The decision in regard to

investments is based on the sector performance as well as the strong

fundamentals of the company. The act of speculation has considerably been

reduced due to the statistical data and its analysis that companies like MOSt

do and people have become intelligent investors rather than mere

speculators. It was a very fruitful experience working in MOSt as a

management trainee. It offered exposure to the wide range of investment

options available. The risk factors involved could be understood easily. Not

only did it give a learning experience but also gave an idea on how we could

incorporate the various investment options, discovered by the economists,

into a good planning package.

BIBILOGRAPHY:



www.motilaloswal.com

www.nseindia.com

www.investopedia.com



PART:B



A

MICROSCOPIC STUDY

ON

T+1 SETTLEMENT CYCLE



INTRODUCTION

BACKGROUND

Capital markets are in the midst of a global, systemic restructuring.

Communication and technology have enabled individual financial markets to

link together creating one global market. Internationally, retail and

institutional investors have been empowered leading to a more dynamic and

sensitive market. The use of technology has enabled the investor populace to

discount news more quickly and comprehensively. Technology has also

enabled the formation of a larger and a fair market place. This platform has

been a launching pad for the exponential growth in volumes showing a

widespread and diverse interest in the securities market.

As the volume of securities trading in the global market place has increased

in the recent years, the need for shortening the settlement and clearance

cycle as a cost saving and risk management discipline has become critical to

the orderly conduct of business. As a result many jurisdictions around the

world are adopting shorter settlement cycle.



A reduced settlement cycle aligns efficiency of the clearing and settlement

process with the efficiency and effectiveness clients can expect from the

front end of the trade processes. It is therefore really believed that achieving

a reduced settlement cycle is critical for further development of the

securities market.



THE INDIAN CONTEXT

"… .. market risk management becomes far more efficacious at shorter

settlement cycle. There is need, therefore, to move to T+1 rolling

settlement from the existing T+3 by tuning up the funds and securities

processing cycle. SEBI is being advised to take necessary action in this

regard in consultation with the RBI. "

Shri Jaswant Singh

(2002)

The Indian securities market too has tackled challenges and embraced

innovations in technology. The volumes in the domestic markets have

increased substantially over the years. The cross border trades, more

popularly known as FII trades, have also increased over a period of time.

In July 2001, the Indian securities market made a paradigm shift from the

century old account period settlement to a T+5 rolling settlement. Keeping

abreast with the dynamics of the securities market and to integrate with the

world markets, in april 2002, the Indian capital markets joined the league of

developed markets in the world by the introduction of the T+3 settlement

cycle.



However the increasing volumes and the need for greater finance to fund the

higher volumes have prompted policy makers and regulators to consider

reducing the settlement cycle to T+1 rolling settlement.

There are four key features which characterise the reduction in the

settlement process:

1) Seamless communication among all relevant market participants –

multiple service providers are to be linked together in a seamless and cost-

effective manner;

2) Significant real time processing – as settlement time frames are

compressed real time or near real time processing needs to be achieved by

all participants and dependencies on manual processes would be reduced

significantly;

3) Virtual and not physical processing – there will be reduction if not a

gradual elimination of physical securities and cheques; and

4) Concurrent and no sequential exchange of data and information – many

steps in the transaction processing which are now occur sequentially or in

batch modes would have to be concurrent.



To achieve this shift effectively, all market participants would be required to

join in the efforts and begin preparing their own internal systems. The

shortened cycle will affect all facets of the industry including broker /

dealers, banks, transfer agents, custodians, investment managers and

institutions.

A reduced settlement cycle aligns efficiency of the clearing and settlement

process with the efficiency and effectiveness clients can expect from the

front end of the trade processes. It is therefore generally believed that

achieving a reduced settlement cycle is critical for further development of

the securities market. For one it significantly reduces settlement risk; second

it has economic benefits and increases greater flexibility of trading and

investing

Some policy thinkers agree with the above contention and feel that it is

necessary to handle growing trade volumes and reduce risk, while others

contend that the cost / benefit equation doesn't warrant the necessary work.



INTERNATIONAL CONTEXT

The current T+2 settlement cycle was achieved in the US after an experience

with times of market turbulence made the risks of a five-day settlement

cycle abundantly clear. T+5 allowed too much time between trade execution

and settlement for a trading party to become insolvent or for the value of a

trade to deteriorate. But the U.S., a proactive regulatory environment is

accelerating the trends towards further streamlining and automating

processes towards further risk reduction and improved customer service.

For example the Securities and Exchange Commission (SEC), has

recommended quite sometime back that U.S. financial markets should

reduce the settlement window from three days after trade date (T+3) to next

day or Trade Date + 1 (T+1). The move to T+1 would imply automation of

each step in the settlement process ("commonly referred to as Straight

through processing"). Though, it must be said in the same breath that the

US markets have number of times postponed deadlines for achieving this;

which itself testifies the difficulties and the investments required, in

completely automating the process from trade order and execution to

settlement.



In Canada, which achieved the change from T+5 to T+3 in 1995, the

Canadian Capital Markets Association (CCMA) is leading the move to

T+1.The reasons for moving to T+1 are the same as they were back then:

significantly increasing trading volumes, market volatility and competitive

pressures from other markets.

The CCMA has set its timetable with the US. Given the interconnectedness

of the Canadian industry with that of the US, the CCMA decided it was

essential to follow the US timetable. The other consideration is that many

securities are traded on both countries’ exchanges. By synchronizing T+1

with the US, the CCMA hopes to avoid crossborder arbitrages whereby

investors can trade wherever the system is most efficient.

In Europe, firms are now creating direct links to settle stock exchange-listed

equities resolve cross-border settlement issues. Efforts are underway to

develop industry communication standards and to normalize exchange

services to prepare for effective global capital movement.

In Asia, particularly in Japan, Singapore and Hong Kong, significant

progress has been made to establish shortened settlement cycles in recent

years. In 1997 a Trade Date +3 (T+3) settlement convention was adopted for

Japanese government bonds (JGBs)— a substantial decrease from the

previous mark of Trade Date +7 (T+7).



In addition, the Bank of Japan had taken the lead in developing a Real

Time Gross Settlement (RTGS) system for JGBs. RTGS will provide live

intra-day settlement, and marks a critical step in developing a local

infrastructure that will eventually permit T+1 settlement. Widespread

adoption of a T+1 standard, however, remains several years away.

In Singapore and Hong Kong, widespread moves to adopt T+1 are

underway. Finance ministries across Asia recognize that reducing the

duration of the settlement cycle and implementing RTGS is desirable,

although cross-border implementation initiatives, such as those in Europe,

do not exist to date. In those markets where there are currently no plans to

shorten the settlement cycle to T+1, the SEC's recent pronouncements has

stimulated debate and introspection on the issue and serve as a catalyst for

change.



CURRENT SCENARIO

The success of T+3 system and the rapid growth shown by depositories and

depository participants and the ease at which the market intermediaries

adapted to the changing environment saw the emergence of T+2 settlement

cycle that is presently in vogue. For many years, our markets operated on

a "T+5" settlement. As T+5 allowed too much time between trade

execution and settlement for a trading party to become insolvent or for the

value of a trade to deteriorate, the SEC reduced the settlement cycle from

five business days to three business days, which in turn lessened the amount

of money that needs to be collected at any one time and strengthened our

financial markets.

The reasons that took exchanges from T+5 to T+2 are now leading them to

T+1. However, the road to T+1 is even more difficult than the one to

T+2.

Kinds of Security transactions under T+2

Most security transactions, including stocks, bonds, municipal securities,

mutual funds traded through a broker, and limited partnerships that trade on

an exchange, must settle in three days.



Exceptions

Government securities and stock options settle on the next business day

following the trade. For certificates of deposit and commercial paper, the

transaction on the same day. For U.S. treasuries, it is the next day (T+1), and

forex transactions are settled two days after (T+2).



Working of stock market:

A market trade is one that is settled through participation of a Clearing

Corporation. In the depository environment, the securities move through

account transfer. Once the trade is executed by the broker on the stock

exchange, the seller gives a delivery instruction to his DP to transfer

securities to his broker's account. The broker has to then complete the pay-in

before the deadline prescribed by the stock exchange. The broker removes



securities from his account to CC/CH of the stock exchange concerned,

before the deadline given by the stock exchange.

The CC/CH gives pay-out and securities are transferred to the buying

broker's account. The broker then gives delivery instructions to his DP to

transfer securities to the buyer's account. The movement of funds takes place

outside the NSDL system.

1. Seller gives delivery instructions to his DP to move securities from his

account to his broker's account.

2. Securities are transferred from broker's account to CC on the basis of a

delivery out instruction.

3. On pay-out, securities are moved from CC to buying broker's account

4. Buying broker gives instructions and securities move to the buyer's

account.



AN OVERVIEW OF T+1 SETTLEMENT CYCLE

Under a T+1 settlement cycle, investors will probably have to change the

way in which they buy and sell securities. For example, investors who hold

certificates may have to deliver the certificates to their brokerage firm before

their brokerage firm will execute their orders. Investors purchasing securities

may need to have funds at their brokerage firm before their brokerage firm

will execute their orders.

The settlement period T+1 denotes “transaction date plus one day”.

The T stands for transaction date, which is the day the transaction takes

place. The number 1 denote how many days after the transaction date the

settlement or the transfer of money and security ownership takes place. For

determining the settlement date the only days that are counted are those on

which the stock market is open.

The period between transaction and settlement should not be considered as

a flex time in which one can back out of the deal. The deal is done on the

transaction day--it's just the transfer that does not take place until later. The

parties participating in a transaction an obligation to perform their par. For

example, for two parties involved in a futures contract, the seller is obligated

to sell and deliver the underlying asset and the buyer is

contractually obligated to pay the agreed upon price and accept the delivery.



Simply put, Under T+1 rule, when one buys securities, the brokerage firm

must receive the payment no later than one business day after the trade is

executed. When one sells a security, he/she must deliver to the respective

brokerage firm the securities certificate no later than one business day after

the sale. The securities are generally held in the form of electronic accounts

under this context

In a T+1 environment, almost all trades will be executed electronically.

Regulatory amendments will be required as electronic certificates replace the

majority of paper ones. Currently, certificates are kept by their holders or

securities custodians. With T+1, electronic positions will have to exist for

any remaining certificates before those stocks are traded. “The mag- nitude

of the changes required is better understood when one considers that the

work that took three days to complete will [with T+1] be completed in one

day,” says Jean-Pierre Maisonneuve of the Ontario Securities Commission.



Problems in the way of implementing T+1

• Manual processing and the lack of automation even after the T+3;

• Lack of real time functionality where the technology is employed;

• Lack of standard interfaces and the inter operability;

• Lack of data integrity and standards;

• The need to fully immobilize securities to prevent lengthy processing

and turn-around times..

• The need to overhaul the prospectus delivery rules



Removing these obstacles means introducing the Straight Through

Processing;

The Straight Through Processing (STP) is an overall business and

technology strategy to reduce the risk, cut costs, improve the customer

services, handle larger volumes, and have greater ability to introduce new

products. It is best described as the seamless integration of systems, and the

processes to automate the trade process from end to end. That is from the

trade execution, to confirmation, to settlement without the manual

interventions and the redundant processing. The benefits of the STP go

beyond introducing the T+1, but primarily it is the desire to move to the T+1

that is behind introducing the STP.

"Achieving straight through processing will streamline back-office

procedures, increasing efficiency to the system while minimizing

operational risk. Through automation, manual intervention will become

the exception rather than the norm. As a result, fewer fails will occur by

human error, and accurate trade data will reach the clearing corporation

and the depository more quickly. Back-office staff can then focus on

processing today's trades rather than correcting yesterday's."

R. Bruce Striegler



The STP requires

(i) Standardization of the software and the hardware in brokerage houses and

other places;

(ii) Real time information flows to all participants; and (iii) reliable and

flexible technology infrastructure.



FACTS ABOUT STRAIGHT THROUGH PROCESSING (STP)

Distinguishing STP from T+1

Some believe T+1 is the only way for firms to forward their STP

agenda.Others thinks that to achieve T+1 firms need to be STP ready first.

Even before the postponement of T+1, we believed – and still do – that STP

is the answer. Before T+1 can be a reality, firms must efficiently process

internally. Then they can respond more effectively to external pressures and

interact with other industry participants in a timely manner during the

transaction lifecycle.

T+1 Is Anticlimactic

Achieving STP industry initiatives will reduce the overall risk experienced

in today’s processing environment – significantly enough to make T+1

anticlimactic. Focusing on institutional transaction matching as a

prerequisite for settlement will reduce credit and, therefore, market exposure

for a substantial portion of the marketplace. Reducing manual processing

associated with recalling securities lending arrangements and e physical

certificates decrease the likelihood of operational risk. Implementing these



types of STP initiatives will go a long way to reducing overall risk without

having to change the settlement cycle.

The Real-Time Difference

Regardless of T+1, real-time or “near” real time processing does make a

difference. Being able to identify potential problems or discrepancies as

soon as they occur allows firms to respond better to risk – credit, market,

Operational – associated with “broken” transactions. Indeed, providing real-

time information for transactions across the enterprise allows the firm to

make more timely business decisions to mitigate risk or take advantage of

market opportunities. Add to that the fact that customers are demanding

more timely information to make their own business decisions and you’ll

arrive at the conclusion that real-time does matter.

Start with Strategic Processes

Although all firms will benefit from having an STP environment, one should

understand the practical reality that it may not be cost-effective for every

process in every firm to be “straight through”. Each internal STP initiative

should be analyzed to ensure that the benefits are worth the effort, time and

cost associated. However, to completely ignore STP would leave an

organization unable to compete.



Gain a Competitive Advantage

Without STP, firms limit utilizing their ability in a world that increasingly

calls for agility and cost effectiveness. Firms can get rid of manual and batch

processing, employ consistent standards, move to relying on “thinkers”

instead of processors and “break down the data walls “of business silos.

Getting “straight through” offers an institution the ability to provide

consistent, consolidated data that customers demand and that firms need to

make appropriate business decisions. STP also allows them to focus on their

core competencies and increase capacity without adding infrastructure.



THE HOLISTIC STP APPROACH

Business processes and technology play key roles in realizing STP. Still, to

achieve the full benefits of STP requires more than simply restructuring

processes and deploying new technology. Other key perspectives are

essential to ensure STP allows a firm to better achieve all its business

objectives.

In addition to business processes and technology, we encourage our clients

to address other perspectives as part of the holistic process of achieving

straight through processing.



Firms should ask themselves the following critical questions to ensure

they are addressing all aspects of their straight through processing

environment.

Regulatory/Compliance

• Does the processing environment satisfy the regulatory requirements?

Organizational Design

• Does the organizational structure support the processing environment?

• What are the needed skill sets and how can the regulatory requirements?

Risk Management

• What are the risks associated with the new processing environment?

• What are the risks associated with not implementing the new processing

environment?

• What actions are required to mitigate the new risks?



Internal Controls Practices

• Are the proper ‘checks and balances’ in place?

• What are the key metrics to monitor business and controls performance?

Financial Reporting and Corporate Responsibility

• Is there transparency of information across the organization?

• Do the processes reflect the governance policies and culture?

Business Continuity

• Are recovery processes in place to ensure minimal loss of business and

reputation?

Change/Leadership Management

• Is there a communication plan to garner “buy-in” and promote

commitment?



Risk Reduction Benefits of Shorter Settlement Cycles

The goal of shortening the settlement cycle is to reduce risks that can lead to

systemic disruptions in the financial markets.

Risks Prior to Settlement

Pre-settlement risk is defined as the risk that counterparty to a transaction

for completion at a future date will default before final settlement. The

resulting exposure is the cost of replacing the original transaction at current

market prices. This is also known as replacement cost risk.

Pre-settlement risk is of concern because it involves a change in the value of

the securities if one of the party’s defaults. If the default is by a major

player, it might suffer credit losses as large as to create systemic problems. If

you reduce the time you reduce pre-settlement risk. A good example of this

is the 1987 market break – where the settlement cycle was T+5. During

those five days, ten of the 30 DJIA stocks declined 35% or more. A default

by the buyer of one of those stocks would have exposed the seller to big

losses. There are other examples … on October 27, 1997 the DJIA declined

by 554.26 points … on August 31, 1998, the DJIA fell by 512.61 points.



With sharp price movements, traders may be unwilling or unable to meet

margin calls and default on their delivery obligations.

Risks at Settlement

Settlement risk means the risk that settlement in a transfer system will not

take place as expected. This might be both credit and liquidity risk. This is

also known as principal risk – the risk of loss of securities or payments

made to the defaulting party before the detection of the default. In this

scenario, both the buyer and seller are exposed to risk of loss of the full

principal value of the securities or funds transferred.

In addition, both parties are exposed to liquidity risk on settlement date.

Liquidity risk is the risk that the seller of a security who does not receive

payment when due may have to borrow or liquidate assets to complete other

payments. It also includes risk that the buyer does not receive delivery when

due and may have to borrow the security in order to complete its own

delivery obligation. The Commission believes that liquidity problems have

the potential to create systemic disruptions.

Liquidity problems have the potential to create systemic disruptions. In

particular, if liquidity problems arise when securities prices are changing

rapidly, failures to meet obligations when due are more likely to elevate

concerns about solvency. In the absence of a strong linkage between



delivery and payment, the emergence of systemic liquidity problems at such

times is especially likely. The fear of losing the full principal value of

securities or funds could induce some participants to withhold deliveries and

payments, which, in turn, may prevent other participants from meeting their

obligations.

Operational Risk

Operational risk is the risk that deficiencies in information systems or

internal controls, human errors or management failures will result in

unexpected losses. As clearing and settlement systems become more

dependent on information systems, the reliability of these systems (errors or

delays in processing, system outages, insufficient capacity, and fraud) is a

key element in operational risk.

Operational deficiencies within a broker-dealer, a clearing corporation, or at

an exchange can increase the risk of loss to market participants and

investors. These deficiencies can reduce the effectiveness of other measures

that the settlement system takes to manage risk. For example, operational

problems could impair the system's ability to complete settlement, create

liquidity pressures on the market or participants, or hamper the system's

ability to monitor and manage credit exposures. Possible operational failures

include errors or delays in processing, system outages, insufficient capacity,

or fraud by staff



The events of September 11, 2001, demonstrated how operational risk

results from unforeseen events that can directly and severely affect market

functions. Generally, financial crises involve both operational and credit

issues. In contrast, the events of September 11, 2001, were unusual in that

the settlement problems that did occur resulted almost exclusively from

operational problems. No firm failed in the immediate aftermath of the

terrorist attacks, although some firms were severely affected. If credit

problems had arisen, the systemic consequences could have been severe.

However, the attacks did highlight the need to examine the risks in the

clearance and settlement system, including the need for a resilient clearance

and settlement infrastructure.



COSTS OF IMPLEMENTING T+1

T+10 T+5 T+3 T+1

Technology C l it &

Cost



1) SIA’s Business Case Model Report

According to SIA's Business Case Model report, moving to T+1 will cost

approximately $8 billion, a figure that covers upgrading information systems

and processes, purchasing new software and training, but will save the

industry $2.7 billion a year.

The SIA estimated that settlement exposure would decrease by $250 billion

in a T+1 environment. With fewer open positions at the clearing agencies,

the SIA purported that T+1 settlement could reduce participants' clearing

fund obligations by one-third. Additionally, operational risk for custodians

would also be reduced as the number of pending settlements decreased. The

SIA further concluded that firms would benefit from an annual cost savings

of approximately $2.7 billion, and would therefore recoup their investment

three years after implementing a T+1 settlement cycle.

Since its publication, a number of critics questioned the assumptions and

conclusions contained in the SIA's Business Case Report, arguing that it

would cost the industry more than $8 billion and the cost recovery would

take longer than three years. Critics also argued that the SIA's Business Case

Report did not adequately quantify the risk reduction benefits of moving to

T+1.

However, Towergroup, a leading research and advisory firm puts the

figure at $19billion.



2) Costs to Cross-Border Trading

Reducing the settlement cycle is neither costless nor without risk. "This is

especially true for markets with significant cross-border activity because

differences in time zones and national holidays, and the frequent

involvement of multiple intermediaries, make timely confirmation more

difficult. In most markets, a move to T+1 would require a substantial

reconfiguration of the trade settlement process and an upgrade of existing

systems. For markets with a significant share of cross-border trades,

substantial system improvements may be essential to shortening settlement

cycles. Without such investments, a move to a shorter settlement cycle could

generate increased settlement fails, with a higher proportion of participants

unable to agree and exchange settlement data or to acquire the necessary

resources for settlement in the time available. Consequently, replacement

cost risk would not be reduced as much as anticipated and operational risk

and liquidity risk could increase.



Why T+1?

1. To reduce risk and increase efficiency in securities.

The longer the period between trade and settlement, the larger the

volume of unsettled trades at any given moment and greater the

exposure to the risk.

2. To cope with increasing trading volumes.

3. To remain competitive and please investors by reducing cost.

4. To reduce counterparty credit risks by reducing the number and value

of trades awaiting settlement and by reducing the potential for losses

from those unsettled trades should a participant default.

5. T+1 is another important plank in our quest to improve the global

competitiveness of our capital markets.

6. To increase operating efficiency and reduce the probability of

settlement errors.



MOVING TO T+1….

ARE WE READY?

To achieve "real STP" and T+1, many diverse transactions, system

functions and operations must occur simultaneously. This highly parallel-

processing environment will need to be supported by a complementary-

technical architecture and organization design.

NO EASY APPROACH

Many buy-side firms are taking the approach that STP can be implemented

by tacking on an order-management system to the front end, automating

some manual procedures in the back office and buying some middleware to

integrate diverse hardware and software platforms. Many of these same

firms are finding that these adjustments do not guarantee T+1 processing

capability and that it certainly isn't easier to support nor any less expensive.

This patch-work approach is more likely to increase maintenance

requirements and processing errors, reduce efficiency and thereby increase

operational risk. As a result, these firms are missing the opportunity to

implement the parallel-processing capability needed to support the reduced-



settlement cycle, increase operating efficiency and reduce the probability of

settlement errors.

Parallel processing requires fundamental changes in back-office operations

and technology architecture, as well as basic business practices and

organizational design. In other words, the scope of changes required to

support T+1 is far beyond the changes most buy-side firms are planning or

implementing today.

TECHNOLOGY UPGRADES REQUIRED

As the T+1 settlement models are developed and published, a better

understanding is developing of the implementation requirements for these

processes. The core processes of these models, and the time frame in which

they must be executed, require a high degree of parallel processing. This will

require real-time, concurrent multi-stage trade-data enrichment for

executing, allocating and settling trades which will be particularly true for

high-volume environments. Current systems and processes will need to be

modified to allow for partial, asynchronous updates of information.

Trade interrupts will have to be recognized, handled and communicated to

other systems on a real-time basis. This approach represents a major change

from the way most investment systems have been designed. The integration



of the virtual-matching utilities (VMUs), whether it is Omgeo, GSTP, or

SunGard, is critical to any solution and many internal processes and systems

will have to be modified to take advantage of the VMU capabilities.

Predictably, parallel processing requires substantial upgrades in processing

capacity.

Many organizations will look toward technology as the primary enabler (or

disabler) for achieving T+1. Technical architecture, often an afterthought in

an industry focused on multi-vendor, best-of-breed solutions, may ultimately

determine a firm's ability to support T+1.

While integration tools such as middleware may be part of the solution, few

order-management or portfolio-accounting systems have been designed to

take advantage of functionality such as guaranteed message delivery or

rules-based processing that middleware can support. Historically, attempts at

ERP-like (Enterprise Resource Planning) application suites for the buy

side have not been well accepted. This approach may begin to make more

sense as organizations consider the impact of the reduced-settlement cycle

and struggle to support it with multiple vendors on multiple platforms.



DATA INTEGRITY IS THE KEY

A fundamental dedication to data integrity that currently exists in few

organizations will be essential to supporting T+1. Because of the shorter

settlement cycle there will be less time to find and correct data problems.

Multiple accounting systems and multiple security-master databases

become increasing burdens in the T+1 environment due to the limited time

to reconcile and correct data. Unless the data is managed and sourced from a

single internal or external source, such as a data warehouse, multiple

security masters will increase the risk of data errors occurring. Because

information integrity is fundamental to the investment process and T+1

reduces the window to get accurate information, buy-side organizations will

have to focus on data integrity and determine whether related functions,

such as corporate-action processing, can be supported internally or should be

outsourced to specialists.

At the very least, data management will require a new level of concentration

and attention. In many organizations this will require a new technology

architecture and corresponding process redesign.



NEW DEMANDS FOR DISASTER RECOVERY

There is no question that disaster recovery has taken on new meaning after

the events of Sept. 11. As a result, awareness of the need to have a carefully

conceived recovery plan has been elevated to the executive level in many

organizations. However, T+1 will require recovery planning at a much more

fundamental, transaction level.

Few buy-side organizations have implemented high-availability systems

such as real-time data and application backups or the ability to cut over to a

'hot' standby without losing any transactions. Potential financial and

operational exposure will have to be recalculated and rethought based on the

timing of the shorter settlement cycle and factors such as trade-execution

exposure.

Under the T+1 scenario, investment in high-availability capabilities is more

easily justified. In conjunction with disaster-recovery capabilities, active

monitoring of trade status on a real-time basis and implementation of

operational-risk systems, in addition to market- and credit-risk systems, will

need to become standard buy-side operations and management tools.



KNOW THE PARTNERS

Preparing for T+1 will extend beyond the walls of the buy-side organization

and the selection of the right VMU to include careful selection of business

partners as well. In the past, buy-side firms often expanded brokerage and

custodian relationships in order to increase potential sources of new business

referrals, frequently without concern as to the impact on operations or

systems overhead.

The operational-efficiency requirements of T+1 will demand a new

approach to adding business partners, including an assessment of the

partners capabilities to support electronic communication such as ISITC for

custodians and FIX for brokers.

Likewise, buy-side managers will find themselves, if they have not already,

similarly evaluated. In this extended enterprise each partner will have to

support minimum operating standards. Brokers and custodians may charge

higher fees or discontinue the relationship if the manager cannot support

electronic-transaction processing using industry-standard protocols.



PREPARING THE ORGANIZATION

All of these considerations, which are just a small subset of the full impact

of T+1, will require an organization to rethink its design and preparedness.

Bureaucratic or dispersed organizations may find it challenging to support

the reduced-decision-making time required by T+1.

Likewise, matrix-style organizations may find it difficult to integrate or

consolidate the operational and investment decision-making resources.

Without a clear organizational plan for managing the migration to become

T+1 ready, buy-side firms risk getting bogged down in a myriad of

operational challenges that will, in the end, interfere with the investment

process.

Operations and technology requirements for T+1 support will cause a

rethinking of the outsourcing option. This will be true whether the option is

selective, for functions like corporate-action processing, or a 'lift-out' of the

entire technology and operations function. Implementing the changes

described in this article will be expensive and may require organizational

changes that are not desirable to every buy-side organization. As a result,

outsourcing is likely to become an essential tool.. In any case, T+1 can only



be supported through an integrated approach, which achieves a highly

parallel-processing environment for buy-side managers.

---

The SIA identified ten building blocks as essential to realizing the goal of

improving the speed, safety, and efficiency of the trade settlement process:5

1. Modify internal processes at broker-dealers, asset managers, and

custodians to ensure compliance with compressed settlement deadlines.

2. Identify and comply with accelerated deadlines for submission of trades

to the clearing and settlement systems.

3. Amend the National Securities Clearing Corporation's ("NSCC") trade

guarantee process so that the guarantee is provided on trade date.

4. Report trades to clearing corporations in locked-in format and revise

clearing corporations' output.

5. Rewrite Continuous Net Settlement processes at NSCC to enhance

speed and efficiency.

6. Reduce reliance on checks and use alternative means of payment, such

as automatic debits allowed by the National Automated Clearing House

Association.

7. Immobilize securities shares prior to conducting transactions.

8. Revise the prospectus delivery rules and procedures for initial public

offerings.

9. Develop industry matching utilities and linkages for all asset classes.



10. Standardize reference data and move to standardized industry protocols

for broker-dealers, asset managers, and custodians.

CONCLUSION

Investment management firms, broker/dealers and custodian banks

recognize the benefits that a T+1 environment can provide. The reduction of

manual processes will be more cost effective and minimize risk. Employees

can move from merely processing transactions to focus on the firm’s core

competencies in providing value to customers. Consolidating data across the

enterprise will allow improved customer service and facilitate reporting.

T+1 settlement cycle is synonymous to greater automation, fewer risks,

faster service and, also, greater market liquidity. This means a pricing

system better matched to the actual value of securities. And since brokers

will reduce their credit exposure, the industry as a whole should benefit.

When investors go to their brokers to buy or sell securities, they have three

expectations. First, the process must be transparent. Second, investors

expect the process to be reliable, with minimal exposure to risks. Finally,

investors want high quality, affordable services. At present, our industry is

able to meet these expectations. However, as trading volumes continue to

rise and as our markets become more global, our ability to offer investors



exceptional services at competitive prices will be tested. One way to

maintain our standards and retain investor confidence is to increase

efficiency and reduce risk in the clearance and settlement system.

The road to T+1 is definitely a toughest one in terms of cost involved,

technology upgradation, data integrity etc, but once implemented it will

benefit the whole industry by increasing the overall efficiency.



BIBLIOGRAPHY: www.nseindia.com www.wikipedia.org www.icfai.org www.google.com www.commodityindia.com www.investopedia.com

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Motilal Oswal- Priyadarshini-06036