anand rathi project

64
A Project Report On “E-Broking: Banking and Finance" Submitted towards the partial fulfillment of Winter Internship of M.B.A. Finance Degree course, for the subject Submitted by : Priyanka Agnani M.B.A. - Finance IIIrd Semester Roll No. 247  NATIONAL LA W UNIVERSITY , JODHPUR

Upload: priyanka-agnani

Post on 06-Apr-2018

223 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 1/64

AProject Report

On

“E-Broking: Banking and Finance"

Submitted towards the partial fulfillment of Winter Internship of M.B.A. Finance

Degree course, for the subject

Submitted by:Priyanka Agnani

M.B.A. - Finance

IIIrd Semester

Roll No. 247

 NATIONAL LAW UNIVERSITY, JODHPUR

Page 2: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 2/64

Acknowledgement

As any one who has written a project work, or research work, it is quite impossible to acknowledge by

name every individual who has played some part in this work. I feel it difficult to express in words my profound

sense of gratitude to most respected persons who helped me to make this work possible.

I acknowledge my gratitude to Mr. Vinod Pandey, Mr. Sushil, Mr. Avadh Mangal, Mr. Rinku

Mayura, Mr. Jogendra & Mr. Jitendra for having laid the foundation of the work by providing the skeleton

upon which this skinny body of project is wrapped up and who have been kind enough to suggest improvement

of this work and make it broad, based.

An ample use of various reference readings has been very frequently made while compiling data for this project.

I am very much under obligation to mention here, the contributions of staff of Anand Rathi who

knowingly or unknowingly, provided me the competitive edge which is the driving force of the whole labour and

extra labour put into the project.

Finally, I feel very much gratified to the administration of the Anand Rathi Securities Limited for

 providing comfortable environment, rich infrastructure and the accessibility to software’s without which it is no

 possible to imagine the completion of this project work.

Above all, mention has to be made of the Almighty God for continuously blessing me and my whole

family and friends to whom I owe my very existence.

 

INDEX

Page 3: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 3/64

1. Organization Profile

2. Product & Services

3. Introduction to E-broking

4. Internet Broking

• E-Finance

• E-Money• E-Trading & E-Banking

• E-Broking

5. Settlement Pay-In and Pay-out

6. Cliental Accounting1. Bank Reconciliation Statements- RECO

2. Cash Management System-CMS

7. Reports

• Valan Report

• MIS Report

8. Future of Stock Market

9. Miscellaneous

Organization Profile

Page 4: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 4/64

Anand Rathi is a leading full service securities firm providing the entire gamut of financial services. The firmfounded in 1994 by Mr. Anand Rathi, today has a pan India presence as well as an international presence throughoffices in Dubai and Bangkok. AR provides a breadth of financial and advisory services including wealthmanagement, investment banking, corporate advisory, brokerage & distribution of equities, commodities, mutuafunds and insurance, structured products - all of which are supported by powerful research teams.The firm's philosophy is entirely client centric, with a clear focus on providing long term value addition toclients, while maintaining the highest standards of excellence, ethics and professionalism. The entire firmactivities are divided across distinct client groups: - Individuals, Private Clients, Corporate and Institutions andwas recently ranked by Asia Money 2006 poll amongst South Asia's top 5 wealth managers for the ultra-rich.In year 2007 Citibank group Venture Capital International joined the group as a financial partner .1 

PRODUCT & SERVICES

1 http://www.rathi.com/aboutus.asp?

Page 5: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 5/64

 MOBILE TRADE 

Broking firms bring you the mobile trade service. This facility allows you to capitalize on market opportunitieseven when your computer is inaccessible. Mobile trade essentially provides you the convenience of trading inequities, IPO's, mutual funds and derivatives over the mobile. The facility is extremely convenient especiallywhile investing in IPO's and derivatives, where a client can avoid completing tedious registration formalities by

 just placing a call on our toll free number. Mobile Trade facility would enable a large number of clients whowould like to trade but cannot do so, if they are unable to access the Internet. This facility is available at anadditional charge over the normal brokerage. A client who subscribes to this service can dial the call-centre linkedto the city he is located in and get the quote for scrip and place an order. The concept of mobile trade does awaywith the need of client to personally interact with the dealer or the broker for each trade that it s execute.

Features of the Mobile Trade

• Use Mobile Trade to get live rates prevailing in the market.

• Trade in all scrip that is available for trading at the broker.

All a client need to do is place a call to client service personnel, who after verifying the personal details will,execute the order on client's behalf, be it equities, Mutual funds or IPO’s. After Market Orders can also be placedthrough Mobile Trade facility also and our client care executives will place the order on your behalf.

• Dedicated telephone numbers for placing Instant Orders through Cell Phone or Landline from anylocation.

• Immediate connectivity to the dealers, so as to facilitate fast mode of order placing

• Trusted professional advice of our dealers, to help the client in choosing and placing right order 

• Modify / Cancel your orders.

• Quick information about Pending, Cancelled and the total number of orders placed.

• Place After market Orders.

• Information on Corporate Actions• Live Rates through phone.

• Daily Tips on your mobile phone.

 MUTUAL FUND

A Mutual Fund is a body corporate registered with the Securities and Exchange Board of India (SEBI) that poolsup the money from individual / corporate investors and invests the same on behalf of the investors /unit holdersin equity shares, Government securities, Bonds, Call money markets etc., and distributes the profits. In other

words, a mutual fund allows an investor to indirectly take a position in a basket of assets. Unit Trust of India isthe first Mutual Fund set up under a separate act, UTI Act in 1963, and started its operations in 1964 with theissue of units under the scheme US-64.Securities Exchange Board of India (SEBI) is the regulatory body for althe mutual funds mentioned above. All the mutual funds must get registered with SEBI. The only exception is theUTI, since it is a corporation formed under a separate Act of Parliament.

Why investment in Mutual Fund is beneficial: -

(1) Mutual Funds provide the benefit of cheap access to expensive stocks(2) Mutual funds diversify the risk of the investor by investing in a basket of assets

Page 6: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 6/64

(3) A team of professional fund managers manages them with in-depth research inputs from investment analysts.(4) Being institutions with good bargaining power in markets, mutual funds have access to crucial corporateinformation which individual investors cannot access.

What does Anand Rathi provides?

Anand Rathi is one of India's top mutual fund distribution houses. It provides consistently superior, independenand unbiased advice to its clients backed by in-depth research. It firmly believe in the importance of selectingappropriate asset allocations based on the client's risk profile. It has a dedicated mutual fund research cell formutual funds that consistently churns out superior investment ideas, picking best performing funds across assetclasses and providing insights into performances of select funds.

 DEPOSITORIES SERVICES 

An investor who buys securities from exchanges connected to NSDL or CSDL may receive his delivery in thedematerialized form as dematerialized securities can be delivered in the physical segment at the option of the

seller. Therefore, those investors who buy securities from these exchanges should necessarily open a depositoryaccount to take delivery of demat securities. Also, SEBI has made it compulsory for all categories of investors tosettle trades in demat form with respect to a select list of scrip’s since January 4, 1999. Therefore, investorstrading in these scrip’s will necessarily need a depository account to settle their trades. The list of scrip’s is beingcontinuously expanded by SEBI. Therefore, every investor who trades in securities may have to open adepository account.Dematerialization or demat is the process of converting the securities held in physical form into an electronicrecord form or to directly allot securities in electronic record form. These electronic records of securities areshown as “electronic balances” in the demat accounts of investors. Any investor can open a demat accounthrough a Depository Participant (DP). The DP is an agent of the depository and provides a link between theaccount holder or Beneficial Owner (BO), the Issuing Company, CDSL, the BO’s broker and the Stock

Exchange. CDSL publishes from time to time an updated list of DP’s registered with it.AR Depository Services provides a secure and convenient way for holding securities on both CDSL and NSDLIts depository services include settlement, clearing and custody of securities, registration of shares anddematerialization. It offers daily updated internet access to holding statement and transaction summary.

Benefits as to, which Anand Rathi is providing being a Depository Participant: -

In the depository system, the ownership and transfer of securities takes place by means of electronic book entriesAt the outset, this system rids the capital market of the dangers related to handling of paper. Anand Rathi via NSDL provides numerous direct and indirect benefits, like: -

• Elimination of bad deliveries - In the depository environment, once holdings of an investor aredematerialized, the question of bad delivery does not arise i.e. they cannot be held "under objection". Inthe physical environment, buyer was required to take the risk of transfer and face uncertainty of thequality of assets purchased. In a depository environment good money certainly begets good quality ofassets.

• Elimination of all risks associated with physical certificates - Dealing in physical securities haveassociated security risks of theft of stocks, mutilation of certificates, loss of certificates during movementsthrough and from the registrars, thus exposing the investor to the cost of obtaining duplicate certificatesand advertisements, etc. This problem does not arise in the depository environment.

Page 7: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 7/64

• No stamp duty for transfer of any kind of securities in the depository. This waiver extends to equityshares, debt instruments and units of mutual funds.

• Immediate transfer and registration of securities - In the depository environment, once the securitiesare credited to the investors account on pay out, he becomes the legal owner of the securities. There is nofurther need to send it to the company's registrar for registration. Having purchased securities in the  physical environment, the investor has to send it to the company's registrar so that the change o

ownership can be registered. This process usually takes around three to four months and is rarelycompleted within the statutory framework of two months thus exposing the investor to opportunity cost odelay in transfer and to risk of loss in transit. To overcome this, the normally accepted practice is to holdthe securities in street names i.e. not to register the change of ownership. However, if the investors miss a book closure the securities are not good for delivery and the investor would also stand to loose hiscorporate entitlements.

• Faster settlement cycle -The exclusive demat segments follow rolling settlement cycle of T+2 i.e. thesettlement of trades will be on the 2nd working day from the trade day. This will enable faster turnover ofstock and more liquidity with the investor 

• Faster disbursement of non cash corporate benefits like rights, bonus, etc.- NSDL provides for direc

credit of non cash corporate entitlements to an investors account, thereby ensuring faster disbursementand avoiding risk of loss of certificates in transit.

• Reduction in brokerage by many brokers for trading in dematerialized securities - Brokers providethis benefit to investors as dealing in dematerialized securities reduces their back office cost of handling paper and also eliminates the risk of being the introducing broker.

• Reduction in handling of huge volumes of paper.

• Periodic status reports to investors on their holdings and transactions, leading to better controls.

• Elimination of problems related to change of address of investor, transmission, etc. - In case ochange of address or transmission of demat shares, investors are saved from undergoing the entire change

 procedure with each company or registrar. Investors have to only inform their DP with all relevantdocuments and the required changes are effected in the database of all the companies, where the investois a registered holder of securities.

• Elimination of problems related to selling securities on behalf of a minor - A natural guardian is norequired to take court approval for selling demats securities on behalf of a minor.

• Ease in portfolio monitoring since statement of account gives a consolidated position of investments inall instruments.

COMMODITY MARKETS 

Commodity markets are markets where raw or primary products are exchanged. These raw commoditiesare traded on regulated commodities exchanges, in which they are bought and sold in standardizedcontracts.

Page 8: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 8/64

A. Commodity includes all kinds of goods. FCRA defines "goods" as "every kind of movable propertyother than actionable claims, money and securities". Futures' trading is organized in such goods or commodities as are permitted by the Central Government. At present, all goods and products of agricultural(including plantation), mineral and fossil origin are allowed for futures trading under the auspices of thecommodity exchanges recognized under the FCRA. The national commodity exchanges have beenrecognized by the Central Government for organizing trading in all permissible commodities which include

 precious (gold & silver) and nonferrous metals; cereals and pulses; ginned and un-ginned cotton; oilseeds,oils and oilcakes; raw jute and jute goods; sugar and gur; potatoes and onions; coffee and tea; rubber andspices, etc. A commodity exchange is an association, or a company or any other body corporate organizingfutures trading in commodities.

Future Contract

A futures contract is a type of "forward contract". FCRA defines forward contract as "a contract for thedelivery of goods and which not a ready delivery contract is". Under the Act, a ready delivery contract isone, which provides for the delivery of goods and the payment of price therefore, either immediately or within such period not exceeding 11 days after the date of the contract, subject to such conditions as may be prescribed by the Central Government. A ready delivery contract is required by law to be fulfilled by

giving and taking the physical delivery of goods. In market parlance, the ready delivery contracts arecommonly known as "spot" or "cash" contracts. All contracts in commodities providing for delivery of goods and/or payment of price after 11 days from the date of the contract are "forward" contracts. Forwardcontracts are of two types – "Specific Delivery Contracts" and "Futures Contracts". Specific deliverycontracts provide for the actual delivery of specific quantities and types of goods during a specified future period, and in which the names of both the buyer and the seller are mentioned. The term 'Futures contract'is nowhere defined in the FCRA. But the Act implies that it is a forward contract, which is not a specificdelivery contract. However, being a forward contract, it is necessarily "a contract for the delivery of goods". A futures contract in which delivery is not intended is void (i.e., not enforceable by law), and is,therefore, not permitted for trading at any commodity exchange.

Salient features of a” Commodity Futures Contract"

A commodity futures contract is a tradable standardized contract, the terms of which are set in advance bythe commodity exchange organizing ab initio trading in it. The futures contract is for a specified variety of a commodity, known as the "basis", though quite a few other similar varieties, both inferior and superior,are allowed to be deliverable or tender able for delivery against the specified futures contract. The quality parameters of the "basis" and the permissible tender able varieties; the delivery months and schedules; the places of delivery; the "on" and "off" allowances for the quality differences and the transport costs; thetradable lots; the modes of price quotes; the procedures for regular periodical (mostly daily) clearings; the payment of prescribed clearing and margin monies; the transaction, clearing and other fees; the arbitration,

survey and other dispute redressing methods; the manner of settlement of outstanding transactions after thelast trading day, the penalties for no issuance or non-acceptance of deliveries, etc., are all predetermined bythe rules and regulations of the commodity exchange. Consequently, the parties to the contract are requiredto negotiate only the quantity to be bought and sold, and the price. Everything else is prescribed by theExchange. Because of the standardized nature of the futures contract, it can be traded with ease at amoment’s notice.

Difference between Physical and Future Market1 

1 http://www.mcxindia.com/membership/connectivityrequests/connectivityrequests.htm

Page 9: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 9/64

The physical markets for commodities deal in either cash or spot contract for ready delivery and

payment within 11 days, or forward (not futures) contracts for delivery of goods and/or payment of priceafter 11 days. These contracts are essentially party to party contracts, and are fulfilled by the seller givingdelivery of goods of a specified variety of a commodity as agreed to between the parties. Rarely are thesecontracts for the actual or physical delivery allowed to be settled otherwise than by issuing or givingdeliveries. Such situations may arise when unforeseen and uncontrolled circumstances prevent the buyers

and sellers from receiving or taking deliveries. The contracts may then be settled mutually. Unlike the physical markets, futures markets trade in futures contracts which are primarily used for risk management(hedging) on commodity stocks or forward (physical market) purchases and sales. Futures contracts aremostly offset before their maturity and, therefore, scarcely end in deliveries. Speculators also use thesefutures contracts to benefit from changes in prices and are hardly interested in either taking or receivingdeliveries of goods.

P rice R isk Management : -

The two major economic functions of a commodity futures market are price risk management and pricediscovery. Among these, the price risk management is by far the most important, and is the of a commodity

futures market. The need for price risk management, through what is commonly called "hedging", arisesfrom price risks in most commodities. The larger, the more frequent and the more unforeseen is the pricevariability in a commodity, the greater is the price risk in it. Whereas insurance companies offer suitable policies to cover the risks of physical commodity losses due to fire, pilferage, transport mishaps, etc., theydo not cover similarly the risks of value losses resulting from adverse price variations. The reason for thisis obvious.

The value losses emerging from price risks are much larger and the probability of the recurrence isfar more frequent than the physical losses in both the quantity and quality of goods caused by accidentalfires and mishaps, or occasional thefts. Commodity producers, merchants, stockiest and importers face therisks of large value losses on their production, purchases, stocks and imports from the fall in prices.

Likewise, the processors, manufacturers, exporters and other market functionaries, entering into forwardsale commitments in either the domestic or export markets, are exposed to heavy risks from adverse pricechanges. True, price variability may also lead to windfalls, when prices move favorably. In the long run,such gains may even offset the losses from adverse price movements. But the losses, when incurred, are, attimes, so huge that these may often cause insolvencies. The greater the exposure to commodity price risks,the greater is the share of the commodity in the total earnings or production costs. Hence, the need for pricerisks management or hedging through the use of futures contracts.

Hedging involves buying or selling of a standardized futures contract against the corresponding saleor purchase respectively of the equivalent physical commodity. The benefits of risk hedging flow from therelationship between the prices of contracts (either ready or forward) for physical delivery and those of 

futures contracts. So long as these two sets of prices move in close unison and display a parallel (or closely parallel) relationship, losses in the physical market are offset, either fully or substantially, by the gains inthe futures market. Hedging thus performs the economic function of helping to reduce significantly, if noteliminate altogether, the losses emanating from the price risks in commodities.

Anand Rathi about Commodity trading

Page 10: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 10/64

Commodities broking - A whole new opportunity to hedge business risk and an attractive investmentopportunity to deliver superior returns for investors.

Its commodities broking services include online futures trading through NCDEX and MCX and depositoryservices through CDSL. Commodities broking is supported by a dedicated research cell that provides bothtechnical as well as fundamental research. Its research covers a broad range of traded commodities

including precious and base metals, Oils and Oilseeds, agri-commodities such as wheat, chana, guar, guar gum and spices such as sugar, jeera and cotton.

In addition to transaction execution, it provides its clients customized advice on hedging strategies,investment ideas and arbitrage opportunities.

Advantage Commodities Trading at Anand Rathi: -

• Trusted Legacy  – Anand Rathi brings with it the long legacy of trust bestowed upon by thecustomers & good relationships with some of the oldest clients. Anand Rathi was ranked by AsiaMoney 2006 poll amongst South Asia's top 5 wealth managers for the ultra-rich. In year 2007

Citigroup Venture Capital International joined the group as a financial partner.

• Lineage & experience - Anand Rathi is a leading full service securities firm providing the entiregamut of financial services. The firm, founded in 1994 by Mr. Anand Rathi, today has a pan India presence as well as an international presence through offices in Dubai and Bangkok.

• All at one place - With memberships in BSE, NSE, MCX, NCDEX, NCDEX-Spot, National SpotExchange, MCX-SX, DGCX (Dubai Gold & Commodity Exchange), and Products like PremiumSecurities, where one can trade global commodities and equities. Anand Rathi is the place to be infor any investor to invest in Equities, Commodities, Currencies and Global markets. AR can handleall clients’ investment needs in all these markets across the world with the same ease as they tradeon domestic bourses.

• Research backed advisory support - With an enviable record of its research services, it assuresclient that their investment relies on valuable sources.

• Personalized Service - AR help its client through the entire investment process, step by step, withinnovative and efficient Services. Also, its Representatives assist in smooth and efficient trade.

AR is one of the top notch commodity broking firms in India having supreme experience in commoditytrading. Our Dedicated in-house Research team will enable you with qualitative research on the variouscommodities and will help you on various strategies from time to time. Research being our core strength,AR provides clients with both fundamental as well as technical research reports on daily, weekly andquarterly basis, apart from the best in the class reports AR also assure you the very personal touch, withcustom made strategies suited to their needs and style of trading. Our expertise in carving out tailor madehedging strategies would help you to manage our business risks on day to day basis. Apart from research,the well trained branch teams closer to their homes are always on their toes to attend to their queries.

Clients can walk into our investment centers nearest to them, while net savvy customers can execute their own trades online. Research and investment ideas can be accessed by clients either at our Investmentcenters, through e-mail and sms services also as per the clients preference.

 INSURANCE BROKER

Page 11: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 11/64

Every small business owner knows the importance of having adequate business insurance. Having the rightcoverage may mean the difference between success and failure when faced with a natural disaster, accident,or a liability claim. There are so many different kinds of policies, each with its own premiums andlimitations that it's easy to get confused and even end up with the wrong coverage.

An insurance broker is an independent insurance agent who works with many insurance companies to find

the very best available policies for his or her clients. A typical insurance agent works for one specificcompany, and chooses from within that company's policies for clients. While an insurance broker isdifferent from the typical agent in this regard, the two are otherwise similar. Both structure policies, settleclaims, and usually work on a commission basis. That's why many business owners choose to work withindependent insurance brokers. It is advisable to review our business insurance needs consistently and todust off those policies and to make sure we have adequate coverage of the risk.

An insurance broker is someone who acts as a go-between for businesses and insurance companies. It iseasy contact a business insurance broker and let them know what the need of the business is and then the broker will find the best policies for the consideration.

An insurance broker may specialize in one specific type of insurance or deal in many different types,

including health, life, auto, home, and other specialized varieties of insurance, including policies for pets.Those that choose to deal in insurance of an investment nature require special training and must also obtainspecial licenses from the Securities and Exchange Commission or other associations that deal withinvestments.

A Broker typically has access to dozens of carriers, and can quickly find several policies for the risk toconsider. Remember, for a broker we do not have to pay for the services of a business insurance broker; theinsurance company who is covering the risk end up doing business with pays the broker a commission. Agood insurance broker knows the industry, and can begin searching for additional insurance plans for therisk to consider. They know the procedures and processes of the various companies that offer coverage, andcan cut through the red tape and interpret the jargon found in most contracts. Invested time and money inthe business is very important, so we make sure that insurance coverage is up to date. The bottom line, and

the future of the company, may depend on it.

As an insurance broker, AR provide to its clients comprehensive risk management techniques, both withinthe business as well as on the personal front. Risk management includes identification, measurement andassessment of the risk and handling of the risk, of which insurance is an integral part. The firm deals with both life insurance and general insurance products across all insurance companies.

Anand Rathi's guiding philosophy is to manage the clients' entire risk set by providing the optimal level of cover at the least possible cost. The entire sales process and product selection is research oriented andcustomized to the client's needs. We lay strong emphasis on timely claim settlement and post sales services.

Services which Anand Rathi provides to its client: - 

Risk Management.

Due diligence and research on policies available.

Recommendation on a comprehensive insurance cover based on clients needs.

Maintain proper records of client policies.

Assist client in paying premiums.

Continuous monitoring of client account.

Assist client in claim negotiation and settlement.

Page 12: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 12/64

 IPO’s – Initial Public Offer 

An IPO stands for Initial Public Offering. Basically, an initial public offering occurs when a company thatwas previously privately owned decides to sell shares of stock in order to raise money. The companygenerally finds an investment bank to help them carry out the procedure. Generally, the company seekingan IPO is smaller and younger and needs capital, but large privately held firms have also been known to do

this. IPO’s are inherently very risky business. As a result, there is potential for huge gains and huge losses.Since the company is starting to be listed on an exchange, there is no historical market data for it and verylittle to research. On the first day, the stock could gain hundreds of percentage points or lose hundreds of  percentage points.

Anand Rathi is a leading primary market distributor across the country. Its strong performance inIPO’s has been a result of its vast experience in the Primary Market, a wide network of branches acrossIndia, strong distribution capabilities and a dedicated research team.

Anand Rathi has been consistently ranked among the top 10 distributors of IPO’s on all major offerings. Its IPO research team provides clients with in-depth overviews of forthcoming IPO’s as well as

investment recommendations. Online filling of forms is also available.

 PORTFOLIO MANAGEMENT SERVICES (PMS)

The art and science of making decisions about investment mix and policy, matching investments toobjectives, asset allocation for individuals and institutions, and balancing risk against performance. portfolio (a list of the financial assets held by an individual or a bank or other financial institution) "theywere disappointed by the poor returns on their stock portfolio"

Portfolio management is all about strengths, weaknesses, opportunities and threats in the choice of debt vs.equity, domestic vs. international, growth vs. safety, and many other tradeoffs encountered in the attempt tomaximize return at a given appetite for risk.

In the case of mutual and exchange-traded funds (ETFs), there are two forms of portfolio management:

passive and active. Passive management simply tracks a market index, commonly referred to as indexingor index investing. Active management involves a single manager, co-managers, or a team of managerswho attempt to beat the market return by actively managing a fund's portfolio through investment decisions based on research and decisions on individual holdings. Closed-end funds are generally actively managed.

In today's financial marketplace, a well-maintained  portfolio is vital to any investor's success. As an

individual investor, you need to know how to determine an asset allocation that best conforms to your  personal investment goals and strategies. In other words, your portfolio should meet your future needs for capital and give you peace of mind. Investors can construct portfolios aligned to their goals and investmentstrategies by following a systematic approach. Here we go over some essential steps for taking such anapproach.

Steps in Portfolio construction: -Step 1: Determining the Appropriate Asset Allocation for You

1. Ascertaining individual/corporate financial situation and investment goals is the first task in

Page 13: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 13/64

constructing a portfolio.2. A second factor to take into account is individual/corporate personality and risk tolerance capacity.

Conservative and Aggressive Portfolio:

The main goal of a conservative portfolio is to protect its value. The allocation of 70 to 75% in FixedIncome Securities, 15 to 20 % Equities and 5 to 15% in cash and equivalent would yield current income

from the bonds, and would also provide some long-term capital growth potential from the investment inhigh-quality equities. Whereas a moderately aggressive portfolio(which comprises of 50 to 55% Equities,35 to 4-% Fixed Income Securities and 5 to 10 % cash and equivalent) satisfies an average risk tolerance,attracting those willing to accept more risk in their portfolios in order to achieve a balance of capital growthand income. Generally, the more risk you can bear, the more aggressive your portfolio will be, devoting alarger portion to equities and less to bonds and other fixed-income securities. Conversely, the less risk that'sappropriate, the more conservative your portfolio will be.

Modern Portfolio Theory: -

A theory on how risk-averse investors can construct portfolios to optimize or maximize expected return based on a given level of market risk, emphasizing that risk is an inherent part of higher reward. This

theory was pioneered by Harry Markowitz in his paper "Portfolio Selection," published in 1952. Accordingto the theory, it's possible to construct an "efficient frontier" of optimal portfolios offering the maximum possible expected return for a given level of risk.

The risk in a portfolio of diverse individual stocks will be less than the risk inherent in holding anysingle one of the individual stocks (provided the risks of the various stocks are not directly related).Consider a portfolio that holds two risky stocks: one that pays off when it rains and another that pays off when it doesn't rain. A portfolio that contains both assets will always pay off, regardless of whether it rainsor shines. Adding one risky asset to another can reduce the overall risk of an all-weather portfolio.

 Anand Rathi on Portfolio Management : - 

Anand Rathi provide a unique feature for the investor to track there investment Portfolio tracker.The Advanced Portfolio Tracker through AR web site is available only for Registered Account holders of Anand Rathi Financial Services. The Portfolio Management System is an intuitive and easy to use toolwhich helps client to keep track of their investments in Equity and Mutual Funds and also evaluate the performance based on the current market valuation. It gives client a 360-degree view about how their investments are performing. Its unmatched features, reports and tools will help client in their investmentdecisions. Its an online service offering by Anand Rathi

Features of Portfolio Tracker: -

1 Family or Individual Account level access

Client could login as head of Family and enjoy multiple viewing options with graphical view of their portfolio. Viewing options include Asset allocation across family portfolios and familyaccount wise holdings

2 Auto Update

Transactions done through Anand Rathi on NSE/BSE are updated automatically at the end of the day in the Portfolio. We also auto update any corporate benefits accruing on their investments to give client a truly Automated experience.

3 Manual Entries allowed

Client can add/ edit and delete transactions to correct or build an accurate, single view of 

Page 14: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 14/64

investments. Option to add details for Rights/ Bonus and IPO Allotment for Equity and SIP/SWP, etc. for MF.

4 Tracking of Equity & MF Investments

Track their investments in Equities and Mutual funds. We will soon be adding other assets suchas Futures & Options, Commodities, Gold, and Currency etc.

5 Multiple Viewing Options of Holdings

Client could view investments through multiple lenses, aiding their investment decisions byusing our viewing filter options.6 Transaction History

Access transaction level information of client’s investments across date range, with facility toedit / delete records, gives client the controls to their Portfolio Tracker.

7 Gains & Losses reporting

Determine which investments have given what returns, segregated on Realized / Unrealized.Added feature of booked gains & losses bifurcated into Long Term & Short Term make handyinputs for filing their Tax returns.

8 Content Integration

Client can track their investments with the latest prices for BSE (15 min delayed) and NSE (5minute delayed) and ascertain their realized and unrealized gain/ loss from time to time.Additionally get access to in-depth information on their investments with Company Info /Scheme profile along with news options with a click on their holdings.

 NRI SERVICES 

India is currently the 4th largest economy in the world in terms of Purchasing Power Parity behind onlyUnited States, China and Japan. A series of ambitious economic reforms aimed at deregulating theeconomy and stimulating foreign investment has moved India firmly into the front runners of the rapidly

growing Asia Pacific Region. Today, India is one of the most exciting emerging markets in the world and isa preferred destination for investments among the global investors. India’s time tested institutions offer foreign investors a transparent environment that guarantees the security of their long term investments.

Investing in India today is the best thing NRI can do for tomorrow. For the NRI investors, the Indian stock market offers great investing value, options, and returns. NRI’s residing in Gulf Co-operation Council(GCC) countries of the United Arab Emirates (UAE), Saudi Arabia, Bahrain, Kuwait, Oman, and Qatar caninvest in India through us in an easy, quick and hassle-free manner.

Who is an NRI: -

An Indian who is not a resident of India is an NRI .As per the Income Tax Act, an individual is treated as a resident for the financial year if he or she is in Indiafor at least:182 days in the financial year; or 365 days out of the preceding four financial years and 60 days in that year.

A PIO is a Person of Indian Origin. A citizen of any country other than Bangladesh & Pakistan is a PIO if the person held an Indian Passport atany time.

Page 15: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 15/64

Non-Resident Indians generally fall under the following broad categories. 

• An Indian citizen who stay abroad for employment or for carrying on a business or vocation or for any other purpose in circumstances indicating an indefinite period of stay outside India.

Indian citizens working abroad on assignments with foreign governments or government agencies,or international or regional agencies such as the UNO, IMF, World Bank, and so on.

• Officials of the central and state governments and public sector undertakings deputed abroad ontemporary assignments or posted to their offices (including Indian Diplomatic Missions) abroad.

The investment avenues available for the Non-Resident Indians in India are: -

• Government securities or units of Unit Trust of India•  Non-convertible debentures of Indian companies• Bank accounts in India• Investment in securities /shares & convertible debentures of Indian Co.s• Investment in immovable property in India• Investment in mutual funds in India• Company deposits.

 NRI’s are not permitted to invest in: -• Public Provident Fund (PPF)•  National Savings Certificates (NSC) issued by post offices in India as well as other postal schemes.

Investment Framework for NRI: -

Bank Account

RBI (Reserve Bank of India – India’s Central Bank) has allowed NRI’s/PIO’s to invest in shares of 

listed Indian companies through recognized Stock Exchanges under the Portfolio InvestmentScheme (PIS). Thus, it is mandatory to open a PIS (Portfolio Investment Scheme) account throughany of the RBI designated bank for trading in secondary markets/ stock exchanges. In case,applicant already has a PIS account, it can be linked with Anand Rathi equity trading and demataccount.

An NRI has to open the following accounts in order to invest in India. (List of Scrip’s where NRI’s can invest)

 NRI’s can maintain bank accounts with banks in India.The two main rupee accounts are: -

•  Non-Resident External (NRE) account•  Non-Resident Ordinary (NRO) account.

They can also maintain a foreign currency account which is the Foreign Currency Non-Resident(FCNR) account.

Demat Account

 NRI’s or PIO’s can open a demat account with any Depository Participant (DP) of NSDL or CDSL.

The NRI or PIO needs to mention the type ‘NRI’ as compared to ‘Resident’ and the sub-type

Page 16: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 16/64

‘Repatriable’ or ‘Non-Repatriable’ in the account opening form collected from the DP. An NRI mustopen separate demat accounts for holding repatriable and non-repatriable securities. Shares held prior to becoming an NRI are held in the non-repatriable account.

 No permission is required from the RBI to open a demat account. 

However, credits and debits from the demat account may require general or specific permissionsfrom designated banks

Portfolio Investment Scheme Account (PIS Account)

Portfolio Investment Scheme (PIS) is a scheme of RBI under which NRI’s and PIO’s can purchaseand sell shares and convertible debentures of Indian companies on a recognized stock exchange inIndia by routing all such purchase or sale transactions through their account held with a designated bank branch.RBI has authorized a few main branches of major commercial banks as Authorized Dealers (AD’s)to offer PIS.

Investment Guidelines for NRI’s: -

Equity: -

Equity Trading has never been so easy & comfortable for NRI’s, whereby they can trade onlinewithout any hassles of bank reporting, tedious tax calculations, verification of RBI Banned scrip’s,maintaining cash & bank reconciliations, filing of tax returns etc. Anand Rathi offers an equity tradingaccount to NRI’s/PIO’s where all these complicated & manual task of RBI reporting, TDS calculations,Filing of Tax returns etc. are being taken care by dedicated team of professionals and NRI’s can trade onseamlessly without any hassles in a transparent framework.

The trading accountholder can trade online on both NSE (National Stock Exchange of India Limited) &

BSE (Bombay Stock Exchange) on repatriable & non – repatriable basis within the overall framework of statutory regulations and guidelines.

FNO: -

•  NRI’s can invest in exchange traded derivative contracts approved by SEBI from time to time, butonly out of rupee funds held in India on non- repatriable basis, that is, an NRO account, subject tothe limits prescribed by SEBI.

• The limits are the same as for the residents.• For derivatives transactions, PIS permission is not needed.• For derivatives, NSE allots a separate code that needs to be punched at the time of placing trades in

futures and options.

• An application has to be made for the unique code to the NSE. If the NRI has already obtained theunique code through some other broker, the same should be used. In other words, the code will beunique across the exchange.

• The exchange monitors NRI positions based on the unique client code.• The NRI or his or her broker has to ensure that the trades do not exceed the overall limits for NRI’s

as specified by the exchange.• While the exchange monitors limits, for limit violations, there is a penalty.

The NRI client has to take care of the same. The TDS undertaking has to be signed by the client for derivatives trading.

Page 17: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 17/64

IPO Trading: -

• A company may issue an Initial Public Offering (IPO) for NRI’s on repatriable or non-repatriable basis.

• The issuing company is required to issue shares to NRI’s on the basis of specific or general permission from the GOI or RBI. Therefore, individual NRI’s need not obtain any permission.

• For the IPO issued on repatriation basis, separate form for NRI’s is available.•

The Power of Attorney (POA) holder of an NRI client can sign on his or her behalf.• The cheque drawn on the NRE bank account needs to be attached with this application.• Such transactions, if routed through the designated bank, should not be done through the PIS

account.When an NRI sells shares received in an IPO, the NRI should submit a

• Copy of an IPO application• An NRE cheque issued at the time of subscription• An allotment letter.

The sale proceeds are credited to the NRE or NRO savings account for repatriable and non-repatriableinvestment respectively.

MUTUAL FUND: -

 NRI investors can now transact in mutual funds online through the Internet.

Thus, NRI’s can now buy, sell or redeem, switch, or invest through a Systematic Investment Plan (SIP)through an online account.

•  NRI’s can apply for mutual funds through the NRE account as well through the NRO account.• Most of the Asset Management Companies (AMC’s) have taken the permission for NRI

investments in their schemes; hence no permission is required to be taken by NRI’s for investing inthe schemes of those AMC’s.

• The Power of Attorney (POA) holder of the NRI can sign on mutual funds application on his or her  behalf.

• In case of open-ended mutual fund schemes, the NRI simply needs to fill up the redemption slipand send it to the Investor Service Centers of AMC’s. The cheques are normally mailed to theinvestor within three to five business days from the day of receipt of the redemption request.

• In case of close-ended mutual fund schemes, units have to be sold at the stock exchange where thescheme is listed through a registered stock exchange member.

Advantage NRI @ Anand Rathi: -

• Trusted Legacy  – Anand Rathi brings with it the long legacy of trust bestowed upon by thecustomers & good relationships with some of the oldest clients. Anand Rathi was ranked by Asia

Money 2006 poll amongst South Asia's top 5 wealth managers for the ultra-rich. In year 2007Citigroup Venture Capital International joined the group as a financial partner.

• Research backed advisory support - Anand Rathi philosophy is to provide consistently superior,independent and unbiased advice to its clients backed by in-depth research across the asset classes.

• Personalized Service - AR help its client through the entire investment process, step by step, withinnovative and efficient Services. Also, its Representatives assist you trade smoothly and efficiently.

• Lineage & experience - Anand Rathi is a leading full service securities firm providing the entire

Page 18: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 18/64

gamut of financial services. The firm, founded in 1994 by Mr. Anand Rathi, today has a pan India presence as well as an international presence through offices in Dubai and Bangkok.

Tailor Made Investment Plans - Anand Rathi offers the opportunity to tailor-make client investments,after detailed and careful analysis of client funds inflow and outflow, client funds requirements – presentand future, client age, risk profile. From its basket of over 500 investment options in India and Globally,

Anand Rathi creates an investment plan suitable exclusively to client financial requirements.WEALTH MANAGEMENT: -

Wealth management is an investment advisory discipline that incorporates financial planning, investment portfolio management and a number of aggregated financial services. High net worth individuals, small business owners and families who desire the assistance of a credentialed financial advisory specialist callupon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals andinvestment management. Wealth managers can be independent certified financial planners, MBAs, CFAs or any credentialed professional money manager who works to enhance the income, growth and tax favoredtreatment of long-term investors. One must already have accumulated a significant amount of wealth for wealth management strategies to be effective.

Wealth management can be provided by large corporate entities, independent financial advisers or multi-licensed portfolio managers whose services are designed to focus on high-net worth customers. Large banks and large brokerage houses create segmentation marketing-strategies to sell both proprietary andnonproprietary products and services to investors designated as potential high net-worth customers.Independent wealth managers use their experience in estate planning, risk management and their affiliations with tax and legal specialists, to manage the diverse holdings of high net worth clients. Banksand brokerage firms use advisory talent pools to aggregate these same services.

"The fallout of the events of 2008 has produced a high level of skepticism and distrust amonginvestors, and they will demand greater transparency from their providers to understand what they own, the

value of their investments and associated risks". For this reason wealth managers must be prepared torespond to a greater need by clients to understand, access, and communicate with advisers regarding their current relationship as well as the products and services that may satisfy future needs. Moreover, advisorsmust have sufficient information, from objective sources, regarding all products and services owned bytheir clients to answer inquiries regarding performance and degree of risk-at the client, portfolio andindividual security levels.

Institutional Wealth Management: -

Corporate and Institutional treasuries need ever more sophisticated advice that is backed by serious andcredible research. AR IWM provides its institutional clients integrated wealth management solutions acrossglobal markets, which are backed by proprietary global economic & investment research.

We understand that your needs could range from finding short-term surplus management strategies tohigher yielding and long term investments. The IWM team brings together the highly-rated AR researchacross fixed income, currencies and equities markets to provide investment solutions that meet your complex needs - from simple money-market mutual funds to complex arbitrage strategies in the equities or commodities markets.

Research: -

Our research expertise is at the core of the value proposition that we offer to our clients. Research

Page 19: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 19/64

teams across the firm continuously track various markets and products. The aim is however common - togo far deeper than others, to deliver incisive insights and ideas and be accountable for results. AR research processes incorporate quantitative areas well as qualitative analyses. This multi-pronged approach helps usto provide superior risk- adjusted returns for our clients.

AR analysts provide objective and decisive research that is designed to enable clients to make informed

investment decisions.The team covers entire spectrum of financial markets from equities, fixed income,and commodities to currencies. They also cover the global markets, to give clients an unparalleled macro-view of the investment opportunities across the globe.

INTRODUCTION TO ONLINE TRADING

Online Trading

SEBI Committee approved the use of Internet as an Order Routing System (ORS) for communicatingclients' orders to the exchanges through brokers. ORS enables investors to place orders with his broker andhave control over the information and quotes and to hit the quote on an on-line basis. Once the broker’ssystem receives the order, it checks the authenticity of the client electronically and then routes the order tothe appropriate exchange for execution. On execution of the order, it is confirmed on real time basis.Investor receives reports on margin requirement, payments and delivery obligations through the system.His ledger and portfolio account get updated online.

 NSE launched internet trading in early February 2000. It is the first stock exchange in the country to provide web-based access to investors to trade directly on the exchange. The orders originating from thePCs of the investors are routed through the Internet to the trading terminals of the designated brokers withwhom they are connected and further to the exchange for trade execution. Soon after these orders getmatched and result into trades, the investors get confirmation about them on their PCs through the sameinternet route.

Online trading refers to buying and selling securities via the Internet or other electronic means such aswireless access, touch-tone telephones, and other new technologies. With online trading, in most casescustomers access a brokerage firm's 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 ordersand monitor account activity.

All trades involve a brokerage firm even if a stockbroker is not used to help with the trade. Althoughcustomers may enter orders for trades via the Internet, customers do not have direct access to the securitiesmarkets and therefore must use a brokerage firm in order to execute their trades. Customers should alsoremember to do their homework where their investments were concerned. Internet share trading is moreconvenient and hassle free. No phone calls, No paperwork, No more writing of cheques, you can trade onyour own. Market position will be in front of you. You can trade while working in the office, while you areat home. If computer/Internet is not available at your place; you can go to Cyber cafe also. You can take anexperience once; you will know the advantages of that.

Benefits of Online Trading with Broking firms:-

• User friendly environment as the customer's can excess and use the internet with much freedom andcomfort with respect to traditional method.

• Transparency in Dealing between securities as every transaction is recorded on terminals.

Page 20: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 20/64

• Personalized customer services are provided to the clients as the broking firms can handle manyclients at a particular time.

• Brokerage rate is very competitive.

• Instant Trade confirmation. Internet is a very fast medium of communication cause of which thetrade or the transaction is confirmed instantly by the terminals.

• Online trading provide complete protection against fraud and hacking, as there are very normal

chances that the clients code are transferred to any other person. Cause every broker has a differentcode for its clients which help them in avoiding any misleading.

• 128 bit super safe encryption – SSL (Secured Socket Layer)

• Complete password protection.

Positive Regulatory Environment

The market regulator, Securities and Exchange Board of India (SEBI), provided guidelines on Internet broking which are followed by all brokers and their members. Previously, a printed and signed contract for  buying and selling shares was essential to make the transaction “enforceable” on both parties, in cases of arbitration. Therefore, some amount of paper was still essential, essentially serving as a “backup” to online

transactions. From the perspective of making electronic contracts legally binding, the government changedthe law that considers digital signatures lacking in official authenticity. Thus resulting into the passing of Information Technology Act, and paving the way for full-fledged online trading.

Online broking was welcome, but the problem with broking Web sites that were entering the business wasthat they were mere communication and information platform rather than trading platform. For mostfinancial and stock market Web sites, creating awareness seemed to be the first step towards true online broking. In that initial phase, brokers first created a Web site that allows clients to register and then accessinformation on share markets and place secure purchase orders. Rather than contacting the broker in a physical environment to place orders, investors can place even their first order online, based on live marketdata available on brokers’ Web sites. The purchase order is then routed through the broker’s Web site to the

stock exchange server, and confirmation was received soon after. The next two steps of the brokingtransaction – payment and delivery of shares – still take place on the traditional mode.

Paperless Trading

Established broking firms with sound track record were the early entrants in the online trading market.There were established institutional players like ICICI and IL&FS (Infrastructure Leasing and FinancialServices) who entered the online retail broking market. Using its foray into retail banking and other services, investment firms and broking firms flexed there financial muscle to became front runner in theonline trading game.

Competing with Online Front runners

Every Big player is investing huge amounts on creating necessary infrastructure as well as in the marketingof their Web sites. “Unless we invest heavily in infrastructure, particularly to ensure safety and security of transactions, they may not be able to enthuse investors,” SSKI’s. 

Impact of Online Trading

One of the key impacts of online trading was the widening of the investor base. Although traditional forms

Page 21: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 21/64

of stock trading continued to exist, the Internet facilitates buying and selling shares for the smallest of theinvestors, a luxury not offered in traditional forms of trading. “It was not possible for small investors,  below a certain size, to access a ‘stock-broker’ because of the servicing (manpower and physicalinfrastructure) constraints. With the Internet there is no such constraint. The number of those hooked toonline trading runs into millions, even if only 400 to 500 of the total brokers registered with SEBI areonline.

“Discount-broking in India was already in. Pre-Internet execution costs in the US were high. The Internet, by bringing down the cost of servicing, offered a ‘discounted-price’ service opportunity. Even now, the pricing difference between the two channels (click and brick) there was high. But here, execution costswere already very low. Hence, the Internet did not really force the pricing significantly down from here.But there was scope for pricing-paradigm changes. For example, moving to per trade pricing compared to percentage of value of trade pricing,”

INTERNET BROKING

E-Finance

‘E-finance’ is the provision of financial services over cyberspace or other electronic media includingmoney, banking, payments, trading, broking and insurance. Rapid progress in information and 

communication technology (ICT) is a key factor changing the financial sector in many countries and itseffects are predominantly strong in finance. Financial services are intangible and progress in ICT hassignificantly reduced the cost of providing them and is a driving force for structural change in conjunctionwith globalisation and deregulation. Low operating costs are influence on both the performance of e-finance providers and the structure of the finance industry namely the “e-broking ”.

E-finance is the most promising areas of e-commerce as financial services are information-intensive andoften involve no physical delivery. New information technology (IT) has revolutionized the financeindustry with the rapid growth of electronic finance. As mentioned above, e-finance activities include all

types of financial activities carried out over the cyberspace or other public networks, such as online banking, electronic trading, the provision and delivery of various financial products and services such asinsurance, mortgage and brokerage, electronic money, electronic payment and communication of financialinformation. Thus, e-finance is a driving force that is changing the landscape of the finance industry vitally,specifically towards a more competitive industry and has distorted the boundaries between differentfinancial institutions, enabled new financial products and services, and made existing financial servicesavailable in different packages.

E-Money

 E-money allows payments (including P2P payments) without involvement of a third party during the payment transaction and e-money is a new type of money that can be sent anywhere in the world within a

second. There are two main types of e-money such as ‘e-cash’ including electronic purses and multi- purpose stored value smart cards and ‘cyber money’ called ‘network money’ prepaid software productsthat can be used for payments or transfers on cyberspace. It could be said that e-cash substitutes notes and

coin while cyber money substitutes bank deposits. At present a mixture of payments instruments such ascoins, notes, cheques, giros, credit cards and direct debits co-exist, specializing in different uses, whichmean that e-cash and banknotes will co-exist for a long period. Excessive issue of e-cash in the same waythe paper money have caused could give rise to inflationary pressures and if a prominent e-cash systemfails, it will shatter consumer confidence in many other electronic schemes. A high-flying e-cash schemewill become too big to be allowed to fail and so unconditionally government-guaranteed, otherwise will be

Page 22: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 22/64

highly disruptive to the economy. Furthermore, developments in information technology permits banks tomanage their operations in the inter-bank market more effectively holding smaller amounts on average intheir accounts with the central bank. The growing value of technology implies that payment providers haveto either produce the required technical knowledge in-house or rely on specialized brokers resulting inoutsourcing becoming more important and so banks lose some control over innovation.

E-Trading & E-Banking

 E-trading is transforming the structure of wholesale financial markets such as foreign exchange and equity

markets introducing new architectures with new trading rules and the new systems. Electronic systemshave made far less impact on transactions between banks and their clients. Regardless that many bankshave offered clients single-dealer platforms, clients have made known their preference for multi-dealer  platforms and banks have feared competition from non-bank platforms. Changes to market architecturehave an effect on the resilience of financial markets and price volatility in them because liquid markets aremore resilient than illiquid markets, and prices tend to adjust more smoothly.

 E-trading  cuts trading costs, including through facilitating  “straight-through-processing” (STP)allowing trades to pass mechanically through to final settlement without further manual intervention. Electronic trading leads to fragmentation of markets spreading transactions among more exchanges

operating independently. Foreign exchange and bonds have been mostly bilateral and the introduction of electronic’ trading has led to greater concentration in these markets and enhancing liquidity. The estimationthat traditional banks were “dinosaurs” that cyberspace would drive to extinction is no longer extensivelyheld. The internet-only banks have been considerably less profitable generating lower business volumesand any savings generated by lower physical overheads appear to be offset by other types of non-interestexpenditures, especially marketing to attract new clients. It seems that a combination of cyberspacedelivery channel with focused bank branches will prevail, at least in the medium term.

E-brokers enables small investors to enter the market charging lower fees then the traditional brokers andthus enabling e-brokers to deal in smaller quantities and at more convenient times. Deregulation of  brokerage fees provide good opportunities for e-brokers to expand as they are able to offer very low feesand when brokerage fees are large, it requires a large price movement before a trade becomes profitable,even for an investor who appropriately predicts the direction. While traditional brokers only providedresearch and information to their large clients, e-brokers use cyberspace to give small investors access to asimilar range of information. It could be said that the increasing use of e-broking does not imply high profits for the e-brokers and competition is squeezing fees and the vast investment needed in sophisticatedsystems may make it hard for them to achieve high profit margins. Thus, e-banking must be backed up bysome branch services for activities such as easy access to cash and retail stores are well placed to provide acounter for such basic banking transactions.

The rapid growth of banks into new activities stretches managerial capacity, mainly of smaller banks blindly following trends and lose profitability by adapting poorly to e-banking which involve either under-or over-spending on new technology tempting them to move into riskier business to maintain returns.Security concerns are a crucial factor discouraging many internet users from e-banking which means thatthere is a need for secure operating systems to hackers and denial-of-service attacks such as deliberateoverloading of websites and introduction of safe cryptography, back-up systems, firewalls and emergency procedures. The development of common and robust authentication standards for digital signatures andlegal recognition for them is necessary. Electronic Systems are used to changing degrees for trading in

Page 23: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 23/64

financial markets, at variance between markets, between types of trades and users, and between the variousstages of the trading process. IT is not used in markets where counterparty credit risk is noteworthy, unlessthe system has been designed to manage this risk. Electronic trading makes it technically viable for themarket structure to move to a centralised order book, where end-users can transact directly with each other.While better market access and greater market transparency have put pressure on intermediaries, the balance of power between dealers and clients seems to be shifting to the advantage of the latter in some

markets.

Electronic trading both removes geographical restraints and allows continuous multilateral interaction permitting much higher volumes of trades to be handled. Electronic trading gives now order-driven marketsin addition to several automated versions of dealer markets, offering a range of participation and accessarrangements for dealer, inter-dealer and client sectors. EBS and Reuters have been designed as order  books, in which dealers can see the best bid and offer in the market, alongside the best bid and offer thatthey could trade subject to their institutional credit limit structure. The inter-dealer segment of the markethas mostly moved away from voice broking, and the electronic systems now act as a standard reference for  pricing reflecting the liquid, homogenous nature of the product that can be traded in standardised units.

Electronic systems disseminate real-time pre- and post-trade information market-wide operating withminimal information leakage, in a manner that trading based on personal contact could not achieve.Electronic systems are sophisticated enough to move along the multidimensional spectrum of transparencymeeting unlike users’ preferences regarding information. The demand for anonymous trading is metthrough many electronic systems designed to eliminate (pre-trade) information leakage, enabling users tostate precise orders without giving away potentially important information to competitors. Wholesaletraders cover these orders in some way to avoid giving away information on their strategy, which leads tothe market moving against them. Some systems permit traders to enter their true order preferences to thesystem with complete accuracy since the information is only “seen” by the computer system aiming tomeet a demand for trading without losing informational advantage. The form and degree of disclosure varywith largely market-specific factors including the perceived role of the information in attracting liquidity tothe system, the needs of its range of users and style of trades such as retail/wholesale and the commercialvalue of the data. For instance, the technique of information concerning a call market differs from thatreadily available from an order book or a dealer arrangement. Hence, the integration of electronic-tradingincreases potential for different arrangements, in principle virtually anywhere on a spectrum, betweencomplete transparency and entire opacity.

Page 24: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 24/64

E-BROKING1 

In the words of Prof David Whiteley (2000): - “An electronic market is an attempt to use information andcommunication technologies to provide geographically dispersed traders with the information necessary for the fair operation of the market”. The e-market  is, in effect, a brokering service to bring together brokersand clients in a specific market segment. These markets give the client or client’s intermediary, easy accessto comparative data on prices, and other attributes of the goods or services on offer. E-markets areexemplified by airline brooking systems. They are also used in the financial and commodity markets andagain the dealing is done via intermediaries – to buy stocks and shares a member of the public uses theservices of a stockbroker. An electronic broker is an intermediary who: -

• May take an order from a client and pass it on to a stock exchange.• May put a client with specific requirements in touch with a stock exchange who can meet those

requirements.

• May provide a service to a client, such as a comparison between stock, with respect to particular criteria such as price, risk and return etc. Thus, e-brokers provide comparison- trading, order takingand fulfillment, and services to a client. That is the reason why they are sometimes referred to as“electronic” intermediaries. Although on-line trading strictly refers to the electronic execution of trade, an eco-system of e-stock trading has three dimensions: -

Electronic execution of the trade,

Payment of transaction through a payment gateway, and

Transfer of shares in electronic form. Current developments are, essentially, converting off-line practices to an online equivalent.

By examining the major developments in the sphere of Internet based share dealings in the new globalmarket place, as reported by Peter Temple in his book the new Online Investor, we find that there have been three distinct phases in the development of e-broking. These are: -

Phase 1: - The open-outcry system with the transactions taking place manually in the ring.

Phase 2: - The electronic system, enabling brokers to place orders online4.

Phase 3: - The e-broking system, empowering clients to transact online. The mechanics of the e-trading

Page 25: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 25/64

system begins with the user logging onto the Electronic Communication Network (ECN) through theInternet. The user then accesses his e-trading account with the help of a secure client password. The user isnow connected directly with the exchange and any transactions would be instantaneous and irrevocable.The user also has access to real-time price movements of various stocks, and other contextual informationto assist him in his decision- making. Lee suggests in his book ‘Doing Business Electronically: - A Global

Perspective of E-commerce’ that “an integrated e-broking system consists of not only a transaction

enabler but also a payment gateway for funds transfer and a ‘demat’ account for the transfer of stocks. Sucha service enables smooth, convenient and transparent operations”. It is a healthy sign for the serviceindustry that the number of e-trading sites and the usage of them are mushrooming all over the globe.

Benefits and Problems of E-broking

In recent years, the use of the Internet has spread among investors in stocks and shares. The Internet canmake up-to-the-minute information available to a large number of investors that until recently had only been available to those working in financial institutions. Komenar (1999) concludes: - “The use of online brokerage services automates the process of buying and selling, and hence, allows a reduction of commission charges. Also, the commodity being traded is intangible; the ownership of stocks and sharescan be recorded electronically, so there is no requirement for physical delivery”. However, it should be

noted that the supply chain for online share dealing remains unchanged, use of the Net just speeds up thewhole process and that can be vital in some share deals. Switching over to e-broking system results inseveral benefits to both client and the broker.

Benefits to Users

1. Lower transaction costs: - Typical brokerage-rates in India are in the range of 1.0 to 1.5%,whereas the rates for e-broking are as low as 0.1%. In the US, the brokerage costs, before e- tradingwas introduced, were as high as 7%. But it has now come down to about 1%. E-broking, inaddition, not only brings down the cost of the execution of the transaction but also speeds up the

electronic transfer of securities.2. Transparency: - E-broking empowers the clients to transact directly on the stock exchange anddelayers the whole process thereby improving transparency. “The user does not need to rely on the broker’s `word-of-mouth’ or `transaction’ slips for confirmation of the price at which his trade wasconducted, observes Dr. Lucas (1999).

3. Convenience: - Online share trading is available merely at the click of a button, in the comfort of home/office, thus, making it much more convenient for the clients to trade anytime. Also, with`limit-based’ orders being allowed, clients can place their orders even during the `non-trading’hours, which are executed at the earliest trading possibility.

4. Procedural benefits: - Unlike the earlier scenario, where the clients had to physically go to the broker to complete the formalities of trade, under the e-trading paradigm, these procedures are doe

away with. As Chan (et al., 2001) in the book titled “E-Commerce: - Fundamentals andApplications” (2001) concludes: - “The entire cycle-of-trade (like placing the order, transfer of funds, transfer of securities, etc.) is done electronically, and it speeds up the whole process.”

Benefits to Brokers

1. Easier risk management: - Peter Temple sums it up as: - “Under the online mechanism, the systemwould first check the status of funds available with the client in his bank account and only then

Page 26: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 26/64

allow the trade to take place. This process, thus, substantially reduces the exposure of the broker toclient-related credit and payment risks”.

2. Greater business potential: - The new paradigm of e-broking, which allows simple, convenient,and transparent transactions, may encourage more participants to trade. It is expected that theintroduction of e-broking will expand the market horizon, thus resulting in better business for  brokers in the long-term.

3. Lower staff costs: - Automation of the broking processes results in reduced manpower requirements, flexibility of time, less infrastructure cost, etc. offering significant cost- savings to the broker. The major problem with e-stock trading is that it increases the temptation on the part of influential speculators & stockbrokers to indulge in short-term speculation rather than long-terminvestment. The history of stock markets (both NSE and BSE) in India is replete with at least adozen cases of scams, where stockbrokers and bankers joined hands to squander the savings of millions of small and institutional investors. As Dr. Lucas has rightly pointed out in his book (1997)Internet Trading and Its Threat to Traditional Stock Brokers – “Consumer and business concernsabout Internet security are well founded. Amid an explosive upsurge in scams, fraudsters continueto take advantage of the Internet’s anonymous transaction environment – with everyone from one-time hackers to organized crime testing the market’s boundaries.” However, the problems arefurther compounded by the different legislative frameworks, which are prevalent in countries acrossthe globe.

Security Concerns for E-broking: -

Some leading technology companies have already developed “online transaction processing” and “straight-through processing” applications that allow real-time transaction execution. Both allow the user to directlyinteract with the central system of any market place, without any manual intervention. As Professor DavidWhiteley (2000) suggests: - “Straight-through processing technology permits financial software products todirectly interact with the stock exchange system by communicating with the exchange market structures.This is achieved by developing Application Programming Interfaces (APIs) that talk to the exchange server.“One of the leading technology providers for online trading in India is Financial Technologies India (visitwww.ftIndia.com) with a product called “FT Engine”. It would suffice to say that the cycle of e- broking

has to pass through three layers: - -

A) The Client Interface Layer: - the front-end,B) The Middle Layer: - risk management systems that access data from banks and depository

 participants, calculate client exposure at the instant, and give `Go/No go’ advice on the trade, andC) The End- Layer, the back-end, where the accounting modules, pay in or pay out schedules etc.

operate. It must be noted at the outset by the readers that from a technical perspective, there arethree key success factors for e-broking. They are briefly described below: -

1. Scalability and robustness of the trading system. It becomes imperative for any Net-basedapplication to have a proven capability for scalability and robustness of a trading systemthat ensures the ability to handle and process requests from multiple users at any given pointin time.

2. Bandwidth optimization: - The application software should demonstrate intelligence inoptimizing the available bandwidth by deploying advanced technologies like streaming.

3. Integration with third-party systems: - On the Net, with information feeds available frommultiple points; it is prudent to deploy applications that are built on open architecturemethodology for interfacing with third party systems.

4. For any e-trading system to be successful, it should provide security, reliability andconfidentiality of data. This can be achieved through the use of `encryption’ technology before the online trading begins. The major security requirements of e-broking are: -

• Trusted means of authentication over open networks,

Page 27: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 27/64

• Confidentiality of the transaction,

• Means to ensure integrity of data in-transit, and (d) means to ensure non-repudiation’ of payment or its receipt (visit www.odysseytec.com).

5. Various security models are adopted to ensure safe and reliable e-broking transactions. Thecommonly employed security models in e-Broking are: - passwords, Secure Sockets Layer (SSL), Kerberos, Pretty Good Privacy (PGP), Public Key Infrastructure (PKI), Custom

Implementations, Linux, etc.

E-broking in India: -

Internet stock-trading in India began in January 2000. Hindrances to the growth of e-broking in India can be summed up as: -First, the low density of telephones, low Internet penetration, and low installed base of computers areresponsible for the poor availability of the Internet.Second, very few online payment gateways are available, hindering the smooth growth of the industry.Integrated service providers (like ICICIDirect.com), which provide combined banking, broking and ‘demat’

services, have an advantage over other non- integrated service providers, who have to scout for partners for  providing gateway services.Third, data privacy can be ensured through server side certification and here the situation appears to besatisfactory. However, most of the sites restrict access through passwords and identification numbers, butthese are not considered adequate and foolproof.Fourth, Institutional investors comprise over 80% of the total investors in the country. The remaining 20%of retail investors, the focus segment of e-brokers, do not contribute significantly to the overall stock-turnover of the country. Thus, there is a theoretical limit to the overall penetration of e-broking,Last but not least, the concept of trading on computers through the Internet requires a change in the habitsof people; enhancing trust in these techniques may take more time.

E-Broking features

Margin: -

In order to contain the risk arising out of transactions entered into by the members in various scrip’s either on their own account or on behalf of their clients the Exchange has a well designed risk-managementsystem which inter-alia, includes collection of margins from the members. The Exchange accordinglyimposes various kinds of margins on the members based on their outstanding positions in the market.

Amount of cash or eligible securities required to be deposited with a broker before engaging in margintransactions. A margin transaction is one in which the broker extends credit to the client in a marginaccount. It is actually a risk management system employed in the stock exchange to protect against anyadversity. Margin payments are kept to ensure that each investor is serious about buying or selling share.

Margin is determined by the following equation: -

M = V-L/V*100

It looks complicated, but it isn't. Here's an explanation: -

Page 28: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 28/64

M is the margin, V is the market value of the securities, and L is the broker’s loan. The ratio is expressed asa percentage. The lowest initial margin, or the margin at the time of the purchase, is 50%. After the purchase of the stock on margin, there is a maintenance margin below which the margin is not allowed tofall. The maintenance margin is 25%, but brokers can set their own margins (30% is common). If themargin falls below the maintenance margin, the broker calls for additional cash from the investor. If themoney does not come within the specified time, the broker immediately sells the stock.

Buying on margin is a technique that many investors use. It allows better utilization of available resources.But as the investor, you must be completely aware and positive about buying before you actually do so.When you trade on margin, you can gain buying power by borrowing a major portion of the investmentamount.

Initial Margin: -

This margin is calculated on a portfolio basis and not on individual scrip basis. The margin calculation isdone using  SPAN (Standard Portfolio Analysis of Risk) a product developed by Chicago MercantileExchange. The margin is levied at trade level on real-time basis. The rates are computed at 5 intervals oneat the beginning of the day 3 during market hours and one at the end of the day. The objective of SPAN is toidentify overall risk in a portfolio of futures and options contracts for each client . The system treats futuresand options contracts uniformly, while at the same time recognizing the unique exposures associated withoptions portfolios like extremely deep out-of-the-money short positions, inter-month risk and inter-commodity risk. Initial margin requirements are based on 99% value at risk over a one-day time horizon.However, in the case of futures contracts (on index or individual securities), where it may not be possible tocollect mark to market settlement value, before the commencement of trading on the next day, the initialmargin may be computed over a two-day time horizon, applying the appropriate statistical formula. Thiswill explain why the margins that you pay on first day of a trade contract keeps changing every day as weadvance towards the maturity of the contract. Past volatility trends keeps changing the margin rates. In caseof very high volatility the initial margin along with mark to market margin may be as high as 70: -75% of the scrip value. Thus investors who trade in share markets have to be very careful while taking positions.The margins calls will escalate and if you are unable to pay, your positions will be forcefully liquidated.The margin will be levied at individual client level on all outstanding net position at scrip wise gross level.In case a trading member wishes to take additional trading positions his CM is required to provideAdditional Base Capital (ABC) to NSCCL. ABC can be provided by the members in the form of Cash,Bank Guarantee, Fixed Deposit Receipts and approved securities. 1

Computation of Margins: -

VaR Margin: -

1www.nucleusindia.com

Page 29: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 29/64

As mandated by SEBI, the Value at Risk (VaR) margining system, which is internationally accepted as the best margining system, is applicable on the outstanding positions of the members in all scrip’s. The value

that is at risk is the likely fall or rise in share price that can occur during the day i.e. volatility.

Volatility is the difference in highs and lows during a given period of time. Higher the range, bigger is therisk of fluctuation in the market. We are currently taking previous 6 month period as basis for computingthe volatility. This is a moving period i.e. on 1st January the six months will be from 1st July to 31st

December then 2nd January it will be from 2nd July to 1st January and so on. A percentage of difference inhighs and lows is considered as a basis for margin rate percentage. This is called exponentially weightedmoving average methodology.

The method of calculating VaR rate varies from scrip to scrip. The scrip’s are divided into 3 categories: -

Group I consists of shares that are regularly traded (that is, on more than 80% of the trading days in the previous six months) and have high liquidity (that is, impact cost less than 1%). Group II consists of shares that are regularly traded (again, more than 80% of the trading days in the previous six months) butwith higher impact cost (that is, more than 1 %). All other shares are classified under Group III.

For Group I shares, the VaR margin rate would be higher of 

• 3.5 times volatility or • 7.5% of value

For Group II shares, the VaR margin rate would be higher of • 3.5 times volatility or • 3.0 times volatility of index

The volatility of index is taken as the higher of the daily Index volatility based on S&P CNX NIFTY or BSE SENSEX. At any point in time, minimum value of volatility of index is taken as 5%.

For Group II shares, the number arrived at as above, is multiplied by 1.732051 (that is, square root of 3).The number so obtained is the VaR margin rate.

For  Group III securities VaR margin rate would be 5.0 times volatility of the Index multiplied by1.732051 (that is, square root of 3).

a) The VaR Margin is a margin intended to cover the largest loss that can be encountered on 99% of the days (99% Value at Risk). For liquid stocks, the margin covers one-day losses while for illiquidstocks; it covers three-day losses so as to allow the Exchange to liquidate the position over three days.This leads to a scaling factor of square root of three for illiquid stocks.

For liquid stocks, the VaR margins are based only on the volatility of the stock while for other stocks,the volatility of the market index is also used in the computation. Computation of the VaR marginrequires the following definitions: -

• Scrip sigma means the volatility of the security computed as at the end of the previous trading day.The computation uses the exponentially weighted moving average method applied to daily returnsin the same manner as in the derivatives market.

• Scrip VaR means the highest of 7.5% or 3.5 scrip sigma’s.

• Index sigma means the daily volatility of the market index (S&P CNX Nifty or BSE Sensex)computed as at the end of the previous trading day. The computation uses the exponentiallyweighted moving average method applied to daily returns in the same manner as in the derivatives

Page 30: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 30/64

market.

• Index VaR means the highest of 5% or 3 index sigmas. The higher of the Sensex VaR or Nifty VaR would be used for this purpose.

a) The VaR margin is collected on an upfront basis by adjusting against the total liquid assets of themember at the time of trade.

 b) The VaR margin is collected on the gross open position of the member. The gross open position for this purpose is the gross of all net positions across all the clients of a member including his proprietary position.

c) For this purpose, there would be no netting of positions across different settlements.

d) Dissemination of Information : -

The VaR amount applicable in respect of the scrip’s would be disseminated on the website of theExchange on a daily basis.

Formula for determining standard deviation: -1

The committee (here refers to RBI-SEBI standing technical committee on exchange traded currencyfutures) examined the empirical tests of different risk management models in the Value at Risk (VaR)

framework in the Re/$ exchange rate. Data for the period January 2, 1998 to April 7, 2008 was analyzed.GARCH-GED (Generalized Auto-Regressive Conditional Heteroskedasticity with Generalized Error Distribution residuals), GARCH-normal and GARCH-t at 3 and 3.5 sigma levels were found to performwell even at 1% risk level, while the EWMA (Exponentially Weighted Moving Average) model used inJ.P. Morgan’s Risk Metrics® methodology was found to work well at 1 % risk level only at 3.5 sigmalevels. Given the computational ease of the EWMA model and given the familiarity of the Exchanges withthis particular model (it is currently being used in the equity derivatives market), the Committee, after considering the various aspects of the different models, recommends the following: - - The exponential

1 Www.rbi-sebi standing technical committee/EXCHANGE TRADED CURRENCY FUTURES

Page 31: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 31/64

moving average method would be used to obtain the volatility estimate every day. The estimate at the endof time period t (σt) is estimated using the volatility estimate at the end of the previous time period. I.e. asat the end of t-1 time period (σt-1), and the return (rt) o bserved in the futures market during the timeperiod t. The formula would be as under: -

(σt) 2 = λ (σt-1)2 + (1 - λ ) (rt)2

Where λ is a parameter which determines how rapidly volatility estimates changes. The value of λ is fixed at

0.94.

• Σ (sigma) means the standard deviation of daily returns in the currency futures market.

• The "return" is defined as the logarithmic return: - rt = ln(Ct/Ct-1) where Ct is the Currencyfutures price at time t. The plus/minus 3.5 sigma limits for a 99% VAR based on logarithmic returnswould have to be converted into percentage price changes by reversing the logarithmictransformation. The percentage margin on short positions would be equal to 100(exp (3.5 σt)-1) andthe percentage margin on long positions would be equal to 100(1-exp (- 3.5σt)). This impliesslightly larger margins on short positions than on long positions. The derivatives exchange /

clearing corporation may apply the higher margin on both the buy and sell side.

• During the first time period on the first day of Currency futures trading, the sigma would be equalto 0.5%.

• The volatility estimation and margin fixation methodology should be clearly made known to allmarket participants so that they can compute what the margin would be for any given closing levelof the currency futures price. Further, the trading software itself should provide this information ona real time basis on the trading workstation screen.

Real time computation

The computation of worst scenario loss would have two components. The first is the valuation of the portfolio under the various scenarios of price changes. At the second stage, these scenario contract valueswould be applied to the actual portfolio positions to compute the portfolio values and the initial margin.The exchanges shall update the scenario contract values at least 5 times in the day, which may be carriedout by taking the closing price of the previous day at the start of trading and the prices at 11: -00 a.m., 12:-30 p.m., and 2: -00 p.m. and at the end of the trading session. The latest available scenario contract valueswould be applied to member/client portfolios on a real time basis.

Mark to Market Margin (MTM) : -

1. The MTM margin is collected on the gross open position of the member. The gross open positionfor this purpose would mean the gross of all net positions across all the clients of a member including his proprietary position. For this purpose, the position of a client is netted across hisvarious securities and the positions of all the clients of a broker are grossed. Further, there is nonetting across two different settlements.

2. There is no netting off the positions and setoff against MTM profits across 2 rolling settlements i.e.T day and T-1 day. However, for computation of MTM profits/losses for the day, netting or setoff 

Page 32: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 32/64

against MTM profits is permitted.

MTM is calculated at the end of the day on all open positions by comparing transaction price with theclosing price of the share for the day. In our example Consider shares of a company bought by aninvestor. Its market value today is Rs.50 lakhs but its market value tomorrow is obviously not known.An investor holding these shares may, based on VaR methodology, say that 1-day VaR is Rs.4 lakhs at99% confidence level. This implies that under normal trading conditions the investor can, with 99%

confidence, say that the value of the shares would not go down by more than Rs.4 lakhs within next 1-day, we have seen that a buyer purchased 1000 shares @ Rs.100/- at 11 am on January 1, 2008. If close price of the shares on that day happens to be Rs.75/-, then the buyer faces a notional loss of Rs.25, 000/- on his buy position. In technical terms this loss is called as MTM loss and is payable by January 2,2008 (that is next day of the trade).

• Extreme Loss Margin

The term Extreme Loss Margin replaces the terms "exposure limits" and "second line of defense" thathave been used hitherto. It covers the expected loss in situations that go beyond those envisaged in the

99% value at risk estimates used in the VaR margin.1. The Extreme Loss Margin for any stock is higher of: -

a. 5%, and

 b. 1.5 times the standard deviation of daily logarithmic returns of the stock price in the last sixmonths. This computation is done at the end of each month by taking the price data on arolling basis for the past six months and the resulting value is applicable for the next month.

2. The Extreme Loss Margin is collected on the gross open position of the member. The gross open position for this purpose means the gross of all net positions across all the clients of a member including his proprietary position.

3. For this purpose, there is no netting of positions across different settlements.• Dissemination of Information: - -

The ELM amount applicable in respect of the scrip’s is disseminated on the website of theExchange on a daily basis.

• Special Margin: -

Special margin may be imposed by the Exchange, from time to time on certain scrip’s as a surveillancemeasure and informed to the members through notices.

Assignment Margin: -Assignment Margin is levied on a CM in addition to SPAN margin and Premium Margin. It is requiredto be paid on assigned positions of CM’s towards Interim and Final Exercise Settlement obligations for option contracts on individual securities, till such obligations are fulfilled.

The margin is charged on the Net Exercise Settlement Value payable by a Clearing Member towardsInterim and Final Exercise Settlement and is deductible from the effective deposits of the ClearingMember available towards margins Assignment margin is released to the CM’s for exercise settlement pay-in.

Page 33: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 33/64

Collection of Margins: -

All statements pertaining to daily margins viz., VaR, MTM, ELM and Special Margin computed bythe Exchange on the outstanding positions of the members are available for downloading by them intheir back –offices at the end of the day.

• VaR Margin.

The VaR margin is collected on an upfront basis by adjusting against the total liquid assets of themember at the time of trade.

• Mark to Market Margin (MTM) : -

The mark to market margin (MTM) is computed after trading hours on T-day on the basis of 

closing price, of that day. In case the security has not been traded on a particular day, the latestavailable closing price is considered as the closing price. MTM margins is also recomputed inrespect of all the pending settlements on the basis of closing prices of T day and the difference dueto increase/decrease in MTM margins on account of such re-computation is adjusted in the MTMobligation of the member for the day. Such MTM is collected from the members in the evening onthe T day itself, first by adjusting the same from the available cash and cash equivalent componentof the liquid assets and the balance MTM in form of cash from the members through their clearing banks on the same day.

• Special Margins : -

The Special Margin as applicable is collected along with MTM from the members, first, byadjusting the same from the available liquid assets and the balance Special Margin in form of cashfrom the members through their clearing banks on the same day.

• Extreme Loss Margin ( ELM ) : -

The Extreme Loss Margin is collected/ adjusted from the total liquid assets of the member on a realtime basis. Extreme Loss Margin: - The ELM for any scrip shall be 5% of the scrip value or 1.5times the standard deviation of daily logarithmic returns of the security price in the last six months.This computation shall be done at the end of each month by taking the price data on a rolling basisfor the past six months and the resulting value shall be applicable for the next month. Like VaR thisis also applicable on individual client level.

Release of margins.

The above-referred margins so collected are released on completion of pay-in of the settlement.

Exemption from margins: -

The following trades executed on the BOLT are exempted from payment of margins: -

a.) Institutional businesses i.e., transactions done by all institutional investors are exempt from margin

Page 34: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 34/64

 payments. For this purpose, institutional investors include: -

• Foreign Institutional Investors registered with SEBI.

• Mutual Funds registered with SEBI.

• Public Financial Institutions as defined under Section 4A of the Companies Act, 1956.

Banks, i.e., a banking company as defined under Section 5(1) (c) of the Banking Regulations Act,1949.

• Insurance companies registered with IRDA.

• In cases where early pay-in of securities is made, the outstanding position of the client to the extentof early pay-in is not considered for margin purposes.

• There are no other margin exemptions other than those mentioned above.

Early pay-in facility

• The early pay-in of securities done up to 3.00 p.m. on a day are considered for on line release of  blocked liquid assets on account of margins on that day. The benefits of early pay-in done after 3.00

 p.m. on a day will be available on the next trading day.

• Members are also able to do early pay-in of securities before execution of the trade on T day toavail benefit of margin exemption.

For availing the benefits of margin exemptions through early pay-in of securities, the members are requiredto upload a file containing details in respect of the early pay-in at client level to the Clearing House(BOISL). The details in the file are matched against the transaction files received from CDSL and NSDL.Only the matched records are uploaded for Early Pay-In.

Initial Margin

The Initial Margin requirement shall be based on a worst case loss of a portfolio of an individual clientacross various scenarios of price changes. The various scenarios of price changes would be so computed soas to cover a 99% VaR over a one day horizon. In order to achieve this, the price scan range may initially be fixed at 3.5 (standard deviation). The initial margin so computed would be subject to a minimum of 1.75% on the first day of currency futures trading and 1 % thereafter. The initial margin shall be deductedfrom the liquid net worth of the clearing member on an online, real time basis. The computationmethodology in respect of ordinary margin is as follows: -

• Intra day – During the trading session, the margin is calculated on the absolute difference betweentotal sales in value terms and total buy in value terms in respect of all transactions executed in acontract during the day at client level, in addition to previous day’s open position carried forward atthe closing price of previous day.

• End of day – At end of the trading session, the margin amount is computed at client level on net position in a contract in quantitative terms multiplied by the official closing price.

The min. margin requirement, sometimes called the maintenance margin requirement, is the ratio setfor: -

• (Stock Equity - Leveraged Rupees) to Stock Equity

• Stock Equity being the stock price * no. of stocks bought and Leveraged Rupees being the amount borrowed in the margin account.

• E.g. an investor bought 1000 shares of ABC Company each priced at Rs.50. If the initial margin

Page 35: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 35/64

requirement were 60%: -

• Stock Equity: - Rs.50 * 1000 = Rs.50,000

• Leveraged Rupees or amount borrowed: - (Rs.50 * 1000)* (1-60%) = Rs.20,000

So the maintenance margin requirement uses the above variables to form a ratio that investors have toabide by in order to keep the account active.

The point is, let's say the maintenance margin requirement is reduced from 60% to 25% - At what pricewould the investor be getting a margin call? Let P be the price, so 1000P in our case is the Stock Equity.

• (Stock Equity - Leveraged Rupees) divided by Stock Equity = 25%

• (1000P - Rs.20,000)/1000P = 0.25

• (1000P - Rs.20,000) = 250P

• P = Rs.26.67

So if the stock price drops from Rs.50 to Rs.26.67, investors will be called to add additional funds to theaccount to make up for the loss in stock equity.

Additional Margin: -

In case the price fluctuation in a contract during the trading session is more than 50% of the circuit filter limit applicable on that contract compared to the base price of the day, an additional margin equivalent to50% of the circuit filter limit or as specified by the Exchange is applied. Such additional margin amount isimmediately reflected in utilized margin of the members having outstanding position in that contract and incase the available margin of a member is not sufficient to cover such additional margin required, a margincall is sent to the member and is required to be remitted by the member immediately. In such case, since theavailable deposit is already exhausted, he is put in square off mode and the same continues during suchtrading session till collection of required margin amount is completed or member squares off his position.

Special Margin: -

Special Margin is the margin levied over and above initial margin. Special margin is levied on buy or sellor both. It is levied by exchange per se or by exchange on the instruction of FMC.

Tender Period/Delivery Period Margin: -

When a contract enters into tender period/delivery period towards the end of its life cycle, tender periodmargin is imposed. Tender margin is levied as specified in the contract specification and is applicable

Page 36: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 36/64

on both outstanding buy and sell position, which continues up to the marking of delivery obligation or expiry of the contract, whichever is earlier.

The delivery period margin is levied on the marked quantity and is calculated at the rate specified for respective commodity multiplied by the marked quantity at the expiring contract. When a seller submitsdelivery documents along with surveyor’s certificate, his position is treated as settled considering early

 pay-in and his tender period/delivery period margin to such extent is reduced. When a buyer pays moneyfor the delivery allocated to him, his delivery period margin is reduced on such quantity for which he has paid the amount. If delivery does not happen with respect to certain open position and is finally settled byway of difference as per the Due Date Rate, the delivery period margin is released only after finalsettlement of difference arising out of such closing out as per the Due Date Rate.

Placing Orders

Before placing an order on margin, make certain that the security is margin able and that you are able tofulfill the margin requirements. Remember to tell the trader that the order should be placed in your marginaccount.

Margin call

When the margin posted in the margin account is below the minimum margin requirement, the broker or exchange issues a margin call. The investor now either has to increase the margin that they have deposited,or they can close out their position. They can do this by selling the securities, options or futures if they arelong and by buying them back if they are short. If they don't do any of this the broker can sell his securitiesto meet the margin call.

S ettling Margin Transactions

All margin transactions are settled through investor's money market settlement account. Margin accountcredits will sweep to investor's money market account, and funds will be drawn from that account to reducemargin account debits. This could affect investor's investment strategy and his ability to write checksagainst his money market account.

If investor prefer, his account can be structured so that margin balances do not sweep automatically. In thiscase, we will move only enough funds from his money market settlement account to establish and maintainthe required margin equity.

Page 37: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 37/64

• Fines / Penalty for Margin Default: -

The cases where there is an insufficient balance in bank accounts of the member-brokers at the timeof debit of margin amounts payable in cash on the relevant day are treated as margin defaults. Thenorms for levy of fines/ penalty for delay in clearance of margin obligations w.e.f. May 30, 2005 are as

follows:

Settlement and Pay-in and Pay-out

Rolling Settlement: -

Under rolling settlement, all transactions, to the extent not closed out during the day, known as open positions at the end of the day mandatory result in payment/ delivery ‘n’ days later. Currently trades inrolling settlement are settled on T+2 bases where T is the trade day. For example, a trade executed onMonday is mandatory settled on Wednesday (considering two working days from the trade day). The fundsand securities pay-in and pay-out are carried out on T+2 day.

Pay-in and Pay-out of Securities and Funds

An investor as to pay for stock purchased within 24 hours of trade. The payment has to be made by way of account  payee cheque/demand draft  in the name of the trading member only. It is necessary that no payment should be made by way of cash or into the personal account of the trading member or sub-broker 

Page 38: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 38/64

or any of its employees. The investors receive payment for securities within 24 hours (one working day)

of declaration of pay-out by the Stock Exchange. The trading member ensures that cheque / money transfer is done to him from the bank account specified in ‘Know Your Client’ form, at the time of opening tradingaccount with the trading member.

Delivery and Receipt of Securities

• In case of a sale transaction, to ensure timely  pay-in of securities by investor's trading member toThe National Securities Clearing Corporation Ltd., a wholly owned subsidiary of the Exchange(NSCCL), investor  should deliver securities within 24 hours of trade. For this, instructionsshould be given to the DP to transfer securities from investor's beneficiary account to the poolaccount of its trading member. Investor's should fill up delivery instruction slip on its own andverify each detail including settlement details, (NSDL has advised not leave any field or row blank).Securities deliveries are made to trading member from investor own beneficiary account, whichwas specified in ‘Know Your Client’ form, while opening the trading account.

• In case of purchase, investor should receive securities (in its beneficiary account with DP), within24 hours of the securities payout by the NSCCL. For this, standing instructions should be givento the DP to receive securities in investor's beneficiary account from the pool account of its tradingmember.

• Check on the pay out day whether investor depository account is credited with securities purchasedor investor’s bank account is credited through electronic fund transfer representing saleconsideration.

Margins payable on Securities and Transactions: - -

Based on the Contract notes issued by the trading member, arrange to meet pay-in obligation as under: - 

1. In case of securities sold on the Exchange, handover delivery instruction to your DP.

• From his own beneficiary account.

• With correct settlement.

• Member account details depending upon the Exchange in which securities are sold and ensure

that DP effects delivery to the trading member a day prior to pay-in day, crediting the specified pool account of the trading member.

2. Note that although the deliveries are to be made by T+2 day from the trade day, Depositories NSDL/CDSL have specified timings to receive delivery instruction by their depository participants. Youhave to verify the timings by which delivery instruction can be deposited with your depository participant to facilitate them to affect delivery to avoid short delivery.

3. Ensure that deliveries of securities are made to trading member from your own beneficiary account,

Page 39: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 39/64

which was specified in ‘Know Your Client’ form, while opening the trading account.

4. Confirm with the depository participant as also the trading member that the delivery instructionshave been correctly executed by them to the required settlement number and / or for requiredquantity.

5. In case of securities bought, arrange to issue a cheque in the trade name of the trading member / or 

transfer of money through electronic funds transfer to trading members’ settlement / businessaccount before the pay-in day.

6. Ensure that cheque / money transfer is done to trading member from the bank account specified in‘Know Your Client’ form, at the time of opening trading account with trading member. TheExchange/Clearing Corporation prescribes margin rules from time to time and such margining rulesare posted on the website of the Exchange. Currently, the Exchange calculates margins on the basisof value at risk principles as well as mark to market basis. The margins are charged on client level positions. Investor’s are advised to educate him selves about the margining principles. According tothe terms and conditions of the member-client- agreement / tripartite agreement, the tradingmember has a right to close out the position of a client and / or sell off securities deposited asmargin / security deposit by the client, if margin money and / or loss and / or debit balance is not paid / deposited, as required by the member. Please refer to specific clauses in the member client-agreement relating to closing out of position/ sell off of securities. Therefore, it is necessary for Investor to keep track of the margin requirements in order to avoid square off by the tradingmember on account of shortfall in margin or selling off securities deposited as margin/securitydeposit.

Deposit with the trading member /sub-broker?

The regulations relating to Capital Market Segment do not mandate any such requirement. It depends onunderstanding of client with the trading member /sub-broker. Investor's are however, required to pay

upfront margin to the member in respect of any order that they want to get executed in the Futures &Options Segment and also forthwith pay differential margin amount, if any, payable on account of theExchange debiting the margin amount to the member account during the day.

Settlement Guarantee Fund

The NSCCL has set up the Settlement Guarantee Fund (SGF) that is intended primarily to guaranteefinancial settlement for trades executed in the regular market. The SGF, therefore, ensures that thesettlement is not delayed on account of failure of trading members to meet their obligations and all other trading members who have completed their part of the obligations are not affected in any manner 

whatsoever.

Effect on investor's in case a counter trading member fails to pay-in funds as per his obligation: -The investor is not affected in case the counter trading member fails to meet his obligation since NSCCLguarantees the net financial settlement obligations. The clearing corporation guarantees financial settlementthrough SGF in case of any default by the trading member towards his obligation. Demat Settlement

Depository

Page 40: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 40/64

A depository is like a bank where in the deposits are securities (viz., shares, debentures, bonds, governmentsecurities, units etc.) in electronic form. Besides holding securities, a depository also provides servicesrelated to transaction in securities.

Depository Participant

Depository provides its services to investors through its agents called Depository Participants (DP’s).These agents are appointed by the depository with the approval of SEBI. According to SEBI regulations,amongst others, three categories of entities i.e. Banks, Financial Institutions and Members of Stock Exchanges registered with SEBI [TM’s] can become DP’s.

Holding securities in depository enables immediate transfer of securities in case of purchases. The stampduty to be paid on transfer of securities is not needed, all risks associated with physical certificates like fakesecurities, and forgery, bad delivery, etc. are not involved. Also, since more than 99% of the settlement atthe stock exchanges is taking place in the demat form, it is advisable that securities be held in demat formwith any Depository Participant (DP).

Trading Members (TM): -

Trading members are members of an authorized Exchange. They can trade either on their own account or on behalf of their clients including participants. The exchange assigns a trading member ID to each tradingmember. Each trading member can have more than one user. The number of users allowed for each tradingmember is notified by the exchange from time to time. Each user of a trading member must be registeredwith the exchange and is assigned a unique user ID. The unique trading member ID functions as a referencefor all orders/trades of different users. This ID is common for all users of a particular trading member. It isthe responsibility of the trading member to maintain adequate control over persons having access to thefirm’s User ID.

Dematerialization and its Procedure: -

Dematerialization is the process by which physical certificates of an investor are converted to an equivalentnumber of securities in electronic form and credited in the investor’s account with its DepositoryParticipant (DP).In order to dematerialize certificates, Investor will have to first open an account with a DPand then request for the dematerialization of certificates by filling up a Dematerialization Request Form

(DRF), which is available with DP and submitting the same along with the physical certificates. Ensurethat the certificates are defaced by marking: - “Surrendered for Dematerialization” on the face of thecertificate before the certificates are handed over to the DP.

In order to get Demat securities in case of purchases made, an investor may give a one-time standinginstruction to its Depository Participant. This standing instruction can be given at the time of accountopening or later. Alternatively, investor may choose to give a separate receipt instruction to its DepositoryParticipant for receiving every credit. For pay-in obligations, investor should instruct it's DP to give‘Delivery Out’ instructions to transfer the shares from it's beneficiary account to the pool/principal accountof it's trading member through whom investor have sold the shares. The details of the pool/principalaccount of it's trading member/ clearing member to which shares are to be transferred, security, quantityetc. should be mentioned in the ‘Delivery Out’ instructions given by investor to it's DP. The instructionsshould be given well before the prescribed securities pay-in day. SEBI has advised that the ‘Delivery Out’instructions should be given at least 24 hours prior to the cut-off time for the prescribed securities pay-in to

Page 41: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 41/64

avoid any rejection of instructions due to data entry errors, network problems etc.

Auction of Shares

What is an auction: -1. If any member fails to deliver the quantity of any security or any security vis-à-vis the deliverable

obligation of the member, such quantity of securities or such securities are put up for auction by theExchange. The Exchange purchases the requisite quantity of the security in auction market anddelivers them to the buying trading members, who either did not receive or received part delivery.

2. On account of short / non delivery of securities, the selling trading member’s account is debited onT+2 day with an amount equal to the value of these securities. This value is arrived at byconsidering the closing price into the quantity of each of the securities short / not delivered. Theclosing price is the price prevailing on preceding day to the pay-in day.

3. On T + 3 day, the Exchange places an order in the auction market to buy these undeliveredquantities of securities. Based on the auction price four scenarios can emerge.

Scenario1: - - Where the auction value equals the debited amount for the securities bought inauction, the trading member who did not deliver the securities does not have to pay any additionalamount by way of auction difference.

Scenario2: - - Where the auction value is greater than the debited amount. For the securities boughtin auction, the trading member who did not deliver the securities will be required to pay thedifference if the amount for the securities bought in auction is greater than the amount debited.

Scenario3: - -  Where the auction value less than the debited amount. For the securities bought, thetrading member who did not deliver the securities will not get difference. This amount will go toInvestor Protection Fund. (Please refer point 4.2 mentioned below)

Scenario4: - - Failure to receive securities through auction. If the short quantity of the security or the security is either not available in auction market or when the selling member in the auction failsto deliver in part or full the quantity of the security against his obligation to deliver, on auction payin day, the Exchange effects the close-out at the highest price prevailing in the Exchange on the dayof the original trade till the day of the closing out(end of auction day) or 20% above the officialclosing price on the auction day, whichever is higher.

The four scenarios are explained with an example in the table given below: - -

Assume 10 shares of XYZ Company are sold at a price of Rs.100 in normal market on a Trading Day (T).

Page 42: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 42/64

In the table, the highest price prevailing from the date of trade to the date of close out is Rs.105.00 andclosing price on Auction day in normal market is Rs.100. Therefore applicable close out price in the above

case will be Rs. 105.00 (highest price during the period) or Rs.120.00 (i.e. 20% above the closing price onthe auction day in the normal market), whichever is higher. In this case, closing price shall be Rs. 120.00 As per the SEBI directive , the difference between the debited amount and the auction value is treated as

under: -

1. Where auction value is more than the debited amount, the difference amount is debited to and 

recovered from the short / non-delivering member.2. Where auction value is less than the debited amount, the difference amount is to be credited to the

 Investor Protection Fund.

3.  Auction settlement is held two days after auction trade day (i.e. auction takes place on T+3 day,

Page 43: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 43/64

therefore auction settlement takes place on T+3+2 = T+5 days). Can I avail the benefit of the

auction mechanism, if I have shares to deliver? Yes, Investor can inform its trading member to sell 

its securities in the auction. However, investor should ensure that the securities are readilyavailable for delivery. Securities not delivered on auction pay-in day are directly closed out at a

 price specified by the Exchange/Clearing Corporation.

Settlement of Off-Market Transactions

1. Seller gives delivery instructions to his DP to move securities from his account to the buyer'saccount.

2. Buyer automatically receives the credit of the securities into his account on the basis of standinginstruction for credits.

3. Buyer receives credit of securities into his account only if he gives receipt instructions, if standinginstructions have not been given.

4. DP needs to be extra careful in verifying the signature of the client if large quantities of securitiesare being debited to the account.

5. Funds move from buyer to seller outside the NSDL system.

Settlement of Market-Transaction

Page 44: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 44/64

A market trade is one that is settled through participation of a Clearing Corporation. In the depositoryenvironment, the securities move through account transfer. Once the trade is executed by the broker onthe stock exchange, the seller gives a delivery instruction to his DP to transfer securities to his broker'saccount. 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 aretransferred to the buying broker's account. The broker then gives delivery instructions to his DP totransfer 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'saccount.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.

Settlement Number

Trading periods of each of the market segments is identified by a settlement number. Every settlement

number has a trade beginning day, trade-ending day, settlement pay-in day and settlement pay-out day.Stock exchanges divide a period of one year [generally calendar year] into several settlement periods andallocate settlement number for each settlement-period. All these days collectively are called 'settlementcalendar'. DPM system will give complete details of settlement calendar for each stock exchange. The DIslip should contain the settlement number for which the securities are being transferred to the clearingmember.

Page 45: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 45/64

CLIENT ACCOUNTING

Client Account is an account maintained for any individual or entity being serviced by an agent (broker,members), for a commission. A client’s business must be segregated from the broker’s/members/principal’sown business and clients’ money should be kept in segregated account.

Definitions

(a) “Client” means and includes any individual, who transacts in securities through the auspices of themember broker herein named as such, and seeks to transact such business in securities through the useof E Trading facilities of the said member broker.

(b) “Depository” refers to the National Securities Depository Limited, Mumbai. (NSDL)

(c) “Online Trading” means carrying on the business of stock broking using electronic systems asOrder Routing mechanisms to forward orders to the electronic system of the Stock Exchange.

(d) “Exchange” refers to the National Stock Exchange of India Limited. (NSE)

(e) “Member Broker” is Anand Rathi Securities Ltd; a stock broker registered as a Stock Broker interms of the SEBI (Stock Brokers and Sub-Brokers) Rules and Regulations, 1992 and is registered asStock Brokers with SEBI in terms of the said rules and regulations.

(f) “Trading Account ” shall mean a rupee account opened by the client with the member broker,

which is linked to the online trading facility through the web-site.

(g) “Depository Participant” or “Designated Depository Participant” means ANAND DepositoryParticipant or any other depository participant as may be specially designated as a Depository

Page 46: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 46/64

Participant by Anand Rathi Securities Ltd, respectively.

(h) “Bank ” or “Designated Bank ” means any bank as may be notified from time to time on thewebsite, with whom the member broker has made arrangement in respect of the Online TradingServices to be provided to the clients in terms of the presents.

(i) “Bank Account” or “Designated Bank Account” means an account opened, maintained andoperated by the clients with a bank in terms of and pursuant to the requirements mentioned in theagreement.

(j) “Demat Account” or “Designated Demat Account” means an account maintained in terms of theRegulation 42 of the SEBI (Depositories and Participants) Regulations, 1996 by ANAND DepositoryParticipant in its capacity as a Depository Participant or any other Depository Participant as may bespecified by Anand Rathi Securities Ltd.

(k) “Margin Trading” refers to trading in securities by paying an advance amount as margin to themember broker in cash and ‘or as securities, in the following events: -

1. Purchase of securities of a value in excess of the money with the purchaser, in the TradingAccount, at the time when the order is placed on the website.

2. Sale of securities in excess of the securities available in the demat account of the seller on thedate when the order is placed on the website.

(l) “Pay-in Date” means the day on which the clearing house of the stock exchange receives in thesecurities and monies due from the members pursuant to their transactions in securities, over the periodof the settlement cycle of the Exchange.

(m) “Pay-out Date” means the day on which the clearing house of the stock exchange pays outsecurities and monies due to members pursuant to their transactions in securities, over the period of thesettlement cycle of the Exchange.

Types of Accounts

Type of depository account depends on the operations to be performed. There are three types of demataccounts which can be opened with a depository participant viz. (a) Beneficiary Account (b) Clearing 

 Member Account and (c) Intermediary Account # , and other accounts are margin account, discretionaryaccount, day trading account and online trading account.

# These accounts are for members which they have to open with the exchanges

Page 47: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 47/64

• A DP may be required to open three categories of accounts for clients - Beneficiary Account,Clearing Member Account and Intermediary Account.

• A Beneficiary Account is an ownership account. The holder/s of securities in this type of accountown those securities.

• The Clearing Member Account and Intermediary Account are transitory accounts. The securities inthese accounts are held for a commercial purpose only.

• A Clearing Member Account is opened by a broker or a Clearing Member for the purpose of settlement of trades.

• An Intermediary Account can opened by a SEBI registered intermediary for the purpose of stock lending and borrowing.

Beneficiary Account1 

This is an account opened by investors to hold their securities in dematerialized form with a depository andto carry out the transactions of sale and purchase of such securities in book entry form through thedepository system. A beneficiary account holder is legally entitled for all rights and liabilities attached tothe securities (i.e. equity shares, debentures, government securities, etc.) held in that account. Therefore,the account is called beneficial owner account". A beneficiary account can be in the name of an individual,corporate, Hindu Undivided Family (HUF), minor, bank, financial institution, trust, etc. or the broker himself for the purpose of his personal investments in demat form. The account is opened with a DP. A newsub-type viz. "Margin Account" has been added to the Client types viz.; 'Resident' and 'Body Corporate'under Client Maintenance Module in DPM Application Software (DPMAS).The new sub-type "MarginAccount" is added to enable Clearing Members (CM’s) to open beneficiary accounts to hold securities for client margin purposes. New sub- types are also added to enable promoters to separately hold securities

issued as "Promoter" of the company.House account vs. non-house account - An account opened by a DP for the custody of and transactions inits own investments is referred to as a house account, and all other beneficiary accounts are referred to asnon-house account. DP’s are required to open house accounts for their own investments to prevent co-mingling of their assets with that of their clients. Neither the Depositories Act nor the regulations madeunder the Act lay down any specifications about who can open a beneficiary account. Since all beneficialowners are deemed to be members of a company (under section 41(3) of the Companies Act), only those

1 Www.nseindia.com/investor/education

Page 48: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 48/64

who are eligible to become members of a company under the Companies Act, can open a beneficiaryaccount with a depository. Thus, all legal entities with the exception of partnership firms can open anaccount in the depository system.

Margin accounts

With a margin account investor's are effectively borrowing in order to pay for the stocks they have just bought. With a margin account, depending on investor's credit rating with its stockbroker, investor's can borrow up to 50% of their purchase order. The remaining 50% they are required to pay in the normal way.Along with learning the T+3 rules, those who open a margin account need to familiarize themselves withthe margin call rule. A margin call occurs when the stock investor's have bought drops to the level wherethe stockbroker believes their investment is at risk. As such, they issue investor's with a margin call,following which they are required to either deposit more money into their account to lessen their risk of loss or sell the stock immediately (taking the loss with it). However, if the stock continues to fall, certainstockbrokers will then issue a sell order, regardless of whether or not investor's deposit money into theaccount to cover the broker’s position. 1

All-in-all, margin accounts can be used to make large profits. However, it is also possible to lose vast sumsof money very quickly if investor's are not sure what they are doing with margin accounts.

Discretionary accounts

As the name suggests, having a discretionary account means investor's stockbroker is allowed to buy andsell stocks at their discretion – without having to notify investor's beforehand of what they plan to do.Because of the blank authorization investor's give to their stockbroker with a discretionary account, their really do need to trust them implicitly and in most cases, unless the broker is a blood relative, they’d dowell avoiding this type of broking account.

Day trading accounts

A current fad among stock market investors and traders is day trading. In short, with day-trading we meanto buy and sell a stock on the same day. At the end of the day investor's then total up their buys and sales tosee if they have made or lost money. However, because of the risk associated with taking short-term positions in stock, day trading should really be left until such time as they know quiet a lot about stock markets, how they work, and how to make money out of them.

Online trading accounts

In addition to the types of accounts above, these days it is also possible to have an online trading accountwith a broker that allows investor's to give buy and sell instructions via the internet. In most cases, the

 broker also has internet capabilities and the whole transaction is done electronically.

As one embarks on online stock trading, it is imperative to open an account with a stock broker. Discountand Online Brokers handle internet trading as opposed to a full-service broker, hence choosing the bestonline accounts that have good reviews is important. Normally, there are 4 different types of online stock  brokers, the long-term (for those people who would want to invest for the future), medium-term, short-termand that day investing broker. They trade in stock markets like NSE and BSE.

A person investing in stocks can open one or more of the 3 different options of accounts with a broker. The

1 http://www.a-z-stock-brokers.com/accounts.html

Page 49: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 49/64

1st one is the cash account which is the simplest to open. The broker will require enough funds in thisaccount before making any transactions. Before trading, funds in these accounts are usually deposited in aninterest-gaining account until trading time. When an order is made to buy stock, the broker transfers fundsfrom the cash account to the investor’s preferred brokerage account. Others are margin account anddiscretionary account which are discussed above.

(Cliental accounting deals with payment of share purchased, delivery of share certificate and refunds etc.

which is discussed earlier)

Bank Reconciliation Statements (BRS)1 

In lay man language BRS means

A form that allows individuals to compare their personal bank account records to the bank's records of theindividual's account balance in order to find out any possible reasons/discrepancies due to difference in balances in both books.

As per Investopedia BRS means

The Businessman prepares the Cash Book and the Pass Book is prepared by the Bank (here by cash book we mean three column cash Book). But as both the books are related to one person and same transactionsare recorded in both the books so the balance of both the books should match i.e. the balance as per PassBook should match to balance at bank as per cash book. But many a times these two balances do not agreethen, it becomes necessary to reconcile them by preparing a statement which is called Bank ReconciliationStatement. A  BANK RECONCILIATION STATEMENT 2  may be defined as a statement showing theitems of differences between the cash Brook balance and the pass book balance, prepared on any day for reconciling the two balances. ‘Reconciliation’ 3 between the cash book and the bank statement final balancesimply means an explanation of the differences. This explanation takes the form of a written calculation.

In Anand Rathi we use BRS as a method of reconciling the bank statement with our records in order to

check whether all the entries are made properly or not and also to check whether we are making the entriesaccordingly or not and also to minimize discrepancies arising out of different transaction being conductedon daily basis. Out of which we reasons for differences can be.

• Cheque issued but not yet presented to bank for payment

◦ To resolve such query we manual check in our software as to which entry is made lately andwhich transaction is not yet presented to the bank.

1 http://www.nos.org/srsec320newE/320EL9.pdf 2 http://www.outsourceaccountingservices.com/bank-statement-reconciliation.html3 http://www.osbornebooks.co.uk/files/af_bookkeeping.pdf 

Page 50: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 50/64

• Cheque deposited in bank but yet not collected.

◦ To resolve this query we see the cheque collection report submitted by the bank to us and see asto which cheques are submitted and which cheques are not.

• Amount directly deposited in bank.

◦ Sometime client directly deposit amount in our bank account then we don't get the entry for thesame. Thus here we just reconcile with the client whether he made the payment or not.

• Bank charges.• Interest and dividend received by bank.

• Direct payment made by bank on behalf of clients.

• Dishonor of cheque/bill discounted.

• Error committed on recording transaction by the firm or by the bank.

RECO Report: -

It is a detail report about the transaction of the client. This report is about the deposit’s made by the client to

its trading member and also about the amount which the trading member has to pay back to the client onhis demand. It is one of the most important reports and it is prepared daily to clarify the accounts to thatshare can be transferred in the clients accounts and total final settlement could be done.

Manual Bank RECO: -

This report is the same as to Reco Report with only difference that this report has to be downloaded fromthe respective bank site in order to make and check entries in the respective accounts.

Bank Reconciliation application helps in streamlining and improving the reconciliation of bank statements with general ledger bank accounts. It makes important updates to ARSL software GeneralLedger and receives timely entries from the other applications. With Bank Reconciliation, it’s easy to know

which checks have cleared, which transactions are outstanding, which bank accounts contain whatamounts, and exactly where the money is. BANK RECO helps in finding errors and record differences  between brokers statement books and the bank easily with two types of reconciliation from theReconciliation Report—book-to-bank and bank-to-book. Reconciling is fast and simple. Broker can clear transactions with a single mouse click—line by line by a specific range of checks or all at once. If broker make a mistake, reversing a selection is just as easy.

Bank Reco helps to make the best decisions about the day-to-day operations of client’s payment business. Bank Reconciliation gives the accurate information needed to make the most of cash. Usingmultiple bank accounts for Accounts Receivable/Sales Order deposits and Accounts Payable/PurchaseOrder checks gives us the flexibility to receive money and to disburse money from different accounts.

Transactions function is used to enter deposits, disbursements, adjustments, and transfers that have not been created through other applications.

Additional Bank Reconciliation Features: -1

• Unlimited number of bank accounts with the Bank Accounts screen• Account balance automatically displayed from the general ledger account if Bank Reconciliationis interfaced with General Ledger 

1 http://www.osas.com/downloads/.PDF

Page 51: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 51/64

• Last statement balance and statement date updated when reconciled• Enter recurring adjustments only once• Enter a transaction in any currency if the multicurrency option is on• Void a check before it is sent or stop the payment of a check before it is cashed• Void any check after it has been posted• Define own default descriptions and references

• Inter-account transfers and manual adjustments• Post transactions to multiple years• Reprint the last posting log• Stop the payment of any check, even if it was posted from an interfaced application

CASH MANAGEMENT SYSTEM

Cash Management services is a new entrant in the Indian Banking Scenario. Cash Management Services(CM’S) is a mechanism to efficiently manage cash flow in order to reduce risks, minimize costs andmaximize profits. Generally Cash Management comprises integrated collection, payments, liquiditymanagement, and receivables functions. Speedy collection of outstation instruments is one of the major 

 products under CM’S.

CM’S offers customized collection and payment services, which allow companies to reduce the realizationtime of cheques and streamline their cash flows. As the companies get access to their funds faster, the needfor companies to borrow cash comes down, and lowers their interest payout. In return, the banks charge thecompanies a fee based on the volume of the transaction, the location of the cheque collection centre andspeed of delivery. Some banks even buy the cheques and pay the corporate immediately; charging aninterest fee for the number of days it takes them to en cash the cheques. Since CM’S allows companies totrack their cash flows on a daily basis, financial decisions happen faster and more efficiently.

Need of CM’S

Managing liquidity is complex, as cash is volatile. For a business spread across various locations,managing outstation fund-collections and disbursements can often be a time-consuming, expensive andexasperating proposition.

Delays of days or even weeks in realizing outstation cheques, constant tracking and follow-up to transfer funds from outstation collection accounts, uncertainty and delays regarding information on the fate of thecheque is common. These affect the company's liquidity position and it has to bear a higher interest cost. Aremedy to this hazard surely is the practice of cash management.

Business entities with large network of branches, sales outlets often have client base with wide geographicspread. Getting receivables through cheques, drafts and other clearing instruments into their possessionitself consumes considerable time. Besides, often they find it difficult to have access to funds at the

required time since banks pass on the credit only on realization. Corporate are not certain of the time lag toget the instruments collected through normal channel of banks and get the funds credited to their accountswhich hinders the treasury management portfolio and strain their liquidity and profitability. CashManagement offers guaranteed credit and timely MIS.

CM’S brings predictability of cash flows and helps in liquidity management." Sectors such as telecom,utility services, mutual funds and insurance companies benefit most from it because they can pool their receipts from different locations in different forms (online, cheques, ECS and credit cards) in a seamlessmanner.

Page 52: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 52/64

Businesses being globalised and corporate clients increasingly feeling the need to manage operationsefficiently, clients are placing a much greater emphasis on the need to have access to “anytime” and

“anywhere” information. It is not surprising, therefore, that brokers and their corporate clients havequickly realized the role that the Internet can play in this regard. Over the years, we have seen a strongshift, from text-based systems to computer-based solutions and finally to the present situation, namely, web based cash management systems. The reason for increasing no. of online transaction and users is – the fast

increasing opportunities for small businesses through the globalization of corporate and business broking,the rapid integration between cash management and trade services, and high-end technology no longer  being the exclusive domain of large clients.

Benefits from a client’s point of view

As the demand to move from a thick-client to a thin-client system increased among corporate clients, andthe advantages of doing so were somewhat obvious, no corporate or small business wanted to losefunctionality in the bargain. Therefore, it was natural to expect that clients would want to have and retainevery bit of functionality around the traditional services of collections, payments and reporting. The main

features typically offered through web based cash management can be classified into: - paymentmanagement, liquidity management, electronic collections and information reporting. Other featuressuch as single sign-on and billing engine complete the offering. Interfaces with various paymentsystems, different services associated with fund transfers (stop payments, cheque imaging, positive andreverse positive pay, retail and corporate lockbox facility, etc.) are all considered passé today by corporateclients. Increasingly, clients are demanding cross border settlements and integration with mainline treasuryfunctions. By web-enabling their cash management service, brokers are able to offer them operationalflexibility. An obvious advantage that corporate clients want to derive in their adoption of Internet-basedsystems is the efficient management of funds and risk management. Corporate treasurers are highlyconscious of carrying idle cash and want to do everything possible to make judicious use of the fundsavailable. This necessitates the integration between the cash management system deployed within the

organization, and the general ledger, accounts receivables and accounts payables systems within thecompany. The more seamless the integration between these systems, the more timely and accurate will bethe reporting function effective cash management requires integration and availability of information, not  just from sources within the organization but from external sources too. It also demonstrates that cashmanagement today assumes a highly strategic dimension for clients.

Benefits from a broker’s point of view

Just as in the case of corporate clients, brokers also want to move to web-based solutions but not at theexpense of functionality. Creating client “stickiness” through “one-stop-shop” features, such as providingconsolidated information, can be very rewarding for brokers. As brokers become more familiar withtechnological advances, they too have become more demanding of their vendors. The crux lies inleveraging technology without compromising on the functionality available. The requirement is to makeavailable tools and services that make the task of the user much easier. There are several new technologyfeatures that are demanded by the brokers from a web-based cash management systems vendor: -

• Single sign-on – integrated information reporting from various back-end systems such as treasury,cash management, commercial loans, trade finance, etc;

• Segmentation of clients – traditionally in the retail area, but now increasingly being used to

Page 53: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 53/64

understand and cater to the needs of the corporate and business brokering segments;

• Integration with multiple channels of delivery, as we move into an era of possibly making allfunctions available to clients across all touch-points; and

• Real-time reporting and others.

The drivers for the adoption of web-based systems may slightly differ between brokers and itsclients. However, both brokers and their corporate and business clients see sufficient value in web-basedsystems to adopt them brokers, to a certain extent, achieved the above benefits by moving their systemsfrom PC brokering thick-client solutions to web-based business e-brokering solutions. However, what is  prompting brokers to differentiate by upgrading their solutions into a fully fledged web-based cashmanagement offering. Brokers everywhere have been criticized for only seeing a part of the large clientrelationship picture, brokers are aware of the “total relationship” approach, however they are saddled withantique back offices, complicated by myriad ad hoc surround systems, and they found themselves tied up ina situation where flexibility was hard to come by. Relatively new and flexible business e-brokeringsolutions and advancement in technology offered the hope of integrating silos and the base for extendingfully fledged cash management through the web.

Additionally, the changing dynamics of the end clients’ increasing awareness of cost means the margin for 

error is slowly reducing. . Also, it is easier to pass on the charges for a mistake committed by the client thanan error committed by a broker staff member. A fully fledged offering in the form of web-based cashmanagement also helps brokers to increase fee-based income through value-added offerings and segmentclients, through adjustment of the offering base. On the cost side, automatic entry reduces cost. Centralizedhandling and consolidations help the brokers to scale up without significantly increasing headcount. 

Fund Management: -Management of net funds available for investment and external funds purchased from other banks. Fundsmanagement attempts to match the cash flow needs of a bank against maturity schedules of its deposits asloan demand increases or decreases. Funds management is more of a Treasury function than Asset-Liability Management, which deals mainly with control of interest rate risk and liquidity risk, and the pricing of loans in specific time periods.Funds management examines the mix of funds raised by a bank, including large rupee deposits, non deposit borrowings, and credit advances from a RBI or Other Banks. Its aim is supplying funds sufficient to meetthe bank's asset growth objectives at the lowest funding cost, and at acceptable levels of risk (credit risk,liquidity risk, and interest rate risk).On the asset side of the balance sheet, funds management deals with the control of discretionary portfolios by the corporate treasurer, including the investment securities portfolio and trading account assets. On theliability side, it focuses on wholesale sources of funds, including credit advances from a RBI or Other Banks, and hedging techniques, such as interest rate futures and interest rate swaps to control these balancesheet exposures. It is also called balance sheet management.

• It means managing the fund of a firm. Investment management is the professional managementof various securities (shares, bonds etc.) and assets (e.g., real estate), to meet specified investmentgoals for the benefit of the investors. Investors may be institutions (insurance companies, pension

Page 54: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 54/64

funds, corporations etc.) or private investors (both directly via investment contracts and morecommonly via collective investment schemes e.g. mutual funds).

• The term asset management is often used to refer to the investment management of  collective investments, while the more generic fund management may refer to all forms of institutionalinvestment as well as investment management for private investors. Investment managers whospecialize in advisory or discretionary management on behalf of (normally wealthy) private

investors may often refer to their services as wealth management or portfolio management oftenwithin the context of so-called "private banking".

• The provision of 'investment management services' includes elements of  financial analysis, assetselection, stock selection, plan implementation and ongoing monitoring of investments. Investmentmanagement is a large and important global industry in its own right responsible for caretaking of trillions of dollars, euro, pounds and yen. Coming under the remit of  financial services many of theworld's largest companies are at least in part investment managers and employ millions of staff andcreate billions in revenue’s.

• Fund manager (or  investment adviser   in the U.S.) refers to both a firm that provides investmentmanagement services and an individual who directs fund management decisions.

REPORTS

Valan Report : -  (Date wise Settlement Balance Sheet (Valan))1

The process of daily settlement was brought up LC GUPTA committee in 1996, Valan word is assuch not defined however NSE has discussed about trade report which has taken its functionality fromValan. The only way to define is through the daily use of the word. The word is used to define the summaryof the daily transaction of the broker, in simple words it’s the daily settlement balance sheet i.e. totaltransaction performed at the broker ends, means by its client. Valan is the summary of a brokers, tradereport is summary of the particular terminal. Every member prepares and manages Valan but gives a

different report to it, it may be called as trade file, brokers report etc.

Trade Report Once the market closes, the details of trading activities done by the user are generated astrade reports. They are downloaded on the workstation of Corporate/Branch manager. Downloaded reportsare stored at the workstation as well as sent to the printer. This allows the user to reprint any report anytime. Members can request for reports after the reports are generated by the system and before the marketopens for trading on the next trading day. A separate button ‘Report’ has been provided on the logon screenfor requesting report download. After reports are generated by the Exchange, a message “Interactive reports

1 http://www.mkttechnologies.com/Product/coremodules_class.asp

Page 55: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 55/64

can be taken now” is displayed on the message window in the market watch screen. The member has tothen request for the reports from the logon screen by entering the user id, trading member id and

password and by invoking ‘Report’. A message “Downloading reports in directory. Please wait.” is thendisplayed. In case of incorrect logon details a message “Invalid sign on” is displayed.

The x25 address check is also performed by the system for report download and therefore, allotted user idscannot be used interchangeably from any other location apart from the specified location. Sign on is not

allowed.” is displayed at the logon screen. At the exact time of receipt of reports a pop up box stating thereport name and its receipt status appears. Check for the user id and the report receipt status for all the threereports. A message “Report downloaded successfully” is displayed. The reports are downloaded inREPORTS directory for the given trading day and user id. Members can also view their reports in MSDOSeditor. If a user attempts to request for reports during market hours a message “Connection to the systemcannot be established. Report process may not be up on the host” is displayed. Reports are downloaded

on request only from corporate manager and branch manager. Reports are available as a spool file(printable format) and also as a data file (comma delimited format). The corporate manager receives reportswith extension coo, col, ctd (printable format) and cod, cld, ctt (comma delimited format). These reportscontain branch-wise details of trades and orders of all branches of the trading member and further, for alldealers of the firm. The branch manager receives reports with extension boo, bol, btd (printable format) and

 bod, bld, btt (comma delimited format). These reports contain dealer- ise details of trades and orders for alldealers placed under that branch. The dealers are users at the lower most level of the hierarchy. They do nothave access to information on other dealers, on the same branch or other branches of the same firm andtherefore, do not receive any reports. In case an inquiry user or dealer requests for report download, amessage “Only Corporate and Branch Managers are allowed to request for reports” is displayed.

 NSE Segment

• Trade for Trade S Rolling Settlement (Settlement Type ‘W’) 1

•  Normal Settlement (Settlement Type ‘N’) (ROLLING T+2) Capital Market segment

BSE Segment

• BSE has, for the guidance and benefit of the investors, classified the scrip's in the Equity Segmentinto 'A', ‘B’,'T', ‘S', ‘TS' and 'Z' groups on certain qualitative and quantitative parameters.

• “C" group which covers the odd lot securities in 'A', 'B1', 'B2' and 'Z' groups and Rightsrenunciations in all the groups of scrip's in the equity segment.2 

• A" "B1, B2" "C" "Z" are from the equities and "F" is from debt market.

• 'A' Group is a category where there is a facility for carry forward (Badla) to the next settlementcycle. These are companies with fairly good growth record in terms of dividend and capitalappreciation. The scrip’s in this group are classified on the basis of equity capital, marketcapitalization, number of years of listing on the exchange, public share holding, floating stock,trading volume etc.

'B1, B2’ Group is a subset of the other listed shares that enjoy higher market capitalization and liquiditythan the rest.

'C' group covers the odd lot securities in 'A', 'B1' & 'B2' groups

'T'' Also termed as the trade to trade group this category comprises of shares which have to be settled in

1 http://www.nse-india.com/content/nsccl/cm_sett_calendar.htm

2 http://www.bseindia.com/about/tradnset.asp

Page 56: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 56/64

delivery for all buys and sells and square off of bought and sold positions during the day is not permitted.This is a part of the surveillance from the BSE to counter any awkward unwarranted movements in suchscrip’s.

'Z' Group category comprises of shares of the companies which does not comply with the rules andregulations of the Stock Exchange and are at times suspended from trading due to the above said reasons.

The trading cycle for the above scrip’s is from Monday to Friday and starting sat (carry forward for scrip’s)the settlement by payment of money and delivery of securities in the following week.

'F' Group represents the debt market segment.

MIS REPORT

MIS or Management Information System is a computer based system used by most organizationsworldwide for transforming data into useful information for better decision making. It helps management

make better plans and carefully organize business operations.

Management information system is used for generating reports including status reports, financialstatements, performance reports etc. These reports are essential for analyzing different aspects of business.These reports also help to answer 'what-if' questions like what would be the effect on cash flows of acompany if the credit term is changed for its customers etc.

MIS reports also support decision making and it helps to integrate the decision maker and the quantitativemodel being used. These automated systems allow managers to make decisions for smooth & successfuloperation of businesses. The system includes computer resources, people, and procedures used in themodern business enterprise.

Types of Systems

• Accounting Management Information System: - The system shares all accounting reports atdifferent levels of management

• Financial Management Information System: - The system provides financial information tomanagers in an organization. Based on these reports, managers analyze historical and currentfinancial activity, and also project future financial needs. It is also used for monitoring andcontrolling the use of funds over time using the information developed by the MIS department.

Professional MIS reports are made by accounting firms for accurate analysis. These reports arecomprehensive and help the middle and top management take important decisions regarding the finance,accounting and overall business operations

Page 57: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 57/64

Road Ahead of Stock Market

Stock Market is a booming sector, and it welcomes all the changes with due course of time. The featureswhich exchange can use in future to facilitate investors are: -

• Mobile Trading : - 

With changing scenario of information technology and new advancement in mobiletechnology, exchange can provide a facility for the investors to trade through there own mobile. Itwill be slightly different from what is presently provided by the member in name of Mobile Trade.In this feature the investor need not to call on any no., he himself can put is trade through themobile. Just like pocket pc are helping public to save time and money both, in the same way thisnew concept can help the investor to avoid calling the customer care no. of the trader for putting uptrade. Mobile trading would provide more secure trading, as only the user of the mobile would beable to use the mobile and no one else could. This will help the exchange to reduce the no. of discrepancy arising due to lack of communication or miscommunication between the broker and theclient. Mobile trading would change the scenario of trading. It would be beneficial for exchange, broker and client all. Brokers would get charges from the client for using such services and would

Page 58: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 58/64

not be held liable for any mistake as the client himself is using and placing the trade. Investor would be in a greater benefit as there would be no chances of wrong trade by the broker or anymisuse of funds by the broker. Client can always have a secure excess to there account.

• Messaging/Mailing : -

 Another feature which exchange can adopt is placing orders via message/mailing. In thisfacility the client can either message or send a mail to the investor for placing an order. This facilitycan be proved beneficiary if used with proper care and command. Complete record of messages andmails should be maintained. Order should be placed only from the no. and mail id provided by theinvestor in KYC form, and only to that no. which is provided to the investor by the trader duringfilling up of form. For more secure excess and safety for investor and the trader, the no. and theemail-id of trader which is supposed to be used for receiving order by the investor should be keptunder complete surveillance to check back if any fault has been done or not.

• Mobile Payment: -

Other then just placing order/trades, these services can be used to make payments andreceive back confirmation messages. As the present age has changed from e-banking to mobile- banking, the same can be used to provide facilities to the investors. Client can pay for there order through mobile banking option, facilitating investor to avoid squaring-off of its shares, and it canalso help the broker as it will ensure timely pay-in. The orders and executed can be confirmed toinvestor via sms and mails, thus provided an edge to the broker over others, and avoiding any futuremisunderstanding.

Miscellaneous

Types of Order in Stock Market

• Normal orders-When you sell shares without marking delivery it is treated as a short sale and will beexecuted if there are sufficient funds available to execute the transactions.

Delivery Mark orders-This intimates the system to take delivery for the order placed. In case of buyorder the system will block the entire amount for the order placed. In case of delivery sell order thesystem will check your demat stock availability and the transaction will go through only if the stock isavailable in your Demat account, once the order is accepted in the exchange the quantity put for sale is blocked. Once the sell order is executed the entire amount generated from the sell trade will beavailable for trading for further trading.

• BTST Orders is Buy Today Sell Tomorrow without Guarantee. They have been discussed in detailunder BTST

Page 59: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 59/64

• Stop Loss Order-Stop loss order-An order placed, which gets activated only when the market price of the relevant scrip reaches or crosses a threshold price, which is called trigger price. Until then the order does not enter the market but sits with the NSE.

Mark to market Settlement

MTM Settlement means that any notional and/or booked losses or profits of the members based onoutstanding position at the end of a trading day and loss / gain on T + 1 day is either debited or credited toMember’s settlement account. Notional gain / loss on open positions, at the end of the trading day, arecomputed with reference to the closing price of the said contract with the traded price of the contract.

The CM’s who have a loss are required to pay the mark-to-market (MTM) loss amount in cash which is inturning passed on to the CM’s who have made a MTM profit. This is known as daily mark-to-marketsettlement. CM’s are responsible to collect and settle the daily MTM profits/losses incurred by the TMs andtheir clients clearing and settling through them. Similarly, TMs are responsible to collect/pay losses/profitsfrom/to their clients by the next day. The pay-in and pay-out of the mark-to-market settlement are affectedon the day following the trade day (T+1). The mark to market losses or profits are directly debited or 

credited to the CM’s clearing bank account. In case a futures contract is not traded on a day, or not tradedduring the last half an hour, a ‘theoretical settlement price’ for unexpired futures contracts is computed as per the following formula:

 Where

F = Theoretical futures priceS = Value of the underlying indexr = Cost of financing (using continuously compounded interest rate) or rate of interest (MIBOR)T = Time till expiratione = 2.71828

After completion of daily settlement computation, all the open positions are reset to the daily settlement price. Such positions become the open positions for the next day.

Loan against Securities- LAS

The securities held with NSDL may be used as collateral to secure loans and other credits by the clients.In a manual environment, borrowers are required to deliver pledged securities in physical form to thelender or its custodian. These securities are verified for authenticity and often need to be transferred in thename of lender. This has a time and money cost by way of transfer fees or stamp duty. If the borrower wants to substitute the pledged securities, these steps have to be repeated. Use of depository services for  pledging/ hypothecating the securities makes the process very simple and cost effective. The securities pledged/hypothecated are transferred to a segregated or collateral account through book entries in the

records of the depository.

F= S*e rT

Page 60: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 60/64

A beneficial owner may contract a loan against the securities owned by him. He may borrow from a bank or any other person. A pledge transaction needs an identification which may be an agreement number.The borrower is called a pledgor and the lender is called a pledgee. There can be any number of pledge/hy- pothecation transactions between the same set of pledgees and pledgors. Each of these transactions have to be identified separately by an agreement number in the depository participant module (DPM) and a sepa-rate set of instructions have to be given against each of these transactions (agreement numbers). Multiple pledge instructions can be executed on the basis of a single agreement. In such cases, the same agreementnumber should be quoted for all the pledge instructions.

Trading Member (Broker): -

A broker is an intermediary who arranges to buy and sell securities on behalf of clients (the buyer and theseller).According to Rule 2 (e) of SEBI (Stock Brokers and Sub-Brokers) Rules, 1992, a stockbroker means amember of a recognized stock exchange. No stockbroker is allowed to buy, sell or deal in securities, unlesshe or she holds a certificate of registration granted by SEBI. A stockbroker applies for registration to SEBIthrough a stock exchange or stock exchanges of which he or she is admitted as a member. SEBI may granta certificate to a stockbroker [as per SEBI (Stock Brokers and Sub-Brokers) Rules, 1992] subject to theconditions that:

4. He holds the membership of any stock exchange;5. He shall abide by the rules, regulations and bye-laws of the stock exchange or stock exchanges of 

which he is a member;6. In case of any change in the status and constitution, he shall obtain prior permission of SEBI to

continue to buy, sell or deal in securities in any stock exchange;7. He shall pay the amount of fees for registration in the prescribed manner; and8. He shall take adequate steps for redressal of grievances of the investors within one month of the

date of the receipt of the complaint and keep SEBI informed about the number, nature and other  particulars of the complaints.

Page 61: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 61/64

While considering the application of an entity for grant of registration as a stock broker, SEBI shall takeinto account the following namely, whether the stock broker applicant – 

• Is eligible to be admitted as a member of a stock exchange;

• Has the necessary infrastructure like adequate office space, equipment and man power to

effectively discharge his activities;• has any past experience in the business of buying, selling or dealing in securities;

Nifty index

S&P CNX Nifty (Nifty), is a scientifically developed, 50 stock index, reflecting accurately the marketmovement of the Indian markets. It comprises of some of the largest and most liquid stocks traded on the NSE. It is maintained by India Index Services & Products Ltd. (IISL), which is a joint venture between NSE and CRISIL. The index has been co-branded by Standard & Poor’s (S&P). Nifty is the barometer of the Indian markets.

Circuit Breakers

The Exchange has implemented index-based market-wide circuit breakers in compulsory rolling settlementwith effect from July 02, 2001. In addition to the circuit breakers, price bands are also applicable onindividual securities.

 Index-based Market-wide Circuit Breakers: The index-based market-wide circuit breaker system applies at3 stages of the index movement, either way viz. at 10%, 15% and 20%. These circuit breakers whentriggered bring about a coordinated trading halt in all equity and equity derivative markets nationwide. The

market-wide circuit breakers are triggered by movement of either the BSE Sensex or the NSE S&P CNX Nifty, whichever is breached earlier.

• In case of a 10% movement of either of these indices, there would be a one-hour market halt if themovement takes place before 1:00 p.m. In case the movement takes place at or after 1:00 p.m. but before 2:30 p.m. there would be trading halt for ½ hour. In case movement takes place at or after 2:30 p.m. there will be no trading halt at the 10% level and market shall continue trading.

• In case of a 15% movement of either index, there shall be a two-hour halt if the movement takes place before 1 p.m. If the 15% trigger is reached on or after 1:00 p.m., but before 2:00 p.m., thereshall be a one-hour halt. If the 15% trigger is reached on or after 2:00 p.m. the trading shall halt for remainder of the day.

• In case of a 20% movement of the index, trading shall be halted for the remainder of the day. These percentages are translated into absolute points of index variations on a quarterly basis. At the end of each quarter, these absolute points of index variations are revised for the applicability for the nextquarter. The absolute points are calculated based on closing level of index on the last day of thetrading in a quarter and rounded off to the nearest 10 points in case of S&P CNX Nifty.

Stop Loss Matching: -

Page 62: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 62/64

All stop loss orders entered into the system are stored in the stop loss book. These orders can contain two prices.

Trigger Price: It is the price at which the order gets triggered from the stop loss book.

 Limit Price: It is the price for orders after the orders get triggered from the stop loss book. If the limit priceis not specified, the trigger price is taken as the limit price for the order. The stop loss orders are prioritized

in the stop loss book with the most likely order to trigger first and the least likely to trigger last. The priority is same as that of the regular lot book. The stop loss condition is met under the followingcircumstances:

 Sell Order  - A sell order in the stop loss book gets triggered when the last traded price in the normalmarket reaches or falls below the trigger price of the order.

 Buy Order   - A buy order in the stop loss book gets triggered when the last traded price in thenormal market reaches or exceeds the trigger price of the order.

When a stop loss order with IOC condition enters the system, the order is released in the market after it istriggered. Once triggered, the order scans the counter order book for a suitable match to result in a trade or 

else is cancelled by the system.

Merchant Banking

The merchant banking activity in India is governed by SEBI (Merchant Bankers) Regulations, 1992. Allmerchant bankers have to be registered with SEBI. The person applying for certificate of registration asmerchant banker has to be a body corporate other than a non-banking financial company, has necessaryinfrastructure, and has at least two persons in his employment with experience to conduct the business of the merchant banker. The applicant has to fulfill the capital adequacy requirements, with prescribedminimum net worth. The regulations specify the code of conduct to be followed by merchant bankers,

responsibilities of lead managers, payments of fees and disclosures to SEBI. They are required to appoint aCompliance Officer, who monitors compliance requirements of the securities laws and is responsible for redressal of investor grievance.

Demat Issues

As per SEBI mandate, all new IPO’s are compulsorily traded in dematerialized form. The admission to adepository for dematerialization of securities is a prerequisite for making a public or rights issue or an offer for sale. The investors would however, have the option of either subscribing to securities in physical formor dematerialized form. The Companies Act, 1956 requires that every public listed company making IPO of any security for Rs.10 Crore or more shall issue the same only in dematerialized form.

PortfolioA Portfolio is a combination of different investment assets mixed and matched for the purpose of achievingan investor's goal(s). Items that are considered a part of your portfolio can include any asset you own-fromshares, debentures, bonds, mutual fund units to items such as gold, art and even real estate etc. However,for most investors a portfolio has come to signify an investment in financial instruments like shares,debentures, fixed deposits, mutual fund units.

Page 63: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 63/64

Commodity Exchange

A Commodity Exchange is an association, or a company of any other body corporate organizing futurestrading in commodities. In a wider sense, it is taken to include any organized market place where trade isrouted through one mechanism, allowing effective competition among buyers and among sellers – thiswould include auction-type exchanges, but not wholesale markets, where trade is localized, but effectivelytakes place through many non-related individual transactions between different permutations of buyers andsellers.

Stock Split

A stock split is a corporate action which splits the existing shares of a particular face value into smaller denominations so that the number of shares increase, however, the market capitalization or the value of shares held by the investors post split remains the same as that before the split. For e.g. If a company hasissued 1,00,00,000 shares with a face value of Rs. 10 and the current market price being Rs. 100, a 2-for-1stock split would reduce the face value of the shares to 5 and increase the number of the company’soutstanding shares to 2,00,00,000, (1,00,00,000*(10/5)). Consequently, the share price would also halve to

Rs. 50 so that the market capitalization or the value shares held by an investor remains unchanged. It is thesame thing as exchanging a Rs. 100 note for two Rs. 50 notes; the value remains the same.

BIBLIOGRAPHY

• http: -//guide2net.net/articles/topics/vipul/online_trading/index020328.html

• http: -//www.chittorgarh.com/newportal/online-stock-brokers-detail.asp?a=1

• http: -//www.onlinestocktrading.in/different-types-of-online-stock-trading-accounts.htm/

• www.nseindia.com

Page 64: Anand Rathi PROJECT

8/2/2019 Anand Rathi PROJECT

http://slidepdf.com/reader/full/anand-rathi-project 64/64

• www.bseindia.com

• www.sebi.gov.in

• www.managementparadise.com

• www.answers.com

• www.buzzle.com/articles

• www.trade.rathi.com

• www.intra.rathi.com•  Ncfm.com

• www.wiki.answers.com

• www.hdfcbank.com

• www.blurit.com

• www.icicibank.com

• www.investmentz.com

• www.directbroking.co.nz

• www.banknetindia.com

• www.infosys.com/finacle/solutions

• www.icicibank.com/pfsuser/channels/internet• www.nucleusindia.com

• http://www.mkttechnologies.com/Product/coremodules_class.asp

• http://www.osas.com/downloads

• http://www.nos.org/srsec320newE/320EL9.pdf 

• http://www.outsourceaccountingservices.com/bank-statement-reconciliation.html

• http://www.osbornebooks.co.uk/files/af_bookkeeping.pdf 

• www.rbi-sebi/standing technical committee.com