copy lse project

8/7/2019 copy lse project

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In partial fulfillment of the requirements for the award of Degree of

Master of commerce

Submitted in

LUDHIANA STOCK EXCHANGE

SUBMITTED TO: SUBMITTED BY:

nancy chopra


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Acknowledgement

No Endeavour can be successful without the active co-operation of the people concerned with it,

which was forthcoming, in full, during this study. It is extremely difficult to find words, whichcan do justice to the sort of co-operation I got in the planning and execution of this study. And

no research is ever an individual effort. It is a contributory effort of many hearts, hands& heads.

This project comes out to be a great source of learning and experience. Lot of efforts has been

put by various people to make this project a success. This has greatly enhanced my knowledge

about the vast field of Indian capital market and investing in it.

I acknowledge my indebtness to Mrs. Pooja M. Kohli (Representative Director), Ms. Pooja

Sharma (Training Department Head), Mr. Vipan Mahajan (Depository Head), Mr. Rajinder Pal

(Margin Section), Mr. Sudhir Sharma (Head of Listing Department) and Mr. Prashant (Head of

Law Department) for their invaluable guidance and ingenuity to give my ideas a concrete shape.

Let me at the outset; express my deep sense of gratitude to MRS. payalDeepshikha (project

guides) for meticulous guidance, keen supervision, constant encouragement, constructive

criticism, friendly attitude and whole hearted help throughout the course of this project. His

unforgettable positive approach and analytical acumen made this project possible.

In preparing this project I have drawn on material from variety of books, journals, internet,articles and the information given by the stock exchange.

Last but not the least, I thank my parents and friends who helped and assisted me in their variouscapacities during the various activities.

Nancy chopra


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TABLE OF CONTENTS

Sr. no. Contents Pageno.

Executive summary 5

Chapter-1 Introduction to the subject 7

1.1 Theoretical foundation 7

1.2 Literature review 12

Chapter-2 Introduction to the organization and the industry in which project isundertaken

14

2.1 Overview of industry 14

2.2 Entry in exchanges and trading 19

2.3 Types of trading 23

2.4 Derivatives 24

2.5 Profile of Ludhiana stock exchange 29

2.6 LSE Securities Ltd. brief profile 32

2.7 Departments of LSE 35

2.8 LSEs history 46

2.9 Recent achievements and milestones 47

2.10 Product range or services offered by exchange 482.11 Financial status of the organization 49

2.12 Statistical profile or performance history of company 50

2.13 Future prospects/plans 52

2.14 SWOT analysis of LSE 52


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Chapter-3 - Objectives of the study and research methodology 54

3.1 Objectives 54

3.2 Important details related with sources of data and methodology 54

3.3 Limitations of the study 56

Chapter-4 Data presentation, analysis and interpretation 57

4.1 Interpretation of the questionnaire 57

Chapter-5 Summary and conclusion 69

5.1 Summary 69

5.2 Conclusion 69

Appendix (Questionnaire, Abbreviations etc.) 70

Abbreviations 70Questionnaire 70

Bibliography 74

Executive summary

A good system must be able to cope with an extremely complex and dynamic

environment.


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The booming Indian market has started showing its increasing development in the investmentcycle. An economy after years of waiting, watching and belt tightening, now witnessing thedesired change. Indian companies in various sectors ranging from cement to steel are buildingtheir blue prints throughout the globe. The long term capital expenditure has been forecasted for next five to seven years.

At this juncture of economic development, a project on analyzing Indian stock Market, Sensexand Nifty is a timely decision. The analysis started with the search that why Sensex and nifty arecalled heartbeat of Indian economy and their calculation methodology. The next phase of the

project went to searching the history of Indian capital market and the stock exchanges workingin India.

Objectives of the study:

To understand the working of a stock exchange and understanding its operations andtheir importance

To understand the calculation and importance of Sensex and Nifty

To study the products offered in capital market and estimating their risk and return

To find out the most preferred security to invest

To find out the factors on which markets respond

Significance:

This research has a lot of importance for a person who wants to invest their money in Indiancapital market and earn significant returns. This study can guide them and can give an idea of risk and return attached to various securities which are being offered in capital markets. Thisstudy also helps in understanding the importance of sensex and nifty for India and help investorsand other persons the method of calculation of sensex and nifty.

Scope of the study:

The study is limited to the basic knowledge of the stock market and the types of trading in it.

The scope of the study covers the process of entering in the Indian capital market and trading inshares, commodity and currency. The data is collected from Ludhiana Stock exchange which is a


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reputed stock exchange is providing services since 1983. Further sample size for research work is 50 which cannot represent all the investors of India or of Ludhiana.

Findings:

Majority of investors do not analyze financial performance or history of company beforeinvesting in that company.

Future and Options trading is most preferred by Indian investors followed by intra daytrading.

Most of the investors invest in shares to get quick returns and not from the point of viewof capital appreciation and secure future etc.

CHAPTER-1: INTRODUCTION TO THE SUBJECT

1.1 Theoretical foundation

SENSEX & NIFTY- The Barometer of Indian Capital Markets


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Stock Market performance is quantified by calculating an index using the benchmark scrips andwe all know that SENSEX is associated with Bombay Stock Exchange and NIFTY is associatedwith National Stock Exchange, but what many do not know is how those indices are calculatedalong with EPS and PE values.

SENSEX

SENSEX has been calculated since 1986 and initially it was calculated based on the TotalMarket Capitalization methodology and the methodology was changed in 2003 to Free FloatMarket Capitalization. Hence, these days, the SENSEX is based on the Free Floating Market capof 30 SENSEX Stocks traded on the BSE relative to the base value which is 100(1978-79) and itis calculated for every 15 seconds.

Free Float Market Capitalization is defined as the value of all the shares available for publictrading excluding the promoter equity, holdings through FDI Route, Holdings by privatecorporate, and holdings by Employee Welfare Funds. .

Why Free Flow Market Cap?

1. It depicts the market more rationally2. It removes undue influence of government or promoter share holding, there by giving the

equal opportunity for companies to be in the SENSEX3. Almost all the Indices world over are calculated by this methodology4. It gives Fund managers more authentic information for benchmark comparisons.

How the SENSEX 30 Stocks are selected?

1. Listing History


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2. Trading Frequency3. Rank based on the Market Cap (Should be Among top 100)4. Market Capitalization weight5. Industry / sector they belong6. Historical Record

How SENSEX is calculated?

The formula for calculating the SENSEX = (Sum of free flow market cap of 30 benchmark stocks)*Index Factor

Index Factor = 100/Market Cap Value in 1978-79.

Where, 100 is the Index value during 1978-79.

Example:

Assume SENSEX has only 2 stocks namely SBI and RELIANCE. Total shares in SBI are 500out of which 200 are held by Government and only 300 are available for public trading.RELIANCE has 1000 shares out of which 500 are held by promoters and 500 are available for trading. Assume price of SBI Stock is Rs.100 and Reliance is Rs.200. Then "free-FloatingMarket Cap" of these 2 companies:

(300*100+500*200) = 30000+100000 = Rs. 130000

Assume Market Cap during the year 1978-79 was Rs.25000

Then SENSEX = 130000*100/25000 = 520.

The methodology in the example is exactly followed to calculate the SENSEX, only difference being the inclusion of 30 stocks.

NIFTY

The National Stock Exchange (NSE) is associated with NIFTY and it is also calculated by thesame methodology but with two key differences.


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1. Base year is 1995 and base value is 1000.2. NIFTY is calculated based on 50 stocks.

Everything else remains the same in NIFTY Index calculation as well.

SENSEX EPS

We all know Earnings per Share (EPS) are calculated for all the companies to show howmuch a company generates the net profit for every outstanding share. Likewise EPS iscalculated for SENSEX as well so that we can have a better understanding about the market.

Lets see how it is calculated. All you need for this calculation is EPS of all the 30 SENSEXstocks along with their Free Float Adjustment Factor.

Example: Take HDFC Bank for the example. Present EPS for HDFC Bank is Rs. 44 andFree Float Adjustment Factor is 0.85. Free Float Adjustment factor of 0.85 just means 85%of the total outstanding shares are held by Non-Promoters and are available in the market for trade.

Multiply the EPS with Adjustment Factor which is 44*.85 = 37.4. This 37.4 is thecontribution of HDFC Bank towards SENSEX EPS. Likewise we need to calculate for all 30stocks and add it together to get the final value of SENSEX EPS which should be somewherearound 980 these days. We can calculate NIFTY EPS in the same manner.

SENSEX PE

PE Ratio is calculated for companies which show what the investors are ready to pay for every rupee of earnings. If we calculate the same thing by taking into account all the 30SENSEX stocks, then we will end up with SENSEX PE.


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How to calculate?

Consider the same HDFC Bank. Multiply the Market Price of HDFC Bank with number of shares outstanding which should be equal to Market Capitalization.

Market Capitalization = Share Price * Total Shares

Then calculate the Net Profit by multiplying the EPS with Total Shares.

Do this for all the 30 SENSEX stocks.

SENSEX PE = Sum of Market Capitalization of 30 SENSEX Stocks divided by Sum of NetProfit of all the 30 SENSEX Stocks.

At present the SENSEX PE is around 15 and it provides useful information about SENSEX.

Analysts predict the level of SENSEX using this number only. Suppose, SENSEX PE is 15and SENSEX EPS is 980, then the Index = 14700. For example, if you believe, earnings of the companies would grow at 10 percent this year, and then apply the same growth rate to

both SENSEX PE and SENSEX EPS to predict the SENSEX next year.

SENSEX PE and SENSEX EPS give some useful information about which way the marketmight move. But it is not necessary that the information you get should hold true always. As weknow, Stock Market is a place, where no one can be right all the time.

Index Specification (sensex):

Base year 1978-79Base index value 100Date of launch 01-01-1986Method of calculation Launched on full market capitalization method

and effective September 01, 2003, calculationmethod shifted to free-float market capitalization .

Number of scrips 30

Index Review Frequency

The BSE Index Committee meets every quarter to discuss index related issues. In case of arevision in the Index constituents, the announcement of the incoming and outgoing scrips ismade six weeks in advance of the actual implementation of the revision of the Index.
http://www.bseindia.com/about/abindices/FreeFloat.asphttp://www.bseindia.com/about/abindices/FreeFloat.asphttp://www.bseindia.com/about/abindices/FreeFloat.asphttp://www.bseindia.com/about/abindices/FreeFloat.asphttp://www.bseindia.com/about/abindices/FreeFloat.asp


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Date Scrips Included Scrips Excluded29.06.2009 Hero Honda Motors Ltd. Ranbaxy Laboratories Ltd.

12.01.2009 Sun PharmaceuticalIndustries Ltd.

Satyam Computers Ltd.

28.07.2008 Sterlite Industries Ltd. Ambuja Cements Ltd.Tata Power Co. Ltd. Cipla Ltd.

14.03.2008 Jaiprakash Associates Ltd. Bajaj Auto Ltd.

19.11.2007 DLF Ltd. Dr. Reddy's LaboratoriesLtd.

09.07.2007 Mahindra & Mahindra Ltd. Hero Honda Motors Ltd.

12.06.2006 Reliance CommuniationVentures Ltd.

Tata Power Ltd.

06.06.2005 National Thermal Power Corpn. Ltd.

Hindustan Petroleum CorpLtd.

Tata Consultancy ServicesLtd.

Zee Telefilms Ltd.

27.09.2004 Larsen & Toubro Ltd. Mahanagar Telephone Nigam Ltd.

19.05.2004 Maruti Udyog Ltd. Larsen & Toubro Ltd.

10.11.2003 Bharti-Tele-Ventures Ltd. Castrol India Ltd.HDFC Bank Ltd. Colgate Palomive ( India )

Ltd.ONGC Ltd. Glaxo Smithkline Pharma.

Ltd.Tata Power Company Ltd. HCL Technologies Ltd.Wipro Ltd. Nestle ( India ) Ltd.

10.10.2002 HDFC Ltd. Reliance Petroleum Ltd.

31.05.2002 ICICI Bank Ltd. ICICI Ltd.

07.01.2002 HCL Technologies NIIT Ltd.Hero Honda Motors Ltd. Mahindra & Mahindra

08.01.2001 Cipla Ltd. Novartis


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10.04.2000 Dr. Reddy's Laboratories I.D.B.IReliance Petroleum Indian HotelsSatyam Computers Tata ChemZee Telefilms Tata Power

16.11.1998 Castrol Arvind MillsInfosys Technologies G. E. Shipping

NIIT Ltd. IPCL Novartis Steel Authority of India

19.08.1996 Arvind Mills Ballarpur Inds.Bajaj Auto Bharat ForgeBHEL Bombay DyeingBSES Ceat TyresColgate Century Text.Guj. Amb. Cement GSFCHPCL Hind. MotorsICICI Indian OrganicIDBI Indian RayonIPCL Kirloskar CumminsMTNL Mukand IronRanbaxy Lab. PhlipsState Bank of India Premier AutoSteel Authority of India SiemensTata Chem Voltas

03.08.1992 Bharat Forge Zenith Ltd.

01.01.1986 Voltas Bombay BurmahPeico Asian CablesPremier Auto. Crompton GreavesG.E.Shipping Scinda

1.2 Literature review

Purna Chandra Padhan

An understanding on the linkages between financial development and economic growth ingeneral and the stock market with economic activity in particular is imperative in emergingeconomies. The objective of this paper is to find out the causal linkages between stock market


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and economic activity in India. The notable finding of the paper is that both the stock price (BSESensex) and economic activity (IIP) are integrated of order one, i.e. I (1). The Johansen-Juseliusco-integration tests suggest the existence of one co-integrating vector. This rules out spuriousrelations and suggests the presence of at least one direction of causality. The TYDL modelsuggests that there is bi-directional causality between stock price and economic activity during

the post-liberalization period, implying that a well-developed stock market could enhanceeconomic activity and vice-versa.

Aman Srivastava

Both the Indian stock exchanges have significant ARCH effects and it is appropriate to useARCH/GARCH models to estimate the process. The research found that both EGARCH (1, 1)and EGARCH (1, 1)-M did good jobs in fitting the process for both exchanges. Because 1 a and

1 e are 0.9733 and 0.9716, which are close to 1, one can conclude that both markets willfluctuate radically with new shocks and this is a sign of high risk in the markets. The study alsodemonstrated that there are leverage effects in the markets. That means the investors in thosemarkets are not grown well and they will be heavily influenced by information (good or bad)very easily. This can easily be seen in current turmoil in Indian stock market. The study alsofound that the volatility of the Indian stock market exhibited features similar to those foundearlier in many of the global stock markets, viz., autocorrelation and negative symmetry in dailyreturns. It was found that asymmetrical GARCH models do better than the ordinary least square(OLS) models and the Vanilla GARCH models. Perseverance of shock could be explained thetime dependent risk premium. If it is found that the shock was of short term in nature, then theinvestor would be reluctant from making any modification in their discounting factor whilecalculating the present discounted value of the stock and therefore its price.

Neeta Tripathi

The foreign portfolio flows have become the important source for strengthening and improvingthe functioning of the domestic capital markets. There is a general understanding that Indian

stock market is primarily driven by FIIs, we find that the FII flows in the BSE sensex companiesis about 34% of the total outstanding share, which is not significant as compared to the size of our capital market. The figures at the macro level also suggest that the relative share of foreign

portfolio flows is marginal. According to the no. of transactions BSE occupied 6th position in2006. In terms of listed companies BSE ranks first in the world. India has a turnover ratio of 94.2% which is quite comparable to the other developed markets like the U.S.A. and U.K. whichhas turnover ratios of 129.1% and 141.9% respectively. According to Standard and Poor's Fact

book India ranked 17th in terms of market capitalization and 18th in terms of total value traded
http://findarticles.com/p/search/?qa=Aman%20Srivastavahttp://findarticles.com/p/search/?qa=Neeta%20Tripathihttp://findarticles.com/p/search/?qa=Neeta%20Tripathihttp://findarticles.com/p/search/?qa=Aman%20Srivastavahttp://findarticles.com/p/search/?qa=Neeta%20Tripathi


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in stock exchanges and 20th in terms of turnover ratio as on Dec. 2005. Further, share of domestic financial institutions in these companies is declining since 2003 (except 2005-06)while FIIs are occupying significant place. However, last one year quarter- end analysis givessomewhat optimistic results for DFI. We must take appropriate steps to improve investors'awareness in order to expand equity cult among the small savers. Recent trend of increased

investors' preference to participate in equity markets through mutual fund conduit wouldenhance institutional investment in equity markets. The institutional and regulatory architectureshould facilitate this further as this would counterbalance and cushion the impact of the swingsin the stock prices.

Further, majority of the companies have FII stake in the range of 10-20% these figures suggestthat relative share of FIIs in Indian companies is marginal. The govt. should take concomitant

policy efforts in terms of improving financial regulation and corporate governance to encourageindividuals as well as institutional investment.

CHAPTER-2: INTRODUCTION TO THE ORGANIZATION

2.1 Overview of industry

STOCK MARKET

A stock exchange, share market or bourse is a corporation or mutual organization which

provides "trading" facilities for stock brokers and traders , to trade stocks and other securities .

Stock exchanges also provide facilities for the issue and redemption of securities as well as other

financial instruments and capital events including the payment of income and dividends . The

securities traded on a stock exchange include: shares issued by companies, unit trusts and other

pooled investment products and bonds . To be able to trade a security on a certain stock

exchange, it has to be listed there. Usually there is a central location at least for recordkeeping,

but trade is less and less linked to such a physical place, as modern markets are electronic

networks , which gives them advantages of speed and cost of transactions. Trade on an exchange

is by members only. The initial offering of stocks and bonds to investors is by definition done in

the primary market and subsequent trading is done in the secondary market. A stock exchange isoften the most important component of a stock market . Supply and demand in stock markets is

driven by various factors which, as in all free markets , affect the price of stocks. There is usually

no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently

traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the
http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Mutual_organizationhttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Unit_trusthttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Electronic_networkshttp://en.wikipedia.org/wiki/Electronic_networkshttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Secondary_markethttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Over-the-counter_(finance)http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Mutual_organizationhttp://en.wikipedia.org/wiki/Stock_brokerhttp://en.wikipedia.org/wiki/Trader_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Dividendhttp://en.wikipedia.org/wiki/Shareshttp://en.wikipedia.org/wiki/Unit_trusthttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Electronic_networkshttp://en.wikipedia.org/wiki/Electronic_networkshttp://en.wikipedia.org/wiki/Investorhttp://en.wikipedia.org/wiki/Primary_markethttp://en.wikipedia.org/wiki/Secondary_markethttp://en.wikipedia.org/wiki/Stock_markethttp://en.wikipedia.org/wiki/Free_markethttp://en.wikipedia.org/wiki/Over-the-counter_(finance)


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usual way that bonds are traded. Increasingly, stock exchanges are part of a global market for

securities.

History of Stock Exchanges in India:

In 1860, the exchange flourished with 60 brokers. In fact the 'Share Mania' in India began whenthe American Civil War broke and the cotton supply from the US to Europe stopped. Further the

brokers increased to 250.

At the end of the war in 1874, the market found a place in a street (now called Dalal Street). In1887, "Native Share and Stock Brokers' Association" was established. In 1895, the exchangeacquired a premise in the street which was inaugurated in 1899.

Indian Stock Exchange Growth
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FEATURES OF THE STOCK EXCHANGE:

1946 1961 1971 1975 1980 1985 1991 1995

No. of Stock Exchanges

7 7 8 8 9 14 20 23

No. of ListedCos.

1125 1203 1599 1552 2265 4344 6229 8593

No. of Stock Issues of ListedCos.

1506 2111 2838 3230 3697 6174 8967 11784

Capital of ListedCos. (Cr. Rs.)

270 753 1812 2614 3973 9723 32041 59583

Market value of

Capital of ListedCos. (Cr. Rs.)

971 1292 2675 3273 6750 25302 110279 478121

Capital per Listed Cos. (4/2)(Lac Rs.)

24 63 113 168 175 224 514 693

Market Value of Capital per Listed Cos. (Lac

Rs.) (5/2)

86 107 167 211 298 582 1770 5564

Appreciatedvalue of Capital

per Listed Cos.(Lac Rs.)

358 170 148 126 170 260 344 803
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It provides the trading platform where buyers and sellers meet to transact in securities.

The stock exchange in India is under the supervision of the regulatory authority, the

Securities and Exchange Board of India

It is the place where sale and purchase of existing securities is done.It enables an investor to adjust his holdings of securities in response to changes in

assessment about risk and return.

It enables to meet the liquidity needs by providing market for sale of securities.

Stock exchange is an association of individual members called member brokers.

Stock exchanges are formed for the purpose of regulating and facilitating the buying and

selling of securities.

Stock exchange operate with due recognition from the govt. under securities and contractregulation act 1956.

Stock exchange facilitates trading in securities of the public sector companies as well as

govt. securities.

It acts as a host of intermediaries which assist in trading of securities and clearing and

settlement of trade.

LIST OF VARIOUS STOCK EXCHANGES IN INDIA

S.no. Name of stock exchange Year of establishment Type of organization1 Bombay stock exchange 1875 Voluntary non-profit

organization2 Ahmadabad stock exchange 1897 Voluntary non-profit

organization3 Calcutta stock exchange 1908 Public limited

company4 M.P. stock exchange, Indore 1930 Voluntary non-profit

organization5 Madras stock exchange 1937 Co. limited by

guarantee6 Hyderabad stock exchange 1943 Co. limited by

guarantee7 Delhi stock exchange 1947 Public limited


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company8 Bangalore stock exchange 1957 Pvt. Converted into

public ltd. Co.9 Cochin stock exchange 1978 Public limited

company10 U.P. stock exchange Kanpur 1982 Public limited

company11 Pune stock exchange 1982 Co. limited by

guarantee12 Ludhiana stock exchange 1983 Public limited

company13 Jaipur stock exchange 1983 Public limited

company

14 Guahati stock exchange 1984 Public limitedcompany

15 Kannaar stock exchange 1985 Public limited

company16 Magadh stock exchange 1986 Co. limited by

guarantee

17 Bhuveneshwar stock

exchange

1989 Co. limited by

guarantee

18 Vadora stock exchange 1990 N.D.

19 Meerut stock exchange 1991 N.D.

20 O.T.C.I (over the counter

exchange of India),Mumbai

1993 Pure demutualised

21 National stock exchange 1995 Pure demutualised

22 Coimbtoor stock exchange 1996 N.D.

23 Sikkam stock exchange 1997 N.D.


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2.2 Entry in exchanges and trading

Entry in exchanges and trading through them can be classified under three headings:

For companies

For sub-brokers

For investors

These all can be explained as:


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For companies : For entry in exchanges any company has to get listed in it. It involves allthe process of formation of the company. The main steps for a company to enter in stock exchange are:

There can be two kinds of public issues, namely:

Initial Public Offer (IPO)

Further Public Offer (FPO)

IPO

An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is

when an unlisted company makes either a fresh issue of securities or an offer for sale of its

existing securities or both for the first time to the public. This paves way for listing and trading

of issuers securities. The sale of securities can be through book building or normal public issue.

FPO

Further Public Offers are issued by companies or corporate bodies whose shares are already

being traded in the capital market and they are issuing fresh shares either to fund the expansion

of their existing business or to invest into other business activities.

Initial Public Offer

Listing

Trading


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For sub-brokers : The main steps to become a sub-broker and to enter in exchange are:

The NCFM Programme

Taking into account international experience and the needs of the Indian financial markets, National Stock Exchange introduced in 1998 a facility for testing and certification by launching NSE's Certification in Financial Markets (NCFM).

National certification in finanacialmarkets

Membership requirements

Trading


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NCFM is an online testing and certification programme. It tests the practical knowledge andskills required to operate in the financial markets. Tests are conducted in a secure and unbiasedmanner and certificates awarded based on merit of the candidate to qualify the on-line test.

The entire process of testing, assessing and scores reporting in the NCFM is fully automated.

The system is operated through an intranet facility by using a central World Wide Web server with terminals located at each of the designated test centres to be used as an examination frontend. Communication between the central server and the test centres is achieved throughVSAT/leased line network.

The Test is also offered through the Internet to enable candidates outside the designated testcentres to take tests at their convenience. This allows flexibility in terms of testing centres , datesand timing and provides easy accessibility and convenience to candidates.

The easy accessibility as well as flexibility involved in the NCFM programme has resulted in itswider acceptance among market intermediaries, students and regulators.

Membership requirements (in LSE):

Individual Corporate

Age 21yrs. Directors must be of 21yrs.

Minimum directors N.A. 2

Educationalqualification

Minimum +2 Directors must be +2 passed

experience Minimum 3 yearsexperience in capitalmarket

Minimum 3 yearsexperience in capitalmarket

Minimum Net worth 5 lacs 10 lacs

Trading:

After completing the above requirements a person or a corporate becomes a sub-broker andtrading can be started.

For investor : There are mainly two types of investors:

Individual
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Non individual

Categories under both types of investors:

Individual a/cs Non individual a/cs

Proprietorship a/c Partnership a/c

Minors a/c Hindu undivided family a/c

Corporate a/c

Formalities and Documents required:

Individual Non individual

For Minor For sole-proprietor

Corporate Partnership HUF

Guardian cansign and makecontract

Individual PAN(as ID proof)

PAN of company Bank proof of firm

HUFs PAN

PAN of minor Bank a/cstatement onname of

proprietor

Latest 2 years balance sheet

Partnersagreement

Kartas PAN

Birth certificate Address proof (bills likeelectricity andtelephone)

Copy of Memorandum of Association andArticles of Association

Any authorityletter

Address proof of karta

Letter fromguardian

Address proof (bank statement)

Partnershipfirms PAN

Bank proof of HUF

Board resolution Address proof of partnership firm

Shareholding pattern

Partners PANand address

proof


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All directorsPAN and their address proof

DP proof

2.3 TYPES OF TRADING:

There are mainly three types of trading:

Trading type Payment methods

Stocks Cash and derivatives

Commodity Derivatives

Forex Derivatives

Stocks:

Share or stocks trading is very familiar as most of the trading is done in shares of the companieslisted in the exchanges whether BSE or NSE. More than 2000 companies are listed in both of exchanges in which trading is done. Mainly sensex deals with 30 companies and nifty deals with50 companies and both are weighted indices of these companies and show rise or fall in these

particular companies.

Commodity:

The trading market of commodities was established before 1970 as a leading market in India.

Indeed, in the previous 1970s phase, the commodities' trading markets of India began to lose itseffervescence. This happened due to a number of restrictions and regulations from 1970s period,which was introduced by the government into the commodity market, India.

Those restrictions acted as impediments in the pathway of smooth commodity tradingfunctioning. Recently, various restrictions have been eliminated, which were affecting thetrading market of commodities in India negatively. So, nowadays, commodities' trading, Indiahas once more started to mature at a swift pace.


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Forex:

The international currency market Forex is a special kind of the world financial market. Traders purpose on the Forex to get profit as the result of foreign currencies purchase and sale. Theexchange rates of all currencies being in the market turnover are permanently changing under theaction of the demand and supply alteration. The latter is a strong subject to the influence of anyimportant for the human society event in the sphere of economy, politics and nature.Consequently current prices of foreign currencies evaluated for instance in the US dollarsfluctuate towards its higher and lower meanings. Using these fluctuations in accordance with aknown principle buy cheaper sell higher traders obtain gains. Forex is different in compareto all other sectors of the world financial system thanks to his heightened sensibility to a largeand continuously changing number of factors, accessibility to all individual and corporativetraders, exclusively high trade turnover which creates an ensured liquidity of traded currenciesand the round - the clock business hours which enable traders to deal after normal hours or during national holidays in their country finding markets abroad open.

2.4 Derivatives:

Primary market is used for raising money and secondary market is used for trading in the

securities, which have been used in primary market. But derivative market is quite different

from other markets as the market is used for minimizing risk arising from underlying assets.

A financial derivative is a product that derives value from the market of another product. Hencederivative market has no independent existence without an underlying asset. The price of thederivative instrument is contingent on the value of underlying assets.

Participants of Derivatives:

Exchange, trading members, clearing members.

Hedgers, arbitrageurs, speculators.

Clearing, clearing bank.Financial institutions.

Stock lenders and borrowers.

Operators in Derivative


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Hedger: Hedgers use futures or options markets to reduce the risk associated with the price of

the asset. Thus, they are operations who want to eliminate the risk composing of their portfolio.

Speculators: They wish to be on future movements in the price of an asset. A speculator may

buy securities in anticipation of rise in price. If this expectation comes true he sells the securities

at a higher price and makes a profit. Usually the speculator does not take delivery of securities

sold by him. He only receives and pays the difference between the purchase and sale prices.

Arbitrageurs: They are in business to take advantage of discrepancy between prices in twodifferent markets. If for example, they see the future price of an asset getting out of line with the

cash price, they will take off setting positions in two markets to lock in profit

INSTRUMENTS OF DERIVATIVE TRADING:

FORWARD

Derivatives FUTURE

OPTION

Hedgers ArbitrageSpeculato


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FORWARDS: a forward contract is a customized contract between two entities, where

settlement takes place on a specific date in the futures at today's pre-agreed price.

FUTURES: a future contract is an agreement between two parties to buy or sell an asset at a

certain time the future at the certain price. Futures contracts are the special types of forward

contracts in the sense that are standardized exchange traded contracts.

A futures contract is a type of derivative instrument, or financial contract, in which two partiesagree to transact a set of financial instruments or physical commodities for future delivery at a

particular price. If you buy a futures contract, you are basically agreeing to buy something that aseller has not yet produced for a set price. But participating in the futures market does notnecessarily mean that you will be responsible for receiving or delivering large inventories of

physical commodities - remember, buyers and sellers in the futures market primarily enter intofutures contracts to hedge risk or speculate rather than to exchange physical goods (which is the

primary activity of the cash /spot market ). That is why futures are used as financial instruments by not only producers and consumers but also speculators .

The consensus in the investment world is that the futures market is a major financial hub, providing an outlet for intense competition among buyers and sellers and, more importantly, providing a center to manage price risks. The futures market is extremely liquid, risky andcomplex by nature, but it can be understood if we break down how it functions.

While futures are not for the risk averse , they are useful for a wide range of people. In thistutorial, you'll learn how the futures market works, who uses futures and which strategies willmake you a successful trader on the futures market.

OPTIONS

An options is the right, but not the obligation to buy or sell a specified amount (and quality) of a

commodity, currency, index or financial instruments to buy or sell a specified number of

underlying futures contracts, at a specified price on a before a give date in the future.

OPTIONS

BUYER SELLER
http://www.investopedia.com/terms/f/futurescontract.asphttp://www.investopedia.com/terms/c/cashmarket.asphttp://www.investopedia.com/terms/s/spotmarket.asphttp://www.investopedia.com/terms/f/financialinstrument.asphttp://www.investopedia.com/terms/s/speculator.asphttp://www.investopedia.com/terms/l/liquidmarket.asphttp://www.investopedia.com/terms/r/riskaverse.asphttp://www.investopedia.com/terms/f/futurescontract.asphttp://www.investopedia.com/terms/c/cashmarket.asphttp://www.investopedia.com/terms/s/spotmarket.asphttp://www.investopedia.com/terms/f/financialinstrument.asphttp://www.investopedia.com/terms/s/speculator.asphttp://www.investopedia.com/terms/l/liquidmarket.asphttp://www.investopedia.com/terms/r/riskaverse.asp


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RIGHT OBLIGATION

TO BUY TO SELL TO SELL TO BUY

(CALL) (PUT) (CALL) (PUT)

OPTION PREMIUM:

A glance at the rights and obligation of buyer and seller reveals that option contracts are

skewed. One way naturally wonders as to why the seller (writer) of an option would always be

obliged to sell/buy an asset whereas the other party gets the right? The answer is that writer of an

option receives, a consideration for

Undertaking the obligation: This is known as the price or premium to the seller for the option.

The buyer pays the premium for the option to the seller whether he exercise the option is not

exercised, it becomes worthless and the premium becomes the profit of the seller.

CALLS AND PUTS

The two types of options are calls and puts:

A call gives the holder the right to buy an asset at a certain price within a specific period of time.Calls are similar to having a long position on a stock. Buyers of calls hope that the stock willincrease substantially before the option expires.

A put gives the holder the right to sell an asset at a certain price within a specific period of time.Puts are very similar to having a short position on a stock. Buyers of puts hope that the price of the stock will fall before the option expires.

Participants in the Options Market

There are four types of participants in options markets depending on the position they take:

1. Buyers of calls

2. Sellers of calls
http://www.investopedia.com/terms/c/call.asphttp://www.investopedia.com/terms/c/call.asphttp://www.investopedia.com/terms/l/long.asphttp://www.investopedia.com/terms/l/long.asphttp://www.investopedia.com/terms/p/put.asphttp://www.investopedia.com/terms/s/short.asphttp://www.investopedia.com/terms/c/call.asphttp://www.investopedia.com/terms/l/long.asphttp://www.investopedia.com/terms/p/put.asphttp://www.investopedia.com/terms/s/short.asp


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3. Buyers of puts

4. Sellers of puts

People who buy options are called holders and those who sell options are called writers ;

furthermore, buyers are said to have long positions, and sellers are said to have short positions.

Here is the important distinction between buyers and sellers:

-Call holders and put holders (buyers) are not obligated to buy or sell. They have the choice toexercise their rights if they choose.

-Call writers and put writers (sellers), however, are obligated to buy or sell. This means that aseller may be required to make good on a promise to buy or sell.

Don't worry if this seems confusing - it is. For this reason we are going to look at options from

the point of view of the buyer. Selling options is more complicated and can be even riskier. Atthis point, it is sufficient to understand that there are two sides of an options contract.

Terminology:The price at which an underlying stock can be purchased or sold is called the strike price . This isthe price a stock price must go above (for calls) or go below (for puts) before a position can beexercised for a profit. All of this must occur before the expiration date .

There are two main types of options:

American options can be exercised at any time between the date of purchase and theexpiration date. The example about Cory's Tequila Co. is an example of the use of anAmerican option. Most exchange-traded options are of this type.

European options are different from American options in that they can only beexercised at the end of their lives.

2.5 THE LUDHIANA STOCK EXCHANGE ASSOCIATION LIMITED PROFILEOrganization chart of Ludhiana stock exchange
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The Ludhiana Stock Exchange Association Limited Was established in 1983, with 220 members by Sh. S.P. Oswal and Sh. B.M. Munjal leading industrial luminaries, to fulfil a vital need of having a Stock Exchange has grown phenomenally. It switched from manual trading to screen

based trading on 18 th November 1996 and number of listed companies increased from 160 in90s to 405 in 2004 of which 271 are non-regional companies.

The Stock Exchange has played an important role in channeling saving into capital for thevarious industrial and commercial units of the State of Punjab and other parts of the country.

BOARD OF DIRCTORS OF LSE

Name Designation Date of Appointment

Mr. Krishan Kant Puri Chairman 29.09.2007

Mr. Manoj Sarna Vice-Chairman 29.09.2007

Board of directors

Chairman

Executive director or general manager

Surveillance Accounts

Maintenance Department

Legal Department

Computer Department EDP SectionListing Department

Clearing

Know Your Client(KYC)

Secretarial Membership

Training


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Mr. Manjit Singh Sarna Member-Director 27.09.2008

Mr. Vishal Goomber Member-Director 27.09.2008

Mr. Lalit Kishore Member-Director 27.09.2008

Dr. Anil Kumar AngrishPublic Representative Director-

Independent Director 19.07.2007

Mr. Vijay K. BansalPublic Representative Director-


Mr. Susheel BhakooPublic Representative Director-


Mr. Pawan Kumar Garg Public Representative Director-Independent Director

27.08.2008

Dr. Prem Kumar Public Representative Director-


Mrs. Pooja M. Kohli LSE-Representative Director 14.02.2009

Trading System :

On-line screen based trading system commenced at Ludhiana Stock Exchange on November 18,1996.

On Line Trading Through VSATS :

With the objective to broad-base business opportunities to the investors and members, theexchange has set up 37 trading terminals at remote sites in the State of Punjab , Delhi and unionterritory of Chandigarh. Now from October 1999, trading through VSATS is being smoothlyconducted.

Trading on bigger stock exchanges through subsidiary route

The exchange acquired the membership of NSE and BSE through its subsidiary LSE SecuritiesLtd. with the objectives of providing an enabling mechanism to its member to its member

brokers of LSE Securities Ltd.


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Trading at NSE and BSE commenced through the subsidiary route from September 2000 andDecember 2000, respectively, and the trading in F&O segment of NSE commenced in February2003 have been Rs.8000 crores and Rs.44 crores respectively.

AGM

At every Annual General Meeting, one third of the elected directors retire by rotation.Administration of the exchange is managed by executive director who is assisted by the generalmanager cum company secretary and a team twenty five advisory and standing committeesincluding the Investor Grievance Committee to assist the administration.

Corporate governanace

Although Ludhiana Stock exchange is not a listed company, yet it has followed the model of corporate governance, ehich is evident from the composition of the statutory committees, theinvestor grievance committee and audit sub-committee. The committee comprises of threerepresentatives and three broker members. It is headed by Shree Dinanath Sharma, Retd.Additional sessions judge and under his leadership; the stock exchange is able to redresstheinvestor grievances by following the corporate governance model. Sh. P.C. Goyal, charteredaccountant who is also a non broker, heads the audit committee. Brokers and non-brokers in40:60 represent statutory committee.

Objectives of Ludhiana stock exchange

The main objective of LSE is the development of healthy, orderly and transparemt capitalmarket.

To channelize the saving into investment in capital market there by providing funds for

growth & expansion.

To provide liquidity to the investors of the region by providing them with a secondary

market network.

Disseminating information among investors thereby saving their interests.

To maintain high standard of commercial honor & integrity.

To promote and inculcate honorable practice and just & equitable principle of trade &

business.

To discourage and to suppress malpractice detrimental to the interest of investors at

large,

FEATURES


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First regional stock exchange to give proposal of making subsidiary as broker of NSE &

BSE for survival of stock exchange and second to start operations like broker of NSE &

BSE

First regional stock exchange to start trading in commodities market.

First regional stock exchange to start courses on capital market, only BSE is

performing this sort of activities and NSE is also performing courses on capital market

only for members but LSE have started for outsiders also.

LSE SECURITES LTD. BRIEF PROFILE

LSE Securities Ltd. was incorporated in January 2000 with a view to revive the capital marketsin the region and for taking full advantages of the emerging opportunities being provided byexpansion of bigger stock exchange like NSE and BSE. The company since its inception hasmarched forward rapidly and achieved many milestones in a short span of time.

Objectives of the company

LSE Securities Ltd. is a subsidiary of the Ludhiana Stock Exchange Ltd. which was formed withan objective to enhance business and investment opportunities for the investors of Ludhianastock exchange at large, through innovative products by encompassing a variety of activitiesrelated to the market.

Corporate membership of NSE and BSE

SEBI, at the initiative of LSE, permitted smaller stock exchanges to trade on bigger stock exchanges through their subsidiary companies. Ludhiana stock exchange floated its subsidiarycompany, the LSE securities Limited, with the objective of obtaining trading rights on bigger

stock exchanges. It has obtained corporate membership of both BSE and NSE in the first half of year 2000.

Trading at NSE and BSE

The LSE securities ltd. commenrced trading operation in capital market segments of BSE and NSE in September 2000 and December 2000 respectively. The turnover of the company isgrowing by leaps and bounds ever since its incorporation. There was encouraging response from


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sub brokers especially at NSE counters. During the financial year 2001-2002, the companyrecorded a turnover of rs.4610 crores and rs.2160 crores in capital market segment of NSE andBSE.

The average daily trading volumes on NSE, BSE cash market segment and F&O segment during

the months of January and February 2003 has been rs.8 crores, rs.18 crores and rs.44 crores.

F&O segment of NSE

The LSE securities ltd. commenced trading operations in future and options segment of NSE inFebruary 2002. The company became the first subsidiary of any regional Stock Exchange, whichcommenced trading in F&O Segment of NSE has been very encouraging and volumesgenerated in this segment soon exceeded those in Capital Market segment.Trading Through V- SATS

The LSE Security Ltd. Has also provided facility to its sub-brokers for trading on NSE and BSEthrough VSATS counters, which are located outside Stock Exchange Building. Presently, 23sub-brokers of the company have been trading through VSAT on NSE and four on BSE.Certification in Financial Market. In order to provide professional services to the investors of LSE Security Limited through its sub-brokers, the company motivated its sub-brokers and itsstaff to qualify the certification in financial markets conducted by NSE. As a result, the peoplehaving qualified the said certification are operating 97 trading terminals for Capital MarketSegment and 44 for F&O segment.

Depository Participant Services- National Security Depository Limited (NSDL)In order to further strengthens its services to sub-broken and investors, the Company applied for the DP of CSDL. It started DP operations of CDSL; the company has been able to providedelivery of shares to sub-brokers and investors on the day of payout, which in turn helps the sub-

brpkers to give timely deliveries to their clients. Introduction of CDSL operation has alsoenabled the sub-brokers and investors of the Company to timely meet the pay in obligations of securities purchased by the investors on BSE AND SOLD NEXT DAY ON NSE THROUGHthe company and vice-versa.

Risk Management system of LSE Securities Limited

Deposit

Every member of LSE registered with SEBI as sub-brokers of LSE Securities Limited tradingthrough LSE Securities Limited on NSE has deposited an interest free security Deposit 1.50 lacwith the form of cash.

Trading System


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LSE Securities limited has been using CTCL based Neat. XS Trading Software developed by NSE, IT for trading on NSE. The said trading software has the features like setting up of IntraDay Trading Limits, Gross Exposure Limits and MTM Limits like setting up of Intra DayTrading Limits, Gross Exposure Limits and MTM Limits.

The system has also the feature for viewing top n

Number of Sub-Brokers in order of MTM loss incurred by them at particular of time.

Intra Day Trading Limits

Sub-brokers are allowed an Intra Day Trading limit of 33 times of their interest free SecurityDeposit of Rs. 1.50 lac.

The sub-broker desirous of availing higher, limits are required to deposit additional capital in theform of cash / FDRs.

Gross Exposure Limits

Sub-brokers are an Intra Day Trading Limit of 8 times of their Interset Free Security Deposit of Rs. 1.50 lac. The sub-broker desirous of availing higher limits is required to deposit additionalcapital in the form of cash /FDRs.

It is important to mention here that validation by the systems done on the basis of orders input bya sub-broker not on the basis of trades. As such, a sub-broker cannot exceed his Gross ExposureLimit, at any point of time. As soon as a sub-broker reaches 100% of his Gross Exposure Limit,his terminal is deactivated automatically by the system and for activation the concerned sub-

broker is required to deposit additional capital in the form of Cash /FDR.

MTM Limit

The CTCL based Next XS trading System developed by NSE. IT limited also the feature of setting up of MTM limits of the sub-brokers. LSF Securities Limited has fixed the MTM Limitof the sub-brokers equivalent to the sum of their Interest free Security Deposit and additionalCapital. As soon as sub-broker reaches 100% of the allowable MTM Limit his Gross ExposureLimit, his terminal is deactivated automatically by the system and for activation the concernedsub-broker is required to deposit additional capital in the form of Cash /FDR.

Day and Reports

1. LSE Securoties Limited generates a report detailing sub-broker wise open purchase position, MTM loss, MTM gain and deposits available with the Exchange at the end of a particylar trading day to monitor the overall positions of the sub-broker to take preventive measures wherever required in the subsequent trading days.


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2. LSE Securities Limited generates a report detailing sub-broker wise report detaining theMark-to-Market loss incurred by the sub-brokers during a specific period along with their deposits available with the Exchange so as to monitor those cases closely where theMark-to Market Loss during a specific period are very high.

3. LSE Securities Limited also generates a report with regard to the trades executed between its sub-brokers so as to check whether there have been any trades between thesub-brokers of LSE Securities Limited especially illiquid scrips leading to creation of artificial market so as to take preventive measures/actions at the end of subsidiary itself.

Action in case of delay in meeting obligations by the sub-brokers towards pay-in and margin

All the sub-brokers are required to meet their obligations towards pay-in and margin on T+1day. In case any sub-broker fails to meet his obligations towards pay-in and/or margin onT+1 day and then the terminal of the concerned sub-broker is deactivated on T+2 day and the

same is activated only on clearance of obligations with the reduced exposure limits fit byLSE Securities Limited.

Since LSE Securities Limited is required to meet its obligations towards pay-in in T+2day, the sub-brokers of LSE Securities Limited are required to meet their obligationstowards pay-in on T+1 day so as to avoid any default in pay-in by LSE SecuritiesLimited on NSE.

2.7 DEPARTMENTS OF LSE

LEGAL DEPARTMENT

SECRETARIAL DEPARTMENT

LISTING DEPARTMENT

MEMBERSHIP

I.G.C. (INVESTOR GRIEVANCE CELL)

TECHNICAL DEPARTMENTEDP SECTION

ACCOUNTS DEPARTMENT

MARGIN SECTION


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PERSONNAL DEPARTMENT

CLEARING HOUSE

Brief explanation of all above departments is given as:

1. LEGAL DEPARTMENT

When the broken or outside client do not settle the claim in between themselves and move to thelegal courts, the legal department comes into the picture to fight for the cause of investors andagainst the defaulting members. Legal department also assist the members, investors to settletheir disputes through the arbitration committee, investor grievance committee so that the disputemay be settled at the earliest without incurring heavy dues or amount regarding court fee,advocate fee etc. The main objectives of the legal department is to streamline and makeeffective, the rules and regulation of the exchange and to see that the guidelines citcular and anyamendments in rules made by SEBI are enforced at the appropriate time so that futurecomplication may be reduced or avoided.

Whenever the point of law is involved, it is the duty of legal department to take the legal opinionfrom senior advocate in accordance with the present law and circulate them amongst themembers for their benefits.

As the name, Legal Department suggests, it is clear that the department will solve every matter involving legal work.

There are four committees under legal department:

Arbitration committee

Disciplinary committee

Investor Grievance committee

Default committee

2. SECRETARIAL DEPARTMENT

The functions and duties of the secretarial department include maintenance of records of minuteslike:

a) Meeting of Board of Director

b) Meeting of Various committee

c) Meeting of Members


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d) Minutes of Annual General Meeting (AGM)

e) Minutes of Extra ordinary General Meeting (EGM)

These minutes are statutory requirements and are preserved by the secretarial department.

Another function of secretarial department is to send notices with the directions of B.O.D. to the respective director to attend Board Meeting. It is also a duty of secretarialdepartment to insure that every meeting held is a valid meeting having the quorum required bythe law otherwise it would effect towards unlawfulness. The decision taken at such meetingcannot be rectified in another meeting.

It also sends notices to members for attending various committee meetings. Noticesare also sent to members for attending annual general meeting and extraordinary generalmeeting. The notices are prepared very carefully because these contain the agenda pertaining tothe meeting. Only the agenda shows the purpose of holding the meeting.

All this makes it necessary for the secretarial department to have a proper up dating data, updating of law and timely show of latest information so that the objective of its functioning are

properly accomplished. This department also deals with transfer of shares. In order to be amember of stock exchange a person has to hold at least one share. If the member wishes to sellhis ticket, he has to intimate the secretarial department in advance. A notice is given thereafter innewspaper for objection within 10 days of such a notice; the clients can lodge their claims. A 10days notice is also displayed in the notice board of the exchange for objections to be raised bythe members.

3. LISTING DEPARTMENT

Listing is one of the major functions of stock exchange wherein the securities of the companiesare enlisted for trading purpose. Any company incorporated under companies Act 1956, comingout with an IPO (initial public offering), has to mandatory list its shares on a stock exchange.

The Listing Department of Ludhiana stock exchange deals with listing of securities, further listing of issues like bonus and rights issues; post listing compliance of the companies which arealready listed with Ludhiana stock exchange. The Companies desirous of listing its securities onthe exchange have to sign a listing agreement with the stock exchange. The functioning of

department can be studied in the following parts:1. For the purpose of listing, the company should have a minimum capital of Rs. 3.00

crores.

2. The Articles of association of the company should be in consonance with the normsspecified by the exchange.


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3. The company has to forward an initial listing application along with fee to the exchange.

4. The draft prospectus has to be approved by the regional stock circulating the same.

5. The company then gas to file basis of allotment duty signed by the head manager and a

company official to the regional stock exchange.6. The basis of allotment along with the total applications received successful/ rejected

application and reasons there to are verified by the Exchange.

7. The company then has to comply with all requirements mentioned in the listingagreement.

8. Before the date of opening of the issue the company has to deposit as security withexchange 1% of [ Public offer * face value + premium (if any)]

9. In case of default, listing requirements, the company has to mainly comply with thelisting agreement e.g. timely submission of various documents like distribution schedule, balance sheet, quarterly results etc.

The schedule of annual Listing fee and up front listing fee payable triennially is given below:

Paid up capital Annual Listing Fee (Rs.)

Up to 1 crores 7000

1 to 5 crores 10000

5 to 10 crores 18000

10 to 20 crores 36000

20 to 30 crores 54000

Above 50 crores 90000

Companies, which have paid up capital of more than Rs.50 crores, will pay additional fee of Rs.2800 for every increase of Rs.5 crores or part thereof. The annual listing fees referred toabove would be applicable only if the exchange is a Regional Stock Exchange otherwise the fees

will be 50% of the fees indicated above. No. of listed companies


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4. MEMBERSHIP

This department deals with the membership of individual & corporate members, the trade inmarket is done through the authorized members who have duly registered with concerned stock.

REQUREMENT FOR AN INDIVIDUAL MEMBER OF EXCHANGE

AGE LIMIT: To be member of exchange there is an age limit.

MINIMUM = 21 MAXIMUM = -60

QUALIFICATION: To be a member of stock exchange

(a) Minimum qualification matriculation.

(b) Three years experience including written tests & interview.

(c) Person should not be declared bankrupt.

(d) Person should get sanction from SEBI or minister of finance.

(e) Net worth of member should be 5 lakhs.

405

271 Regional 132 Non-regional

TOTALMEMBERS

293

INDIVIDUAL

205

CORPORATE

88


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REQUIREMENT FOR CORPORATE MEMBER OF EXCANGE

Company must be registered under section 322 of the company Act (director withunlimited liability)

Two copies of memorandum of Association & article of association.

Qualification & proof of age at least 02 directors, who will deal in securities.

Company should not be declared bankrupt.

Net worth of company should be 10 lakhs.

5. I.G.C. (INVESTOR GRIEVANCE CELL)

The exchange has made special arrangement to handle investors complaints from investors and

follows up the complaints with company and member brokers to ensure satisfactory redressal.Recording of complaints and monitoring of their redress are fully compturized.

Investor Protection Fund

The exchange has set up an I.P.F. in the month of January, 1990 for providing compensation toindividual investor in case of default by a member of exchange.

Investor services centre

The exchange has set up an I.S.C. in the premise of exchange, which provides informationrelated to capital market, the centre has a well-equipped library.

The exchange introduced a computer based stock-tel-system, to the investor and members of general public such as prices of scrip; new listing etc. centre is also well equipped with a screenfor providing live rates of trading at LSE, BSE and NSE.

6. TECHNICAL DEPARTMENT

This department of LSE is regulating the activities related to the fields of electrical, mechanicaland civil engineering besides having other functions like that of security. Here are someimportant aspects:

Air-conditioning plant

Electrification of building

Maintenance of generators

Maintenance of telephone exchange


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7. EDP or COMPUTER SECTION

The growing technicalities and the increasing workload have enhanced the importance of computer dept. at L.S.E. now days. The computer section of stock exchange is the backbone of this organization as it remains active all the time and is directly or indirectly involved in all the

activities of the exchange from beginning of the settlement period till its end. This department ismainly referred as to EDP SECTION i.e. electronic data processing section. The computer section of LSE prepares several reports namely:

1. Scrip wise statement of each member for each settlement period.

2. Scrip status report for each statement period.

3. Receive order detail statement.

4. Statement of transaction of each settlement period for each broker.

5. Difference bill statement.

6. Trail balance.

7. Supplementary Report.

8. Main Statement.

9. Bank entry statement.

Some of the above mentioned reports are given to the broken, some are kept by the stock

exchange for their own records, and last report is sent to bank.

Scrip wise Statement of Transaction:-

This statement is taken out from brokers and given to them. This report contains:

Transaction date.

Name of broker from whom shares are bought/sold...

Net position.

Bank entry statement

This statement lists the amount to be debited or credited in each brokers account. It contains:

Serial number

Broker name


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Account number

Debit amount

Credit amount

Grand total

8. ACCOUNTS DEPARTMENT

Accounts department deals with the maintainance of recordsregarding income and expenditureof exchange. It prepares annual accounts of the exchange. Most of the work in accountsdepartment of LSE is done manually although computer is used for making tiral balance, incomeand expenditure statement and balance sheets. The manual report of LSE is generally publishedin August every year. The accounts department of LSE performs following functions:

To make and receive payments to\from outside agencies which include companies listedat LSE and brokers.

To keep the record of all incoming and outgoing moneyand preparation of financialstatements at the end of year.

To get their accounts audited from the third party.

Some of the accounting policies followed are:

Accrual system of accounting is followed

Fixed assets are stated at historical cost less depreciation

Depreciation is provided on w.d.v. method in accordance with schedule 15 th of companies act, 1956.

Sources of funds of LSE

Initial listing fee from company i.e. Rs. 15,000

Annual listing fee from companies.

Membership fee from brokers at the beginning.

Annual computer fee from brokers i.e. (Rs.5000)

Annual Library Charges from brokers i.e.(Rs.200p.a.)

Brokers contribution to investor protection fund (Rs.500p.a.)


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Fines and penalties from brokers.

Maintenance charges Rs. 13.50 per sq feet per quarter from those membershiphaving rooms and those not having rooms are charged at the rate Rs. 1800/-p.a.

Service charges from broker.

Electricity charges Rs.300 p.a. per room members having room & those nothaving room are charged @ Rs. 1200 p.a.

Annual fee from broker i.e. Rs. 500 & their authorized representative i.e. Rs. 500each. Broker members are allowed to have 4 authorized members.

Interest earned on fixed deposits.

Billing of members is done on annual basis for annual fees and other above-method charges on

1st APRIL of each year and year are required to make payment in 180 days up to 30 thSEPTEMBER. Beyond that they are charged interest on due amount @ 12% P.A. still in case of non payment. Broker members served a notice for 60 days, if the members fails to comply withnotice then he can be expelled.

Application of funds

Salary given to employees.

5% of the listing fee given to SEBI each year.

20% for providing services to the investors.

Expenditure in respect of share transfer.

Expenditure on various function Board Meetings etc.

Administration expanses :-

Electricity charges

Security charges

Telephone charges

V-SAT charges

Printing & other charges

1% of listing fees transferred annually to investor protection


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20% of the listing fees is transferred annually to contingency fund for settlement.

9. MARGIN SECTION

It is necessary for every Stock Exchange to establish margin section in the exchange its basic

function is to collect different type of margin from brokers as per regulations given by SEBI.The idea behind this section is :-

To prevent the members from doing excessive speculative trading.

To keep track of the members who are expected to default in future.

Function of margin section

1. To collect BMC, ABMC.

2. To keep a track on the members / brokers.

3. Collection of the margins.

4. Release of the margins.

Margin section is an important section. This section apart from dealing in securities andregulatind the trading of brokers, keep a check on excessive trading in speculation. Margin is theamount which is collected from the broker for the safety of transaction as the transaction is to befinalized as per t+2 basis and t+1 basis in case of derivatives. In the mean time the rates mayfluctuate which may lead to default. So to make a transaction safe, daily margins are collentedfrom brokers. When a member gets registered in exchange and with SEBI then before startingtrading, he is supposed to deposit some money which is fixed by sebi as security. Now in sesrolling settlement prevails. If a member wants to trade with a higher limit, he has to depositadditional base minimum capital.

Types of margins :

As we have discussed earlier margins collected from members to avoid the losses and to

provide security to the investors. There are different types of margins, which are imposed givenas follows:

Mark to Market Margin: The exchange collects this margin on daily bases, broker-wise 100%

national loss of each member for every scrip, calculated as the difference of his buying or selling


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price and closing of that scrip at the end of the day. This is also called loss margin. The margin is

payable in cash or in bank guarantee.

Value at risk or VAR Margin: For the scrips in the compulsory rolling settlement 99% VAR

based margin system would be introduced w.e.f. July 02, 2001. The computation of this marginis done by software developed by CHICAGO Stock Exchange.

Additional Margin: Thus margin is 12% would be levied over and above the VAR margin. This

margin is collected from brokers on T+2 basis.

Special Margin: The brokers will be required to deposit margin as per the percentage prescribed

by stock exchange in this regard from time to time.

10. PERSONNAL DEPARTMENT

This department carries out all activities relating to:

The recruitment of the personnal, whenever and wherever a vacancy arises

Maintenance of attendance registers

Appointment or removal of floor clerks or authorized representatives of brokers

Records of leaves and overtime of employees

Promotion, demotion, resignation, conveyance allowance etc.

11. CLEARING DEPARTMENT:

Clearing house takes care of pay-in and pay-out securities. At this time there is weekly

trading system (Monday to Friday) prevails. And securities are settled by rolling settlement.

Means pay-ill and pay-out of securities is settled on T+3 Basis would commence from 1April,

2002. SEBI decide the following activity schedule for exchanges for the T+3 rolling settlement.

Settlement cycle schedule:

Sr.

No.

Day Description of Activity Trade

1 T Trade Date


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2 T+1 Custodial Confirmation

3 T+3 Securities and Funds pay in and pay-out

4 T+4 Auction of shortage in deliveries

5 T+6 Auction pay-in/pay-out as soon as possible

T Means TRADING PERIOD.

2.8 LSES HISTORY

To fulfill the vital need for stock exchange in the region, the industrial tycoons of this region Sh.

S.P.Oswal and Sh. B.M. Munjal took serious steps to work out for the formation of LudhianaStock Exchange. Hence as a result of their earnest efforts the Ludhiana stock exchange was

incorporated on 17 th October, 1981 as a company limited by shares having an authorized capital

of rupees Ten Lakhs (500 shares @ Rs. 2000each). It was granted recognition by govt. of India

under section 4 of the securities contract act 1956 on 29 th April 1983.

At the initial stage, its operations were started in a small building located at Feroze Gandhi

Market, Ludhiana. It has its own BILLETIN which is published every quarter.

TURNOVER

Ludhiana Stock Exchange is one of the leading Stock Exchanges among the Regional Stock Exchanges of the country, and has been providing trading platform for the investors situated inPunjab, J&k, Himachal Pradesh & Chandigarh. At present, it has 357 listed companies andamong them, 231 are listed as regional companies. It had been generating significant amount of the business in the secondary market. It recorded a peak turnover of Rs.9154 crores during theyear 2000-2001. The structural changes that took place in the recent past in the Capital Market of the country had a negative impact on the trading volume of the Regional Stock Exchanges.

There has been a significant reduction of turnover during the financial year 2001-2002, but thereduction in the turnover of the Exchange has been more than adequately compensated bysubstantial rise in the turnover of LSE Securities Limited, a subsidiary of Ludhiana Stock Exchange.

END OF AN ERA


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The management of the Stock Exchange apprehended that the smaller regional Stock Exchangeswould not be able to meet the challenges imposed by expansion of bigger Stock Exchanges like

NSE and BSE and might end up loosing their entire business to VSAT counters of the bigger Stock Exchanges. In order to prepare for such an eventuality, Stock Exchange set up a brokingarm in the name of LSE Securities Limited (a Subsidiary Company of the Stock Exchange) inJanuary 2000 and built infrastructure and IT based sophisticated systems to enable its membersand investors to trade on NSE and BSE through the subsidiary route. The Stock Exchange wasthus able to convert the "threat" it faced from expansion of NSE and BSE into an opportunity for its members and investors. As expected, there was a marked shift in the trading volumes fromthe Stock Exchange to the NSE and BSE through the Subsidiary Company. This shift becamemore prominent when SEBI introduced compulsory Rolling Settlement and banned the deferral

products like Badla, MCFS and ALBM w.e.f. July 2, 2001 causing thereby an end to arbitrageopportunities between the Stock Exchange and NSE/BSE. Ultimately, there was complete shiftof trading from the Stock Exchange to the LSE Securities Limited in January 2002.

2.9 MILESTONES OR ACHIEVEMENTS OF LUDHIANA STOCK EXCHANGE

Date AchievementsOct 1981 Incorporation of stock exchangeAug 1983 Commencement of operationsAug 1983 Shifting of operations to own building

Nov 1996 Online screen based tradingApril 1998 Modified carry forward system (MCTS) and settlement guarantee

fund Nov 1998 Trading and settlement in demat scripsSep 1999 Trading at remote sites through VSAT countersJan 2000 Introduction of rolling settlementAug 2000 Commencement of online real time depository servicesDec 2000 Trading on NSE in CM segment (through LSE securities limited)Sep 2000 Trading on BSE in CM segment (through LSE securities limited)July 2001 Introduction of compulsory rolling settlementJanuary 2002 Complete shift of trading in CM segment from LSE to LSESL .Feb 2002 Trading in F&O segment of NSE

April 2002 Rolling settlement cycle prevailing at LSE on T+3 basisApril 2003 Rolling settlement cycle prevailing at LSE on T+2 cycleOct 2003 Incorporation of LSE COMMODITIES TRADING SERVICES

LTD., a subsidiary of LSE. Securities ltd.March 2004 Introduction of MCX (multi commodity exchange of India) MCX

offers 14 different commodities such as steel, kapas, rubber,


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blackpepper,oil soil seeds,precios metal etc.March 2005 Sensex touches all time high of 6954March 2007 Opening of DP branch at SIRSA Haryana

2.10 Product range or services offered by exchange

Capital Market: LSE Securities Ltd. is a leading broker of NSE and BSE and has been providingcapital market and derivatives services to the clients. You can avail the following services byassociating yourself to ourselves.

Fundamental and Technical Research to guide you in Capital Creation. Efficient Execution through our term of experienced dealers. Transparent Dealings. Attractive Cost Structure.

Derivatives: Derivatives (Futures Options) are ideal instruments to protect your portfolio againstrisk. You can trade with index movements, hedge and leverage your portfolio by limiting risk but keeping your upside unlimited.

IPO's: IPO is the first offer from any corporate to public for the subscription for its shares. Our clients can subscribe for IPO through us. exchange receive IPO applications from our customersat our office only. For this it is associated with DSPML and Enam Securities Pvt. Ltd.

Depository Services: A depository can be defined as an institution where the investors can keeptheir financial assets such as equities in the dematerialised form and transactions could beeffected on it.

Besides providing custodial facilities and dematerialisation, depositories are offering varioustransactional services to its clients to effect buying, selling, transfer of shares etc. DepositoryServices Cell provides the following services:

Convert your physical holding into electronic holding (which is called"dematerialisation" of securities).

Keep custody of your holdings in electronic form. Transfer the shares in the electronic form from one account to another. Facilitate pledge of your electronic securities.

2.11 Financial status of the organization

LUDHIANA STOCK EXCHANGE LIMITEDBALANCE SHEET AS AT 31ST MARCH 2007

Rs.PARTICULARS SCHEDUL AS AT AS AT


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E

NO. 31-03.200731-03-2006

SOURCES OF FUNDS1. SHAREHOLDER'S FUND

a) Capital 1 602000 602000b) Reserves and Surplus 2 169116351 168844708

TOTAL 169718351 169446708 APPLICATION OF FUNDS1. FIXED ASSETS 3

a) Gross Block 147472085 147866376b) Less: Depreciation 54667842 53186507c) Net Block 92804243 94679869

2. INVESTMENTS 4 30897000 30897000

3. Deferred Tax Asset 154840 165779

4. CURRENT ASSETS, LOANSAND ADVANCES 5

a) Inventories 41769 56765b) Sundry Debtors 4817922 4546327c) Cash and Bank Balances 110577976 108499165

d) Other Current Assets 4414283 2902241e) Loans and Advances 7404479 20648680(A) 127256429 136653178LESS: CURRENT LIABILITIES AND

PROVISIONSCurrent Liabilities

(B) 685510697 102615218

Net Current Assets (A-B) 41745732 34037960

5. MISCELLANEOUS EXPENDITURE(To the extent not written off or adjusted)

5. Profit and Loss Account 4116536 9666100

TOTAL 169718351 169446708

2.12 Statistical profile or performance history of company


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LUDHIANA STOCK EXCHANGE LIMITEDPROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31STMARCH 2007 Rs.

PARTICULARS SCHEDULE

CURRE

NT

PREVIO

USNO. YEAR YEAR

INCOMEMembership fee 301000 304000Listing fee 1580750 2596882Maintenance charges recovered 4139110 3949022VSAT charges 442791 1682250Profit on sale of fixed assets 41610 -Other income 7 26896429 21887788TOTAL 33401690 30419942

EXPENSESPersonnel Expenses 8 3244349 3393952Administrative and Other Expenses 9 17582470 22463633Interest Paid - 114360Contribution to customer protection fund 16680 41434Loss on sale /discard of fixed assets 52653 3692020Contribution to FISE 50000 50000Balances written off 235775 447841Depreciation and Amortisation 2588682 2825025

TOTAL 23770609 33028265 Profi/(Loss) for the year 9631081 (2608323)Less Provision for taxation:

-Current Tax 2280000 1662000-Fringe Benefit Tax 170000 28000-Deferred Tax 9560 (165779)

-Deferred Tax Adustment 1379 -Profi/(Loss) after tax 7170142 (4132544)Balance brought forward from last account (9666100) -Balance Available for

Appropriation (2495958) (4132544)Less : AppropriationsIncome of SGF transferred to Fund Account 1286978 1454884(Refer Note 7 of Notes onAccounts)Transferred to Reserve for Investor Services Fund 333600 828672Transferred to Capital Reserve - 3250000Balance Carried to Balance Sheet (4116536) (9666100)


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Earning Per Share (Basic & Diluted) 11.91 (6.86)(Nominal Value of Share Re.1/-each)

As the organization has undergone from a huge change of demutualization and has to form asubsidiary for its operations, it has suffered loss in its previous years but now performance of theLSE is noe improving and exchange is now earning profits from its operations. As it can be seenthat Earning Per Share has been improved from (6.86) which was negative to 11.91 in just oneyear. It can be said that exchange is able to make huge profits in future.

2.13 Future prospects/plans

To increase its presence in the region further, the company plans to open its branches of

Depository services in the major cities of the region. To start with, it has already opened its branches at Jalandhar, Amritsar, Ferozepur, Sirsa (Haryana), Una (H.P.), Chandigarh. Alsohaving plans to open branches in Moga and Sangroor.

2.14 SWOT ANALYSIS OF LUDHIANA STOCK EXCHANGE

Strengths of LSE

It has an ultra modern infrastructure. It possesses dedicated manpower

The management is fair at LSE

It is one of the premier stock exchanges in India

It is a high technology drive exchange

It is air-conditioned and fully computerized.

It has in house depository participants.

Weaknesses of LSE

It has no different products and services from other stock exchanges.

At LSE there is no trading of regional and non- regional companies.

Investors and traders are not interested to trade at LSE because of lack of depth.

LSE is not able to compete NSE and BSE.


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The value of LSEs ticket is Rs. 4 lac, which were Rs. 50 lacs in 1992. This is because of

no trading at LSE.

Opportunities for LSE

LSE can introduce new products and services, which can benefit the exchange. The merger with another stock exchange can improve it.

It can better utilize its assets by leasing.

The subsidiary of LSE has a bright future at NSE and BSE.

Threats for LSE

NSE and BSE both are biggest threats for LSE.

Ban and Badla systems have shattered the LSE.

Competition from other stock exchanges.

SEBIs rules and regulations.


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The research design of the project is descriptive as it describes data and characteristics

associated with the population having life insurance policy .Descriptive research is used to

obtain information concerning the current status of the phenomena to describe "what exists" with

respect to variables in a given situation.

Data Collection

Primary Data

Primary data is that data which is collected for the first time. It is original in nature in the shape

of raw material. For the purpose of collection of primary data, a well structured questionnaire

was framed which was filled by the respondents.

Secondary Data

Secondary data is the data which is already collected by someone. They are secondary in nature

and are in shape of finished product. Secondary data was collected so as to have accurate results.

Required data was collected from various books, magazines, journals and internet.

Sampling Design

Sampling refers to selecting some of the elements in a population by which one can draw

conclusions about the entire population.

Universe

Universe is the infinite number of elements which the researcher is targeting in his study. Since

the study is restricted to Ludhiana city the universe for the study consists of all the investors in

Ludhiana.

Population

Population is finite number of elements which the researcher is going to target in particular area.

Investors of Ludhiana city forms the population for the study.


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Sampling Unit

Sampling Unit is the single unit of the population. A