Download - Trading & Equity
-
8/14/2019 Trading & Equity
1/46
&rading Equity&rading Equity
ANINDYA
-
8/14/2019 Trading & Equity
2/46
2
.Trading is not investing Trading is all about.Trading is not investing Trading is all about(converting an investment decision either yours(converting an investment decision either yours
)or your portfolio manager s into a desired )or your portfolio manager s into a desired.portfolio position You will want to do this at.portfolio position You will want to do this at
the least possible cost and in the most timelythe least possible cost and in the most timely.fashion Trading is also about finding pricing.fashion Trading is also about finding pricing
, ,discrepancies in the market jumping on them and, ,discrepancies in the market jumping on them and
. ( )realizing a profit This course deals with. ( )realizing a profit This course deals withthese actionsthese actions
What Trading is All About
-
8/14/2019 Trading & Equity
3/46
EQUITY TRADING
FX TRADING
COMMODITY TRADING
YPES OFYPES OFTRADINGRADINGQUITY TRADINGQUITY TRADINGX TRADINGX TRADINGOMMODITYOMMODITYTRADINGRADING
-
8/14/2019 Trading & Equity
4/46
-
8/14/2019 Trading & Equity
5/46
Trading in shares
Cash Trading : This is a delivery based trading system,which is generally done with the intention of takingdelivery of shares or monies.
Margin Trading : You can also do an intra-settlementtrading upto 3 to 4 times your available funds, wherein
you take long buy/ short sell positions in stocks with theintention of squaring off the position within the same daysettlement cycle.
Margin PLUS Trading : Through Margin PLUS you can doan intra-settlement trading up to 25 times youravailable funds, wherein you take long buy/ short sellpositions in stocks with the intention of squaring off the
position within the same day settlement cycle. MarginPLUS will give a much higher leverage in your accountagainst your limits.
Spot Trading : This facility can be used only for sellingyour demat stocks which are already existing in yourdemat account. When you are looking at an immediate
liquidity option, 'Cash on Spot' may work the best foryou, On selling shares through "cash on spot", money is
-
8/14/2019 Trading & Equity
6/46
Contd
BTST : Buy Today Sell Tomorrow (BTST) is afacility that allows you to sell shares evenon 1st and 2nd day after the buy orderdate, without you having to wait for the
receipt of shares into your demat account. CallNTrade : CallNTrade allows you to
call on a local number in your city & tradeon the telephone through our Customer
Service Executives. Market Order : You could trade by placing
market orders during market hours thatallows you to trade at the best obtainable
price in the market at the time ofexecution of the order.
-
8/14/2019 Trading & Equity
7/46
What is Forex trading
Forex trading stands for foreign exchangetrading, and its one of the fastest-growing financial trading markets on theplanet. You can trade 24 hours a day, sixdays a week, from home, from anywherein the world. (Yes, you can even trade athome in your skivvies, if you like.) WithForex trading, one nations currency istraded against another nations currency.
In fact, Forex is the largest financialmarket in the world, with nearly $2 trillionin trades every day. Thats more thanthree times the aggregate amounts of theUS Treasury and Equity marketscombined. And everyone can participate
-
8/14/2019 Trading & Equity
8/46
Commodity Trading
A commodities exchange is an exchange wherevarious commodities and derivatives productsare traded.
Most commodity markets across the world tradein agricultural products and other raw materials(like wheat, barley, sugar, maize, cotton, cocoa,coffee, milk products, pork bellies, oil, metals,etc.) and contracts based on them.
These contracts can include spot prices, forwards,futures and options on futures. Othersophisticated products may include interestrates, environmental instruments, swaps, orocean freight contracts.
-
8/14/2019 Trading & Equity
9/46
Indias Place in WorldMarket
C O M M O D I T Y I N D I A W O R L D S H A R E R A N K
R IC E (P A D D Y ) 2 4 0 2 0 4 9 1 1 .7 1 TH IR D
W H E A T 7 4 5 9 9 1 2 .3 5 S E C O N
P U L S E S 1 3 5 5 2 3 .6 4 F IR S T
G R O U N D N U T 6 3 5 1 7 .1 4 S E C O N
R A P E S E E D 6 4 0 1 5 .0 0 TH IR DS U G A R C A N E 3 1 5 1 2 7 8 2 4 .6 5 S E C O N
TE A 0 .7 5 2 .9 9 2 5 .0 8 F IR S T
C O F F E E (G R E E N ) 0 .2 8 7 .2 8 3 .8 5 E IG TH
JU TE A N D JU TE F IB E R S1 .7 4 4 .0 2 4 3 .3 0 S E C O N
C O TTO N (L IN T) 2 .0 6 1 8 .8 4 1 0 .0 9 TH IR D
-
8/14/2019 Trading & Equity
10/46
Commodity Exchangein India
The Government of India permittedestablishment of National
level Multi-Commodity exchanges in the year2002. They are
Multi Commodity Exchange (MCX) located atMumbai
National Commodity and Derivatives Exchange
Ltd (NCDEX) located at Mumbai
National Board of Trade (NBOT) located atIndore
National Multi Commodity Exchange (NMCE)
located at Ahmedabad.
-
8/14/2019 Trading & Equity
11/46
Primary Market
An Overview
-
8/14/2019 Trading & Equity
12/46
Introduction
Issuers of Securities
Government and Corporate
Issuers create and issue fresh Securities inexchange for funds
Public/Private Issue
Face Value/Premium/Discount
Domestic Market /International Market
-
8/14/2019 Trading & Equity
13/46
-
8/14/2019 Trading & Equity
14/46
Issues Norms
Entry Norm I (EN I): The company shall meet thefollowing requirements:
(a) Net Tangible Assets of at least Rs. 3 crores for 3 fullyears.
(b) Distributable profits in at least three years
(c) Net worth of at least Rs. 1 crore in three years
(d) If change in name, at least 50% revenue for preceding1 year should be from the new activity.
(e) The issue size does not exceed 5 times the pre- issuenet worth
-
8/14/2019 Trading & Equity
15/46
Exceptions
The following are eligible for exemption from entrynorms.
(a) Private Sector Banks(b) Public sector banks(c) An infrastructure company whose project has beenappraised by a PFI or IDFC or a bank which was earliera PFI and not less than 5% of the project cost isfinanced by any of these institutions.
(d) Rights issue by a listed company
-
8/14/2019 Trading & Equity
16/46
Pricing of Issues
Free Pricing
SEBI does not play any role in price fixation.
Fixed Price/Book Building
The company and merchant banker are however required to give fulldisclosures of the parameters which they had considered whiledeciding the issue price.
Book Building A process undertaken by which a demand for the
securities proposed to be issued by a bodycorporate is elicited and built up and the pricefor the securities is assessed on the basis of the
bids obtained for the quantum of securitiesoffered for subscription by the issuer. Thismethod provides an opportunity to the market todiscover price for securities.
-
8/14/2019 Trading & Equity
17/46
Book Building Options in Book building
75 % Book Building
100 % book Building
Books remain open for 7 working days ( Fixed price issue 10 days)
Only Electronic Bidding
Bids to be submitted through Syndicate members
Issue completed and trading commenced on T + 16 basis Floor price disclosed one day prior to bid date
Price band of 20 %
Green Shoe option
An option of allocating shares in excess of the shares includedin the public issue and operating a post-listing price
stabilizing mechanism in accordance with the provisions ofChapter VIII-A of DIP Guidelines, which is granted to acompany to be exercised through a Stabilising Agent.
-
8/14/2019 Trading & Equity
18/46
Features Fixed Price
Process
Book Building
ProcessPricing Price at which the
securities areoffered/allotted is knownin advance to the investor
Price at which securitieswill be offered/allotted isnot known in advance tothe investor. Only anindicative price range isknown.
Demand Demand for the securitiesoffered is known only afterthe closure of the issue
Demand for the securitiesoffered can be knowneveryday as the book isbuilt.
Payment Payment if made at thetime of subscriptionwherein refund is givenafter allocation.
Payment only afterallocation.
ifference between shares offered through bookuilding and offer of shares through normal publicissue
-
8/14/2019 Trading & Equity
19/46
Promoter The promoter has been defined as a person or persons who are in over-
all control of the company
Promoters Contribution should not be less than 20% of post issue ofcapital in case of offers for sale and public issues by unlistedcompanies.
To bring Full amount of promoter contribution
including premium one day prior to issueopening date.
Exceptions
Public issue of securities listed on a stockexchange for at least 3 years with a dividend
payment record of 3 immediate precedingyears
No identifiable promoter or group exist
Rights Issue
-
8/14/2019 Trading & Equity
20/46
Lock In of Securities
Promoters minimum contribution in any public issue locked in for 3years.
The Contribution over and above 20 % (minimum) is locked in for oneyear.
The locked in securities can be pledged with banks as collateral.
Merchant Banker
Governed by SEBI Merchant BankRegulations Act 1992
Need to be a Body Corporate other thanNBFC
Required to have a compliance officer
Merchant Banker
-
8/14/2019 Trading & Equity
21/46
Merchant Banker
Pre-issue process:- The due diligence of companys operations/ management/ business plans/ legal Drafting and design of Offer documents, Prospectus, statutory advertisements
and memorandum containing salient features of the Prospectus. The BRLMs shall ensure compliance with stipulated requirements and
completion of prescribed formalities with the Stock Exchanges, RoC andSEBI including finalisation of Prospectus and RoC filing.
Appointment of other intermediaries viz., Registrar(s), Printers, AdvertisingAgency and Bankers to the Offer is also included in the pre-issue processes.
The LM also draws up the various marketing strategies for the issue. Post issue:- Including management of escrow accounts, coordinate non-institutional
allocation, intimation of allocation and dispatch of refunds to bidders Finalization of trading and dealing of instruments and dispatch of certificates and demat of delivery of shares, with the various agencies
connected with the work such as the Registrar(s) to the Offer and Bankers to the Offer and the bank handling refund business.
-
8/14/2019 Trading & Equity
22/46
Credit Rating
Sebi Credit rating regulations ACT 1999 Promoted by PFI, SCB, Foreign Banks operating in India,Foreign credit rating agencies with 5 yrs of exp. Bodycorporate having continuous net worth of 100 crores forprevious 5 yrs.
Minimum Net worth of 5 crores. A CRA cannot rate
A security issued by its promoter
Security issued by an associate , subsidiary ,anassociate promoter of CRA if they have a
common chairman, director and employees. For all debt issue greater than or equal to 100 crores , has to be
rated by two different agencies.
-
8/14/2019 Trading & Equity
23/46
ADR/GDR
Method of raising foreign currency resources
Foreign Convertible currency bonds
ADR/GDR
Depository Receipt negotiable instrument in the form of a certificatedenominated in US dollars
Certificates are issued by an overseas depository bank againstunderlying shares deposited by the issuing company with the bank
The DRs are issued by the bank to the investors
It is a non voting equity holding with all other benefits accrued.
Permits cross border trading and settlement , minimize transaction costs
and broaden the capital base for Institutional Investors.
-
8/14/2019 Trading & Equity
24/46
Contd
ADR GDR
Negotiable U S certificaterepresenting ownership of shares in a
Non U S corp..
Issued to public or private to marketsinside or outside U S
Quoted and traded in $ in U Smarkets Allows issuer to raise capital in twoor more markets simultaneously
To facilitate the purchase, holdingand sale of non U S Securities by U S
investors.
Underlying shares correspond toGDR are fixed in ratio i.e. 1 GDR =
10 shares
ADRs and GDRs are identical in legal, technical ,operational andadministrative point of view
-
8/14/2019 Trading & Equity
25/46
Secondary Market
Overview of :
1.) Trading and Settlement.
2.) Order Management.
-
8/14/2019 Trading & Equity
26/46
Transaction Cycle
-
8/14/2019 Trading & Equity
27/46
Trading & SettlementProcess
-
8/14/2019 Trading & Equity
28/46
Contd..
-
8/14/2019 Trading & Equity
29/46
Market Participants
Exchange NSE/BSE Depository NSDL/CDSL Custodian Depository Participants Clearing Corporation NSCCL/BOI share Holding Stock Broker
A broker is an intermediary who arranges to buyand sell securities on behalf of clients (the
buyer and the seller) also known as CM Clearing Member
Sub Broker Investors
-
8/14/2019 Trading & Equity
30/46
Trading At NSE
The trading on stock exchanges in India usedto take place through open outcry
NSE introduced a nation-wide on-line fully-
automated screen based trading systemNEAT)
SBTS electronically matches orders on a strictprice/time priority
-
8/14/2019 Trading & Equity
31/46
Order Placement
NSE has main computer which is connected through VerySmall Aperture Terminal (VSAT) installed at its office.
Brokers have terminals (identified as the PCs in theFigure 1) installed at their premises which are
connected through VSATs/leased lines/modems. An investor informs a broker to place an order on his
behalf. The broker enters the order through his PC,which runs under Windows NT and sends signal to theSatellite via VSAT/leased line/modem. The signal isdirected to mainframe
-
8/14/2019 Trading & Equity
32/46
Contd ..
The order confirmation message isimmediately displayed on the PC of thebroker.
This order matches with the existing passiveorder(s), otherwise it waits for the activeorders to enter the system.
On order matching, a message is broadcast tothe respective member.
-
8/14/2019 Trading & Equity
33/46
Contd .
All orders received on the system are sorted with thebest priced order getting the first priority formatching i.e., the best buy orders match with the
best sell order. Similar priced
orders are sorted on time priority basis, i.e. the onethat came in early gets priority over the later one. Orders are matched automatically by the computer
keeping the system transparent, objective and fair. Where an order does not find a match, it remains in
the system and is displayed to the whole market,till a fresh order comes in or the earlier order iscancelled or modified.
-
8/14/2019 Trading & Equity
34/46
Clearing & Settlement
The clearing and settlement mechanism inIndian securities market has witnessedsignificant changes and several innovations
during the last decade. T+2 rolling settlement has now beenintroduced for all securities. The membersreceive the funds/securities in accordance
with the pay-in/pay-out schedules notifiedby the respective exchanges.
-
8/14/2019 Trading & Equity
35/46
Contd ..
The obligations of members are downloaded tomembers/custodians by the clearing agency
The members/custodians make available the
required securities in their pool accountswith depository participants (DPs) by theprescribed pay-in time for securities.
-
8/14/2019 Trading & Equity
36/46
Contd
The depository transfers the securities from thepool accounts of members/custodians to thesettlement account of the clearing agency.
The securities are transferred on the pay-outday by the depository from the settlementaccount of the clearing agency to the pool
accounts of members/custodians.
f NSE
-
8/14/2019 Trading & Equity
37/46
of NSE
-
8/14/2019 Trading & Equity
38/46
Process (1) Trade details from Exchange to NSCCL (real-time and end of day trade
file).
(2) NSCCL notifies the consummated trade details to CMs/custodians whoaffirm back. Based on the affirmation, NSCCL applies multilateral netting and determines obligations. (3) Download of obligation and pay-in advice of funds/securities. (4) Instructions to clearing banks to make funds available by pay-in time. (5) Instructions to depositories to make securities available by pay-in-time.
(6) Pay-in of securities (NSCCL advises depository to debit pool account of custodians/CMs and credit its account and depository does it). (7) Pay-in of funds (NSCCL advises Clearing Banks to debit account of custodians/CMs and credit its account and clearing bank does it). (8) Pay-out of securities (NSCCL advises depository to credit pool account of custodians/CMs and debit its account and depository does it). (9) Pay-out of funds (NSCCL advises Clearing Banks to credit account of custodians/CMs and debit its account and clearing bank does it). (10) Depository informs custodians/CMs through DPs. (11) Clearing Banks inform custodians/CMs.
-
8/14/2019 Trading & Equity
39/46
:low Trade ProcessingExchange
Customer BrokerTrading Terminal
Placeorder
Entersorder
Orderconfirm
ClearingCorporation Depository
Trade
Details
Obligation report
ClearingBanks
FundsAvailability
SecurityAvailability
DP
Security
Transfer
SecuritytransferTo CM pool
acct
Securitytransfer
/CC a c
-
8/14/2019 Trading & Equity
40/46
Auctions
Initiated by Exchange on behalf of trading members for settlement related reasons. On the securities pay-in day, NSCCL identifies short deliveries and the
respective clearing member is debited by an amount equivalent tothe securities not delivered by him and valued at a valuation price
NSCCL conducts a buying-in auction for security shortages on the dayafter the pay-out day through the NSE trading system. If the buy-inauction price is more than the valuation price, the member isrequired to make good the difference.
Close Out all shortages not bought are deemed closed at highest priceof the trading period or closing price on auction day plus 20%
-
8/14/2019 Trading & Equity
41/46
Order Management
NSE is Order driven market
Order management consists of
Entering orders
Order modification
Order cancellation Order matching
-
8/14/2019 Trading & Equity
42/46
Entering Order
Active vs. Passive Order (price, time stamping) Order Book
Regular lot, Stop loss, special terms, retail debt order,auction orders
Symbol and Series
Quantity Price
Principal or Client
Order types/conditions
-
8/14/2019 Trading & Equity
43/46
Order modification
Modify during market hours Change unexecuted quantity, price
Cannot change client code
Cannot exceed price limits
User value is adjusted
-
8/14/2019 Trading & Equity
44/46
/rder Types Conditions
TimeDay, IOC
Price Market, Stop loss, Limit, ATO
QuantityDQ, MF, AoN, Quantity Freeze
Other conditionsPro, Client, Warehouse
-
8/14/2019 Trading & Equity
45/46
Order Matching
Touch Line
Best buy order, Best sell order By Price
By Time
Trade Management
Matching of ordersTrade verificationTrade Modification
Trade Cancellation
-
8/14/2019 Trading & Equity
46/46