Motilal Oswal - Priyadarshini-06036

MOTILAL OSWAL SECURITIES LTD.
AN INTERNSHIP REPORT ON ORGANISATION STUDY & STUDY ON t+1 settlement cycle AT
MOTILAL OSWAL SECURITIES

A Report submitted to MPBIM Bangalore in partial fulfillment of the requirement for the award of MASTER OF BUSINESS ADMINISTRATION (MBA)
BANGALORE UNIVERSITY
By
PRIYADARSHINI .R O6XQCM6033
Under the Guidance and Supervision Of
B.Srinivasan Professor MPBIM
Mr. Shivanna T. R. Branch Manager Motilal Oswal Securities Shantinagar, Bangalore
M.P.BIRLAINSTITUTEOFMANAGEMENT
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DECLARATION
I hereby declare that this report titled, AN INTERNSHIP REPORT ON ORGANIZATIONAL STUDY AT MOTILAL OSWAL SECURITIES is a record of independent work carried out by me, towards the partial fulfillment of Master of Business Administration (MBA) program of Bangalore University at M. P. Birla Institute of Management. This is my original work and has not been submitted for the award of any other degree, diploma, fellowship or other similar title or prizes.
Place: Bangalore Date:
PRIYADARSHINI.R 06XQCM6063
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PRINCIPALS CERTIFICATE
This is to certify that the internship report titled, AN INTERNSHIP REPORT ON ORGANIZATIONAL STUDY AT MOTILAL OSWAL SECURITIES has been prepared by Ms. PRIYADARSHINI.R, bearing registration number 06XQCM6063, under the guidance of Prof. SRINIVASAN, M P Birla Institute Of Management, Associate Bhartiya Vidya Bhavan, Bangalore.
Principal Dr. N.S.Mallavalli
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GUIDES CERTIFICATE
This is to certify that the internship Report entitled, AN INTERNSHIP REPORT ON ORGANIZATIONAL STUDY AT MOTILAL OSWAL SECURITIES done by Ms. PRIYADARSHINI.R bearing Registration No.06XQCM6063 is a bonafide work done under my guidance in a partial fulfillment of the requirement for the award of MBA degree by Bangalore University. To the best of my knowledge this report has not formed the basis for the award of any other degree.
Prof B.SRINIVASAN (internal guide)
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ACKNOWLEGDEMENT
This is the moment, which gives me opportunity to thanks everyone who has contributed in my practical training at MOTILAL OSWAL SECURITY LTD, as part of my study. First of all I would like to express my gratitude to beloved principal for boosting moral during the training period. I would like to express my sincere thanks to Prof. B.SRINIVASAN (internal guide) for helping me in various aspects the study. I am deeply indebted to Mr. SHIVANNA T. R. (Br. Manager, MOSt, Shanthinagar) for giving me an opportunity and guidance, invaluable help and cooperation to successfully complete the project. I am grateful to Mr. VIJAY KUMAR (Business Development Manager, Most) for his help and cooperation. I am very thankful to the management and staff of Motilal Oswal securities for their invaluable cooperation during my study. Last but not the least I would like to express my profound gratitude to my family and friends who have indirectly encouraged me in completing this study.
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PART:A
Chapter no. Topic particulars Page no DECLARATION PRINCIPALS CERTIFICATE GUIDES CERTIFICATE EXTERNAL GUIDES CERTIFICATE ACKNOWLEDGEMENT Chapter:1 Organizational study Brief profile about organisation MOSt history People behind the organisation MOSt shareholding pattern MOSt management Milestones Location matrix MOSt vision MOSt guiding principles Investment philosophy Management team Wealth creation study & awards MOFSL customer & retail business 14 16 17 19 21 22 30 31 32 33 34 35 36 Executive summary 2 3 4 5 6 12
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MOSt research based advisory products Services
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EAG BUSINESS ASSOCIATE E-BROKING PORTFOLIO MANAGEMENT SERVICE 1. Bulls Eye PMS 2. Value Hedging PMS MUTUAL FUNDS COMMODITIES Chapter:2 Chapter:3 Organizational Structure Operational Aspects of Different Functional Department Performance Evaluation Problem Areas Observed Recommendations Conclusion organizational hierarchy Functional Departments MARKETING ACCOUNTS HR & ADMINISTRATION SUPPORT & FUNCTION ADVISORY SERVICES SWOT ANALYSIS Findings Recommendations Conclusion BIBILOGRAPHY
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Chapter:4 Chapter:5 Chapter:6 Chapter:7
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PART :B
A Microscopic Study On t+1 settlement cycle
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Chapter: 1
Organisation Profile
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Motilal Oswal Financial Services Ltd
Motilal Oswal Financial Services Ltd consists of four companies. Motilal Oswal Investment Advisors Pvt. Ltd. is our Investment Banking arm with collective experience of over 100 years in investment banking/corporate banking and advisory services Motilal Oswal Commodities Broker (P) Ltd. has been providing commodity trading facilities and related products and services since 2004. Motilal Oswal Venture Capital Advisors Private Limited has launched the India Business Excellence Fund (IBEF), a US$100 mn India focused Private Equity Fund.
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Motilal Oswal Securities Ltd. (MOSt) our services include equities, derivatives, e-broking, portfolio management, mutual funds, commodities, IPOs and depository services.
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Motilal Oswal Securities Ltd.
An Executive Summary
MOFSL strongly believes in Buffett's following two principles, Rule 1: Never lose money. Rule 2: Never forget rule one. Motilal Oswal Securities is a leading research and advisory based stock broking house of India, with a dominant position in both institutional and retail broking. Asia money Brokers Poll 2005 has ranked them the best Indian brokerage firm. There are various other categories where they have been rated number one - most independent research, sales and service etc by the Brokers Poll.
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For a more unbiased opinion, in March 2006, AQ Research (a UK-based firm that analyses the accuracy of a brokers research call) declared Motilal Oswal the best research house for Indian stocks.
Motilal Oswal Securities has witnessed rapid organic growth due to favorable market conditions as well as efforts put in by the company itself. FY05 and FY06 saw the company grow inorganically through acquisition of three significant regional broking firms from Karnataka, Kerala and U.P. Over a period of time many more regional broking firms may be acquired to gain solid footing in various regions of India.
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Brief profile about organization:
Introduction:
The company was founded in 1987 as a small sub-broking unit, with just two people running the show. Focus on customer-first-attitude, ethical and transparent business practices, respect for professionalism, research-based value investing and implementation of cutting-edge technology have enabled us to blossom into an almost two thousand-member team. Our institutional business unit has relationships with several leading foreign institutional investors (FIIs) in the US, UK, Hong Kong and Singapore. In a recent media report we were rated as one of the top- 10 brokers in terms of business transacted for FIIs. The retail business unit provides equity investment solutions to more than 200000 investors through 1160 outlets spanning over 363 cities. These solutions are provided by a force of over 2000 employees and over 780 Business Associates. We provide advice-based broking (equities and derivatives), portfolio management services (PMS), e-Broking, depository services, commodities trading, IPO and mutual fund investment advisory services.
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Our Value PMS Scheme gave a 402.74% return since inception (Feb 2003) (Sensex is 270.69% & Nifty is 245.11%). The performance of Value Hedging since inception (Oct 2005) is 32.76%. Such an outstanding performance can be only attributed to our single-indeed focus on research-based value investing. Motilal Oswal Securities invests almost 5-10% of its revenue on equity research and hires and trains the best resources to become advisors to its valued clients. Our unique Wealth Creation Study, authored by Mr. Raamdeo Agrawal, Managing Director, is now in its eleventh year. Investors keenly await this annual study for the wealth of information it has on how companies created wealth during the preceding five years. The organization finds its strength in its team of young, talented and confident individuals. Qualified professionals carry out different functions under the able leadership of its promoters, Mr. Motilal Oswal and Mr. Raamdeo Agrawal. Stringent employee selection process, focus on continuous training and adoption of best management practices drive the quest to achieving there Vision.
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Motilal Oswal Securities Ltd (MOSt) History:

The story of MOSt goes back many years, when Mr. Motilal Oswal and Mr. Raamdeo Agrawal met each other as students in a Mumbai suburban hostel in the early eighties. Both the young chartered accountants hailing from a rural & an unpretentious background had a common dream viz'to build a professional organization with strong value systems, to provide reliable & honest investment advice to investors'. Thus was born their first enterprise called "Prudential Portfolio Services" in 1987.
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People behind the organization:
Mr. Motilal Oswal Chairman and Managing Director Mr. Motilal Oswal is the promoter of Motilal Oswal Securities Ltd. He is a member of Institute of Chartered Accountants of India and started the business along with the co-promoter Mr. Raamdeo Agarwal in 1987.
Service is required in everything, in research, in execution and in settlement. It is going to be the key to survival. If you give good service and value to your clients, it will translate into good business He has received the Rashtriya Samman Patra awarded by the Government of India for being amongst the top 50 income tax payers in the country. He was elected as a Director of BSE and joined its governing board in 1998. He is currently a member of various committees of CDSIL and SEBI. He is currently a member of the NSE committee for F&O and a member of the Managing Committee of Indian Merchant Chambers.
Mr. Raamdeo Agrawal JMD MOSt & portfolio
Profile of Raamdeo Agrawal Date of Birth: 5th April 1957 Educational Qualification: Chartered Accountant Achievements: Co-Author of the book "CORPORATE NUMBERS GAME" in 1986 Joint Managing Director of Motilal Oswal Securities Ltd Author of annual "Wealth Creation Study * "
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MOFS Shareholding pattern:
1st Qtr: Promoters & Promoter group [78.67%] 2nd Qtr: Directors and employees [11.85%] 3rd Qtr: New Vernon Private Equity Limited [7.20%] 4th Qtr: Bessemer Venture Partners Trust [2.27%]
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Top ten shareholders as on the date of filing of the Draft Red Herring Prospectus with SEBI:
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MOSt Management
Name
Mr. Motilal Oswal
Designation
Chairman and Managing Director Joint Managing Director
Qualification
B. Com, CA B. Com, CA
Mr. Raamedeo Agrawal
Mr. Navin Agarwal
Director
B.Com CA, CS, ICWA, CFA Post Graduation in Marketing Management B.tech.(IIT-k),MBA B. Com, CA
Mr. Hitungshu Debnath Mr. Ashutosh Maheshvari Mr. Vishal Tulsyan
Director - Retail Business CEO - MOIA CEO - MOVC
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Milestones: 2007
Mr. Motilal Oswal - Chairman and Managing Director has been appointed as a member of the Managing Committee of Indian Merchant Chambers. Motilal Oswal Financial Services Ltd files for an IPO Motilal Oswal Financial Services Ltd. features as a case study in Harvard Business School Motilal Oswal Financial Services Ltd ties up with Punjab National Bank to offer online trading to its customers
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2006
Places 9.29% with two leading private equity investors New Vernon Private Equity Limited and Bessemer Venture Partners Issues 14% of companies equity to employees as ESOPs Acquires a leading south Indian brokerage firm Peninsula Capital Markets Enters Private Equity and plans entry into Investment Banking businesses Value PMS gives 390% returns to its investors between Feb 2003 and March 2006 Re launches its e-Broking service through a nationwide campaign. First advice-based online trading proposition in the Indian markets Another milestone in distribution - 1017 outlets, 375 cities, serving 1.61 lakh clients Has a 1400 member team working to achieve the company's vision.
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2005:
Asia money Brokers Poll 2005 rates Motilal Oswal Securities - Best Local Brokerage, Most Independent Research House, Best in Sales and Service Launches two new Portfolio Management Schemes - Value Hedging for derivatives and Discover Value for the Rs5 lakh to Rs50 lakh category Acquires local brokerage Gayatri Capitals from Andhra Pradesh and Varghese from Bangalore Deepest distribution in the stock broking segment with 700 outlets in 320 cities and 1.2 lakh clients
2004:
Presence expanded to 270 outlets in 150 cities and 20 states Value PMS delivers a whopping 160% post tax returns for the period ended April 2004 Bulls Eye PMS - A momentum based PMS launched Start of the Solid Research Solid Advice campaign
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2003:
MOSt Portfolio Management Services launched with Mr. Raamdeo Agrawal as the Portfolio Manager. Uniquely structured performance related fees. Inquire team is successful in capturing the uptrend in Banking, Auto and Infrastructure sectors. 15,000 Depository clients acquired. 9 own branches setup at 7 cities to provide Equity Advisory Services. More in the pipeline. 150 outlets in 110 cities across 18 states & one Union Territory in India manned by 1000 people servicing over 15,000 Retail and Institutional Investors.
2002:
Mr. Navin Agarwal, Head of Equity Research & Institutional sales, is inducted in the Board of Directors MOSt consolidates its retail operations & upgrades its IT / Back Office infrastructure to cater to its growing network of branches, Franchisees and Channel Partners.
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Retail network completes coverage of 100 cities in India. Direct servicing of HNI clients is initiated.10,000 Depository clients acquired.
2001:
Legendary marketing guru Shunu Sins services taken to revitalise retail marketing strategy and branding efforts. Starts offering Derivatives products and advisory services on both BSE as well as NSE
2000:
Both Mr. Motilal Oswal and Mr. Raamdeo Agrawal receive Rashtriya Samman Patra from Central Board of Direct Taxes for being amongst the top 50 tax payers in India from FY94-FY98 Acquires its 100th Franchisee / Channel Partner and emerges as a leading player in the Indian Broking Sector Becomes a Depository Participant of Central Depository Services Limited (CDSIL)
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1999:
Mr. Raamdeo Agrawal starts attending legendary billionaire investor Warren Buffetts Annual General Meetings of Berkshire Hathway Inc. He still continues to attend it every year. The Wealth Creation Study started in 1996 culminates into Wealth Creation Seminar and Awards function in 1998. First Stock Broking house to brand its services as a research and advice based broker. Wealth Creation Campaign started. www.MotilalOswal.com launched. First broking house in India to go on the web. Becomes a Depository Participant of National Securities Depository Limited (NSDL). Inducts Mr. Ivan Mathias, former country head of Watson Wyatt Worldwide, on its Board to Directors to shape HR initiatives.
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1998:
Mr. Motilal Oswal joins the Governing Board of The Stock Exchange, Mumbai.
1996:
Wealth Creation Study started. First of its kind study initiated to identify biggest and fastest wealth creating companies in Indian Stock markets.
1995:
Motilal Oswal gets incorporated as Motilal Oswal Securities Ltd.
1994:
MOSt acquires NSE Membership and plans for major expansion of its retail network. Inquire (Indian Equity Research) is formally created at a 2500 sq. ft office in South Mumbai with bigger and better quality infrastructure than the corporate office. Since then nearly 20% of revenue is allocated to research. First Domestic Stock broking house to have such a strong Research focus .Motilal Oswal. enters Institutional Broking business
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1990:
After just three years in the business, Motilal Oswal is formed through acquisition of membership on The Bombay Stock Exchange (BSE). Three more memberships taken in later years.
1987:
Mr. Motilal Oswal and Mr. Raamdeo Agrawal lay the foundation of a great partnership by starting a sub-broking firm. The venture stands out from the rest due to their approach of Research-based broking even when sub-brokers.
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LOCATION MATRIX
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MOST VISION
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Our Core Purpose:

To be a well respected and preferred global financial services organization enabling wealth creation for all our customers.
Values:
Integrity: A company honoring commitment with highest ethical and business practices. Team Work: Attaining goals collectively and collaboratively. Meritocracy: Performance gets differentiated, recognized and rewarded in an apolitical environment. Passion & Attitude: High energy and self motivated with a Do It attitude and entrepreneurial spirit. Excellence in Execution: Time bound results within the framework of the companys value system
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Quintessential Investment Philosophy of MOSt

Emphasis on return on net worth A focused approach to investing Patience is an invaluable virtue Pick high quality companies Invest for the long term Investing is the art of controlling emotions Find good companies that are currently out of favour Companies that generate sustainable cash flow are safer If you make a mistake, admit it and get out Look for sufficient 'margin of safety Consistent portfolio returns over time lead to substantial wealth creation
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Management Team
MOSt management team is regularly engaged in finding ways to improve operational efficiencies and customer satisfaction. You will find CAs, CFAs, ICWAs, CSs, MBAs and IT professionals managing crucial functions, to bring you best products and services - from research & advice to trade execution & settlement. At MOSt we practice meritocracy and each of the team members is provided extensive training.
Training & Manpower Development

MOSt conducts various training and development programs regularly to enhance the capabilities of its team. As much as 5% of the salary bill is spent on such programs, which is amongst the highest for a broking organization in India. MOSt is truly a learning organization with lead being taken by the Directors, who regularly participate in top management learning programs like Strategic Management Program at Indian School of Business, Hyderabad, Strategy Summits with Management Gurus like Tom Peters and Dr. Lester Thurow, Dean, Sloan School of Management, (MIT) and Brand Management Seminar by Al Ries etc
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MOSt Wealth Creation Study and Awards function

MOSt Wealth Creation Study and Awards function has become a key event in the Indian Capital Market. The Wealth Creation Study, initiated, in 1996 is widely appreciated in the investment community and the Indian Corporate Sector. This annual study identifies the fastest and the biggest wealth creators in the Indian markets over the last 5 years and felicitates them at a public event, attended by several leading investors and equity specialists. The 10th Wealth Creation Awards function was held at the Grand Hyatt, Mumbai on Dec, 2005.
Foundation Day
Arising from its deep respect for Knowledge & Value Addition, MOSt celebrates its Foundation Day in a truly unique manner. Not only are the top performing team members and Business Partners rewarded for their contributions, but they are also provided training on important subjects like Customer Profiling, Selling, Investment Advising etc. Lot of learning takes place through sharing of successful practices by MOSt Business Partners.
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Wealth Creation Seminars

MOSt conducts Wealth Creation Seminars across the country regularly to educate individual investors about there research products, derivatives market, investment strategies and latest opportunities in the stock markets. There senior executives, research analysts and investment strategists address the audience and personally interact with the investors.
End to End Equity Solutions

MOSt provides end-to-end equity solutions to all categories of its valued clients by using a combination of its numerous products and services. It offers world-class research-based investment and trading ideas coupled with efficient and reliable trade execution & settlement. Its "default free" record since inception is a unique and exceptional feature in the Indian Stock Markets. MOSt values client trust and is committed to upholding it at all costs. They believe that no automated system can be a substitute for the human touch. MOSt combines its Research, IT strengths, ethical business practices and "Customer First Attitude " to provide end-to-end equity solutions.
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MOSt Business segments
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MOFSL Customer & reach Retail Business
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MOSt Research Based Advisory
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PRODUCTS:
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Services:
Depository Services
In the times of T+2 having a demat account linked to your trading account becomes really convenient. The non-trading members also can avail of our Depository services. You receive regular account reports and an efficient service at all times. MOSt is a member of both NSDL and CDSL and the service is available at all our outlets in India.
Depository Service Provided By MODES

Account Opening Dematerialization Rematerialization Account Transfer Transmission Nomination Pledging and Hypothecation Account Closures
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Derivatives
Derivatives (Futures & Options) are ideal instruments to protect your portfolio against risk. You can trade with index movements, hedge and leverage your portfolio by limiting risk but keeping your upside unlimited.
Equity Research
Equity Research is an inherent strength of MOSt. MOSt believes in picking investment opportunities where the underlying value is higher than the market price. A feather in the cap, Asiamoney Brokers Poll 2005 has ranked us the best Indian brokerage firm.
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MOSt EAG:
In keeping with its tradition of personalized service, Motilal Oswal Securities Limited set up MOSt EAG to provide customized and integrated equity solutions to High Networth Investors. Equity Research is an inherent strength of MOSt. We believe in picking investment opportunities where the underlying value is higher than the market price. Most EAG team has highly trained equity professionals, who act as your Relationship Managers (RMs). Most RMs proactively helps you take informed equity investment decisions and build a healthy portfolio.
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Client Profiling
MOSt RMs determines each EAG client's profile before deciding the ideal asset allocation. Profiling takes into consideration issues like your attitude towards risk, investment horizon, life stage, return expectation and investment objectives
Investments & Trading:

MOSt RMs are experts in providing value based investment solutions as well as advising you in positional trading, as per your profile.
Portfolio Tracking Software:

Clients portfolio is continuously monitored using Portfolio Tracking Software.
Integrated Approach:
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They use integrated approach in there investment strategy using a combination of cash, derivatives and other leverage products to help client reach there investment goal.
Benefits
MOSt EAG team has highly trained equity professionals, who act as clients Relationship Managers (RMs). MOSt RMs proactively help there client take informed equity investment decisions and build a healthy portfolio. The RMs keep a close watch on the performance of each stock in clients portfolio and suggest changes as and when there is a significant trend reversal or deterioration in a company's performance. This is to help client reach there investment goal. The RM doesn't stop at just that, he goes a step further to ensure that clients trades are settled and stocks credited in there Demat account in a timely manner. This allows MOSt to give clients a convenient single window service and clients RM becomes the single point contact for all equities related matters. Clients will receive regular portfolio valuation reports to enable them to monitor performance and view the progress towards the investment objective. Clients can avail of there services from all there branches in Mumbai, Ahmadabad, Bangalore, Chennai, Delhi, Hyderabad, Kochi, Kolkata, Surat, Vadodra.
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BUSINESS ASSOCIATE
MOSt Business Associate

Motilal Oswal Securities Ltd. (MOSt) is arguably one of the best brands among Indian Domestic broking houses enjoying an unmatched and unparallel brand recall. Financially sound, with an excellent track record of consistent market growth in all key business segments. MOSt is spread across 24 states in 375 cities through 300 Business Associates and 52 branches. To reach out to more investors across India, MOSt builds partnership with high caliber and like minded individuals and companies who share similar business philosophy, ethics and values, a sound client base and having the
zeal and potential to capture a larger market share within their allotted territory.
How do Business Associates benefit
Access to world-class research, daily, fortnightly, monthly & annually Strong technology and infrastructure support with regular exclusive training on risk management and IT systems Strong national brand name and continuous marketing support through advertisements, PR, exclusive training programs, marketing collaterals, wealth creation seminars, etc A bouquet of equity investment solutions to facilitate cross selling of products and servicesAdvice-based broking on BSE / NSE (Cash, Derivatives and Commodities*) Portfolio Management Services (PMS) E-Broking Depository Services (MODES) Mutual Funds & IPOs
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E-BROKING
MOSt E-Broking
There is nothing more exhilarating, more daring and more rewarding than making the right trade at the right time. E-Broking platform brings a world class experience of online investing. Buying and selling of shares is now just a click away. A multitude of resources like live quotes, charts, research, advice and online assistance helps you take informed decisions. Our robust risk management system and 128 bit encryption gives you a complete security about money, shares, and transaction documents.
Benefits of Trading Online

Single screen order/trade entry, without going through the hassles of giving transfer instruction, writing cheques. Instant order/trade confirmation gives you similar trading experience as exchange based software without the burden of overhead and maintenance cost A refreshing experience of getting outstanding research based advice on intra day and delivery trades on the same screen Live quotes of NSE-Cash/Derivative, BSE Cash, Commodity. Create multiple market watches, default market watch - NIFTY, SENSEX, and Industrial. You can add NSE-Cash, Derivative & BSE script on the same market watch Get access to various online reports like margin report, Demat A/c details, trades executed, turnover report, net position report with mark to market profit/loss and realized profit Online transfer of funds through HDFC Bank Access to latest research reports, daily market dairy, pivot points, derivative dairy View top 20 shares by value or volume traded, along with top gainers / losers
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PORTFOLIO MANAGEMENT SERVICE
MOSt PMS Motilal Oswal Securities runs two types of PMS schemes meant for investors with different investment preferences. While our Value PMS scheme is meant for investors with long-term interest in the market, there Bull's Eye PMS scheme is meant for investors who want to take moderate risk and generate healthy returns from the equity market from time to time. Its clients, investor community and some of the most prestigious publications like Asia money and Institutional Investors amongst others acknowledge Motilal Oswal Securities as one of the leading research based equity broking house in India. With about 15% of our revenue invested in our research capability, we have some of the sharpest resources that produce excellent research insights on companies. The same is then passed to our
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highly rated portfolio management and investment advisory team that works on its personalized investment strategy.
FOR WHOM
Portfolio Management Service (PMS) is meant for investor with long-term time horizon. Low portfolio churn and capital preservation will be key to success. Our investment decision will cushion in high .margin of safety. So that it leaves sufficient room for investor to be invested and nurture his portfolio. PMS is a product wherein a customised investment portfolio is created to suit the investment objectives of a client. In PMS, the responsibility of creating and tracking the portfolio is handled by the portfolio manager. Idea generation, order execution, settlement and performance reporting is all assumed by the PMS provider. This service is particularly advisable for investors who cannot afford to give time or dont have those expertises for day-to-day management of their equity portfolio. They would prefer Mr. Raamdeo Agarwal, Portfolio Manager, to manage the same. The client derives the benefit of the professional expertise and experience of Mr. Raamdeo Agarwal.
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Bulls Eye PMS
Bull's Eye strategy to better returns . . .

Here is the investment strategy MOSt employ to generate desired returns through there Bull's Eye PMS scheme. They believe Investing = Hunting. Its about identifying the right stocks, picking and exiting at the right times and then continuing the cycle. Identifying the right stocks: There strong, proven Fundamental Analysis skill allows them to understand the profile and the
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performance of various companies. This allows them to pick the wheat from the chaff.* Determining Entry and Exit Points: After identifying the companies for investment, they resort to technical analysis, read the market condition and pick up the stocks in opportune sectors. They believe that apart from the right entry levels, selling at the right time is equally important. Therefore, they employ similar strategy while exiting the stock. And this completes there hunt for good returns. Moderate risk is the key philosophy: they take moderate risk while making any investment. Duration of the investment is one to six months. So even while a stock may look fundamentally strong, the age of there investment in it may depend on the reality based on technical research along with the prevailing market conditions.
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Value Hedging PMS
Value Hedging PMS is a promising scheme that may be a unique and pioneering effort in its segment. Not only will there clients benefit from there exceptional stock-picking ability, but also capitalise on short-term price volatility. Through this scheme they offer that delicate balance between long-term returns and short-term gains. The Value Hedging PMS is primarily a hedging based discretionary PMS product. They will do the following to bring best results: They will pick stocks based on there value investing philosophy
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Various derivatives strategies will be used to hedge portfolio based on prevailing market conditions. For example, in a bearish market they can hedge position by writing the calls and collecting premiums and at the same time they can buy the puts to avoid the fall in asset value visa-vis market fall. Needless to say, most of the stocks they pick will have to be on the derivatives list. With an increasing list, almost every important stock will be a part of the derivatives segment. The Value Hedging PMS might also invest in some non-F&O stocks in case the investment rationale is very compelling. Value Hedging PMS is managed by Mr. Jigar Shah. Mr. Shah has a proven track record of more than 5 years advising top High Networth Clients on their equity investments.
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MUTUAL FUNDS
Emergence of Mutual Funds

Markets are increasingly becoming more sophisticated and complex investors need a financial intermediary who provides the required knowledge and professional expertise on successful investing
Incremental flow of funds into mutual funds rather than traditional avenues Started in India since 1964.
MOSt Mutual To enable clients diversify their investments Motilal Oswal Securities Limited has added another product in its bouquet and will now offer mutual funds. MOSt mutual team is in close contact with various fund houses and interactive sessions are held with fund managers. They provide client with regular updates on products and new schemes. Being one of the stock brokers they keep a close watch on the markets. Based on client risk appetite, investment horizon and there existing investments team will suggest investment in mutual fund schemes, which are best, suited to client. The fund and scheme selection is done after an in-depth research on parameters like risk adjusted returns, rolling returns, volatility and portfolio churn. Team advises a mature and long-term view on mutual fund investments. MOSt Mutual doesn't stop at just that, they go a step further to ensure that client get the right NAV, there dividends are credited on time and there account statements are regularly received.
COMMODITIES
Commodities are a integral part of our life. They form a part of the: Food we eat (Pulses, Food grains, Oil & Oil seeds) Clothes we wear (Cotton, Silk) Precious Metals (Gold & Silver) Investors looking for a fast-paced dynamic market with excellent liquidity can trade in Commodity Futures Market. The Commodity Exchange is a
Public Market forum and anyone can play in these vital Commodity Markets. Motilal Oswal Commodities Broker (P) Ltd can provide an entry to the Commodity Markets. MOCB is a registered trading-cum-clearing member of NCDEX. MOCB offers advice on investments, strategy & provide research with trading advice.
Chapter: 2
Organizational Structure
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The basic organizational structure is as follows:
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The branch has divisions in-
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- Marketing, - Advisory & -Support & Function. Each of these fields has separate hierarchy followed. The split takes place right after Regional Manager. The internship was undertaken at Shanthinagar Branch of MOSt. The following was the organizational structure at this branch:
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Chapter: 3
Operational Aspects of Different Functional Department
Functional Departments
MARKETING In this department where the demat account as well as Mutual Funds is marketed, marketing executives are seeks for prospective customers, they helps in opening of an account and also these executives collects AMCs and provide other services.
ACCOUNTS Maintaining the purchases of stores department Internal auditing Payments and receipts
HR & ADMINISTRATION PAY ROLL MAINTAINANCE: maintenance of employee details like salary incentives, bonus, and performance records etc RECRUITMENT DEPARTMENT: this department helps in assessing the needs of Labor force and recruiting the needs of Labor and giving the orientation programme to new employees.
HRD: Maintain good relation ship with the employees Identifying the demotivated employees and providing the necessary motivation Accepting problems of the workers and helps in solving them,,
SUPPORT & FUNCTION FRONT OFFICE In front office the following services are done. Account opening Holding enquiries Transfer of physical shares to demat form Transfer of demat shares to physical form Transformations of shares from demat to trading account etc...
BACK OFFICE
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Maintenance of all demat account Giving intimation related to the due of AMCs to their account holders Sends quarterly information to the holders related to the holdings
ADVISORY SERVICES This is the main function done by the department, MOSt gives every financial advisory service to investors e.g.: portfolio management, equity tips, tax planning etc.
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Chapter: 4
Performance Evaluation
SWOT ANALYSIS:
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Strength
Large and diverse distribution network MOSt financial products and services are distributed through a pan-India network. The business has grown from a single location to a nationwide network spread across 1,160 Business Locations operated by them and their Business Associates in 363 cities and towns.
Strong research and sales teams 28 equity research analysts covering 208 companies in 25 sectors and 5 analysts covering 18 commodities. In 2006, Asia money rated a member of their sales team as the best sales person for Indian equities.
Experienced top management Both of Promoters, Mr. Motilal Oswal and Mr. Raamdeo Agrawal, are qualified chartered accountants with over two decades of experience each in the financial services industry. In addition, our top management team comprises qualified and experienced professionals with a successful track record
Well-established brand
Motilal Oswal is a well-established brand among retail and institutional investors in India. They believe that their brand is associated with high quality research and advice as well as our corporate values, like integrity and excellence in execution. Wide range of financial products and services Healthy Financial Market Excellent Infrastructure 1 of the top 5 broker in the country MOFSL presence in the field of finance for a long time.
Weakness
The main concern with the brokerage business is cyclicality. Trading volumes drop sharply during a downturn. When the Indian stockmarket enters the bear phase, Motilal Oswal will be affected. Leading firms are better placed to weather a downturn and may even be able to accelerate industry consolidation by rolling up smaller firms that have been affected to a much larger extent. Dependency on third parties exposes us to losses caused by financial or other problems experienced by them. MOFSL operate on leased premises. MOFSL have entered into a number of related party transactions.
Opportunities
Good Customer Base Rising consumer incomes will translate into disproportionately higher allocation of these funds into equities. Right now, under 3% of India's retail assets are invested in stock markets. Cash, bank deposits, real estate and gold dominate the piechart on how Indians invest their wealth. As economies develop, there is all possibility that this % rises. Further, the stock broking industry is highly fragmented and seeing a gradual consolidation. Motilal Oswal's growth has outpaced that of the industry and the company should continue to gain from this consolidation in stock markets. Growing IPO issues Can make use of sustained growth in retail segment of financial Product. Economic growth in India Rising of FDI Growing consumer awareness about equity related product.
Threats
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Existing Competitors Market Uncertainty Political instability or changes in the government could delay the liberalisation of the Indian economy and adversely affect economic conditions in India generally, which could impact our financial results and prospects. Broad economic factors like inflation etc. We have reputational risks in respect of our distribution of third party products Downturns or disruptions in the securities markets could reduce transaction volumes, and could cause a decline in the business and impact profitability.
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Chapter: 5
Problem Areas
FINDINGS:
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Motilal Oswal Financial Services (MOFSL), a financial services company focused on wealth creation for all its customers such as institutional and corporate clients, HNI and retail customers, proposes to enter capital markets with an initial public offering (IPO) of 29, 82,710 equity shares of Rs 5 each for cash at a price band between Rs 725 and Rs 825 per share with 100% book building process. The company is going to raise Rs 216.25 crore in lower end of the price band and Rs 246 crore at higher band, as per its DRHP filed with Sebi. The issue comprises a net issue to the public of 2,840,400 equity shares of Rs 5 each and a reservation of 142,310 equity shares of Rs 5 each for subscription by eligible employees at the issue price. The issue will constitute 10.50% and the net issue will constitute 10.00% of the post issue paid-up equity capital of the company. The equity shares are proposed to be listed on the BSE and NSE. Citigroup Global Markets India Pvt Ltd is the book running lead manager and In time Spectrum Registry is the registrar to the issue.
MOFSL is the holding company of Motilal Oswal Securities Limited (MOSL-broking business), Motilal Oswal Commodities Brokers Pvt. Ltd
(MOCB-commodity business), Motilal Oswal Investment Advisors Pvt. Ltd (MOIA-investment banking business) and Motilal Oswal Venture Capital Advisors Pvt. Ltd (MOVC-venture capital advisory).
In the year 2006, private equity investors New Vernon Private Equity Limited and Bessemer Venture Partners Trust bought a 9.47% stake in the company for Rs 518.9 per share (the face value per share being Rs 5). Motilal Oswal Financial Services Ltd proposes to infuse funds into MOSL and in MOCB in the form of a subscription for their equity shares, unsecured loan or any combination thereof. Such capital infusion will help strengthen their respective balance sheets and thus enable them to increase trading volumes in the equities and commodities market. MOFSL provides a financing facility to its retail broking customers. MOFSL proposes to enhance this financing facility.
MOSt is one of the leading broking houses in the Equity Market. MOSt has good success rate as lead managers. It has Branches all over country. Its biggest strength is their presence in the field of finance for a long time.
PROBLEMS AREAS
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The market, in which the organization is a part, is volatile. Risk is the major concern which is of prime concern in the trading associated with the cash market. Lack of penetration in market of Mutual funds. Advices related to equity market are given to HNI clients only. Advertisement policy of MOSt is not as effective as it should be. MOSL contributed 99.99% and 91.95% of our total consolidated revenues for the Financial Year 2006 and nine months ended December 31, 2006, respectively. We are substantially dependent on MOSL and any decline in MOSLs revenues and profit margins will adversely affect our consolidated results.
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Chapter: 6
Recommendations
RECOMMENDATION:
Providing Multi department skill, Multi work skill training to employees in order to give the tough competition to competitors and also employees become more skilled. Should pay more attention to the market of Mutual Funds. Most of the existing investors not aware about the different products of MOSt, so there is urgent need to publicize the services. Addressing the customers queries and receiving constant feedback is a must because MOSt is an online portal and there is very less exchange of communication between the customers and the principal. The company can start its own mutual fund and start investing in stocks, debts and government securities. It has a special and dedicated Research Desk who are into constant monitoring of the share markets. It can take advantage of this and start a separate mutual fund. People will have good confidence in this and the business can also be profitable. Continuing to build our brand, particularly in our new businesses, like investment banking and venture capital management will be critical to achieving widespread recognition.
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Chapter: 7
Conclusion
Conclusion
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Investment in India has become more of a security necessity than a business lifestyle. As the interest rates all over are dropping, people are switching to other avenues which fetch better results. The risk band that initially existed as been eased out and people are on the lookout for new and better stuff. In olden days, one could invest only in a few companies, but the present day has given people to try a wide range of companies. The decision in regard to investments is based on the sector performance as well as the strong fundamentals of the company. The act of speculation has considerably been reduced due to the statistical data and its analysis that companies like MOSt do and people have become intelligent investors rather than mere speculators. It was a very fruitful experience working in MOSt as a management trainee. It offered exposure to the wide range of investment options available. The risk factors involved could be understood easily. Not only did it give a learning experience but also gave an idea on how we could incorporate the various investment options, discovered by the economists, into a good planning package.
BIBILOGRAPHY:
www.motilaloswal.com www.nseindia.com www.investopedia.com
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PART:B
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A MICROSCOPIC STUDY ON T+1 SETTLEMENT CYCLE
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INTRODUCTION
BACKGROUND
Capital markets are in the midst of a global, systemic restructuring. Communication and technology have enabled individual financial markets to link together creating one global market. Internationally, retail and institutional investors have been empowered leading to a more dynamic and sensitive market. The use of technology has enabled the investor populace to discount news more quickly and comprehensively. Technology has also enabled the formation of a larger and a fair market place. This platform has been a launching pad for the exponential growth in volumes showing a widespread and diverse interest in the securities market.
As the volume of securities trading in the global market place has increased in the recent years, the need for shortening the settlement and clearance cycle as a cost saving and risk management discipline has become critical to the orderly conduct of business. As a result many jurisdictions around the world are adopting shorter settlement cycle.
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A reduced settlement cycle aligns efficiency of the clearing and settlement process with the efficiency and effectiveness clients can expect from the front end of the trade processes. It is therefore really believed that achieving a reduced settlement cycle is critical for further development of the securities market.
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THE INDIAN CONTEXT
" .. market risk management becomes far more efficacious at shorter settlement cycle. There is need, therefore, to move to T+1 rolling settlement from the existing T+3 by tuning up the funds and securities processing cycle. SEBI is being advised to take necessary action in this regard in consultation with the RBI. " Shri Jaswant Singh (2002) The Indian securities market too has tackled challenges and embraced innovations in technology. The volumes in the domestic markets have increased substantially over the years. The cross border trades, more popularly known as FII trades, have also increased over a period of time.
In July 2001, the Indian securities market made a paradigm shift from the century old account period settlement to a T+5 rolling settlement. Keeping abreast with the dynamics of the securities market and to integrate with the world markets, in april 2002, the Indian capital markets joined the league of developed markets in the world by the introduction of the T+3 settlement cycle.
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However the increasing volumes and the need for greater finance to fund the higher volumes have prompted policy makers and regulators to consider reducing the settlement cycle to T+1 rolling settlement.
There are four key features which characterise the reduction in the settlement process:
1) Seamless communication among all relevant market participants multiple service providers are to be linked together in a seamless and costeffective manner; 2) Significant real time processing as settlement time frames are compressed real time or near real time processing needs to be achieved by all participants and dependencies on manual processes would be reduced significantly; 3) Virtual and not physical processing there will be reduction if not a gradual elimination of physical securities and cheques; and 4) Concurrent and no sequential exchange of data and information many steps in the transaction processing which are now occur sequentially or in batch modes would have to be concurrent.
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To achieve this shift effectively, all market participants would be required to join in the efforts and begin preparing their own internal systems. The shortened cycle will affect all facets of the industry including broker / dealers, banks, transfer agents, custodians, investment managers and institutions.
A reduced settlement cycle aligns efficiency of the clearing and settlement process with the efficiency and effectiveness clients can expect from the front end of the trade processes. It is therefore generally believed that achieving a reduced settlement cycle is critical for further development of the securities market. For one it significantly reduces settlement risk; second it has economic benefits and increases greater flexibility of trading and investing
Some policy thinkers agree with the above contention and feel that it is necessary to handle growing trade volumes and reduce risk, while others contend that the cost / benefit equation doesn't warrant the necessary work.
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INTERNATIONAL CONTEXT
The current T+2 settlement cycle was achieved in the US after an experience with times of market turbulence made the risks of a five-day settlement cycle abundantly clear. T+5 allowed too much time between trade execution and settlement for a trading party to become insolvent or for the value of a trade to deteriorate. But the U.S., a proactive regulatory environment is accelerating the trends towards further streamlining and automating processes towards further risk reduction and improved customer service.
For example the Securities and Exchange Commission (SEC), has recommended quite sometime back that U.S. financial markets should reduce the settlement window from three days after trade date (T+3) to next day or Trade Date + 1 (T+1). The move to T+1 would imply automation of each step in the settlement process ("commonly referred to as Straight through processing"). Though, it must be said in the same breath that the US markets have number of times postponed deadlines for achieving this; which itself testifies the difficulties and the investments required, in completely automating the process from trade order and execution to settlement.
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In Canada, which achieved the change from T+5 to T+3 in 1995, the Canadian Capital Markets Association (CCMA) is leading the move to T+1.The reasons for moving to T+1 are the same as they were back then: significantly increasing trading volumes, market volatility and competitive pressures from other markets. The CCMA has set its timetable with the US. Given the interconnectedness of the Canadian industry with that of the US, the CCMA decided it was essential to follow the US timetable. The other consideration is that many securities are traded on both countries exchanges. By synchronizing T+1 with the US, the CCMA hopes to avoid crossborder arbitrages whereby investors can trade wherever the system is most efficient. In Europe, firms are now creating direct links to settle stock exchange-listed equities resolve cross-border settlement issues. Efforts are underway to develop industry communication standards and to normalize exchange services to prepare for effective global capital movement.
In Asia, particularly in Japan, Singapore and Hong Kong, significant progress has been made to establish shortened settlement cycles in recent years. In 1997 a Trade Date +3 (T+3) settlement convention was adopted for Japanese government bonds (JGBs) a substantial decrease from the previous mark of Trade Date +7 (T+7).
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In addition, the Bank of Japan had taken the lead in developing a Real Time Gross Settlement (RTGS) system for JGBs. RTGS will provide live intra-day settlement, and marks a critical step in developing a local infrastructure that will eventually permit T+1 settlement. Widespread adoption of a T+1 standard, however, remains several years away.
In Singapore and Hong Kong, widespread moves to adopt T+1 are underway. Finance ministries across Asia recognize that reducing the duration of the settlement cycle and implementing RTGS is desirable, although cross-border implementation initiatives, such as those in Europe, do not exist to date. In those markets where there are currently no plans to shorten the settlement cycle to T+1, the SEC's recent pronouncements has stimulated debate and introspection on the issue and serve as a catalyst for change.
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CURRENT SCENARIO
The success of T+3 system and the rapid growth shown by depositories and depository participants and the ease at which the market intermediaries adapted to the changing environment saw the emergence of T+2 settlement cycle that is presently in vogue. For many years, our markets operated on a "T+5" settlement. As T+5 allowed too much time between trade execution and settlement for a trading party to become insolvent or for the value of a trade to deteriorate, the SEC reduced the settlement cycle from five business days to three business days, which in turn lessened the amount of money that needs to be collected at any one time and strengthened our financial markets. The reasons that took exchanges from T+5 to T+2 are now leading them to T+1. However, the road to T+1 is even more difficult than the one to T+2.
Kinds of Security transactions under T+2 Most security transactions, including stocks, bonds, municipal securities, mutual funds traded through a broker, and limited partnerships that trade on an exchange, must settle in three days.
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Exceptions Government securities and stock options settle on the next business day following the trade. For certificates of deposit and commercial paper, the transaction on the same day. For U.S. treasuries, it is the next day (T+1), and forex transactions are settled two days after (T+2).
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Working of stock market:
A market trade is one that is settled through participation of a Clearing Corporation. In the depository environment, the securities move through account transfer. Once the trade is executed by the broker on the stock exchange, the seller gives a delivery instruction to his DP to transfer securities to his broker's account. The broker has to then complete the pay-in before the deadline prescribed by the stock exchange. The broker removes
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securities from his account to CC/CH of the stock exchange concerned, before the deadline given by the stock exchange.
The CC/CH gives pay-out and securities are transferred to the buying broker's account. The broker then gives delivery instructions to his DP to transfer securities to the buyer's account. The movement of funds takes place outside the NSDL system.
1. Seller gives delivery instructions to his DP to move securities from his account to his broker's account. 2. Securities are transferred from broker's account to CC on the basis of a delivery out instruction. 3. On pay-out, securities are moved from CC to buying broker's account 4. Buying broker gives instructions and securities move to the buyer's account.
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AN OVERVIEW OF T+1 SETTLEMENT CYCLE

Under a T+1 settlement cycle, investors will probably have to change the way in which they buy and sell securities. For example, investors who hold certificates may have to deliver the certificates to their brokerage firm before their brokerage firm will execute their orders. Investors purchasing securities may need to have funds at their brokerage firm before their brokerage firm will execute their orders.
The settlement period T+1 denotes transaction date plus one day. The T stands for transaction date, which is the day the transaction takes place. The number 1 denote how many days after the transaction date the settlement or the transfer of money and security ownership takes place. which the stock market is open. The period between transaction and settlement should not be considered as a flex time in which one can back out of the deal. The deal is done on the transaction day--it's just the transfer that does not take place until later. The parties participating in a transaction an obligation to perform their par. For example, for two parties involved in a futures contract, the seller is obligated to sell and deliver the underlying asset and the buyer is contractually obligated to pay the agreed upon price and accept the delivery. For determining the settlement date the only days that are counted are those on
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Simply put, Under T+1 rule, when one buys securities, the brokerage firm must receive the payment no later than one business day after the trade is executed. When one sells a security, he/she must deliver to the respective brokerage firm the securities certificate no later than one business day after the sale. The securities are generally held in the form of electronic accounts under this context In a T+1 environment, almost all trades will be executed electronically. Regulatory amendments will be required as electronic certificates replace the majority of paper ones. Currently, certificates are kept by their holders or securities custodians. With T+1, electronic positions will have to exist for any remaining certificates before those stocks are traded. The mag- nitude of the changes required is better understood when one considers that the work that took three days to complete will [with T+1] be completed in one day, says Jean-Pierre Maisonneuve of the Ontario Securities Commission.
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Problems in the way of implementing T+1
Manual processing and the lack of automation even after the T+3; Lack of real time functionality where the technology is employed; Lack of standard interfaces and the inter operability; Lack of data integrity and standards; The need to fully immobilize securities to prevent lengthy processing and turn-around times.. The need to overhaul the prospectus delivery rules
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Removing these obstacles means introducing the Straight Through Processing; The Straight Through Processing (STP) is an overall business and technology strategy to reduce the risk, cut costs, improve the customer services, handle larger volumes, and have greater ability to introduce new products. It is best described as the seamless integration of systems, and the processes to automate the trade process from end to end. That is from the trade execution, to confirmation, to settlement without the manual interventions and the redundant processing. The benefits of the STP go beyond introducing the T+1, but primarily it is the desire to move to the T+1 that is behind introducing the STP.
"Achieving straight through processing will streamline back-office procedures, increasing efficiency to the system while minimizing operational risk. Through automation, manual intervention will become the exception rather than the norm. As a result, fewer fails will occur by human error, and accurate trade data will reach the clearing corporation and the depository more quickly. Back-office staff can then focus on processing today's trades rather than correcting yesterday's."
R. Bruce Striegler
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The STP requires (i) Standardization of the software and the hardware in brokerage houses and other places; (ii) Real time information flows to all participants; and (iii) reliable and flexible technology infrastructure.
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FACTS ABOUT STRAIGHT THROUGH PROCESSING (STP)
Distinguishing STP from T+1
Some believe T+1 is the only way for firms to forward their STP agenda.Others thinks that to achieve T+1 firms need to be STP ready first. Even before the postponement of T+1, we believed and still do that STP is the answer. Before T+1 can be a reality, firms must efficiently process internally. Then they can respond more effectively to external pressures and interact with other industry participants in a timely manner during the transaction lifecycle.
T+1 Is Anticlimactic
Achieving STP industry initiatives will reduce the overall risk experienced in todays processing environment significantly enough to make T+1 anticlimactic. Focusing on institutional transaction matching as a prerequisite for settlement will reduce credit and, therefore, market exposure for a substantial portion of the marketplace. Reducing manual processing associated with recalling securities lending arrangements and e physical certificates decrease the likelihood of operational risk. Implementing these
types of STP initiatives will go a long way to reducing overall risk without having to change the settlement cycle.
The Real-Time Difference Regardless of T+1, real-time or near real time processing does make a difference. Being able to identify potential problems or discrepancies as soon as they occur allows firms to respond better to risk credit, market, Operational associated with broken transactions. Indeed, providing realtime information for transactions across the enterprise allows the firm to make more timely business decisions to mitigate risk or take advantage of market opportunities. Add to that the fact that customers are demanding more timely information to make their own business decisions and youll arrive at the conclusion that real-time does matter.
Start with Strategic Processes Although all firms will benefit from having an STP environment, one should understand the practical reality that it may not be cost-effective for every process in every firm to be straight through. Each internal STP initiative should be analyzed to ensure that the benefits are worth the effort, time and cost associated. However, to completely ignore STP would leave an organization unable to compete.
Gain a Competitive Advantage Without STP, firms limit utilizing their ability in a world that increasingly calls for agility and cost effectiveness. Firms can get rid of manual and batch processing, employ consistent standards, move to relying on thinkers instead of processors and break down the data walls of business silos. Getting straight through offers an institution the ability to provide consistent, consolidated data that customers demand and that firms need to make appropriate business decisions. STP also allows them to focus on their core competencies and increase capacity without adding infrastructure.
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THE HOLISTIC STP APPROACH

Business processes and technology play key roles in realizing STP. Still, to achieve the full benefits of STP requires more than simply restructuring processes and deploying new technology. Other key perspectives are essential to ensure STP allows a firm to better achieve all its business objectives. In addition to business processes and technology, we encourage our clients to address other perspectives as part of the holistic process of achieving straight through processing.
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Firms should ask themselves the following critical questions to ensure they are addressing all aspects of their straight through processing environment.
Regulatory/Compliance
Does the processing environment satisfy the regulatory requirements?
Organizational Design Does the organizational structure support the processing environment? What are the needed skill sets and how can the regulatory requirements?
Risk Management What are the risks associated with the new processing environment? What are the risks associated with not implementing the new processing environment? What actions are required to mitigate the new risks?
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Internal Controls Practices Are the proper checks and balances in place? What are the key metrics to monitor business and controls performance?
Financial Reporting and Corporate Responsibility Is there transparency of information across the organization? Do the processes reflect the governance policies and culture?
Business Continuity Are recovery processes in place to ensure minimal loss of business and reputation?
Change/Leadership Management Is there a communication plan to garner buy-in and promote commitment?
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Risk Reduction Benefits of Shorter Settlement Cycles
The goal of shortening the settlement cycle is to reduce risks that can lead to systemic disruptions in the financial markets.
Risks Prior to Settlement
Pre-settlement risk is defined as the risk that counterparty to a transaction for completion at a future date will default before final settlement. The resulting exposure is the cost of replacing the original transaction at current market prices. This is also known as replacement cost risk.
Pre-settlement risk is of concern because it involves a change in the value of the securities if one of the partys defaults. If the default is by a major player, it might suffer credit losses as large as to create systemic problems. If you reduce the time you reduce pre-settlement risk. A good example of this is the 1987 market break where the settlement cycle was T+5. During those five days, ten of the 30 DJIA stocks declined 35% or more. A default by the buyer of one of those stocks would have exposed the seller to big losses. There are other examples on October 27, 1997 the DJIA declined by 554.26 points on August 31, 1998, the DJIA fell by 512.61 points.
With sharp price movements, traders may be unwilling or unable to meet margin calls and default on their delivery obligations.
Risks at Settlement
Settlement risk means the risk that settlement in a transfer system will not take place as expected. This might be both credit and liquidity risk. This is also known as principal risk the risk of loss of securities or payments made to the defaulting party before the detection of the default. In this scenario, both the buyer and seller are exposed to risk of loss of the full principal value of the securities or funds transferred. In addition, both parties are exposed to liquidity risk on settlement date. Liquidity risk is the risk that the seller of a security who does not receive payment when due may have to borrow or liquidate assets to complete other payments. It also includes risk that the buyer does not receive delivery when due and may have to borrow the security in order to complete its own delivery obligation. The Commission believes that liquidity problems have the potential to create systemic disruptions. Liquidity problems have the potential to create systemic disruptions. In particular, if liquidity problems arise when securities prices are changing rapidly, failures to meet obligations when due are more likely to elevate concerns about solvency. In the absence of a strong linkage between
delivery and payment, the emergence of systemic liquidity problems at such times is especially likely. The fear of losing the full principal value of securities or funds could induce some participants to withhold deliveries and payments, which, in turn, may prevent other participants from meeting their obligations.
Operational Risk Operational risk is the risk that deficiencies in information systems or internal controls, human errors or management failures will result in unexpected losses. As clearing and settlement systems become more dependent on information systems, the reliability of these systems (errors or delays in processing, system outages, insufficient capacity, and fraud) is a key element in operational risk. Operational deficiencies within a broker-dealer, a clearing corporation, or at an exchange can increase the risk of loss to market participants and investors. These deficiencies can reduce the effectiveness of other measures that the settlement system takes to manage risk. For example, operational problems could impair the system's ability to complete settlement, create liquidity pressures on the market or participants, or hamper the system's ability to monitor and manage credit exposures. Possible operational failures include errors or delays in processing, system outages, insufficient capacity, or fraud by staff
The events of September 11, 2001, demonstrated how operational risk results from unforeseen events that can directly and severely affect market functions. Generally, financial crises involve both operational and credit issues. In contrast, the events of September 11, 2001, were unusual in that the settlement problems that did occur resulted almost exclusively from operational problems. No firm failed in the immediate aftermath of the terrorist attacks, although some firms were severely affected. If credit problems had arisen, the systemic consequences could have been severe. However, the attacks did highlight the need to examine the risks in the clearance and settlement system, including the need for a resilient clearance and settlement infrastructure.
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COSTS OF IMPLEMENTING T+1
Technology C l & it Cost
T+10
T+5
T+3
T+1
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1) SIAs Business Case Model Report According to SIA's Business Case Model report, moving to T+1 will cost approximately $8 billion, a figure that covers upgrading information systems and processes, purchasing new software and training, but will save the industry $2.7 billion a year. The SIA estimated that settlement exposure would decrease by $250 billion in a T+1 environment. With fewer open positions at the clearing agencies, the SIA purported that T+1 settlement could reduce participants' clearing fund obligations by one-third. Additionally, operational risk for custodians would also be reduced as the number of pending settlements decreased. The SIA further concluded that firms would benefit from an annual cost savings of approximately $2.7 billion, and would therefore recoup their investment three years after implementing a T+1 settlement cycle. Since its publication, a number of critics questioned the assumptions and conclusions contained in the SIA's Business Case Report, arguing that it would cost the industry more than $8 billion and the cost recovery would take longer than three years. Critics also argued that the SIA's Business Case Report did not adequately quantify the risk reduction benefits of moving to T+1. However, Towergroup, a leading research and advisory firm puts the figure at $19billion.
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2) Costs to Cross-Border Trading Reducing the settlement cycle is neither costless nor without risk. "This is especially true for markets with significant cross-border activity because differences in time zones and national holidays, and the frequent involvement of multiple intermediaries, make timely confirmation more difficult. In most markets, a move to T+1 would require a substantial reconfiguration of the trade settlement process and an upgrade of existing systems. For markets with a significant share of cross-border trades, substantial system improvements may be essential to shortening settlement cycles. Without such investments, a move to a shorter settlement cycle could generate increased settlement fails, with a higher proportion of participants unable to agree and exchange settlement data or to acquire the necessary resources for settlement in the time available. Consequently, replacement cost risk would not be reduced as much as anticipated and operational risk and liquidity risk could increase.
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Why T+1?
1. To reduce risk and increase efficiency in securities. The longer the period between trade and settlement, the larger the volume of unsettled trades at any given moment and greater the exposure to the risk. 2. To cope with increasing trading volumes. 3. To remain competitive and please investors by reducing cost. 4. To reduce counterparty credit risks by reducing the number and value of trades awaiting settlement and by reducing the potential for losses from those unsettled trades should a participant default. 5. T+1 is another important plank in our quest to improve the global competitiveness of our capital markets. 6. To increase operating efficiency and reduce the probability of settlement errors.
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MOVING TO T+1. ARE WE READY?
To achieve "real STP" and T+1, many diverse transactions, system functions and operations must occur simultaneously. This highly parallelprocessing environment will need to be supported by a complementarytechnical architecture and organization design.
NO EASY APPROACH
Many buy-side firms are taking the approach that STP can be implemented by tacking on an order-management system to the front end, automating some manual procedures in the back office and buying some middleware to integrate diverse hardware and software platforms. Many of these same firms are finding that these adjustments do not guarantee T+1 processing capability and that it certainly isn't easier to support nor any less expensive. This patch-work approach is more likely to increase maintenance requirements and processing errors, reduce efficiency and thereby increase operational risk. As a result, these firms are missing the opportunity to implement the parallel-processing capability needed to support the reducedM.P.BIRLAINSTITUTEOFMANAGEMENT Page115
settlement cycle, increase operating efficiency and reduce the probability of settlement errors. Parallel processing requires fundamental changes in back-office operations and technology architecture, as well as basic business practices and organizational design. In other words, the scope of changes required to support T+1 is far beyond the changes most buy-side firms are planning or implementing today.
TECHNOLOGY UPGRADES REQUIRED
As the T+1 settlement models are developed and published, a better understanding is developing of the implementation requirements for these processes. The core processes of these models, and the time frame in which they must be executed, require a high degree of parallel processing. This will require real-time, concurrent multi-stage trade-data enrichment for executing, allocating and settling trades which will be particularly true for high-volume environments. Current systems and processes will need to be modified to allow for partial, asynchronous updates of information. Trade interrupts will have to be recognized, handled and communicated to other systems on a real-time basis. This approach represents a major change from the way most investment systems have been designed. The integration
of the virtual-matching utilities (VMUs), whether it is Omgeo, GSTP, or SunGard, is critical to any solution and many internal processes and systems will have to be modified to take advantage of the VMU capabilities. Predictably, parallel processing requires substantial upgrades in processing capacity. Many organizations will look toward technology as the primary enabler (or disabler) for achieving T+1. Technical architecture, often an afterthought in an industry focused on multi-vendor, best-of-breed solutions, may ultimately determine a firm's ability to support T+1. While integration tools such as middleware may be part of the solution, few order-management or portfolio-accounting systems have been designed to take advantage of functionality such as guaranteed message delivery or rules-based processing that middleware can support. Historically, attempts at ERP-like (Enterprise Resource Planning) application suites for the buy side have not been well accepted. This approach may begin to make more sense as organizations consider the impact of the reduced-settlement cycle and struggle to support it with multiple vendors on multiple platforms.
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DATA INTEGRITY IS THE KEY
A fundamental dedication to data integrity that currently exists in few organizations will be essential to supporting T+1. Because of the shorter settlement cycle there will be less time to find and correct data problems. Multiple accounting systems and multiple security-master databases become increasing burdens in the T+1 environment due to the limited time to reconcile and correct data. Unless the data is managed and sourced from a single internal or external source, such as a data warehouse, multiple security masters will increase the risk of data errors occurring. Because information integrity is fundamental to the investment process and T+1 reduces the window to get accurate information, buy-side organizations will have to focus on data integrity and determine whether related functions, such as corporate-action processing, can be supported internally or should be outsourced to specialists. At the very least, data management will require a new level of concentration and attention. In many organizations this will require a new technology architecture and corresponding process redesign.
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NEW DEMANDS FOR DISASTER RECOVERY There is no question that disaster recovery has taken on new meaning after the events of Sept. 11. As a result, awareness of the need to have a carefully conceived recovery plan has been elevated to the executive level in many organizations. However, T+1 will require recovery planning at a much more fundamental, transaction level. Few buy-side organizations have implemented high-availability systems such as real-time data and application backups or the ability to cut over to a 'hot' standby without losing any transactions. Potential financial and operational exposure will have to be recalculated and rethought based on the timing of the shorter settlement cycle and factors such as trade-execution exposure. Under the T+1 scenario, investment in high-availability capabilities is more easily justified. In conjunction with disaster-recovery capabilities, active monitoring of trade status on a real-time basis and implementation of operational-risk systems, in addition to market- and credit-risk systems, will need to become standard buy-side operations and management tools.
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KNOW THE PARTNERS
Preparing for T+1 will extend beyond the walls of the buy-side organization and the selection of the right VMU to include careful selection of business partners as well. In the past, buy-side firms often expanded brokerage and custodian relationships in order to increase potential sources of new business referrals, frequently without concern as to the impact on operations or systems overhead. The operational-efficiency requirements of T+1 will demand a new approach to adding business partners, including an assessment of the partners capabilities to support electronic communication such as ISITC for custodians and FIX for brokers. Likewise, buy-side managers will find themselves, if they have not already, similarly evaluated. In this extended enterprise each partner will have to support minimum operating standards. Brokers and custodians may charge higher fees or discontinue the relationship if the manager cannot support electronic-transaction processing using industry-standard protocols.
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PREPARING THE ORGANIZATION
All of these considerations, which are just a small subset of the full impact of T+1, will require an organization to rethink its design and preparedness. Bureaucratic or dispersed organizations may find it challenging to support the reduced-decision-making time required by T+1. Likewise, matrix-style organizations may find it difficult to integrate or consolidate the operational and investment decision-making resources. Without a clear organizational plan for managing the migration to become T+1 ready, buy-side firms risk getting bogged down in a myriad of operational challenges that will, in the end, interfere with the investment process. Operations and technology requirements for T+1 support will cause a rethinking of the outsourcing option. This will be true whether the option is selective, for functions like corporate-action processing, or a 'lift-out' of the entire technology and operations function. Implementing the changes described in this article will be expensive and may require organizational changes that are not desirable to every buy-side organization. As a result, outsourcing is likely to become an essential tool.. In any case, T+1 can only
be supported through an integrated approach, which achieves a highly parallel-processing environment for buy-side managers. --The SIA identified ten building blocks as essential to realizing the goal of improving the speed, safety, and efficiency of the trade settlement process:5 1. Modify internal processes at broker-dealers, asset managers, and custodians to ensure compliance with compressed settlement deadlines. 2. Identify and comply with accelerated deadlines for submission of trades to the clearing and settlement systems. 3. Amend the National Securities Clearing Corporation's ("NSCC") trade guarantee process so that the guarantee is provided on trade date. 4. Report trades to clearing corporations in locked-in format and revise clearing corporations' output. 5. Rewrite Continuous Net Settlement processes at NSCC to enhance speed and efficiency. 6. Reduce reliance on checks and use alternative means of payment, such as automatic debits allowed by the National Automated Clearing House Association. 7. Immobilize securities shares prior to conducting transactions. 8. Revise the prospectus delivery rules and procedures for initial public offerings. 9. Develop industry matching utilities and linkages for all asset classes.
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10. Standardize reference data and move to standardized industry protocols for broker-dealers, asset managers, and custodians.
CONCLUSION
Investment management firms, broker/dealers and custodian banks recognize the benefits that a T+1 environment can provide. The reduction of manual processes will be more cost effective and minimize risk. Employees can move from merely processing transactions to focus on the firms core competencies in providing value to customers. Consolidating data across the enterprise will allow improved customer service and facilitate reporting. T+1 settlement cycle is synonymous to greater automation, fewer risks, faster service and, also, greater market liquidity. This means a pricing system better matched to the actual value of securities. And since brokers will reduce their credit exposure, the industry as a whole should benefit. When investors go to their brokers to buy or sell securities, they have three expectations. First, the process must be transparent. Second, investors expect the process to be reliable, with minimal exposure to risks. Finally, investors want high quality, affordable services. At present, our industry is able to meet these expectations. However, as trading volumes continue to rise and as our markets become more global, our ability to offer investors
exceptional services at competitive prices will be tested. One way to maintain our standards and retain investor confidence is to increase efficiency and reduce risk in the clearance and settlement system.
The road to T+1 is definitely a toughest one in terms of cost involved, technology upgradation, data integrity etc, but once implemented it will benefit the whole industry by increasing the overall efficiency.
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BIBLIOGRAPHY:
www.nseindia.com www.wikipedia.org www.icfai.org www.google.com www.commodityindia.com www.investopedia.com
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AN INTERNSHIP REPORT ON ORGANISATION STUDY & STUDY ON t+1 settlement cycle AT

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B.Srinivasan Professor MPBIM

Mr. Shivanna T. R. Branch Manager Motilal Oswal Securities Shantinagar, Bangalore

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A Microscopic Study On t+1 settlement cycle

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