CONTENTS

1. INTRODUCTION A Study on Stock Exchange History of stock exchange SEBI National stock exchange 2. PROFILE OF HSE Hyderabad Stock Exchange Objective of Study Need of the study 3. ONLINE TRADING Introduction Online equity trading Advantages The online trading process Online trading at H.S.E 4. DEMATERIALISATION Introduction Dematerialisation Cdsl Nsdl 4. CONCLUSION 5. BIBLIOGRAPHY

INTRODUCTION

Stock exchange is an organized market place where securities are traded. These securities are issued by the Government, Semi-Government bodies, Public Sector undertakings and companies for borrowing funds and raising resources. Securities are defined as any monetary claims

(promissory notes or I.O.U) and also include shares, debentures, bonds and etc., if these securities are marketable as in the case of the Government stock, they are transferable by endorsement and alike movable property. They are trade able on the stock exchange. So is the case with the shares of the companies.

Under the Securities Contract Regulation Act of 1956, securities trading is regulated by the Central Government and such trading can take place only in Stock Exchanges recognized by the Government under this Act. As referred to earlier there are at present 23 such recognized stock Exchanges in India. Of these, major Stock Exchanges, like Bombay ,

Calcutta, Delhi, Chennai, Hyderabad, Bangalore etc. are permanently recognized while a few are temporarily recognized. The above act has also laid down that trading in approved contracts should be done through registered members of the Exchange. As per the rules made under the above act, trading in securities permitted to be traded would be in the normal trading hours (10 A.M. to 4 P.M) on working days in the trading ring, as specified for trading purpose. Contracts approved to be traded are the following;

a- Spot delivery deals are for delivery of shares on the same day or the next day as the payment is made.

b- Hand delivery deals for delivering shares within a period of 7 to 14 days from the date of contract.

c- Delivery through a clearing for delivering shares within a period of two months from the date of the contract, which is now reduced to 15 days.

d- Special delivery deals for delivering of shares for specified longer periods as may be approved by the governing board of the Stock Exchange.

Except in those deals meant for delivery on a spot basis, all the rest are to be put through by the registered brokers of a Stock Exchange. The securities Contracts (Regulation) rules of 1957 laid down the conditions for such trading, the treading hours, rules of trading, settlement of disputes, etc. as between the members and of the members with reference to their clients. The eligibility and qualifications for members, elections for Governing Board, method of administration of the Stock Exchange and all matters relating to the working of the Stock Exchange and its registered members/brokers are set out in what are called the rules.
HISTORY OF STOCK EXCHANGES IN INDIA

The origin of the Stock Exchanges in India can be traced back to the later half of 19 century. After the American Civil War (1860-61) due to the share mania of the public, the number of brokers dealing in shares increased. The brokers organized an informal association in Mumbai named The Native Stock and Share Brokers association in 1875.

Increased activity in trade and commerce during the First World War and Second World War resulted in an increase in the stock trading. The Growth of Stock Exchanges suffered a set back after the end of World War. World wide depression affected them most of the Stock Exchanges in the early stages had a speculative nature of working without technical strength. After

independence, government took keen interest to regulate the speculative nature of stock exchange working. In that direction, securities and Contract

Regulation Act 1956 was passed, this gave powers to Central Government to regulate the stock Exchanges. Further to develop secondary markets in the country, stock exchanges in Mumbai, Chennai, Delhi, Hyderabad, Ahmedabad and Indore. The Banglore Stock Exchange was recognized in 1963. At present there are 23 Stock Exchanges.

Till recent past, floor trading took place in all the Stock Exchanges. In the floor trading system, the trade take place through open outcry system during the official trading hours. Trading posts are assigned for different securities where by and sell activities of securities took place. This system needs a face to face contact among the traders and restricts the trading volume. The speed of the new information reflected on the prices was rather slow. The deals were also not transparent and the system favored the brokers rather than the investors.

The setting up of NSE and OTCEI (Over the counter exchange of India) with the screen based trading facility resulted in more and more Stock exchanges turning towards the computer based trading. BSE introduced the screen based trading system in 1995, which known as BOLT (Bombay on line Trading System).

Madras Stock Exchange introduced Automated Network Trading System (MANTRA) on October 7, 1996. Exchanges have introduced screen based trading. Apart from Bombay Stock

FUNCTIONS OF STOCK EXCHANGES

Maintain Active Trading:

Shares are traded on the stock

exchanges, enabling the investors to buy and sell securities. The prices may vary from transaction to transaction. A continuous trading increases the

liquidity or marketability of the shares traded on the stock exchanges.

Fixation of Prices: Price is determined by the transactions that flow from investors demand and the suppliers preferences. Usually the traded prices are made known to the public. This helps the investors to make the better decisions.

Ensures safe and fair dealings: The rules, regulations and bylaws of the Stock Exchanges provide a measure of safety to the investors. Transactions are conducted under competitive conditions enabling the investors to get a fair deal.

Aids in Financing the Industry: A continuous market for shares provides a favorable climate for raising capital. The negotiability and

transferability of the securities, investors are willing to subscribe to the initial public offering (IPO) . This stimulates the capital formation.

Dissemination

of

Information:

Stock

Exchanges

provide

information through their various publications. They publish the share prices traded on their basis along with the volume traded. Directory of Corporate Information is useful for the investors assessment regarding the corporate. Handouts, handbooks and pamphlets provide information regarding the functioning of the Stock Exchanges.

Performance inducer: The prices of stocks reflect the performance of the traded companies. This makes the corporate more concerned with its public image and tries to maintain good performance.

Self-regulating organization: The Stock Exchanges monitor the integrity of the members, brokers, listed companies and clients. Continuous internal audit safeguards the investors against unfair trade practices. It settles the disputes between member brokers, investors and brokers.
REGULATORY FRAME WORK:

This Securities Contract Regulation Act, 1956 and Securities and Exchange board of India (SEBI) Act,1992, provides a comprehensive legal framework. A 3-tier regulatory structure comprising the ministry of finance, SEBI and the Governing Boards of the Stock Exchanges regulates the functioning of Stock Exchanges.

Ministry of finance: The Stock Exchange division of the Ministry of Finance has powers related to the application of the provision of the SCR Act and licensing of dealers in the other area. According to SEBI Act, The Ministry of Finance has the appellate and the supervisory power over the SEBI. It has powered to grant recognition to the Stock Exchanges and regulation of their operations. Ministry of Finance has the power to approve the

appointments of executive chiefs and the nominations of the public representatives in the Governing Boards of the Stock Exchanges. It has the responsibility of preventing undesirable speculation.

The Securities and Exchange Board of India: The Securities and Exchange Board of India even though established in the year 1988, received statutory powers only on 30 January 1992. Under the SEBI Act, a wide variety of powers are vested in the hands of SEBI. SEBI has the powers to regulate the

business of Stock Exchanges, other security and mutual funds. Registration and regulation of market intermediaries are also carried out by SEBI. It has

responsibility to prohibit the fraudulent unfair trade practices and insider dealings. Takeovers are also monitored by the SEBI has the multi pronged duty to promote the healthy growth of the capital market and protect the investors.

The Governing Board:

The Governing Board of the Stock

Exchange consists of elected members directors, government nominees and public representatives. Rules, by laws and regulations of the Stock Exchange substantial powers to the executive director for maintaining efficient and smooth day-to day functioning of Stock Exchange.The Governing Board has the responsibility to maintain and orderly and wellregulated market.

The Governing body of the Stock Exchange consists of 13 members of which a- Six members of the stock exchange are elected by the members of the stock exchange.

b- Central Government nominates not more than three members.

c - The board nominates three public representatives.

c- SEBI nominates persons not exceeding three and

d- The Stock Exchange appoints One Executive Director.

One third of the elected members retire at annual general meeting (AGM). The retired member can offer himself for election if he is not elected for two consecutive years. If a member serves in the governing body for two years consecutively, he should refrain offering himself for another two yeas.

The members of the governing body elect the president and vicepresident. It needs to approval from the Central Government or the Board. The office tenure for the president and vice-president is on year. They can offer themselves for re-election, if they have not held for two consecutive years. In that case they can offer themselves for re-election after a gap of oneyear period.

INSTRUMENT FOR TRADED ON THE STOCK EXCHANGE:

The instruments traded are securities that are quoted after being listed by the companies that issued them to the public. The securities issued by the central and state government, semi-government bodies are also listed and quoted on the Stock Exchanges as per the rules. The broker members are eligible to deal in them also. In fact some members specialized in Government securities market, but public are not in general interested in these securities, and they are less attractive to the public. Only banks, financial institutions, But for

insurance companies etc, deal in Government securities market.

individual investors, corporate securities are relevant as they have higher rate of interests and higher returns due to capital appreciation and dividends.

The corporate securities in which individual investors are invested and are traded on the exchanges are as follows:

Equity

Shares: These are ownership capital and have a variable

dividend, depending on the net earnings and dividend policy of the company. The prices of these shares vary widely and with a face value of Rs.10/- (or Rs.50/- or Rs.100/-) they are normally quoted at a premium, which leads to capital appreciation.

Preference Shares: These are also ownership capital but with a fixed dividend, now a days preference shares are not popular and have no public interest in them; only financial interests hold them.

Convertible or Partly Convertible Debentures: The debentures are popular only if they are convertible into equity shares after a period. Nonconvertible debentures carry a fixed rate of interest. But as there is now no ceiling on such interest rates, they have also become attractive to the investors. They have to choose only good companies with a good credit rating so that there would be no problem in getting there interest warrants and repayment of principal. Convertible debentures are now popular both with companies and investors as they have advantages of both fixed income up to a period and capital appreciation later on due to conversion into equity.

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NATIONAL STOCK EXCHANGE:

The National Stock Exchange (NSE) of India became operational in the capital market segment on third November 1994 in Mumbai. The genesis of the NSE lies in the recommendations of the pherwani committee (1991). Apart from the NSE, it had recommended for the establishment of National Stock market System also. The committee pointed out some major defects in the Indian stock market. The defects specified are.

1. Lack of liquidity in most of the markets in terms of depth and breadth.

2. Lack of ability to develop markets for debt.

3. Lack of infrastructure facilities and outdated trading system.

4. Lack of transparency in the operations that affect investors confidence.

5. Outdated settlement system that are inadequate to cater to the growing volume, leading to delays.

6. Lack of single market due to the inability of various stock exchanges to function cohesively with legal structure and regulatory framework.

These factors led to the establishment of the NSE.

The main objectives of NSE are as follows:

1).

To establish a nation wide trading facility for equities, debt instruments and hybrids.

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2).

To ensure equal access investors all over the country through appropriate communication network.

3).

To provide a fair, efficient and transparent securities market to investors using an electronic communication network.

4).

To enable shorter settlement cycle and book entry settlement system.

5).

To meet current international standards of securities market.

Promoters of NSE: IDBI,ICICI, IFCI, LIC, GIC, SBI , Bank of Baroda, Canara Bank, Corporation Bank, Indian Bank , Oriental bank of commerce, Union Bank of India, Punjab National Bank, Infrastructure Leasing and

Financial Services, Stock Holding Corporation of India and SBI capital market are the promoters of NSE.

MEMBERSHIP:

Membership is based on factors such as capital adequacy, corporate structure, track record, education, experience etc. Admission is a two-stage process with applicants requiring going through a written examination followed by an interview. A committee consisting of experienced people from the industry to assess the applicants capability to operate as an exchange member, interviews candidates. The exchange admits members separately to Wholesale Debt Market (WDM) segment and the capital market segment. Only corporate members are admitted on the debt market segment whereas individuals and firms are also eligible on the capital market segment. Eligibility criteria for trading membership on the segment of WDM are as follows.

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1).

The persons eligible to become trading members are bodies corporate, companies institutions including subsidiaries of banks engaged in financial services and such other persons or entities as may be permitted from time to time by RBI/SEBI.

2).

The whole-time directors should possess at least two years experience in any activity related to banking or financial services or treasury.

3).

The applicant must possess a minimum net worth of Rs.2 crores.

4).

The applicant must be engaged solely in the business of securities and must not be engaged in any fund-based activitites.

The eligibility criteria for the capital market segment are;

1).

Individuals, registered firms, bodies corporate, companies and such other persons may be permitted under SCRA, 1957.

2).

The applicant must be engaged in the business of securities and must not be engaged in any fund-based activities.

3).

The minimum networth requirements prescribed are as follows; a). Individual and registered firms Rs.75 Lakhs. b). Corporate bodies Rs.100 Lakhs.

In the case of registered partnership firm each partner should contribute at least 5% of the minimum net worth requirement of the firm.

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4).

A corporate trading member should consist only of individuals (Maximum of 4) who should directly hold at least 405 of the paid-up capital in case of listed companies and at least 51% in case of other companies.

5).

The minimum prescribed qualification of graduation and two years experience of handling securities as broker, sub-broker, authorized assistant, etc must be fulfilled by

a). Minimum two directors in case the applicant is a corporate. b). Minimum two partners in case of partnership firms and c). The individual in case of individual or sole proprietary concerns.

The two experienced director in a corporate applicant or trading member should hold minimum of 5% of the capital of the company.

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PROFILE OF HSE

15

HYDERABED STOCK EXCHANGE

ORIGIN
Rapid growth in industries in the erstwhile Hyderabad State saw efforts at starting the Stock Exchange. In November, 1941 some leading bankers and brokers formed the share and stock Brokers Association. In 1942, Mr. Gulab Mohammed, the Finance Minister formed a Committee for the purpose of constituting Rules and Regulations of the Stock Exchange. Sri

Purushothamdas Thakurdas, President and Founder Member of the Hyderabad Stock Exchange performed the opening ceremony of the exchange on 14.11.1943 under Hyderabad Companies Act, Mr. Kamal Yar Jung Bahadur was the first President of the Exchange. The HSE started functioning under Hyderabad Securities Contract Act of No.21 of 1352 under H.E.H. Nizams Government as a Company Limited by guarantee. It was the 6th Stock

Exchange recognized under Securities Contract Act, after the Premier Stock Exchanges, Ahmedabad, Bombay, Calcutta, Madras and Bangalore stock exchange. All deliveries were completed every Monday or the next working day.

The Securities Contracts (Regulation) Act, 1956 was enacted by the Parliament, passed into Law and the rules were also framed in 1957. The Act and the Rules were brought into force from 20th February, 1957 by the Government of India. The HSE was first recognized by the Government of India on 29th September, 1958 as Securities Regulation Act was made applicable to twin cities of Hyderabad and Secunderabad from that date. In view of substantial growth in trading activities, and for the yeoman services rendered by the Exchange, the Exchange was bestowed with permanent recognition with effect from 29th September 1983.

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The Exchange has a significant share in achievements of erstwhile State of Andhra Pradesh to its present state in the matter of Industrial development.

OBJECTIVES The Exchange was established on 18th October, 1943 with the main objective to create, protect and develop a healthy Capital Market in the State of Andhra Pradesh to effectively serve the Public and Investors interests.

The property, capital and income of the exchange, as per the Memorandum and Articles of Association of the exchange, shall have to be applied solely towards the promotion of the objects of the exchange. Even in case of dissolution, the surplus funds shall have to be devoted to any activity having the same objects, as exchange or be distributed in Charity, as may be determined by the exchange or the High Court of judicature. Thus, in short, it is a charitable institution.

The Hyderabad Stock Exchange limited is now on its stride of completing its 59th year in the history of Capital Markets serving the cause of saving and investments. The Exchange has made its beginning in 1943 and today occupies a prominent place among the Regional Stock Exchanges in India. The Hyderabad Stock Exchange has been promoting the mobilization of funds into the Industrial sector for development of industrialization in the State of Andhra Pradesh.

GROWTH

The Hyderabad Stock Exchange Ltd., established in 1943 as a Nonprofit making organization, catering to the needs of investing population started its operations in a small way in a rented building in Koti area. It had shifted

17

into Aiyangar Plaza, Bank Street in 1987. In September,1989, the then VicePresident of India, Honble Dr. Shankar Dayal Sharma had inaugurated the own building of the Stock exchange at Himayathnagar, Hyderabad. Later in order to bring all the trading members under one roof, the exchange acquired still a larger premises situated 6-3-654/A; Somajiguda, Hyderabad 82, with a size storied building and a constructed area of about 4,86,842 sft (including cellar of 70,857 sft). Considerably, there has been a tremendous perceptible growth which could be observed from the statistics.

The number of members of the exchange was 55 in 1943, 117 in 1993 and increased to 300 with 869 listed companies having paid up capital of Rs.19128.95 crores as on 31/03/2000. The business turnover has also substantially increased to Rs.1236.51 crores in 1999-2000. The exchange has got a very smooth settlement system.

GOVERNMENT BOARD

At present, the Governing Board consists of the following:

MEMBERS OF THE EXCHANGE

Sri Hari Narayana Rathi

Sri Rajendra V. Naniwadekar

Sri K. Shiva Kumar

Sri R.D. Lahoti

Sri Ram Swaroop Agrawal

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Sri Dattatray

SEBI NOMINEE DIRECTORS

Sri N.S. Ponnunambi India]

--

Registrar of Companies [Govt. of

PUBLIC NOMINEE DIRECTORS

Dr. N.R.Sivaswamy (Chairman, HSE)

--

Former CBDT Chairman

Justice V. Bhaskara Rao

--

ssRetd. High Court Judge.

Sri P. Muralimohan Rao

--

Mogili & Co.-Chartered Accountants

Dr. B. Brahmaiah

--

G.M.JNIDB

EXECUTIVE DIRECTOR

Sri S. SARVESHWAR REDDY

COMPUTERIZATION

The Stock Exchange business operations are equipped with modern communication systems. Online computerization for simultaneously carrying out the trading transactions, monitoring functions have been introduced at this exchange since 1988 and the Settlement and Delivery System has become simple and easy to the exchange members. The HSE On-line Securities Trading System was build around the most sophisticated state of the art computers, communication systems, and the proven VECTOR Software from CMC and was one of the most powerful SBT

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Systems in the country, operating in a WAN environment, connected through 9.6 KBPS 2 wire Leased Lines from the offices of the members to the office of the Stock Exchange at Somajiguda, where the Central System CHALLENGE-L DESK SIDE SERVER made of Silicon Graphics (SGI Model No.D-95602-S2) was located and connected all the members who were provided with COMPAQ DESKPRO 2000/DESKTOP 5120 Computers connected through MOTOROLA 3265 v. 34 MANAGEABLE STAND ALONE MODEMS (28.8 kbps) for carrying out business from computer terminal located in the offices of the members.

The HOST System enabled the Exchange to expand its operations later to other prime trading centers outside the twin cities of Hyderabad and Secunderabad.

CLEARING HOUSE

The Exchange set-up a Clearing House to collect the Securities from all the Members and distribute to each member, all the securities due in respect of every settlement. F the operations of the Clearing House were also computerized. At present through DP all the settlement obligations are met.

INTER-CONNECTED MARKET SYSTEM (ICMS)

The HSE was the convener of a committee constituted by the federation of Indian Stock Exchanges for implementing an Inter connected Market System (ICMS) in which the Screen Based Trading systems of various Stock exchange was inter-connected to create a large national Market. SEBI welcomed the creation of ICMS.

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The HOST provided the net-work for HSE to hook itself into the ISE. The ISE provided the members of HSE and their investors, access to a large national network of Stock exchanges.

The Inter-connected Stock exchange is a National Exchange and all HSE Members could have trading terminals with access to the National Market without any fee, which was a boon to the Members of an Exchange/Exchanges to have the trading rights on National Exchange (ISE) without any fee or expenditure.

ONLINE SURVEILLANCE

HSE pays special attention to Market Surveillance and monitoring exposures of the members, particularly the mark to market losses. By taking prompt steps to collect the margins for mark to market losses, the risk of default by members is avoided. It is heartening that there have been no

defaults by members in any settlement since the introduction of Screen Based Trading.

IMPROVEMENT IN THE VOLUMES It is heartening that after implementing HOST, HSEs daily turnover has fairly stabilized at a level of Rs.20.00 crores. This should enable in improving our ranking among Indian Stock Exchange for 14th position to 6th position. We shall continuously strive to improve upon this to ensure a premier position for our exchange and its members and to render excellent services to investors in this region.

The number of transactions, turnovers of the exchange, number of listed companies and the paid up capital listed have grown up substantially as may be seen from the following figures.

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YEAR

NUMBER

OF TURNOVERS LISTED

MARKET

TRANSACTIONS Rs. In Crores IN Thousands

COMPANIES CAPITAL Rs.In Crores

1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

515.949 421.985 603.635 860.42 720.521 240.64 427.83 513.168 513.440 427.205 34.326 4.203 2.277 4.401

587.75 676.00 984.46 1160.48 1107.30 479.98 1860.86 1369.90 1236.51 977.83 41.26 4.58 2.73 14.13

236 274 372 668 727 851 852 856 869 934 856 820

2740.56 10228.48 13156.15 18588.71 20159.31 22050.69 18705.10 18753.93 18753.93 14717.08 22126.65 14456.95

SETTLEMENT GUARANTEE FUND

The Exchange has introduced trade guarantee fund on 25/01/2000. This will insulate the trading member from the counter-party risks while trading with another member. In other words, the trading member and his investors will be assured of the timely completion of the pay-out of funds and securities not withstanding the default, if any, of any trading member of the exchange. The shortfalls, if any, arising from the default of any member will be met out of the Trade Guarantee Fund. Several pay-ins worth of crores of rupees in all the

22

settlements have been successfully completed after the introduction of Trade Guarantee Fund, without utilizing any amount from the trade guarantee fund.

The Trade Guarantee Fund will be a major step in re-building this confidence of the members and the investors in HSE. HSEs Trade Guarantee Fund has a corpus of Rs.2.00 crores initially which will later be raised to Rs.5.00 crores. At present Rs.3.20 Crores is stood in the credit of SGF.

The Trade Guarantee Fund had strict rules and regulations to be complied with by the members to avail the guarantee facility. The HOST system facilitated monitoring the compliance of members in respect of such rules and regulations.

CURRENT DIVERSIFICATIONS A). DEPOSITORY PARTICIPANT

The exchange has also become a depository participant with National Securities Depository Limited (NSDL) and Central Depository services

limited (CDSL). Our own DP is fully operational and the execution time will come down substantially. The depository functions are undertaken by the exchange by opening the accounts at Hyderabad of investors, members of the exchange and other exchanges. The trades of all the exchanges having On-line trading which get into National depository can also be settled at Hyderabad by this exchange itself. In short all the trades of all the investors and members of any exchange at Hyderabad in dematerialized securities can be settled by the exchange itself as a participant of NSDL and CDSL. The exchange has about 15,000 B.O. accounts .

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B). FLOATING OF A SUBSIDIARY COMPANY FOR THE MEMBERSHIP OF MAJOR STOCK EXCHANGE OF THE COUNTRY

The exchange had floated a subsidiary company in the name and style of M/s. HSE Securities limited for obtaining the membership of NSE and BSE. The subsidiary had obtained membership of both NSE and BSE. About 113 sub-brokers may registered with HSES, of which about 75 sub-brokers are active. Turnover details are furnished here under.

YEAR

NSE CASH Rs. In Lakhs

NSE F&O Rs.In Lakhs -16657.08 312203.56 354370.71

BSE CASH Rs. In Lakhs --17558.59 39519.96

2001-02 2002-03 2003-04 2004-05

338236.81 421643.50 617808.46 484189.11

C). FACILITY TO TRADE AT NSE, DERIVATIVES TRADING, NET TRADING ETC The exchange has incorporated a subsidiary HSE securities Limited with a paid up capital of Rs.2.50 crores initially to take NSE Membership, so that the members of the exchange will have access to the NSEs Trading Screen as sub-brokers, Derivatives Trading and Net Trading etc. The members of this exchange will also have equal opportunity of participating in such trading like any other NSE member.

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Objective of the study

1). To study the nature and structure of the share market. 2). To know the function of Hyderabad Stock exchange. 3). To provide the way of approach for the investor to invest in invert wisely in the market. 4). To know the ONLINE TRADING PROCEDURE 5). To know the Advantages of Demoralization of shares

By introduction of depositors would improve the market efficiency of through adopting criteria for describing scrip depositors eligible. It is also expected to arrest the prolonged depression in the stock market. How the depository would help to the review the stock market has been analyze in this project.

PURPOSE OF STUDY: 1). To purpose of doing this project is mainly to know the facts that effects the company.

2). To assess the EPS of the company.

3). To examine the internal and external factors affecting the future pirce of the company.

4). The purpose of doing this project to know the advantages of online trading and dematerialization.

5). The purpose includes assessing the future market strength of the company.

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NEED OF THE STUDY:

Stock exchange is integral part of the capital market. It is the most perfect type of market for Security whether of Government or SemiGovernment bodies or other public bodies as also for shares and debentures issued by joint stock enterprises.

Knowing about the latest and future development in the stock exchange trading system.

To know how the online trading process helps investors and brokers.

Latest and future development in the Stock Exchange Online trading system.

Online trading is useful for immediate settlement.

Easy transfer of Demat shares.

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ONLINE TRADING

27

INTRODUCTION
Technology has changed the landscape of the stock markets. They now dont require a trading floor & can, from a single location any where can service investors across the country.

Before screen based trading was introduce Regional Stock Exchange were playing a very important role in the Capital Market as they were local investors. Now they are all developed screens based trading is connecting floors with other stock exchanges.

When you place an order to buy or sell stock, you might not think about where or how your broker will execute the trade. But where and how your order is executed can impact the overall costs of the transaction, including the price you pay for the stock. execution: Heres what you should know about trade

Trading Practices
Manual Mode of Trading

Prior to introduction of Online Trading, trading of shares used to be done manually which process was very laborious and cumbersome with lot of paper work at every stage right from order booking, order execution to Back Office work. The process involved the following steps:

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 Placing of the order by the client, order can be placed as limit order, best market price or open order. Entry in order book by the broker. Execution of order. Preparation of contract note. Entry in settlement registrar, client registers. Actual delivery of shares by brokers or clients. Preparation of bill or order delivery note. Entry in client ledger, scrip ledger. Payments

Drawbacks of the Manual System: Lack of Transparency The scope for Manipulation and frauds Time consuming

Technology is revolutionizing every field of human endeavor and activity. The rapid growth in number, volume and value of securities in the Indian capital market exposed the limitation of handling and dealing in securities in physical / paper mode; the shortcomings of the market became manifest in terms of bad deliveries, delays in transfer and irregular settlement etc.

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The National Stock Exchange (NSE) followed by The Stock Exchange, Mumbai (BSE) in 1995, first introduced electronic medium of trading.

There was a time when an individual investor had to go to an exchange trading ring to have his order executed. Today the premier exchanges of the country want to come to his doorstep, or rather his desktop. Relationship marketing is really gaining momentum! The countrys two biggest exchanges the BSE and the NSE have embraced the Internet in an effort to leverage the power of this medium to reach out to the hitherto untapped masses. Says NSE former Managing Director, Mr. RH Patil; Our internet initiative is in line with our basic thrust which we have been following from day one, when we were conceived as a national exchange with a mission to spread every where, to be as close to investors as possible.

In India Geojit Securities, a leading brokerage house has the distinction of being the first to offer online trading for cash as well as for derivatives.

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ONLINE EQUITY TRADING

Generally, online trading refers to buying and selling securities via the Internet or other electronic means such as wireless access, tough-tone, telephones and other new technologies. With online trading, in most cases customers access a brokerage firms Web Site through their regular Internet Service Provider. Once there, customers may consult information provided on the Web Site and log into their accounts to place orders and monitor account activity.

Through the Internet, investors can quickly find affordable market research, stock information and economic news. They often can have their broker/ dealers execute trades almost instantaneously, while generally incurring lower commissions. These facilities for online investing can thus provide significant benefits to many investors.

At the same time, investors should recognize that online trading might present special risks. For example, investors should understand that execution of their orders might be delayed during times of high market trading volume. Investors should appreciate the usefulness of limit orders, and they should treat bulletin boards and chat room commentary with skepticism.

E-broking or trading of stock market shares on the Internet has captured the minds of individual investors worldwide. Reports say more than seven million American investors have gone online in the last 4-5 years, and this number is likely to double in the next two years. In many other countries, including India, individual investors have come out in open support of this new trading system. The Internet has democratized the investing world by

31

giving every Web-enabled individual access to a rich reservoir of data and analyses on the stock market.

In India, exchanges have been very pro-active. Rather than waiting, they have chosen to be the harbingers of change by allowing members who fulfill the criteria to take advantage of the Internet by facilitating a computerto-computer trading link. Using the Internet, a broker can set up a NSE

Trading facility in a remote town at a far lower cost, which makes penetration of capital markets easier in rural areas.

BSE has already embarked on a campaign of investor education and awareness about the benefits of online trading and the security features built in to the Internet trading system to be effected via the exchange trading plaza. There is a tremendous potential for growth in the online trading market as more and more brokers are going online. Both BSE and NSE are trying to provide a cost-effective solution for their members to provide a standardsbased Internet trading facility to their clients at a fraction of the cost, of what it would cost the broker if he went alone. The typical cost of setting up a decent sized internet trading solution is between Rs. 10 to 15 crores, which a large number of brokers are unlikely to be able to afford. The BSE therefore plans to offer an exchange-based system that leverages the economies of scale to offer order routing via a centralized engine with the addition of content of companies, available with the exchange. BSE has introduced an Application Service Provider Model, which has been widely accepted.

NSE has formed a 50:50 Joint Venture with i-Flex Solutions to offer the exchange trading solutions. The JV christened Dotex International in addition to providing access to the exchanges order matching system will also allow access to fundamental analysis, balance sheet analysis and any other relevant company information. The BSE too is offering tools like technical analysis and

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scrip related information etc on the site at a cost, which is 10 to 20% of the cost of the broker going solo.

In India quite a number of websites today, offer online trading and ebroking over the Internet. These are either wholly specialized services or are being offered as an extension to an already existing offline business model. Popular websites like ICICI Direct.com, Investsmartindia.com,

Geojitsecurties.com, 5paisa.com, Kotaksteet.com, Sharekhan.com offer basic online buying and selling of shares through major stock exchanges like the BSE, NSE and other regional stock exchanges. Although, in principle it is very much like how it is done traditionally and physically through a broker or broking firm, it differs from the way that the automation is built into the system, with the individual maintaining control of the path of transaction till the stage of execution. Only demat (dematerialized) shares can be traded on the Internet.

Following are the salient features and benefits offered to individuals who desire to trade online through various e-broking firms. Convenience Liquidity advantages Tracking Technology benefits

In order to stay ahead in the competition e-broking firms have to provide their members with innovative schemes and clearly visible advantages in terms of hassle-free transacting and more obviously low brokerage rates. On line trading is a battle for the Indian investors purse. The entry of competitive price on line broking services has brought the excitement back in a rather lackluster market. It has exposed the investors to the dynamics of day trading.

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Online trading also has a role to play in economic factors such as the mobilization of savings. From a macroeconomic perspective in the US, about 15% of savings were invested in equities in 1996. The concept of online trading is eminently flexible due to scalability of infrastructure and other evolving product offerings. Consequently the many benefits of online trading will continue to attract investors, which in turn in economic of massive scale from the going mass of transactions. In turn, this will enable Web manages of online trading sites to constantly upgrade their product offerings can enhance the quality of online trading experience, on a continuous basis.

THE DRIVERS The global drivers for online success have been simplicity services, security and savings. What also helped was the prolonged Bull Run fuelled by the dotcoms. It even drove conservative investors like those in Germany to the markets. Now with the down turn in the market sentiment for technology stocks in particular, it was only a matter of time before the Indian bourses replicated the NASDAQ. This has been a setback for online broking. Going by the domestic market structure the majority of trades are speculative in nature, it is evident that most Indian market players already enjoy relatively simple means when it comes to executing stocks in the market. On an average only around 10% of the trades done on the major Indian exchanges end in delivery. In other words trading is the domain of speculators. This is in sharp contrast to the western markets where typically delivery based trades account for 30 to 40% of total trades.

SAFETY OF TRANSACTIONS ON THE INTERNET

The safety of transactions on the Internet depends on the encryption system used. The better this transactions system, the more difficult it is for any person to hack the site.

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Internationally, the best system available today, is the 128-bit encryption, a system which even the pentagon uses. Since in the online

business, the orders placed have to pass through the network of public carriers, there exists a risk of data being intercepted or modified by a hacker or anyone with malicious intensions. According to industry experts, in future when the quantum of funds managed by the on line brokers reach significant levels, security related issues would take the center stage. However, most of the domestic players use some kind of security features to enable safe transactions on the net. Encryption, build on the Secured Socket Layer (SSL) protocol developed by Netscape, provides sufficient amount of security to the customers. Although, a majority of players offer 40 bits encryption method, ICICI and Invest smart have already graduated to 128-bit encryption technology. Though the data transmitted in the form of plain text is quite vulnerable, encrypted data has a much better level of protection. It is true that pricing is still the unique selling proposition at the moment, but security could be the trump card for tomorrow. Security and trust are the two important parameters, which will be crucial in determining a clients long-term relation with the broker. Points out Mr. Anup Bagchi, COO at ICICI Direct, Brokerages are practically a non-issue, going by the US experience. What matters more are things like trust and security especially because the service involves dealing with peoples cash as well as stocks.

The customer is also largely responsible for ensuring safety of online transactions. He normally gets a secured user ID and password, the secrecy of which is to be maintained entirely by him.

If the transaction system requires no manual intervention, it becomes safer. Among the Indian sites, ICICI Direct.com, Investsmart India

Ltd.,Sharekhan, Indiabulls.com are among the few fully integrated online

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trading sites.

It enables the elimination of the possibility of any manual

intervention. Thus, orders can be directly sent to the exchange, ensuring that the investor gets the best and right price.

Securities of money, demat shares and transaction documents. In online systems, the broking, banking and demat accounts are completely integrated, therefore, the investors money remains in his own bank account and does not get transferred to the brokers pool account.

Is trading through the Internet a difficult and cumbersome process?

The experience of trading through the Internet depends a great deal on the type of product offered by the site. Say, for example, one may get tired of the paperwork involved after every trade in writing cheques.

In online trading sites, the greater the back-end integration of the system, the greater the amount of work the sites do for the user, therefore greater the convenience available to him.

In case of online trading, in some integrated sites the broking account, bank account and demat account are linked electronically.

Is any special skill in computers or finance required for online trading? Contrary to common perceptions, trading through the Internet does not require either any expertise in working on the computer, or any special financial skills. Most of the online trading sites are equipped with a demo (demonstration), which explains the trading process in a lucid manner. One can also attend the demonstration sessions held by these website in various cities. For example, sharekhan holds seminars on every Saturday to educate its customers.

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TRADING ENGINES Trading engines are the heart of various sites. The software is used by many sites and is provided only after arduous and hard work, and there are essentially a lot of differences in the software different firms use.

Is online trading viable in India? The high cost involved in setting up a comprehensive online brokerage infrastructure, a dismally low investor awareness and Internet penetration level in the country havent kept players from embracing this new medium. The motivation is quite simple and clear. Convenience and transparency would result in more clients and better volumes. However, the prophets of doom appear to be skeptical about the very viability of these projects in India. According to industry experts, it would cost up to Rs.5 crores to set up a modest portal with reasonably attractive content and back end support systems. With increase in competition even the most established players with relatively high brand awareness requires to incur substantial recurring expenses for customer acquisition.

On the other hand, intese competition has initiated a price war. For instance, 5 paisa.com (promoted by Indiainfoline) started off with a brokerage of 5 paisa for each trading transaction of Rs.100 within the settlement. Its sustainability in the long run was questioned at that stage, because there would be a stiff resistance by clients to any upside price changes at a later stage. According to Arjun Kapoor a former Delhi stock exchange, President and a leading broker, a typical online broker would have to acquire a critical mass of about 20000 active clients to break even which could take any where about 3 to 4 years. However, COO of ICICI web trade Anup Bagchi has a quite contrary view. He believes that the increase client base would require additional

investment in infrastructure like hardware and software up gradation as well as substantial increase in the recurring expenses.

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The key to success is to provide an entire spectrum of products and services for the investor. This strategy has two distinct benefits for the

company. First, the bundling of its products and services in banking and retail division would enable ICICI to cater to a wider requirement of the online customer. Secondly, the cost of customer acquisition would get shared across various business divisions in the company.

Content, an important factor in determining the portal success, constitutes a sizeable portion of the operational expenses thereby further putting pressure on the margins. Moreover, unlike the global experience,

contents like news, research reports and other value added information cum as freebies with every subscription. Most of the online players have to make additional investments in customer support systems like call centers and interactive voice response systems.

In the mature markets like USA, the top ten online brokerage firms account for over 90% of the total business. Another notable but concerning feature of the online brokerage business there is the extremely low percentage of profitable ventures. According to a recent report, about 95% of over 100 online brokerage firms are still struggling to wipe the red of their books. For instance, E-Trade Group, the third largest online brokerage firm could get into the black only due to severe cost cutting initiatives. It managed to report razorthin earnings of just 5.7 million dollars for the third quarter ended June,2000 despite huge total revenue of 330 million dollars for the same period.

ADVANTAGES OF ONLINE TRADING

Many customers, who have chosen to trade shares online today, had at one point of time been trading through offline brokers. After realizing the advantages of trading shares online, they have switched over to online trading

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now. However, before choosing an online trading site, all these sites should be compared in order to form a decision.

Advantages It eliminates the risk of bad deliveries, which in turn eliminates all costs and wastage of time associated with follow up for rectification. This reduction in risk associated with bad delivery has lead to reduction in brokerage to the extent of 0.5% by quite a few brokerage firms. Screen-based trading facilitates the investor to keep a track of the transaction from the source to the end. He can punch in the orders and see the results at the bottom of the screen. Thus, one can get instant trade confirmation. Internet has brought the market at the desktop of an investor and he does not have to take the pain of going to the stock exchange or to his brokers office. He can also do away with the need of calling up his broker frequently only to enquire about the prices of various scripts. Internet trading connects the stock exchanges directly to the investor, who should make sure that the online trading site, he selects provides him the trading screen, which uses the Push technology to display prices. Using the push technology the trading screen displays the real time prices of 10 to 15 scripts at a every time one needs the price. Internet has made it possible for broking firms to transmit key market information to all their clients at one go. Market Watch Screen gives live tick by tick update on the desktop, whereby the investor can set a number of scripts of his choice, which will keep ticking through streaming quotes without manual intervention.

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 Clients find it easier and convenient to interact with their broker in a Web-enabled environment. In the past there were instances of brokers misreading the information given to them by their clients, because of communication lags. This had in effect ruined several investors. The internet ensures speedy and correct flow of information between all users. Online trading sites provide professional advice to investors. Many investors are not knowledgeable about the stock markets and need advice about their investment decisions. Some of them also need some hand holding especially when the markets are falling and enmeshed in rocky times. The investor can also send e-mail with his queries and can expect a timely response. Many people derive a substantial portion of their income from trading in the stock markets. For an experienced trader Internet broking can prove to be a land of plenty. Besides information research and professional advice, online trading will also offer technical advice that can help all who engage in trading. In the past there are instances that small investors encountered a situation when he desperately wanted to place an order, but his brokers lines were constantly engaged. When he finally managed to get through his broker, he could not get the best price. Online trading can eliminate his problem. All he has to do is log on to the site and place the order. Also, on the Internet a customer who is one meter away and a customer who is thousand kilometers from his broker are equally placed. Thus, brokers who would not otherwise entertain outstation clients. Even if one person is at Ludhiana and the client is at Cochin, trade can be put through easily.

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For example, Geojit Securities, which does 10% of its business through the net has a lot of non-resident Indians from the gulf as its clients and nearly 50% of the internet volume comes from the NRI clients. Even when the market is closed, an online investor can make his trade. Although, his trades will not be executed at that time but at least he can act immediately. Many a times, his next morning schedule might not permit him to go to the brokers office or even phone him for placing the order. Then, there are always the hassles of calling up the broker a couple of times for confirmation. Rather, he can now place his order the previous evening, knowing that it will go through automatically first thing in the morning. Online trading also helps in portfolio management. An investor can control the whole process, from research to order entry, at his own convenience. He can track the performance of the portfolio, as to how it is faring vis--vis the market. If it is not performing well, he can also get advice on restructuring it.

Other services that one gets by trading shares online Internet has brought to the retail investors what was till sometime ago the sole prerogative of large brokerage houses and high net worth individuals. At the online trading sites one can access a multitude of resources to arrive at his stock picks. Reliable research with an enviable track record is available free of cost. Most of the e-broking sites offer research reports on most of the top companies and have data like balance sheets and profit and loss accounts. An investor can now access these websites and do his fundamental and

technical analysis, by getting an access to real time quotes, knowing what other leading brokers think about a company and whether a particular scrip is a buy or sell.

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Indiainfoline.com Managing Director Mr. Nirmal jain notes, Sites like ours also offer investors technical analysis tools which enable even relatively detailed analysis like an intra day share price charting, using the tools developed in association with Singapore based Asian bourses.

The investor can also access live news from international news agencies such as Reuters, CNBC, read about what the leading CEOs think about the state of the economy and the capital market. Thus, the Internet helps the investors in shaping their investment decisions.

Sites like Sharekhan.com and Investsmartindia.com allows the facility to receive updates on mobile phones and via e-mail, for stocks bought through their sites. The clients can get automatic updates on any news development, price targets met, any new updates on the stocks posted by the site or any circuit limits reached on the stock via mobile and e-mail for free.

Indiabulls.com also offer similar facilities like short messaging services (SMS) on mobile phones of their clients and thus keep them updated. Using the net, investors now have access to latest news from diverse sources and online market commentary for free. Earlier, even something like Reuters news feed was beyond the reach of most small investors due to its prohibitively high cost. The democratization of information has empowered investors to choose and adopt a trading and investing style best suited to their risk returns aspirations and skill levels.

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DISADVANTAGES OF ONLINE TRADING The ease and speed of online trading can give the investor a false sense of security and encourage him to trade more frequently without paying any heed to market basics like, researching a company or knowing the risk he is going to assume. The concept of chat rooms, which has become very popular with the investors, may provide them with misleading information. Chat room participants are often paid to highlight certain stock. On line trading is not always instantaneous. In a rapidly changing market, orders may not get executed at the price shown on the computer screen. This is because even a nanosecond delay can put one out of the race for that particular stock at that particular price. Delays in execution usually arise due to various technological choke-points like the Internet slowing down due to heavy traffic or if the modems, computer or Internet Service Provider (ISP) is malfunctioning. If the investor does not factor in these technological lags while entering into a volatile market, he may suffer heavy losses. The investor should familiarize himself with the order entry screen and the software provided to him. Any mistake made while inputting an order can cause him significant financial loss. Moreover, he will be responsible for any losses caused by lack of knowledge and/or experience. When an order is placed and executed, he becomes liable for payment of the securities.

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 Active trading is dependant upon a number of specialized software systems. Disruptions or failure of any of the electronic systems utilized may leave the investor with an open position at which time losses can occur. Customers trading on-line may have difficulty accessing their accounts due to high Internet traffic or because of systems capacity limitations. Customers trading through brokers at full-service or discount brokerage firms or through brokers at full-service or discount brokerage firms or through representatives of on-line firms, when on-line trading has been disabled or in not available because of system limitations, may have difficulty reaching account representatives on the telephone during periods of high volume.

Trouble Shooting From the Investors point of view To prevent any technological choke point, the investor can place a limit order and not a market order when entering a volatile market. A limit orders gets executed only at a specific price. That is, a buy limit order can only be executed at the limit price or lower, and a sell limit order can only be executed at the limit price or higher. By entering a limit order rather than a market order, he will not be caught buying a stock at a price he hadnt planned for due to the problems faced with bandwidth. Security is a key requirement for the investors protection. It is

absolutely essential to protect the user identification and password. He must also protect against computer entry by someone other than himself after initializing his system. The system should not be left unattended and must be properly shut down when he is not actively using it. The
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investor is responsible for all trades entered under his user identification and password. For his protection, frequent changing of password is recommended.

It is very important that he reconciles his account on a daily basis. From the brokers point of view In the absence of any direct interface between the organization and the clients, online share trading firms should maintain seamless

communication with their clients. But, this is not always the case. Customers orders can be slowed down for reasons outside of a firms control. But explaining clearly to customers rather than merely

disclaiming liability through complex and legalistic language would go a long way towards shoring up the customers confidence in the firm.

THE ONLINE TRADING PROCESS

To avail of Online Trading Services the following steps may be followed: Step:1 Register on the Web site Step:2 Complete Registration Documentation Step:3 Open Depository Account Step:4 Open Bank Account.

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The flow chart given below clearly explains the process of online trading.
Login

You are now ready to trade

Buy Transaction

Sell Transaction

The System will check your Buying Limits.

The System will check your Dp account for quantity

Order Accepted

Rejected orders would be communicated to you along with reasons

Order Accepted

Your Order is transmitted to the exchange for execution

Pending Buy orders would be displayed on Your screen

On Execution of Your Orders (Confirmation)

Pending Sell Orders would be displayed on yours screen

You may edit your pending orders

You may delete your pending orders

You may edit your pending orders

You may delete your pending orders

Flashed on your screen immediately

Confirmation could be sent to your e-mail and mobile.

Contract note would be sent to you by mail or hand dellvery

FLOW CHART DESCRIBING THE ONLINE TRADING PROCESS

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OBSERVATIONS & FINDINGS

In India Internet Trading has not really taken off as volume of online business is estimated to be Rs.55 to 65 crores every trading day, which is less than 2% of the total volume of about Rs.3500 to 4000 crores of the two bourses-BSE and NSE. According to NSE the highest volume was recorded in February,2001 when the average trading

volume reached the level of Rs.72 crores a day. It averaged to Rs.55 crores in December,2001 and Rs.65 crores in January this year.

Records show that against a volume of Rs.72 crores in February,2001, the business through the net tumbled to Rs.20 crores by July,2001.

According to Mr. Manish Sukhla of Motilal Oswal Securities, many clients who registered themselves for online trading ended up using the offline system.

It was also observed that many broking houses offering Internet trading allow clients to use their conventional system as well just to ensure that they do not lose them and this instead of offering e-broking they become service providers.

The number of players is increasing at a steady rate and today there are over a dozen of brokerage houses who have opted to offer net trading to their customers and prominent among them are ICICI Direct, Indiabulls, Sharekhan Kotakstreet, Investsmart, Hometrade,

Indiainfoline besides Motilal Oswal Securities and Geojit.

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Stock Exchange have offered small brokers a common platform through which they can route their orders.

ICICI Direct is undisputedly the Market Leader with a market share of about 60% of the total 2.3 lakhs investors, who have registered themselves for net trading, nearly 1.45 lakhs belong to ICICI Direct.

PROBLEM AREAS

When Internet trading was first launched in February 2002, the stock markets were experiencing an unprecedented boom and it held out a lot of promise. However, two years down the line we find that the system has failed to deliver up to its potential. The main reasons for decline in volume of trading are:

Bearish Marketing

The poor performance in the online market segment can be attributed to lack of a bull run in the stock market. This is the reason for which the overall trading volume has come down. Almost ever since Internet trading has started, the markets have remained bearish. This relationship between the mood of the market and interest in trading indeed gets reflected in the volumes.

Bursting of the Dotcom bubble

The July,2001 market crash can also be attributed to the bursting of the Dotcom bubble, when most of the IT companies registered an unsatisfactory performance and the tech. Stocks slipped in fear.

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Poor Penetration of the Internet Besides the bearishness in the equity market, another reason for low acceptance of net trading could be poor penetration of the Internet. In India, it is a fact that Internet has not been able to spread its tentacles in rural areas and small towns.

The very basis of net trading is based on two factors: 1. 2. An Equity Market in good shape. Deep penetration of the Internet.

Poor Internet Connectivity In the Indian context the quality of Internet connection also comes into play for determining the reasons for the lack in response. Here, we have connectivity problems and there are instances of clients panicking as they could not execute their trades. Many times at particularly at places other than Mumbai, sudden stoppage of electricity results in disconnection.

Long Supply Chain

In case of conventional or offline trading the chain is small as the clients directly interact with the brokers. But in case of Internet trading the chain is quite long as it involves a client, an Internet Service Provider, server, Stock Exchange, Depositor and a Broker and a problem can crop up at any stage of the chain, breaking down the entire system.

A Costly Affair

Other than the technological hassles, there is an element of cost as well. For active traders, doing online trading he has to remain connected all the time and the cost of connecting through dial up can work out to Rs.3500 per

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month, which is over and above the brokerage and other service charges. This is the reason brokers offering online trading facility allows the clients to use the conventional system as well in order to retain them. Apart from a dealing room, most broking houses have a separate room for the clients, where the Stock Exchange terminals are kept for their use.

Low Investor Confidence

Investor confidence in the country has been badly hurt due to the escalating Indo-Pak tensions and communal riots in Gujarat. This

sentiment has got reflected in the stock markets, which have gone down. The global recession has also dampened the mood of the stock market. Although, the US economy is showing signs of recovery, but any tangible outcome is yet to be felt. Online Trading at HSE The NSE first introduced online Trading in India in mid 1990s. The Online Trading System imparted a greater level of transparency and investors preferred exchanges that offered Online Trading facilities because of the following factor.

The ease of operation from the point of view of both the Members and the investors.

Increase in the confidence of the investors because of the higher level of transparency. Facilitates better monitoring of the market by the Exchange.

The best price is achieved in buying and selling. All these resulted in ever increasing volumes on the Exchanges offering the Online Trading. This prompted HSE to go in for Online Trading from March,1997.

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Online Trading Procedure at HSE

The HSE had introduced screen based trading system named as HOST (Hyderabad Online Trading System) from 20th Feb,1997. Representatives of M/s. TATA ELEXI (INDIA) Ltd were done the installation of computers, earthing up and related works. The software installation is VECTOR

(Versatile Engine for Centralized Trading and Online Reporting) product developed by CMC to implement a fully automated trade execution system.

System: The system is built around a central computer, which will be called the central trading system placed at the exchange. The brokers interact with the CTS through the Brokers Work Station (BWS).

Objectives: The VECTOR system has been developed to help the HSE in meeting the following objectives. Reduce and eliminate operational inefficiencies inherent in manual systems.

Increase Trading capacity in the stock exchange.

Improve market transparency, eliminate unmatched traders and delayed reporting. Promote fairness and speedy matching.

Provide for online and offline monitoring control and surveillance of the market.

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Smooth market operations using technology while retaining the flexibility of conventional trading practices.

Set up various limits, rules and controls centrally.

Consolidate the trades data and interface with clearing and settlement.

Provide brokers with their trade data on electronic media to interface with the brokers back office system.

Provide public information on scrip prices, indices for all users of the system.

Provide analytical data for use of the stock exchange.

System Overview: The VECTOR system has been developed to computerize the trading activity of the brokers as well as some of the allied activities of the stock exchange relating to the trading function.

In the computerized scenario the broker / trader sit within their own office and send their quotes, order traders, negotiated deals, in house deals, auction orders to the Central Trading Station (CTS) using the BWS.

The Best Bid and the Best Offer (based on price and time priority in the market form what is known as the BBO (Best Bid and Offer) for each scrip. News feeds from other stock exchange are also received at the CTS and broadcast to all the user workstations. News related to Board meetings, rights / bonus / dividend, record dates / book closure dates, financial results, other scrip related information, Stock Exchange news, political and other news will be

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received and entered by the market operations and broadcast to all the user work stations.

Other market news is also available at the BWS.

Trading Session: The trading session is from 10:00 a.m. to 3.30 p.m. on all weekdays ie., from Monday to Friday.

Broker Work Station: At the BWS the best BBOs, the last traded price, the days opening price, previous days closing price, highest and lowest prices, the weighted average price, the total traded value and the total traded volume will be available and continuously, as the BBO for each scrip.

Other information will be available on query from the BWS. These include top (n) gainers / losers of the day. Trader-wise scrip wise net position, client wise net positions, top (n) scrips by volume / value, market summary, etc.

Orders: Order can be entered into the system either one at a time or in a batch made.

The submitted order will be accepted at the CTS after validation. If found invalid for any reason the order is returned back to BWS, with the appropriate error message. If accepted at the CTS it will be added to the local pending order book. The order will then be taken up for matching if it is a buy order the system tries to find a sell order, which fits the requirements of the buy order when such a match is found a trade, gets executed. Each trade involves two

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brokers and respective traders who sent the order. Both these traders are informed of the trade getting executed at their respective BWS (s).

At the BWS the trade is added to the local trade book, land the pending quantity decreased by the trade quantity in the local pending order book.

Limit Orders: A limit order is received at the CTS and kept on hold till it finds a match. The retention period can be till end of-date or till end-of-settlement. At the end of the day, pending orders that fall within the criteria for removal will be cancelled from the CTS.

Market Orders: For a market order, an immediate match is sought. Market order will not be executed if the price at which the trade could be executed deviates from the BBO price beyond the market order protection percentage limit for the scrip as specified by the BWS.

Back Office Operations: After the close of the trading hours the back office work is undertaken. The transactions executed are loaded on to a floppy and this is inserted into the back office computer to generate Contract Notes of the clients showing their purchases and sales with quantities and rates and also brokerage charged and service tax. (Service tax is levied at 5% of the brokerage payable). This Contract Note is then served on the client. The Back Office System also takes care of the accounting part affecting the necessary debits / credits.

Unique Features of BWS: The BWS has a unique feature, which facilitates opening of multiple windows on different planes on the BWS screen.

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BWS application has multiple screens for order entry, quote entry, display of pending order etc., when many windows are opened the screen at the same time, they overlap and cause operational in convenience. The screen space is to be utilized at its optimum and at the same time maximum possible information needs to be displayed. The BWS provides for multiple pages ie., one can flip between different pages (like switching television channels) and watch different set of screen windows.

SUMMARY OF LEARNINGS The various things I have learnt

From the Organisation

1). Attitudes of the Employees in the Organisation:

The attitude of the employees in the organization is very positive and encouraging. As a trainee I felt as if I was an employee of the organization. I could learn many things from them . Especially the HSE helped me in all ways he could. They never disappointed me whenever I approached them with doubts.

2). The importance of systems:

In the organization the employees are very systematic and follow the guidelines unscrupulously.

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From the Project 1). About Derivatives:

I learnt about the Derivatives, the new instrument that has been introduced in the Indian markets. This market has taken the center stage now a days.

2). About Online Trading: Online Trading was a great boost for the Stock Exchange because people found it easy and comfortable way to deal in securities. It was an amazing feeling for me when I first saw the process and the way it goes on. I learnt many things about Online Trading.

INTER-CONNECTED MARKET SYSTEM (ICMS);

The Exchange has set-up a Clearing House to collect the Securities from all the Members and distributed to each member, all the Securities that are due to him in respect of every settlement. The whole of the operation of the clearing house are also computerized.

In this age of electronic trading, online information on rates from other major markets is an essential input for efficiency. HSE provides online from NSE and BSE which not only enhanced the ability of the HOST Terminals to attract the investors but has also enables the member to avail arbitraging opportunities between exchanges. It provides the access to the national market without any fees, which will be a boom to the members of an exchange. Exchange to have the trading rights on a National Exchange without any fee or expenditure.

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The ICMS arranges for concurrent display electronically of the current quotes of eligible shares. The broker has a choice to put his deal in another exchange he has to put his order or commitment of trade in the electronic system. This is valid for a fixed period at that specified price.

ONLINE SURVEILLANCE HSE has been paying special attention to market surveillance and monitoring exposures of the mark to market losses. By taking prompt steps to collect the margins for mark to market losses, the risk of default by member is avoided. It is heartening that there have been trading.

ONLINE TRADING WITH BROKERS

Online trading is also useful for intra day trading. Now a days brokers also providing terminal to their client at their home only this is internet trading we can say with the help of the broker the investor or Speculator can get terminal at home and he can deal with stock without concerning any broker.

This internet trading is very useful for making money and taking a quick decision at home or office. This terminal is useful to knowing the exact present rate of the share.

BEARISH SIGNAL When to sale Sell before or at the beginning of the down trend. Sell after the formation of double top. Sell after formation of bear gap. Sell before the formation of bear flag. Sell at resistance line or to the resistance line. Sell when the price of share falls below moving average chart. Sell when number of declines are more than no of advances.

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 Sell when the share price show down turn in momentum. Sell when the price chart completed the formation of head and shoulder pattern. Sell when the relative strength of a share is weaker than other shares.

BULLISH SIGNAL

When to buy Buy after the formation of double bottom. Buy after the formation of bull gap. Buy before the formation of bull flag. Buy when the share price falls above moving average chart. Buy when advances are more than declines. Buy at the formation of rising wedge. Buy when the share price show upward turn in movements. Buy when the price chart completes the formation of inverted head and shoulder pattern. Buy after the formation of triangle. Buy when relative strength of a share is stronger than other shares.

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DEMATERIALISATION OF SHARES

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INTRODUCTION
The term depository is defined as a central location for keeping securities on deposit. A depository can be defined as an institution which transfers the ownership to securities in electronic mode. Ie., in DEMAT.

DEMATERIALISATION

Dematerialization trading in now compulsory for all investors. Beginning first week of January,1999 investor can trade in specific script only in the dematerialization from. They can provide and receive only in the

dematerilisation form and share certificates will not be changed for these scripts.

A depository is an organization where securities of a shareholder are held in the electronic from at the request of the shareholder through depository participants (DPs). If an investor wants services offered by a depository, he would have to open an account with it through DP-similar to opening a bank account.

BASIC CONCEPT OF DEPOSITORY:

PRODUCTS:- The depository will be designed to permit inclusion of multiple products, eventually encompassing all securities traded in the exchanges such as equities, preference shares, warrants, debentures, bonds and etc.,

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DEPOSITORY ELIGIBLE SECURITIES:- Securities that have been selected by the depository to be eligible for the book entry movement within depository are named Depository eligible.

OBJECTIVES OF DEPOSITORY SYSTEM: Immobilization of securities. Book-entry accounts Confidentiality. Detailed listing of investor holdings by securities type. Handling of corporate actions. Delivery versus payment. Links to other depository systems.

DEPOSITORY SYSTEM FUNCTIONS: The depository system is a new clearing and settlement system. Under depository system, the current practice of holding and moving scrip of quoted shares, is replaced by a safe and dependable computerized book-entry system.

FUNCTIONS OF DEPOSITORY:CORPORATE ACTION: The depository will track the benefits due to the clients, and will do the job of timely collection of benefits like rights issues, bonus dividends redemption, warrants etc.,

BOOK ENTRY SETTLEMENT / ACCOUNTING: Depository will accomplish settlement work via computerized accounting systems. The book keeping entry will ensure elimination of the physical packaging and movement of share certificate.

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SAFE KEEPING: Safe keeping function involves the storage of securities in a secure location.

PLEDGING: Depository will allow securities to be used as collateral to secure loans/ options/ future contracts and other form of credit.

TRANSFER AND REGISTRATION: The use of single nominee name by the depository for all physical security holding of its participant members accelerates transfer process. In a dematerialized system elimination of all movement of securities is done and it reduces the transfer process to a book entry activity.

FUNDS HANDLING: The involves handling of funds be it collecting funds from issuing companies such as dividend, interest or distribution of funds to participants connected with the settlement of securities transactions.

LEGAL ISSUES: Implementation of depository system would require some legal issues to be resolved before they could be implemented. The issues pertain to: Settlement by Book-Entry. Vesting of beneficial owner rights. Pledges and release of pledges.

BENEFITS OF DEPOSITORY SYSTEM: To the nation: Growing and more liquid capital markets provide financing and developments stemming from efficient post-trade systems with reduced transaction costs.

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 Improved prospects for privatization of public sector units by creating a conductive environment. Restoration of faith in the capital markets and the participants with systems to minimize settlement risk and fraud. Considerable reduction in the delay in registration which can currently impact trading.

TO THE INVESTING PUBLIC: Reduction of risks associated with loss, mutilation, theft and forgery of physical scrip. Elimination of financial loss owing to loss of physical scrip. Greater profits from increased trading volume mad possible by NCD systems with reduced operational cost per transaction and reduced risk.

DEPOSITORY SYSTEM: PRESENT POSITION

Stock Holding Corporation of India Limited (SHCIL) was promoted by seven all India financial institution, namely IDBI,IFCI,ICICI,LIC, IRBI, GIC and its subsidiaries for rendering custodial service to he Indian Capital Market particularly for all India financial institutions and Mutual Funds. SHCIL was incorporated in 1986 and went operational in 1988.

Considering the significance of the system, SHCIL in July,1992, circulated the concept paper on the National Clearing and Depository System preparedc in collaboration with price water house, Washington the internal consultants of repute appointed under the aegis of USAID.

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The proposed system envisages a three tier structure and settlement namely: A National Trading Comparison and Reporting System (NIRS). A National Clearing System (NCS). A National Depository System (NDS).

Further, SHCIL conducted a seminar on nation depository system in 1992. A technical group was formed to review and suggest a modern settlement and depository system for securities transactions. The group suggested multiple depositories while, the financial minister Dr. Manmohan Singh in hid budget speech mentioned about setting up a central depository in India. Which will be suitable for Indian conditions. Now here we will discuss on CDSL and how to open the demat account.

CDSL A depository facilitates holding of securities in the electronic form and enables securities transactions to be processed by book entry by a Depository Participant (DP) who as an agent of the depository, offers depository services to investors. According to SEBI guidelines, financial institutions, banks,

custodians, stockbrokers, etc., are eligible to act as DPs. The investor who is known as beneficial owner (BO) has to open a demat account through any DP for dematerialization of his holdings and transferring securities.

The balances in the investors account recorded and maintained with CDSL can be obtained through the DP. The DP is required to provide the investor, at regular intervals, a statement of account which gives the details of the securities holdings and transactions. The depository system has effectively eliminated paper-based certificates which were prone to be fake, forged, counterfeit resulting in bad deliveries. CDSL offers an efficient and instantaneous transfer of securities.

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CDSL was promoted by The Stock Exchange, Mumbai (BSE) juointly with leading banks such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Union Bank of India and Centurion Bank. CDSL was set up with the objective of providing convenient, dependable and secure depository services at affordable cost to all market participants. Some of the important milestones of CDSL system are:

CDSL received the certificate of commencement of business form SEBI in February,1999.

Honorable Union Finance Minister, Shri Yashwant Sinha flagged off the operations of CDSL on July, 15 ,1999.

Settlement of trades in the demat mode through BOI Shareholding Limited, the clearing house of BSE, started in July, 1999.

All leading stock exchanges like the National Stock Exchange, Calcutta Stock Exchange, Delhi Stock Exchange, The Stock Exchange, Ahmedabad etc., have established connectivity with CDSL.

As at the end of December, 2004 over 4900 issuers have admitted their securities (equities, bonds, debentures, commercial papers) units of mutual funds, certificate of deposits etc., into the CDSL system. CDSL was promoted by The Stock Exchange, Mumbai (BSE) in association with Bank of India, Bank of Baroda, State Bank of India and HDFC Bank. BSE has been involved with this venture right from the inception and has contributed overwhelmingly to the fruition of the project. The initial

capital of the company is Rs.104.50 crores. The list of shareholders is as under.

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DEMAT ACCOUNT WITH CDSL SYSTEM Convenience: Wide DP Network: CDSL has over 200 DPs spread around 114 cities/towns across the country, offering convenience for an investor to select a DP based on his location.

On-line DP Services: The branches of a DP can also be directly connected to CDSL thereby providing on-line and efficient depository service to investors.

Wide Spectrum of Securities Available for Demat: More than 4600 companies have admitted their equity into CDSL. Further, CDSL has also admitted an entire gamut of debt instruments viz. bonds, debentures,

commercial paper, government securities, certificate of deposits etc., Thus an investor can hold almost all his securities in one account with CDSL. Competitive Fees Structures: CDSL has kept its tariffs very competitive to provide affordable depository services to investors. CDSL also does not collect any custody fees or ISIN fees from its DPs.

Internet Access: A DP, which registers itself with CDSL for Internet access, can in turn provide demat account holders with access to their account on the Internet. On-line Information to Users: CDSLs system is based on centralized databse architecture; DPs can thus provide on-line depository services with to-theminute status of the investors account.

Convenient to DPs: The entire database of investors is stored centrally at CDSL. If there is any system-related issues at DPs end, the investor is not affected, as the entire data is available CDSL.

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Contingency arrangements: CDSL has made provisions for contingency terminals, which enables a DP to update transactions, in case of any system related problems at the DPs office. Meeting Users Requirements: Continuous updation of procedures and processes in tune with evolving market practices is another hallmark of CDSLs services.

Audit and Inspection:

CDSL conducts regular audit of its DPs to ensure

compliance of stringent operational and regulatory requirements. Dormant Account Monitoring: CDSL has in place a mechanism for monitoring dormant accounts. Helpdesk: DPs and investors obtain clarifications and guidance from CDSLs prompt and courteous helpline facility. Computer Systems: CDSL has installed state-of-the art computer system and data storage devise. All data is stored at CDSL and is auto mirrored separately and also transmitted to a Disaster Recovery site. Data is also backed up on digital linear tapes, which are stored in fireproof cabinets at the main and disaster recovery sites.

Unique BO Account Number: Each BO in CDSL is allocated a unique account number which ensures that at the time of transfer of securities if the transferors account number is wrongly entered, the transaction will not go through the CDSL system, unless corrected.

Data Security: CDSL ensures the security and integrity of all data by encrypting all communications between CDSL and its users. Claims on DP: If any DP of CDSL goes into liquidation, the creditors of the DP will have no access to the holdings of the BO.

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Insurance Cover: CDSL has obtained adequate insurance cover in the unlikely event of any loss to a BO due to the negligence of CDSL or its DP.

Benefits of Holding Securities in the Dematerialized Form:

Elimination of all risks associated with physical certificates: There is no risk of loss, mutilation or theft of certificates of securities.

Effects immediate transfer and registration of securities: After the payout, once securities are credited to the investors BO account maintained with a DP, the investor becomes the legal owner of the securities as there is no further need to seek registration from the company or its registrar.

Faster settlement cycles: All stock exchanges currently follow T+3 rolling settlement cycle i.e. settlement of trades is done on the 3rd working day from the trade day. This has become possible because of demat which enables faster turnover of securities and enhances liquidity.

Waive of stamp duty: No stamp duty is payable by investors for transfer of any kind of securities received in demat form.

Acilitate recording of change of address, transmission etc., - For all investments held in the a/c, instead of advising each company separately about the change in address, bank account particulars, nomination, delation of name in case of joint holder, one single advice to the DP takes care of all such changes.

Ease of portfolio monitoring: The statement of account periodically sent by the DPs provides the investor the consolidated position of all his investments in the demat account. This makes it convenient for an investor to compare and monitor his portfolio.

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De-materialization Process and Procedure:

Opening a Depository Account Investors, both individuals and non-individuals, have a choice to open a demat account with any CDSL DP. Individual investors could be Indian

residents or NRIs. Non-individual BOs include corporate, FIs, FIIs, Mutal Funds, Trusts etc. Under two way fungibility of ADR/GDR, non-residents can also open a demat account with a CDSL DP.

A BO should consider fee structure, locational convenience and the track record of the DP before selecting a DP for opening his BO account.

More than one demat account can be opened in identical names with the same or different DPs with the same depository and / or with both the depositories. A demat account can be maintained even with nil balance as there is no requirement of holding any minimum-security balance in a demat account.

If securities are already held in joint names, the demat account should be opened in the order of names in which the securities are held. If the securities are held by an individual jointly with different persons, separate demat accounts willhave to be opened for each such combinations. However, if the same persons hold securities in different order of the3ir names, one single demat account in names of all these persons (not exceeding 3 persons) would be sufficient, provided the facility of transposition cum-demat is used.

At the time of opening a demat account or anytime thereafter, individuals having a BO account in a single or joint name/s, a nomination can be made. In the unfortunate event of demise of one of the joint holders, the

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securities can be transmitted in the names of the surviving holders. But, in the event of demise of the sole holder or all the joint holders, the securities can be transmitted in the name of the nominee. A resident Indian can nominate an NRI or another resident Indian and similarly an NRI can nominate a resident Indian or another NRI. Non-individuals including societies, trusts, body

corporates, kartas of HUF, holders of power of attorney, cannot make nomination.

Documents required to be submitted at the time of opening a CDSL demat account:

Individual investor An application in the prescribed form duly completed. Certified copy of an election-ID card / passport / ration card / PAN card or in the absence of these documents, an introduction by an existing account holder of the DP giving the introducers name, address, and contact number. A certified copy of birth certificate and guardians name, in case of a minor. A passport size photograph of each of the applicants with his/their signature/s put across the photograph/s.

In

case of any attestation by a Magistrate / Notary Public / Special

Executive Magistrate, the name, address and telephone number of the Magistrate / Notary Public/Special Executive Magistrate. A copy of the power of attorney, if desired. Agreement in the prescribed form duly executed.

Corporate investor An application in the prescribed form duly completed. A certified copy of the Memorandum and Articles of Association of the company.

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A certified true copy of the board resolution authorizing opening of demat account and listing out the names of the officials authorized by the board to act as authorized signatory (ies) Names of the authorized signatories, their designation with specimen signatures.

A copy of power of attorney duly executed. In case of attestation by any Magistrate / Notary, Public/ Special Executive Magistrate, their name, address and telephone number.

Agreement in the prescribed form duly executed.

On Opening of the Demat Account, A DP would provide to the BO A/C Holder the following:

A copy of the signed agreement. Issues BO-ID (ie., Beneficial Owner Identification Number or Demat account number). This BO-ID should be quoted in all future correspondence with the DP, Issuer Companies and / or their Registrar & Transfer agents or CDSL.

Pre-printed instruction slips for effecting various types of transactions viz. form for dematting physical holdings, transaction slips, etc. CDSL has one single debit instruction slip both for on-market and off-market transactions.

NSDL Although India had a vibrant capital market which is more than a century old, the paper-based settlement of trades caused substantial problems like bad delivery and delayed transfer of title till recently. The enactment of Depositories Act in August,1996 paved the way for establishment of NSDL, the first depository in India. This depository promoted by institutions of nation stature responsible for economic development of the country has since

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established a nation infrastructure of International standard that handles most of the trading and settlement in dematerialized form in Indian capital market.

Using innovative and flexible technology systems, NSDL works to support the investors and brokers in the capital market of the country. NSDL aims at ensuring the safety and soundness of Indian Marketplaces by developing settlement solutions that increase efficiency, minimize risk and reduce costs. At NSDL, we play a quiet but central role in developing products and services that will continue to nurture the growing needs of the financial services industry.

In the depository system, securities are held in depository accounts, which is more or less similar to holding funds in bank accounts. Transfer of ownership of securities is done through simple account transfers. This method does away with all the risks and hassles normally associated with paper work. Consequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificates.

Under the provisions of the Depositories Act, NSDL provides various services to investors and other participants in the capital market like, clearing members, stock exchanges, banks and issuers of securities. These include basic facilities like account maintenance, dematerialization re-materialization, settlement of trades through market transfers, off market transfers & interdepository transfers, distribution of non-cash corporate actions and nomination transmission.

The depository system which links the issuers, depository participants (DPs), NSDL and clearing corporation/ clearing house of stock exchanges, facilitates holding of securities in dematerialized form and effects transfers by means of account transfers. This system which facilitates scripless trading offers various direct and indirect benefits to the market participants.

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Depository is a facility for holding securities electronically in which securities transactions are processed by book entry. In addition to the core services of electronic custody and trade settlement services, NSDL provides special services like pledge, hypothecation of securities, automatic delivery of securities to clearing corporations, distribution of cash and non-cash corporate benefits (Bonus, Rights, IPOs etc.) stock lending and Internet-based services such as SPEED e and IDeAS.

NSDL has also set-up a facility that enables brokers to deliver contract notes to custodians and/or fund managers electronically. This facility called STEADY (Securities Trading Information Easy Access and Delivery) was launched by NSDL on November 30, 2002. STEADY is a means of

transmitting digitally signed trade information with encryption across market participants electronically, through Internet.

NSDL carries out its activities through service providers like Depository Participants (DPs), Issuing companies and their Registrars and Share Transfer Agents, Clearing corporations/ Clearing Houses of Stock Exchanges. These entities are called business partners in NSDL terminology. These entities need to get integrated into NSDL depository system to be able to provide various services to the investors and Clearing Members.

The investor can obtain depository services through a depository participant of NSDL . Just as one opens a bank account in order to avail of the services of a bank, an investor opens a demat account with a depository participant in order to avail of depository facilities.

A clearing member can open a special account in the depository system for the purpose of settling trades done on stock exchanges. The clearing

account enables the clearing member to receive securities from its clients for

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delivery to the Clearing House/ Clearing Corporation as pay-in, and to distribute the pay-out to its clients received from the Clearing House/Clearing Corporation.

Issuer can make dematerialization services available to their shareholder by signing of agreement to that effect with NSDL. After the agreement is entered into, an electronic link is established between NSDL, issuer or its r&t agents.

The clearing corporations/ house of stock exchanges also have to be electronically link to the depository in order to electronically receive securities delivered by clearing members towards pay-in and to give out securities to clearing members towards pay-out.

Special Services Depository is a facility for holding securities electronically in which securities transactions are processed by book entry. In addition to the core services of electronic custody and trade settlement services, NSDL provide special services like pledge, hypothecation of securities, automatic delivery of securities to clearing corporations, distribution of cash and non-cash corporate benefits (Bonus, Rights, IPOs etc.) stock lending and Internet-based services such as SPEED-e and IDeAS.

NSDL has also set-up a facility that enables brokers to deliver contract notes to custodians and / or fund managers electronically. This facility called STEADY (Securities Trading information Easy Access and DeliverY) was launched by NSDL on November 30, 2002. STEADY is a means of

transmitting digitally signed trade information with encryption across market participants electronically, through Internet.

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Conversion of physical shares into demat account.

In order to dematerialize physical securities one has to fill in a DRF (Demat Request Form) which is available with the DP and submit the same along with physical certificates one wishes to dematerialize. Separate DRF has to be filled for each ISIN no. The complete process of dematerialization is outlined below: Surrender certificates for dematerialization to participant. Depository participant intimates Depository of the request through the system. Depository participant submits the certificates to the registrar. Registrar confirms the dematerialization request from depository. After dematerializing certificates, Registrar updates accounts and informs depository of the completion of dematerializations. Depository updates its accounts and informs the depository participant. Depository participant updates the account and informs the investor. your depository

If you wish to get back your securities in the physical form one has to fill in the RRF (Remat Request Form) and request your DP for re-materialization of the balances in your securities account. The process of re-materialization is outlined below: Make a request for re-materialization. Depository participant intimates depository of the request through the system. Depository confirms re-materialization request to the registrar. Registrar updates accounts and prints certificates. Depository updates accounts and downloads details to depository participant. Registrar dispatches certificates to investor.

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Delivery Instruction Slip (DIS) De-materialised shares do not have any distinctive numbers. These shares are fungible, which means that all the holdings of a particular security will be indentical and interchangeable.

To give the delivery instruction to DP you have to fill one form called Delivery Instruction Slip (DIS). DIS may be compared to cheque book of a bank account. The following precautions are to be taken in respect of DIS: Ensure and insist with DP to issue DIS book; do not use loose slips. Ensure

that

DIS

numbers

are

pre-printed

and

DP

takes

acknowledgement for the DIS booklet issued to investor. Ensure that your account number (client id) is pre-stamped. If the account is a joint account, all the joint holders have to sign the instruction slips. Instruction cannot be executed if all joint holders have not signed. Avoid using loose slips Do not leave signed blank DIS with anyone viz., broker/sub-broker. Keep the DIS book under lock and key when not in use. If only one entry is made in the DIS book, strike out remaining space to prevent misuse by any one. Investor should personally fill in target account id and all details in the DIS.

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FINDINGS AND SUGGESTIONS:1. The investor is able to know the risk and returns of the share by using online trading. 2. It is useful to each and every investor who wants long and short term investments. 3. Estimating future EPS good result in future. 4. Investor must have a basic idea about the computer operations. 5. It is very much useful to invest to avoid the future loss. 6. The result of analysis is proving correctly in the matter of price movements. 7. Avoid buying shares of a company with an equity capital of less than Rs. 1 crore. 8. Avoid buying shares of a company with number of share holders. 9. Investors must show interest in steady and fast growing shares only. 10. If the investor is confident of EPS moving up and expect the P/E to increase as well stick to the shares and be patients.

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CONCLUSION
The benefit of depository system are significant. Introduction of depositories will improve the market efficiency, through adopting criteria for describing a scrip depositors eligible. If the company is not able to meet the criteria, the company gets to be shifted to paper based market. This leads to falloff image of the company. Hence, the company will try their best to reach the eligible criteria to move into system.

Secondly, the paper management will substantially reduce.

This helps in

savings in time for allotment/transfer of scrips. This improves internal systems effectively.

Thirdly, the intensity of trading in the scrip is likely to increase substantially. The experiences of the developed countries, those who are introduced the depository system, shows that there will be around 5 to 6 times increase in the turnover. This happens due to investors indulging more and more in buying and selling even for marginal trading profits.

Fourthly, the cost of bad deliveries, forged share certificates and unproductive back office activity will vanish for corporates.

Last but not least, the depository system will bring in a sea change in corporate democracy, particularly in corporate management, price discovery in market place and proxy exercise etc.

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BIBLIOGRAPHY
INVESTMENT MANAGEMENT BUSINESS AS USUAL

A.V. AVADHANI R.C. BETALA

CAPITAL MARKET IN INDIA INTERNET

E. GORDON

www. cdsIIndia.com

www.nsdl.co.in

www.bseindia.com

www.hseorg.com

www.nseindia.org.com

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