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Acknowledgement. It gives me great pleasure in presenting the Project Report that gives the details of my project on back office functioning of stock market carried out in PSE Securities Limited (PSESL). I thank the college guide Prof Mahesh Halale for his kind and consistent guidance and help during the project work. It is impossible to list all the people who have helped us during my project. I take this opportunity to express whole hearted thanks to Mr. Manish Rangare Director of Pune Stock Exchange, Mrs.Medha Rane (A.G.M) who gave me the opportunity to undertake the project work. I would like to thank Mr. Mandar Bhalerao (D.G.M.) who guided me at every step in the execution of the project & their experience and valuable guidance were very helpful. I would like to express our deep sense of gratitude towards all Managers, Staff and workers and to all those who directly or indirectly helped us in successful completion of project.

Nirmal Chandran.


This is to certify that the Project Report titled, Back office functioning in a Share Broking Firm is a bonafied work carried out by Nirmal Chandran, a student of M.B.A-II of St. Mira Vishwakarma Institute of Management, in partial fulfillment of Degree of M.B.A from St. Mira Vishwakarma Institute of Management. She has worked under our guidance and direction.

_________________ Signature of Director

______________ Signature of Guide

Date: Place:

Date: Place:





1. Executive summary. 1 2. Introduction..... 2 3. Company Profile. 13 4. Objectives 14 5. Methodology Adopted. 15 6. Information and Analysis. 16 7. Back Office Functioning.. 23 8. Observation and Findings. 28 9. Recommendations and Suggestions..29 10. Conclusion.30 11. Chronological Order..31 12. Bibliography..32

Executive Summary ____________________________________________________________ This project underlines the need and importance of the back office function in a share broking firm with special reference to its deployment in Pune Stock Exchange. Back office is the back bone of any broking business. The main and important function of the back office is to ensure that the rules and regulations are strictly adhered to and the control is maintained on the operations of the firm. The success of the back office largely depends on the efficient functioning of the back office. It can be well understood by each and every broking firm that in order to gain a competitive edge and sustain the challenges of a dynamic environment today it must have a very efficient back office. This project tries to tell us that the why back office functioning is essential for every firm in this kind of business, so as to increase its profitability, efficiency and sustain the pressures posed by competition. This project also tries to bring out the role of the personnel working in the back office, and how their efficiency and devotion plays an important role in the success of any broking firm. The project contents are followed by the objectives which will be followed by the introduction to the topic. Methodology adopted will help us to know how the project has been carried out. Observations and Findings will be followed by the suggestions to improve the efficiency of the back office function in Pune Stock Exchange.

Introduction ___________________________________________________________ _ In world of commerce, apart from money equally revolutionary concept was the concept of limited liability. Before the industrial revolution economy was self sufficient village economy. The artisans produced goods and services on demand. It was industrial revolution which paved the way for production in anticipation of demand, and along with it came the economies of large scale production and to support this was needed huge finance. Innovative forms of business establishment, incorporating the principle of limited liability emerged. Form the highly imaginative world of business, a novel form of business organization viz. Joint Stock Companies, with the features like limited liability and the separation of ownership and management was born. Risk is an important and inherent part of any business. Risk cannot be avoided. You can only try to manage it. This was the best example of risk management by spreading it in small proportions amongst large number of shareholders. This was achieved by a concept called shares or stock and the need for trading in these stocks was felt. Capital Formation and Economic Development Multiplicity of wants and scarcity of means to satisfy these unlimited wants has continued to be the fundamental of economic problem. Money resources are required to move physical resources. Mobilization of resources for economic development was and continues to be the major problem with all developing and developed nations. In a capitalist economy the key decisions like what to produce? When to produce? And how much to produce is driven by market forces, the where withal for all this provided by money, by capital. The capital might be from within the country or outside the country. But one of the greatest challenges of nations today is creating conditions conducive for capital formation as also for attracting capital from various countries. A growing economy with vibrant capital and money market with rules and regulations in place is a prerequisite for attracting capital. Stock market plays a key role in the entire gamut of financial system. Having broadly discussed the developments and the basic issues involved, we will now try to review the Indian Financial System. India has come a long way during the last decade of the 20th Century. With the path-breaking budget of 91-92 presented by Dr. Manmohan Sign an era of globalization, liberalization, decontrol and de-regulation was adhered in. Since then a lot of water has flown from under the bridge and lot of

development has taken place. The focus all along has been to faster economic development. Indian Financial System The financial system comprises a variety of intermediaries, markets, and instruments. It provides the principal means by which savings are transformed into investments. Given its role in the allocation of resources, the efficient functioning of the financial system is critical to a modern economy. A conceptual Framework of how the financial system works:-

The Financial System

The financial system performs the following interrelated functions that are essential to a modern economy: making. It provides a payment system for the exchange of goods and services. It enables the pooling of funds for undertaking large-scale enterprises. It provides a mechanism for managing uncertainty and controlling risk. It generates information that helps in coordinating decentralized decision

It helps in dealing with the incentive problem when one party has an information advantages. Need for Regulatory Framework:There were major policy changes like the opening up of the economy and greater role of the private sector, when the Sixth five-year Plan was launched in 1985. The need to set up a regulatory agency for the stock and capital markets was recognized at that time. The malpractices prevailing in these markets reduced the confidence of investors. This in turn created obstacles in mobilizing the funds. The entire edifice of capital market is based on the trust in the financial system of the country. The scams in the resent past are a testimony to the importance of a sound financial system. Loss of trust and confidence of the investor in the working of the system and the ability of regulatory framework to vouch safe the same from the predators can bring the untold misery and the whole edifice can fall like a castle of cards. Regulatory Framework in place:As the maker and enforcer of laws in a society, the government has the responsibility for regulating the financial system. The two major regulatory arms of the Government of India are the Reserve Bank of India and the Securities Exchange Board of India. Securities Exchange Board of India:The Securities Exchange Board of India (SEBI) which was established on April 12, 1988 through an Extraordinary Notification of the Government of India in the Gazette of India was given statutory recognition with the promulgation of the Securities and Exchange Board of India Ordinance on January 30, 1992 and the Board was statutorily set up on February 21, 1992. The SEBI Act from April 4, 1992 replaced the Ordinance. The Board consists of a Chairman and five other members, one each from the Ministry

of Finance and the Ministry of Law, Justice and Company Affairs, one from the Reserve Bank of India and two others to be appointe3d by the Central Government. The basic aim of the SEBI is to regulate the capital market to protect the interests of investors. Organization of SEBI:After it became a statutory body, SEBI restructured its organization and rationalized it in line with its activities into five operational departments, each headed by an Executive Director, Apart from these, there are two other departments viz. Legal and Investigations Department. Following are the five operational departments: Primary Market Development. The Issue Management Department. The Institutional Investment Department. The Investigation Department. SEBI also has two advisory committees, one each for the primary and secondary markets, to provide advisory inputs in framing the policies and regulations. These are constituted firm among the market players recognized investors associations and eminent persons associated with the capital market. The committees are however non-statutory in nature and SEBI is not bound by their advisory committees. The SEBI of India has been entrusted with the responsibilities of dealing with various matters relating to the capital market. The SEBI is the regulatory authority established under section 3 of SEBI ACT 1992 to protect the interests of the investors in securities and to promote the developments of, and to regulate, the securities market and for matters connected therewith and incidental there to. SEBIs principal tasks are to: markets. Regulate the business in stock exchange and any other securities

Register and regulate the capital market intermediaries (brokers, portfolio managers etc. Register and regulate the working of mutual funds. Promote and regulate self-regulatory organizations. Prohibit fraudulent and unfair practices in securities markets.

Promote investors education and training of securities markets. Prohibit insider trading in securities. Regulate substantial acquisition of share and takeovers of companies. Perform such other functions as may be prescribed. Formation of Self Regulatory Organizations:The Legislative scene depicted above notwithstanding, SEBI has been advocating a self-regulatory set up for regulation of capital markets, and in this connection, the stock exchanges have designated to play the role of selfregulatory organizations for brokers/sub brokers etc. There are at percent 23 stock exchanges in India, in addition to OTC Exchange. Similarly, the Association of Merchant Bankers of India, (AMBI) a representative organization of merchant bankers is being established as a self-regulatory organization, where after SEBI will consider grant of recognition to it. Role of Stock Exchanges:The Stock Market is an open auction market, where the buyer and sellers meet to deal in securities. Stock exchange provides a regular and continuous market for buying and selling of securities. The usual procedure is that when an enterprise is in need of funds, it approaches the investing public, both individuals and institutions, to subscribe to its issue of funds; it approaches the investing public, both individuals and institutions, to subscribe to its issue of capital. The securities thus floated are subsequently purchased and sold among the individual and institutional investors. There are, in other words, two stages involved in the purchase and sale of securities. In first stage, the securities are acquired from the issuing companies them selves and these are, in the second stage, purchased and sold continuously among the investors without any involvement of the companies whose securities constitute the stock-in-trade except in the strictly limited sense of registering the transfer of ownership of the securities. The importance of stock exchanges can be well deciphered from the fact that it imparts liquidity to the scrips held. It provides price continuity to the shares traded on the stock exchange, the market price of shares reflects the intrinsic value of the security and the trading is conducting under the supervision of the stock exchange authorities, thereby providing reasonable degree of safety and fair dealings to the investors. The stock exchanges have exhibited a perceptible change in the level of activities during the 1980s and particularly during the second half of the

decade. The growth is evident from the dramatic increase in the amounts of funds raised from the markets annually and from the volume of turnover in the secondary markets. The developments in the markets also include establishment of new financial institutions to meet requirements of the growing economy, and use of innovative financial instruments to sub serve the needs of investors at whom these instruments are aimed. With all the above developments, Capital Market has now developed to cater to the needs of growing corporate sector. The secondary market in India has also shown maturity by registering enormous growth in the recent years in terms of the number of listed companies, market capitalization, market value of listed companies to gross national product, number of shareholders, and so on. There are 23 recognized stock exchanges in the country. The organization of the exchange varies: 14 are public limited companies, 6 are companies limited by guarantee and 3 are companies limited by guarantee and 3 are voluntary non-profit organizations. The Government of India/SEBI ensures broad uniformity in the structures while granting recognition; only 9 stock exchanges have got permanent recognition, other have to renew it every year until permanent recognition is granted. All Stock Exchanges are managed by a governing body which consists of elected broker-directors, public representatives and Government /SEBI nominees. The number of stock broker-directors members has now been reduced to about 40%. For regulation and control of transactions, each stock exchange has bye-laws and regulations which are more or less uniform in all stock exchanges. The most active of the stock exchanges are located at Bombay, Calcutta, Madras, Delhi and Ahemdabad. The number of listed companies increased from 3118 in 1983 to over 9800 during 1999-2000. The total market capitalization of all companies listed on the Stock Exchange Mumbai was 5853 indicating a rise of 20.78%. The Government too, with a view to encourage the corporate to approach the capital markets to meet their requirements for funds, has initiated policy measures to open up the capital markets. These policy measures include steps to streamline the procedures and to impart transparency to operations at the stock exchanges. Although by international standards, the Indian capital markets are still immature, they have certainly developed to cater to the needs of the growing corporate sector. The developments in the stock markets are reflected through: Heightened state of activity reflected through sharp rise in both resources mobilized through corporate securities and investments and investments schemes of mutual funds. Increased trading activity at the secondary markets. Emergence of mega issues

Progressive role of institutional investors at the capital markets. Indian Securities Market has undergone a complete transformation. In recent years with a broadening of the money market and capital markets significant institutional developments has been noticed in the Indian markets. Following are the details of the institutions and their functions:-

Discount and Finance House of India:The RBI jointly with the public sector banks and financial institutions on the recommendations of the working group on money market, set up an apex body named Discount and Finance House of India. The main objective of DFHI is of imparting liquidity to such instruments like treasury bills etc.

Credit rating and information Services of India Ltd. (CRISIL):It is first credit rating agency in the country to evaluate debt obligations of the companies, depending on their ability to service these obligations and assigns rating to them expressed as numeric and alphabetical symbols. The ratings convey the credit agencys opinion on the risk associated with a particular debt obligation. The credit rating is however not the recommendation of the credit rating agency to the investor to buy or sell the securities.

Investment Information and Credit Rating Agency Of India Ltd. (ICRA):The ICRA has been set up with the primary objective of providing guidance to the investors/ creditor in determining the credit risk associated with a debt instrument/ credit obligation. Credit Analysis and Research LTD. (CARE):Its main objective is of rating of all types of debt for the benefit to the investors. It is the third Credit Rated Agency in India. Stock Market:The stock Market is broadly divided into two parts primary market and a secondary market. New securities are issued in the primary market and outstanding securities are traded in the secondary market. The secondary market in India comprises about 23 stock exchanges recognized by the government under Securities Contract Regulation Act. The principal exchanges are the National Stock Exchange and Bombay Stock Exchange, accounting for the bulk of the trading on the Indian Stock Exchange.

National Stock Exchange (NSE):Inaugurated in 1994, the National Stock Exchange seeks for:1. 2. 3. 4. 5. Establish a notion-wide trading facility for equities, debt, and hybrids. Facilitate equals access to investors across the country. Impact fairness, efficiency, and transparency to securities. Shorten settlement cycle. Meet international securities market standards. The NSE, besides operating the traditional market for equities, convertible debentures, non-convertible debentures etc., also operate a wholesale debt market, is a separate segment of the NSE as distinct from the capital market segment. The NSE has adopted fully automated screen based trading system, which allows trading members to trade from their offices through a communication network. Besides there is flexibility with regards to price, time and volume conditions. Features of National Stock Exchange: Nation-wide Access The NSE provides nation-wide trading facilities and equal access to investors all over the country. High quality services to members are maintained through efficient, transparent and fair trading systems and procedures. Automation-Screen Based Trading The NSE market is a fully automated screen based trading environment. There is no trading floor as is prevalent in the traditional stock exchanges, nor do the dealers use the telephone to arrange money market deals as was the practice. Rather the market will operate with all market participants stationed at their offices and making use of computer terminals, to enter orders, to receive the current market status, the traders executed and other market related information. Anonymity of the Trading Members Identity The identity of the trading member placing the order is not disclosed in the NSE computer trading system. By enabling the trading members and

participants to hide their identity, it allows placing large orders into the system by the big players, without fear of large orders influencing the price of the market. Complete Transparency The system provides complete transparency of trading operations. Investors can know whether their orders have been placed into the system, the rate at which their deal has taken place the counter party and the time at which the trade was executed. The trading system also provides complete market information online through various inquiry facilities. The system at any point of times gives the member complete information on the total order depth for a security, the best buys and sells available in the market the quantity traded in that security etc. All these information are updated online, enabling the member to make better decisions. All the key information is updated on a real time basis. The response time is very quick. As a result it is possible for the investors to know the actual position of the market before placing the orders. Investors can also know the fate of the orders almost as soon as they are placed with trading members. The trading system is top on the line and user friendly. Some of its new features include a corporate hierarchy which gives the trading members an opportunity to set up a network of branches and exercise control on their orders. Flexibility in trading The trading system provides enormous flexibility to trading members. When entering an order, a trading member can place various conditions in terms of price, time or size. Order Matching Principle Orders are matched automatically by the exchange computer system. All orders received are stacked in price-time priority i.e. the computer sorts order as when they are received they are received in terms of the price of each security and the time at which orders are entered. Subject to the conditions placed on an order by the trading member the computer system will automatically search for the best match. As soon as it finds a suitable match, the deal is stuck. If it does not find the match immediately as may happen in the case of less liquid securities, the order is kept pending in the computer unless specified otherwise by the trading member. Counter party Exposure Limits The system has built-in flexibility to allow whole sale debt market participants to set the exposure limits specified by their management so

that all transcations on behalf of such members are subject to pre-set exposure limits of the respective counter party, even if all other parameters such as price and volume can match. These limits are not accessible to or transparent to other members. As before, if the order is kept pending in the system for a counter offer unless specified otherwise by the trading member. Efficient and Fair The automated trade matching system is a highly efficient trading member can put in a large number of transactions and complete a high volume of business efficiently. It also ensures that participants secure the best price available at any point of time. Benefits from NSE:To Investors The investor is assured of the best price in the market. Price and brokerage are separately shown on contract notes. Date and time of trade are indicated.

The system will be better monitored and regulated ensuring a fair deal to investors. Safety of securities is enhanced in a depository and there is no problem of bad delivery, loss, theft or forgery. To Trading Members They can provide efficient service to their clients.

Their back office load is reduced considerably as the system generates details of trade undertaken. They can benefit from high growth in trading volumes which typically takes place when on automated trading system is introduced. They can trade from their respective offices and can make use of full back office support for trading. There is no need to occupy office premises near a stock exchange unlike what was previously required this can lead to reduced establishment costs. They can install a computer network of their own to receive their own client orders, which they can interface with the exchange, leading to a large increase in business.

Large growth opportunities also emerge on the NSE, as Foreign Financial institutions prefer the automated and regulated market.

Benefits to the Issuer By a single listing they can provide nationwide access to their investors. As a result their listing costs are reduced considerably. Issuers have high visibility. Bombay Stock Exchange (BSE):Established in 1875, the Bombay Stock Exchange (BSE) is one of the oldest organized exchanges in the world with a long, colourful, and checkered history. Its distinctive features are as follows:The BSE switched from the open outcry system to the screen based system in 1995. It accelerated its computerization programme in response to the thereat from NSE. Jobbers play an important role on the BSE. A jobber is a broker who trades on his own account and hence offers a two-way quote. The bid price reflects the price at which the jobber is willing to sell. Investors have to transact via a broker. The broker feeds his buy/sell quotes in his terminal, which is linked, to the main server at the BSE, because of this NSE has adopted a quote driven system and an order driven system. Shares listed on the BSE are classified into two groups, viz. Specified and cash, also referred to as A and B groups. The A group comprises equity shares of such companies, which have a large volume of business in the secondary market. Presently, about 150 shares have been classified as A group shares the rest belong to B group.

Company Profile ____________________________________________________________ Pune Stock Exchange Ltd. is a company limited by guarantee. The Exchange was established on 2nd Sept. 1982 to cater to the needs of the growing investor community in the city. Starting small, with 35 members and a few lac rupees business initially, the exchange has grown tremendously to over 185 members and about 1520 cores of business daily. Much of the work is computerized with a smooth settlement system. Over 310 companies are listed with the Stock Exchange. The Exchange, while providing an efficient market also upholds investors interests and ensures redressal of their grievances. It also strives to educate and enlighten investors by making available necessary information inputs. Pune Stock Exchange opted for the on-line screen based trading in 1995. The Exchange has been successfully using a screen based Trading System, based on VECTOR (Versatile Engine for Centralized Trading and On-line Reporting) and developed and implemented by CMC Ltd, for more than three years now. The present operations cover 183 broker members and 9 workstations for administration, Market Operations and Surveillance activities of PSE, and it is ranked 7th in the country. Pune Stock Exchange has been looking into the possibilities of widening its activities to different parts of Pune city and to other cities like Satara, Sangli, Solapur, Kolhapur, Ahemdabad, Aurangabad, Nashik and Mumbai.


In order to retain investor confidence there are regulatory authorities like SEBI to regulate and control activities of capital market, But in order to achieve this precautions should be taken at the grass- root level that is at each brokers place. For obtaining this it becomes essential to have qualified personnel at the back office of each broker so that the back office function is carried out smoothly and In order to understand the process of back office function my objectives while undergoing project were o o o improved. To understand and know Back office function Importance of back office function Various ways and means by which efficiency in back offices can be

Methodology Adopted.

Information to prepare this project report on back office function in a share broking firm was gathered through o guide. o sites etc. Discussion with the company project guide and college project Information published in various publications, books, journals, web

o Extensive discussions with senior level management personnel, some of them forming the part back office function.

Information and Analysis

Capital Market Capital Market is a market for long-term debt and equity shares. It is a source for long term capital raised for the development of companies. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placements sources of debt and equity as well as organized market like stock market, which is a part of it and helps investors to trade in their shares and thus maintain the liquidity of their investment.

Primary Market It is a market for new issues of shares, bonds and debentures, where investors apply directly to the issuers for the allotment and pay application money to the issuers account. It is different from the secondary market where the investors trade in shares on the stock exchange through brokers. So in a nutshell the market in which securities are first issued to investors is a primary market.

Secondary Market Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and / or listed on the Stock Exchange. It comprises of equity market and the debt market.

Stock Exchange A market place where shares are traded. It is usually a building where members of the exchange, acting as brokers of client or dealing on their own, buy or sell shares. It facilitates entry and exit of the investment of the clients.

Share Market It is a place where buying and selling of shares and securities take place of different companies. It is of great importance because it is a barometer of the countrys economy i.e. if economy is sound; market normally goes up visa a versa. Performance of the company is reflected by

the value of share price without that raising of the funds is difficult for the economy.

Broker A broker is a member of a recognized stock exchange, who is permitted to do trades on the floor/screen-based trading system of different stock exchanges. He is enrolled as a member with the concerned exchange and is registered with SEBI. They come under the SEBI Guide line.

Sub Broker A sub broker is a person who is registered with SEBI as such and is affiliated to a member of a recognized stock exchange. They also come under SEBI guideline, but they are nominated by main broker to carry out
transaction in the market.

Their various repost prepared by them some of them are as followsValan Trial balance Valan trial balance is a summary of debit and credits given to each and every client and then the grand total of all the debits and credits. It also gives the client wise brokerage receivable. Every client is allotted a client code and the description of the transactions is given client code wise. Valan trial balance is one of the daily reports that are prepared and from that the required figures posted wherever required. Valan number means the settlement number given by NSE, and the valan trial balance gives for that settlement that clients balance, which is then sent to accounts department for the recovery, which is deposited in NSEs account after which NSE gives Brokers account debit. Following are the contents of the valan trial balance. -

A/c code
4506 7014

Account Head Ravi Inv.

Ram Inv. . * Client Total *Net balance

6367.54 194909.89

8378.43 . 102744.73

593127.38 490382.65

76446 ..

Valan Control A/c Group E Service Tax Payable

645.76 ..

Clientwise Delivery Statement It maintains the Clientwise report in the books of brokers a/c, i.e. this statement gives the details of all the clients one by one, deliveries taken from a client and deliveries given to the client.
Brought Quantity 320 250 . Client code 103 215 . Book Closure Date . . Record date Sold Qty 100 320

Scrip name

Reliance Satyam comp. ..

Scripwise Delivery Statement This differentiates from the Clientwise delivery statement because it gives details like in which scrip trade has done by the client. Scrip Name: Satyam Comp

Brought Qty. 200 300

Client code 2049 2252

Client name Anand Ravi

Book closure date

Record date
25/06 .

Sold qty 275 .

. .

Working of the Stock Exchange.

Buyer-A/ Seller-A

Depository Participant

Broker- A




Buyer-B/Seller-B Client

Depository Participant

Settlement of shares Detailed explanation with example:-

Settlement of money

Buyer-B of Broker-B purchases 100 shares Reliance from Broker-A at the same time Seller-A sells 100 shares of Reliance to Broker B through Broker-A then following procedure take place B pays to broker-B the amount due on the shares purchased by him. Broker-B pays the settlement amount to NSE (Funds Pay in) NSE pays the amount to the Seller Broker-A Then Seller Broker-A pays the amount to seller-A (Funds Pay out)

Simultaneously Seller-A delivers 100 Reliance to Broker-A in his depository account (Shares Pay in) Participant. Broker-A delivers the shares to NSDL through his Depository NSDL then gives the shares to broker-b Finally Broker-B delivers the shares to Buyer-B (Shares Payout) An investor who wants to hold his securities in electronic form he has to approach a Depository Participant and through him open an account at NSDL. After getting Client I.D. no. from NSDL then client goes to a registered broker of NSE/BSE for investing in the shares. The client gives the order to the operator seating on the NEAT software (National Exchange for Automated Trading) for particular scrip at a specific price when the bid matches on the screen the confirmation tag blinks with the scrip ISIN no. (International Securities Identification Number) for which he has to take the delivery and make the payment on T+2 basis, if he doesnt make the payment it goes to Auction and he has to pay the penalty and the auction price for the shares traded. Existing Depositories in India Presently there are two depositories in the country, namely National Securities Depositories Limited (NSDL) and Central Depositories Services Limited (CDSL). NSDL was set up as the first depository company in the country; it has been sponsored by the Unit Trust of India, NSE, State Bank of India, HDFC Bank and City Bank. Its performs the following functions through depository participants enables the surrender and withdrawal of securities to, and from, the depository; it maintains investors holdings in the electronic form; effects settlement of securities traded on the exchanges; it carries out settlement of trades not done on the stock exchange (off market trades);

transfers of securities; electronic credit in public offerings of companies; receipt of non-cash corporate benefits like bonus, rights, and so on in electronic form; Stock lending and borrowing. The Mumbai Stock Exchange in association with the Bank of Baroda, State Bank of India and HDFC Bank have promoted CDSL as a secondary depository in India for dealing in securities, in the electronic form, by the name of Central Depository Services (India) Limited (CDSL). The main objectives are as to accelerate the growth of scripless trading; to make a major trust in the individual investors participation in the depository, to create a competitive environment which will be responsive to the users interests and demands, to enhance liduidity. Accounting Period Settlement It is the settlement where the trade pertaining to a period stretching over more than one day is settled. Rolling Settlement The execution made during the day is settlement i.e. by squaring off the position by either taking delivery or giving the delivery. The trades pertaining to the rolling settlement are settled on a T+2.

Meaning of T+2 basis T+2 basis means for e.g. if the transaction has taken place on say Monday then the pay in and pay out of that settlement will take place on Wednesday. Securities Transaction Tax (STT) STT is a tax being levied on all transactions done on the stock exchange at the rates prescribed by the Central Government from time to time. Pay in day and Pay out day Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay out of the day is the day when the exchanges make payment or delivery of securities to the broker. Settlement cycle is on T+2 rolling settlement bases. The exchanges have to ensure that the payout of funds and securities to the clients is done by the broker with in 24 hours of the payout. The pay in and payout days for funds and securities are prescribed as per the settlement Cycle. Like a Typical Settlement of Normal Settlement is as followsActivity Day

Trading Clearing Settlement

Post Settlement

Rolling Settlement Trading Custodial Confirmation Delivery Generation Securities and Funds Payin Securities and Funds Payout Valuation Debit Auction Bad delivery Reporting Auction Settlement Close out Rectified bad delivery payin and payout Re-bad delivery reporting and pick up Close out of re-bad delivery

T T+1working days T+1working days T+2working days T+2working days T+2working days T+3working days T+4working days T+5working days T+5working days T+6working days T+8working days T+9working days

Brokerage and other charges Minimum brokerage is 1 new paisa Maximum brokerage is 2.5% Service tax @ 8.5 of the brokerage Transaction charges as levied by the NSE. SEBI fees on turn over is 0.01% Contract Notes It is the confirmation note of the trade done on a particular day for a client, which is being issued in the format and manner prescribed by NSE and has to be acknowledged by the client on getting the duplicate. Screen Reading NEAT is the name of the Software used for online trading of NSE so it is important to be able to read and understand the NSEs screen as it shows which trades are being carried out, if the operator puts a transaction purchase then a red strip arises in front of that scrip which is demanded by the client. Important Keys Used for various purposes likeF1 - For placing order for buying the shares. F2 For placing order for selling the shares.

F3 Outstanding order. F4 Scrip update. F6 Market by 1st five buys. F7 Market by order (active log). F8 Previous trades. F9 Snap quote. F10 Full message display. F11 Market inquiry. F12 Supplementary menu. Alt F6 Net position. Alt F7 Online Back-up. Ctl F3 Index.

Back office functioning

This report is about the study undertaken by me during a period of two months for my summer project in Pune Stock Exchange. The Back office function acts as a back bone of any share broking firm as the work which the personnel in back office has to perform is very crucial and important for the client as well as the firm. Any mistake from the personnel might become a liability for the firm, for e.g. if there is short delivery or pay in of clients share then for those shares auction takes place for which they have to pay the price for the same. Hence the back office function calls for the full concentration level of the personnel while doing his or her work. If the back office section detects any error it should draw the attention of the higher authority for the corrective action. Basically the back office function includes responsibilities like transaction processing, settlement and other administration functions. So the key result activity in a share broking firm is the back office function which operates through different department like Crd department, Delivery department, Accounts Department, Compliance department etc.

Departments 1. Client registration Department (CRD) In order to trade in the market the client has to fill up the agreement between the Client-Broker-Sub broker which is know as tripartite agreement and also know your client forms with necessary requirement attached to it, has to been send to CRD. In the mean while the client or sub broker has to feed the all information in masters and has to submit it in s/w which can viewed by the client broker and sub brokers end. After receiving the forms the employees in the CRD verifies it and checks with the master, and everything is matched, it gives instructions for the activation of the client to the surveillance department. And once it get activated CRD informs to client by putting the details in the ftp site which can be viewed at their end and can start trading. And if the details do not match or any particular attachment is not there then they inform through ftp site where the client and sub broker can view the current status. If any changes has to made like change in name or address or in brokerage they have to inform to CRD and they get it changed. 2. Delivery and Accounts Department


Basically the employees in the Delivery department have to look after the pay in and pay out of shares and Accounts department has to look after the pay in and pay out of funds. Pay in of shares Now a days pay in of the shares is done automatically which is known auto delivery out. NSE/BSE has the record of how much pay in of shares is due from the sellers broker. The bank in which the broker has his account, which is only for clearing member, the download of auto delivery out is taken through the NSEs site. Then the broker gets the print out of the delivery out report which shows whether nsdl/cdsl has received the pay in correctly or not. After confirming it from the bank the shares are sent from pse account to nse/bse and confirm the pay in. Suppose if they are any short delivery of shares then nse/bse gives debit to the pse account and similarly brokers debit it to sub brokers/clients account and then nse/bse can charge penalty for short pay in.

b. Pay out of shares and funds When shares are purchased by the client then he gives money to sub broker which he delivers to pse and pse sends to nse/bse as funds pay in against which nse/bse gives payout of funds and also gives delivery of shares to pse and in return pse gives the pay out of shares and payout of funds to the respective sub brokers at present T+2 basis, which means the day of trade plus two days within which the pay in and pay out of shares and funds should take place simultaneously. c. Intersettlement transaction Intersettlement transaction are the necessary adjustments between the broker and the client for which client has to give request to the broker, for e.g. if the client has sold 20 share of reliance in settlement number 154, but if the client request to broker/ sub broker to adjust this pay in against the payout in settlement number 158 then it is called as inter settlement transaction. d. Cash management and transfer of funds Cash/ funds is the lifeblood of any organization so management of cash and transfer of funds form a very important aspect of the accounts department. This includes constant check and reconciliation of the bank account of the sub broker. e. Preparation Bank Reconciliation statement Bank reconciliation state is very important as it helps the accountant to understand the balance of cash in the respective bank account and if there is any difference between in balance as per the sub brokers book and as per our books it has to be rectified immediately and should be informed immediately. There could be many reasons because of which there can be indifference in cash and bank balances and doing bank reconciliation statement can rectify these difference. f. Preparing the cash statement This statement gives the details of the transactions of previous days. It shows all the debits and credits given to

each and every client, margin from the sub broker, net balances, net stock payment(normal/auction) and net stock receivable(normal/auction) g. Checking the Daily Funds Statements Daily funds give the details of pay in and pay out of funds and also show whether it was normal or auction. This report has to be checked by the accountant and find whether there is any short delivery, if yes then get the short delivery report from the delivery department. h. Undertake the work of recovery as well The job of recovery is very is very difficult and this is one of the important functions of the accounts personnel for this he has to be very shrud person and see that the job is done. 3. Compliance Department Compliance has acquired a lot of importance these days as there are penalties if you fail to comply as per the requirement of nse. For those purpose of compliance pse has to submit a compliance report to nses inspection and investigation department signed by the Managing director on the behalf of the company under the common seal. They have to inform to sub broker regarding the inspection or meetings which are duly held like AGM, has to prepare minutes of the meeting, has to inform any changes in rules, regulations and laws etc 4. Surveillance Department As the securities transactions are prone to verity of manipulations, the nse has instituted a strong surveillance mechanism to protect market integrity. It includesOnline monitoring - The National Securities Clearing Corporation Ltd. has in place an online monitoring and surveillance system whereby exposure of the member is monitored on a real time basis. A system of alerts has been built in so that both the member and NSCCL are altered as per pre-set levels (reaching 70, 85, 95, and 100 percent) when the members approach their allowable limits. The system enables the NSCCL to further check the micro details of members positions, if required, and take proactive action. The online surveillance mechanism also generates various alerts/ reports on any price/volume movement of securities not in line with past trends/patterns. For this purpose, the nse has put in place a system that generates alerts. Alerts are scrutinized and are taken up for follow up action. Open positions of securities are also analyzed. Besides this, rumours in the print media are tracked and, where they are sensitive, companies are contacted for verification. Replies are informed to the members and the public. Investigation and inspection As per regulatory requirements, a minimum of 10% of the active trading members are to be inspected every year to verify the level of compliance with various rules, byelaws and regulations

of the nse. Usually, inspection of more members than the regulatory requirement is under taken every year. The inspection randomly verifies if investor interests are being compromised in the conduct of business by members. The investigation is based on various alerts which require further analysis. If the analysis suggest any possible irregular activity which deviates from trends/patterns and concentration of trading at the nse, at the member level, then a more detailed investigation is undertaken. If the detailed investigation establishes any irregular activity, then disciplinary action is initiated against the member. If the investigation suggests possible irregular activity across the exchange and/ or possible involvement of clients, then the same is informed to the SEBI. 5. Depository participant (DP) Once the trade is done on the stock exchange, client/sub broker gets reports of their net obligation. A clearing member (CM) has to open a clearing and settlement of trades with a DP. On opening of such account an account, the depositories allots a number identified as CM- Business partner- Id. The DP opens an account and the CM is allotted a number (Client ID). The delivery account consists of three parts pool a/c; delivery a/c; receipt a/c, to facilitate easy book keeping. The role of the pool account in clearing of securities is two fold- a.) the selling client of the CM transfers securities from his client account to the pool a/c of the CM before pay in and b.) after payout, the CM transfers securities(to the extent of his obligation to the clearing operation) from the pool a/c to the delivery a/c , before pay in. On pay in day the depository flushes out the securities in the delivery a/c and transfers the same to CC automatically. On pay out day, the CC transfers securities to the pool a/c (to extent of the net receipt) through the receipt a/c. This account can be used to trace the details of settlement-wise receipt into the clearing. On off market trades, these include trades where the seller and buyer deal directly with each other, without any intervention of the CC. The seller would give his DP a delivery instruction slip instructing him to debit his account with the transacted securities and the buyer would give his DP a receipt instruction slip to credit his account. Both the instructions would have the same execution date. The transaction would match at the depository, and credit and debit would be given by the DPs to their respective Client account.

Observations and Findings During the actual two months period of doing this project I was able to observe some important elements in favor of Pune Stock Exchange and some against them and in order to put it in a better way I carried out a swot analysis which is as under Staff Strength of PSESL Good and Highly qualified and cooperating Weakness of PSE Less Manpower.

Opportunities The Company has made an application to NSE for the F & O membership, for which approval is awaited. The exchange is planning to commence Investors Service Centers in Satara, Sangli and Kolhapur to provide services relating to Capital Market to the investors in these cities and around Threats to PSESL Threats from competitors like icicidirect.com

Recommendations and Suggestions. Findings and suggestions Findings At the time of doing my project in PSE I found that there could be time saving as number of employees working over there were less in each department so depended was more on these employees and at that time some of the well set expert employees working over there were leaving the job due to their future growth or personal reasons, and work load was huge so it was pretty difficult for employee over their, as they have stand by longer time, much pressure were on them for the completion of job and there is always a state were at the end of day some of other thing used to be pending. And few people who were newly joint in the PSE at that moment were not that much trained and were not much confident as they are well qualified but didnt had experience in this field. So lots of time used to be wasted in order to build confidence by themselves and grasp the knowledge. Other things were, in PSE they do not have HR department so that employees can tell their problems, need and demands to them and if they had also they used to tell to DGM or to AGM or to the Director and if they get time they used to solve it or it used to be on priority basis and they didnt had canteen facilities also. Suggestions Instead of employing the no experienced employees or fresher, they should have employed experienced employees in the departments at that moment of time, so work load could have been reduced and could not had been much pending work and tension also.

There are lots of requirement of employees in each department so that work can be evenly distributed and their will be flow in the work and doesnt have to depend on anybody. Their should be a HR department on high priority basis because they can understand the nature of employees, their need and demands or requirements, can try to understand their problem or any grievances and can give immediate solutions to it, and can create working atmosphere for the employee so that they can work smoothly and happily without any tension or fear in mind.

Conclusion In the present scenario every individual who is searching for the job, wants to do a front office job, but they dont realize how important the Back Office Function is. In a share broking firm like PSE where I did my project, the back office function is highly important, as many things are dependent on performance of back office and if it is not performed with full understanding and concentration, it could lead to blunder mistake and can put any broker into monetary loss, so after completing the project I could understand functioning of any broking firm lies in the hands of back office personnel this shows how important is the back office function. The whole project is based on the back office function and its importance implications in the routine of PSEs functioning and after completing the project I can confidently say that I have got a glimpse of the working in a share broking firm. On the basis of the whole project, as a part it suggests a systematic way to Pune Stock Exchange to increase the efficiency of back office function, considering the time factor.

The Chronological Order

This report has been prepared in a chronological sequence explaining the flow of work logically which is as under 1. 2. 3. 4. 5. 6. 7. The Indian Financial System. Stock Exchange as a part of the whole financial system. Role of Stock Exchange. Need for the regulation and control. Role of SEBI as a regulating and controlling authority. Broker as a part of stock exchanges working. Importance of back office functions in a share broking firm.


1. 2. 3. 4. 5. a. b. 6.

Website of RBI, SEBI and NSE. Financial Management Module of ICFAI. C.S. Module (for few definitions) The Economic Times (newspaper) Book Reference Indian Financial System Advance Financial System Discussion with the senior staff of PSE.