CHAPTER - 1

INTRODUCTION

1
INTRODUCTION

Capital markets are financial markets for the buying and selling of long-term debt
or equity-backed securities. These markets channel the wealth of savers to those
who can put it to long-term productive use, such as companies/governments
making long-term investments. Capital markets are defined as markets in which
money is provided for periods longer than a year. The Securities and Exchange
Board of India (SEBI) is the regulator for the securities market in India. SEBI
oversee the capital markets in India's jurisdictions to protect investors against
fraud, among other duties.

India has a long history when it comes to stock trading, the Bombay Stock
Exchange (BSE) is Asias first stock exchange and the world's fastest stock
exchange. Even though India has precedence in Capital market, the market is
underutilized. The opportunity that lies within the Capital markets is boundless. To
get a direct experience to learn the practical side of the business will be a good
opportunity for a management student.

Pentad Securities (P) Ltd. is one of the brokerage houses and investment advisory
in India. They provide research based comprehensive solutions and advisory
support that boosts portfolio performance. Their core strategy centers around
fundamental and technical parameters that help clients take their wealth, Beyond
Investing.

2
OBJECTIVES OF THE INTERNSHIP

To study the organizational structure of Pentad Securities (P) Ltd.

To study about various departments and their functions.

To know about the day to day activities in the Pentad Securities (P) Ltd.

To get real life experience in working with the organization.

To conduct a SWOT Analysis of the organization.

METHODOLOGY

The organization study conducted is descriptive in nature. The following

methodologies were adopted for the study.

1.3.1. Data collection

a. Primary Data

Primary data was collected through observation, personal interview, discussion

with managers and employees of the various departments of the organization. It
also included companys internal records.

b. Secondary Data

Secondary data was collected through literature review which included,

publications, annual reports, journal, statutory report, website (officials and others)
etc.

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 CHAPTER 2
FINANCE MARKET AN OVERVIEW

4
Financial Market

Financial Market is the broad term describing any market place where buyers and
sellers participate in the trade of assets such as equities, bonds, currencies and
derivatives. Financial Markets are typically defined by having transparent pricing,
basic regulations on trading, costs and fees and market forces determining the
prices of securities that trade. In economics, typically, the term market means the
aggregate of possible buyers and sellers of a certain good or service and the
transactions between them. The term "market" is sometimes used for what are
more strictly exchanges, organizations that facilitate the trade in financial
securities, e.g., a stock exchange or exchange in Finance, are used to match those
who want capital to those who have it. Financial Markets facilitate:

The raising of capital (in the Capital Markets)

The transfer of risk (in the Derivatives Markets)

The transfer of liquidity (in the Money Markets)

International trade (in the Currency Markets)

The Financial Market in India at present is more advanced than many other sectors
as it became organized as early as the 19th century with the securities exchanges in
Mumbai, Ahmedabad and Kolkata. In the early 1960s, the number of securities
exchanges in India became eight - including Mumbai, Ahmedabad and Kolkata.
Apart from these three exchanges, there was the Madras, Kanpur, Delhi, Bangalore
and Pune exchanges as well.

Today there are 23 regional securities exchanges in India.

The Indian Stock Markets till date have remained stagnant due to the rigid
economic controls. It was only in 1991, after the liberalization process that the
India securities market witnessed a flurry of IPOs serially. The market saw many
new companies spanning across different industry segments and business began to
flourish. The launch of the NSE (National Stock Exchange) and the OTCEI (Over

5
the Counter Exchange of India) in the mid-1990s helped in regulating a smooth
and transparent form of securities trading.

The regulatory body for the Indian capital markets was the SEBI (Securities and
Exchange Board of India). The capital markets in India experienced turbulence
after which the SEBI came into prominence. The market loopholes had to be
bridged by taking drastic measures.

India Financial Market helps in promoting the savings of the economy - helping to
adopt an effective channel to transmit various financial policies. The Indian
financial sector is well-developed, competitive, efficient and integrated to face all
shocks. In the India financial market there are various types of financial products
whose prices are determined by the numerous buyers and sellers in the market. The
other determinant factor of the prices of the financial products is the market forces
of demand and supply. The various other types of Indian markets help in the
functioning of the wide India financial sector.

Types of Markets
Efficient transfer of resources from those having idle resources to others who have
a pressing need for them is achieved through financial markets. Stated formally,
financial markets provide channels for allocation of savings to investment. These
provide a variety of assets to savers as well as various forms in which the investors
can raise funds and thereby decouple the acts of saving and investment. The savers
and investors are constrained not by their individual abilities, but by the economys
ability, to invest and save respectively. The financial markets, thus, contribute to
economic development to the extent that the latter depends on the rates of savings
and investment.

The financial markets have two major components:

Money market

Capital market.

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The Money market refers to the market where borrowers and lenders exchange
short term funds to solve their liquidity needs. Money market instruments are
generally financial claims that have low default risk, maturities under one year and
high marketability.

The Capital market is a market for financial investments that are direct or indirect
claims to capital. It is wider than the Securities Market and embraces all forms of
lending and borrowing, whether or not evidenced by the creation of a negotiable
financial instrument. The Capital Market comprises the complex of institutions and
mechanisms through which intermediate term funds and long-term funds are
pooled and made available to business, government and individuals. The Capital
Market also encompasses the process by which securities already outstanding are
transferred.

The Securities Market, however, refers to the markets for those financial
instruments/ claims/obligations that are commonly and readily transferable by sale.

The Securities Market has two interdependent and inseparable segments, the new
issues (primary) market and the stock (secondary) market.

The Primary market provides the channel for sale of new securities. The issuer of
securities sells the securities in the primary market to raise funds for investment
and/or to discharge some obligation.

The Secondary market deals in securities previously issued. The secondary market
enables those who hold securities to adjust their holdings in response to charges in
their assessment of risk and return. They also sell securities for cash to meet their
liquidity needs.

The price signals, which subsume all information about the issuer and his business
including associated risk, generated in the secondary market, help the primary
market in allocation of funds.

This secondary market has further two components.

First, the spot market where securities are traded for immediate delivery and
payment. The other is forward market where the securities are traded for future

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delivery and payment. This forward market is further divided into Futures and
Options Market (Derivatives Markets).

In futures Market the securities are traded for conditional future delivery whereas
in option market, two types of options are traded. A put option gives right but not
an obligation to the owner to sell a security to the writer of the option at a
predetermined price before a certain date, while a call option gives right but not an
obligation to the buyer to purchase a security from the writer of the option at a
particular price before a certain date.

Equity Market
A market is a location where buyers and sellers come into contact to exchange
goods or services. Markets can exist in various forms depending on various factors.

The markets do exist in different forms depending on the nature of location and
mode of contact. It can have a physical location where buyers and sellers come in
direct contact with each other or a virtual location where the buyers and sellers
contact 4 each other employing advance means of communication. There is another
form of market where actual buyers and sellers achieve their objectives through
intermediaries.

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Securities Markets in India: An Overview
The process of economic reforms and liberalization was set in motion in the mid-
eighties and its pace was accelerated in 1991 when the economy suffered severely
from a precariously low foreign exchange reserve, burgeoning imbalance on the
external account, declining industrial production, galloping inflation and a rising
fiscal deficit. The economic reforms, being an integrated process, included
deregulation of industry, liberalization in foreign investment, regime, restructuring
and liberalization of trade, exchange rate, and tax policies, partial disinvestments
of government holding in public sector companies and financial sector reforms.
The reforms in the real sectors such as trade, industry and fiscal policy were
initiated first in order to create the necessary macroeconomic stability for
launching financial sector reforms, which sought to improve the functioning of
banking and financial institutions (FIs) and strengthen money and capital markets
including securities market. The securities market reforms specifically included:

Repeal of the Capital Issues (Control) Act, 1947 through which Government used
to expropriate and allocate resources from capital market for favored uses;

Enactment of the Securities and Exchange Board of India Act, 1992 to provide
for the establishment of the Securities and Exchange Board of India (SEBI) to
regulate and promote development of securities market;

Setting up of NSE in 1993, passing of the Depositories Act, 1996 to provide for
the maintenance and transfer of ownership of securities in book entry form;

Amendments to the Securities Contracts (Regulation) Act, 1956 (SCRA) in 1999

to provide for the introduction of futures and option.

Other measures included free pricing of securities, investor protection measures,

use of information technology, dematerialization of securities, improvement in
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trading practices, evolution of an efficient and transparent regulatory framework,
emergence of several innovative financial products and services and specialized
FIs etc.

These reforms are aimed at creating efficient and competitive securities market
subject to effective regulation by SEBI, which would ensure investor protection.

History of Securities Markets in India

The corporate securities market in India dates back to the 18th century when the
securities of the East India Company were traded in Mumbai and Kolkotta. The
brokers used to gather under a Banyan tree in Mumbai and under a Neem tree in
Kolkata for the purpose of trading those securities. However the real beginning
came in the 1850s with the introduction of joint stock companies with limited
liability. The 1860s witnessed feverish dealings in securities and reckless
speculation. This brought brokers in Mumbai together 5 in July 1875 to form the
first formally organized stock exchange in the country viz. The Stock Exchange,
Mumbai. Ahmedabad stock exchange in 1894 and 22 others followed this in the
20th century. The process of reforms has led to a pace of growth almost
unparalleled in the history of any country. Securities market in India has grown
exponentially as measured in terms of amount raised from the market, number of
stock exchanges and other intermediaries, the number of listed stocks, market
capitalization, trading volumes and turnover on stock exchanges, investor
population and price indices. Along with this, the profiles of the investors, issuers
and intermediaries have changed significantly. The market has witnessed
fundamental institutional changes resulting in drastic reduction in transaction costs
and significant improvements in efficiency, transparency and safety, thanks to the
National Stock Exchange. Indian market is now comparable to many developed
markets in terms of a number of parameters.

Structure and Size of the Markets

Today India has two national exchanges, the Bombay Stock Exchange (BSE) and
the National Stock Exchange (NSE). Each has fully electronic trading platforms
with around 9400 participating broking outfits. Foreign brokers account for 29 of

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these. There are some 9600 companies listed on the respective exchanges with a
combined market capitalization near Rs.24.7 lakh crore. Any market that has
experienced this sort of growth has an equally substantial demand for highly
efficient settlement procedures. In India 99.9% of the trades, according to the
National Securities Depository, are settled in dematerialized form in a T+2 rolling
settlement. The capital market is one environment. In addition, the National
Securities Clearing Corporation of India Ltd (NSCCL) and Bank of India
Shareholding Ltd (BOISL), Clearing Corporation houses of NSE and BSE,
guarantee trades respectively. The main functions of the Clearing Corporation are
to work out (a) what counter parties owe and (b) what counter parties are due to
receive on the settlement date.

Furthermore, each exchange has a Settlement Guarantee Fund to meet with any
unpredictable situation and a negligible trade failure of 0.003%. The Clearing
Corporation of the exchanges assumes the counter-party risk of each member and
guarantees settlement through a fine-tuned risk management system and an
innovative method of online position monitoring. It also ensures the financial
settlement of trades on the appointed day and time irrespective of default by
members to deliver the required funds and/or securities with the help of a
settlement guarantee fund.

Style of Operating
Indian stock markets operated in the age-old conventional style of fact-to-face
trading with bids and offers being made by open outcry. At the Bombay Stock
Exchange, about 3,000 persons would mill around in the trading ring during the
trading period of two hours from 12.00 noon to 2.00 p.m. Indian stock markets
basically quote-driven markets with the jobbers standing at specific locations in the
trading ring called trading posts and announcing continuously the two-way quotes
for the scrips traded at the post. As there is no prohibition on a jobber acting as a
broker and vice versa, any member 6 is free to do jobbing on any day. In actual
practice, however, a class of jobbers has emerged who generally confine their
activities to jobbing only. As there are no serious regulations governing the
activities of jobbers, the jobbing system is beset with a number of problems like

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wide spreads between bid and offer; particularly in thinly traded securities, lack of
depth, total absence of jobbers in a large number of securities, etc. In highly
volatile scripts, however, the spread is by far the narrowest in the world being just
about 0.1 to 0.25 percent as compared to about 1.25 per cent in respect of alpha
stocks, i.e. the most highly liquid stocks, at the International Stock Exchange of
London. The spreads widen as liquidity decreases, being as much as 25 to 30 per
cent or even more while the average touch of gamma stocks, i.e. the least liquid
stocks at the International Stock Exchange, London, is just about 6 to 7 per cent.
This is basically because of the high velocity of transactions in the active scripts. In
fact, shares in the specified group account for over 75 percent of trading in the
Indian stock markets while over 25 percent of the securities do not get traded at all
in any year. Yet, it is significant to note that out of about 6,000 securities listed on
the Bombay Stock Exchange, about 1,200 securities get traded on any given
trading day.

The question of automating trading has always been under the active consideration
of the Bombay Stock Exchange for quite some time. It has decided to have trading
in all the non-specified stocks numbering about 4,100 totally on the computer on a
quote driven basis with the jobbers, both registered and roving, continuously
keying in their bids and offers into the computer with the market orders getting
automatically executed at the touch and the limit orders getting executed at exactly
the rate specified.

In March 1995, the BSE started the computerized trading system, called BOLT -
BSE on-line trading system. Initially only 818 scripts were covered under BOLT.
In July 1995, all scripts (more than 5,000) were brought under the computerized
trading system. The advantages realized are: (a) improved trading volume; (b)
reduced spread between the buy-sell orders; c) better trading in odd lot shares,
rights issues etc.

Highlights of the Highly Attractive Indian Equity Market

Two major reasons why Indian securities are now increasingly regarded as
attractive to international investors are the relatively high returns compared with
more developed global markets as well as the low correlation with world market.
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Debt Market
The National Stock Exchange started its trading operations in June 1994 by
enabling the Wholesale Debt Market (WDM) segment of the Exchange. This
segment provides a trading platform for a wide range of fixed income securities
that includes central government securities, treasury bills (T-bills), state
development loans (SDLs), bonds issued by public sector undertakings (PSUs),
floating rate bonds (FRBs), zero coupon bonds (ZCBs), index bonds, commercial
papers (CPs), certificates of deposit (CDs), corporate debentures, SLR and non-
SLR bonds issued by financial institutions (FIs), bonds issued by foreign
institutions and units of mutual funds (MFs).

7 To further encourage wider participation of all classes of investors, including the

retail investors, the Retail Debt Market segment (RDM) was launched on January
16, 2003. This segment provides for a nationwide, anonymous, order driven, screen
based trading system in government securities. In the first phase, all outstanding
and newly issued central government securities were traded in the retail debt
market segment. Other securities like state government securities, T-bills etc. will
be added in subsequent phases. The settlement cycle is same as in the case of
equity market i.e., T+2 rolling settlement cycle.

Derivatives Market
The emergence of the market for derivative products, most notably forwards,
futures and options, can be traced back to the willingness of risk-averse economic
agents to guard themselves against uncertainties arising out of fluctuations in asset
prices. By their very nature, the financial markets are marked by a very high
degree of volatility. Through the use of derivative products, it is possible to
partially or fully transfer price risks by lockingin asset prices. As instruments of
risk management, these generally do not influence the fluctuations in the
underlying asset prices.

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However, by locking-in asset prices, derivative products minimize the impact of
fluctuations in asset prices on the profitability and cash flow situation of risk-
averse investors.

Derivatives
Derivative is a product whose value is derived from the value of one or more basic
variables, called bases (underlying asset, index, or reference rate), in a contractual
manner. The underlying asset can be equity, forex, commodity or any other asset.
For example, wheat farmers may wish to sell their harvest at a future date to
eliminate the risk of a change in prices by that date. Such a transaction is an
example of a derivative. The price of this derivative is driven by the spot price of
wheat which is the underlying.

In the Indian context the Securities Contracts (Regulation) Act, 1956 (SC(R)A)
defines derivative to include

A security derived from a debt instrument, share, loan whether secured or

unsecured, risk instrument or contract for differences or any other form of security.

A contract, which derives its value from the prices, or index of prices, of
underlying securities. Derivatives are securities under the SC(R)A and hence the
trading of derivatives is governed by the regulatory framework under the SC(R)A.

Products, Participants and Functions

Derivative contracts have several variants. The most common variants are
forwards, futures, options and swaps. The following three broad categories of
participants - hedgers, 8 speculators, and arbitrageurs trade in the derivatives
market. Hedgers face risk associated with the price of an asset. They use futures or
options markets to reduce or eliminate this risk. Speculators wish to bet on future
movements in the price of an asset. Futures and options contracts can give them an
extra leverage; that is, they can increase both the potential gains and potential
losses in a speculative venture. Arbitrageurs are in business to take advantage of a
discrepancy between prices in two different markets. If, for example, they see the
futures price of an asset getting out of line with the cash price, they will take
offsetting positions in the two markets to lock in a profit.

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 The derivatives market performs a number of economic functions. First, prices in
an organized derivatives market reflect the perception of market participants about
the future and lead the prices of underlying to the perceived future level. The prices
of derivatives converge with the prices of the underlying at the expiration of the
derivative contract. Thus derivatives help in discovery of future as well as current
prices. Second, the derivatives market helps to transfer risks from those who have
them but may not like them to those who have an appetite for them. Third,
derivatives, due to their inherent nature, are linked to the underlying cash markets.
With the introduction of derivatives, the underlying market witnesses higher
trading volumes because of participation by more players who would not otherwise
participate for lack of an arrangement to transfer risk. Fourth, speculative trades
shift to a more controlled environment of derivatives market. In the absence of an
organized derivatives market, speculators trade in the underlying cash markets.
Margining, monitoring and surveillance of the activities of various participants
become extremely difficult in these kinds of mixed markets. Fifth, an important
incidental benefit that flows from derivatives trading is that it acts as a catalyst for
new entrepreneurial activity. The derivatives have a history of attracting many
bright, creative, well-educated people with an entrepreneurial attitude. They often
energize others to create new businesses, new products and new employment
opportunities, the benefit of which are immense. Finally, derivatives markets help
increase savings and investment in the long run. Transfer of risk enables market
participants to expand their volume of activity.

Types of Derivatives
The most commonly used derivatives contracts are forwards, futures and options,
which they shall discuss these in detail in the FMM-II later. Here they take a brief
look at various derivatives contracts that have come to be used.

Forwards: A forward contract is a customized contract between two entities,

where settlement takes place on a specific date in the future at todays pre-agreed
price.

Futures: A futures contract is an agreement between two parties to buy or sell an

asset at a certain time in the future at a certain price. Futures contracts are special

15
types of forward contracts in the sense that the former are standardized exchange
traded contracts.

Options: Options are of two types - calls and puts. Calls give the buyer the right 9
but not the obligation to buy a given quantity of the underlying asset, at a given
price on or before a given future date. Puts give the buyer the right, but not the
obligation to sell a given quantity of the underlying asset at a given price on or
before a given date.

Warrants: Options generally have lives of up to one year, the majority of options
traded on options exchanges having a maximum maturity of nine months. Longer
dated options are called warrants and are generally traded over-the-counter.

LEAPS: The acronym LEAPS means Long-Term Equity Anticipation Securities.

These are options having a maturity of up to three years. Baskets: Basket options
are options on portfolios of underlying assets. The underlying asset is usually a
moving average or a basket of assets. Equity index options are a form of basket
options.

Swaps: Swaps are private agreements between two parties to exchange cash
flows in the future according to a prearranged formula. They can be regarded as
portfolios of forward contracts. The two commonly used swaps are: Interest rate
swaps: These entail swapping only the interest related cash flows between the
parties in the same currency and Currency swaps: These entail swapping both
principal and interest between the parties, with the cash flows in one direction
being in a different currency than those in the opposite direction.

Swaptions: Swaptions are options to buy or sell a swap that will become
operative at the expiry of the options. Thus a swaption is an option on a forward
swap. Rather than have calls and puts, the swaptions market has receiver swaptions
and payer swaptions. A receiver swaption is an option to receive fixed and pay
floating. A payer swaption is an option to pay fixed and receive floating.

Commodities Market

16
Derivatives as a tool for managing risk first originated in the commodities markets.
They were then found useful as a hedging tool in financial markets as well. In
India, trading in commodity futures has been in existence from the nineteenth
century with organized trading in cotton through the establishment of Cotton Trade
Association in 1875. Over a period of time, other commodities were permitted to
be traded in futures exchanges. Regulatory constraints in 1960s resulted in virtual
dismantling of the commodities future markets. It is only in the last decade that
commodity future exchanges have been actively encouraged. However, the markets
have been thin with poor liquidity and have not grown to any significant level.
Lets look at how commodity derivatives differ from financial derivatives.

Brokers
A broker is an intermediary who arranges to buy and sell securities on behalf of
clients (the buyer and the seller). According to Rule 2 (e) of SEBI (Stock Brokers
and Sub Brokers) Rules, 1992, a stockbroker means a member of a recognized
stock exchange. No stockbroker is allowed to buy, sell or deal in securities, unless
he or she holds a certificate of registration granted by SEBI.

A stockbroker applies for registration to SEBI through a stock exchange or stock

exchanges of which he or she is admitted as a member. SEBI may grant a
certificate to a stockbroker [as per SEBI (Stock Brokers and Sub-Brokers) Rules,
1992] subject to the following conditions that:

He holds the membership of any stock exchange;

He shall abide by the rules, regulations and byelaws of the stock exchange or
stock exchanges of which he is a member;

17
 In case of any change in the status and constitution, he shall obtain prior
permission of SEBI to continue to buy, sell or deal in securities in any stock
exchange;

He shall pay the amount of fees for registration in the prescribed manner;
and

He shall take adequate steps for redressal of grievances of the investors

within one month of the date of the receipt of the complaint and keep SEBI
informed about the number, nature and other particulars of the complaints.

While considering the application of an entity for grant of registration as a stock

broker, SEBI shall take into account the following namely, whether the stock
broker applicant

Is eligible to be admitted as a member of a stock exchange;

Has the necessary infrastructure like adequate office space, equipment

and manpower to effectively discharge his activities;

Has any past experience in the business of buying, selling or dealing in

securities;

Is being subjected to any disciplinary proceedings under the rules,

regulations and byelaws of a stock exchange with respect to his business
as a stockbroker involving either himself or any of his partners, directors
or employees.

Sub-Brokers
A Sub-broker is a person who intermediates between investors and stockbrokers.
He 173 acts on behalf of a stockbroker as an agent or otherwise for assisting the
investors for buying, selling or dealing in securities through such stockbroker. No
sub-broker is allowed to buy, sell or deal in securities, unless he or she holds a
certificate of registration granted by SEBI. A sub-broker may take the form of a

18
sole proprietorship, a partnership firm or a company. Stockbrokers of the
recognized stock exchanges are permitted to transact with sub-brokers.

Sub-brokers are required to obtain certificate of registration from SEBI in

accordance with SEBI (Stock Brokers & Sub-brokers) Rules and Regulations,
1992, without which they are not permitted to buy, sell or deal in securities. SEBI
may grant a certificate to a sub-broker, subject to the following conditions that:

He shall pay the fees in the prescribed manner;

He shall take adequate steps for redressal of grievances of the investors

within one month of the date of the receipt of the complaint and keep SEBI
informed about the number, nature and other particulars of the complaints
received;

In case of any change in the status and constitution, the sub-broker shall
obtain prior permission of SEBI to continue to buy, sell or deal in securities
in any stock exchange; and

He is authorized in writing by a stockbroker being a member of a stock

exchange for affiliating himself in buying, selling or dealing in securities.

In case of company, partnership firm and sole proprietorship firm, the directors, the
partners and the individual, shall comply with the following requirements:

The applicant is not less than 21 years of age;

The applicant has not been convicted of any offence involving fraud or
dishonesty;

The applicant has at least passed 12th standard equivalent examination from
an institution recognized by the Government.

They should not have been debarred by SEBI. The corporate entities
applying for sub-broker ship shall have a minimum paid up capital of Rs.5
lakh and it shall identify a dominant shareholder who holds a minimum of
51% shares either singly or with the unconditional support of his/ her
spouse.

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The guidelines issued by SEBI are as under:
The registered sub-broker can transact only through the member broker who
had recommended his application for registration. If the Sub-broker is
desirous of doing business with more than one broker, he will have to obtain
separate registration in each case.

The sub-broker shall disclose the names of all other sub-brokers/brokers

where he is having direct or indirect interest.

It shall be the responsibility of the broker to report the default if any of his
sub-broker to all other brokers with whom sub-broker is affiliated. The
agreement can be terminated by giving the notice in writing of not less than
6 months by either party.

Sub-brokers are obligated to enter into agreements and maintain the database
of their clients/investors in the specified format.

The applicant sub-broker shall submit the required documents to the stock
exchange with the recommendation of a stockbroker. After verifying the
documents, the stock exchange may forward the documents of the applicant sub-
broker to SEBI for registration. A sub-broker can trade in that capacity after getting
himself registered with SEBI. The Exchange may not forward the said application
of the sub-broker to SEBI for registration if the applicant is found to have
introduced or otherwise dealt with fake, forged, stolen, counterfeit etc. shares and
securities in the market.

The sub-broker of a stockbroker of the Exchange has to comply with all the
requirements under SEBI (stock brokers and sub-brokers) Regulation, 1992 and the
requirements of the Exchange as may be laid down from time to time. The sub-
broker is bound by and amenable to the Rules, Byelaws and Regulations of the
Exchange. The sub-broker shall also comply with all terms and conditions of the
agreement entered into by him with the stockbroker. After registration with SEBI,
the sub-broker can buy, sell or deal in securities on behalf of the investors through
the broker with whom he is affiliated. The stockbroker has to issue contract notes
for all trades in respect of its sub-broker in the name of the sub-broker and the sub-

20
broker shall, in turn issue purchase/sale notes to his clients as per the format
prescribed by the Exchange.

CHAPTER 3
PENTAD SECURITIES PVT LTD - A PROFILE

21
Pentad Securities (P) Ltd.
Pentad Securities (P) Ltd. is one of the leading equity research houses in India.
They provide research based comprehensive solutions and advisory support that
boosts portfolio performance. Their core strategy centres around fundamental and
technical parameters that help clients take their wealth, Beyond Investing

Vision
It is our vision to monetize the stock markets while continuing to deliver 100%
customer satisfaction.

Mission
To focus on creating a business that is strong in stock market research & adopts
world class processes to stay competitive in tomorrows world.

Values
A good company culture creates happier employees & when this culture becomes a
part of a person core value system at work the results are revolutionary. At Pentad
securities we aim to imbibe such values & we call them

Speed: We aim to act with speed & deliver great results.

Team: Always create a sense of TEAM & be a leader whenever necessary.

Trust: Gain trust among all stakeholders with your knowledge & service.

Accountability: Take ownership of appropriate issues & be answerable to

commitments.

Result Matter: Evaluate based on results that are quality & number driven.

22
The promoters of this company started their journey in the financial markets by
associating with various brokerage firms. After a decade of relevant experience and
knowledge, they took on the mettle of spreading key equity-related insights
amongst investors. With this thought, the birth of Pentad Securities came into
existence, which in a short span of time, became a recognized brokerage firm with
Bombay Stock Exchange and National Stock Exchange of India. Research being
the core strength of Pentad, we have acquired Investment advisory license from
SEBI.

Pentad Securities, constantly seek innovative methods to increase customer

satisfaction by improve research processes and methodologies, so as to protect
clients capital and ensure steady growth in Investment. They believe in creating
portfolios that generate wealth and improve profitability.

Today, they deal in equity and derivatives, and cater to domestic as well as HNI
and NRI clients. Word of mouth has earned trust that has resulted in long lasting
relationships not only in the domestic territory but they have also successfully
managed to spread wings to the Middle East and beyond. Corporate office is
situated in Mumbai with branches and associates strewed across Kerala and
Karnataka.

Now with T20 Pentad securities is offering one of the cheapest broking cost in
India.

Branches
Registered Office
#1819, Level 1, Aramana Arcade,

Bank Road, Kasaragod - 671121

Corporate Office
Level-2, in GS Point, Opp. Mumbai University

CST Road, Kalina, Santacruze E, Mumbai 400098

23
Kochi
Level-1, Near Kathrikkadavu Bridge

Salim Rajan road

Gandhi Nagar, Kochi-682017

Bangalore
Level 4, 32nd E cross, 4th T-block

Next-Bharath Petroleum, Jayanagar

Bangalore-560041

Products
T20 (Discount Brokerage)

This is an online broking account with discount broking aims to reduce the broking
cost for the investor. We offer brokerage at just Rs. 20 per executed order. 20 or
0.01% (whichever is lower) per executed order on intraday trades across equity,
currency, and commodity trades across NSE, BSE.

Pentad+ (conventional brokerage)

At conventional broking services traders are supported by brokers. PENTAD offer

attractive brokerage for this account. They offer offline and onlinetrading on both
key platformsNational Stock Exchange and Bombay Stock Exchange. They give
balanced solutions on how to make the most from the financial securities
industries. Pentad believe in creating portfolios that are least affected by volatility
or market fluctuations. Proactive approach on research & customer service,
addresses the constant dilemma of what to buy and sell, and when to act and hold.

Pentad Securities Pvt. Ltd. being a registered broker under SEBI (Security and
Exchange Board of India) gives balanced solutions on how to make the most from

24
financial securities. PENTAD concentrates on creating portfolios that neither
volatility nor fluctuations can affect.

Equity
An equity investment refers to the buying and holding of shares of stock on a stock
market by individuals and firms in anticipation of income from dividends and
capital gains. Typically, equity holders receive voting rights, meaning that they can
vote on candidates for the board of directors (shown on a diversification of the
fund(s) and to obtain the skill of the professional fund managers in charge of the
fund(s).

Investing in the stock market has proven to be an exclusive route to creating long-
term wealth. Despite the element of risk it carries, the returns often compensate.
Whats necessary is to ensure one has guidance, research support and knowledge
from reliable experts.

Derivatives
A derivative is a contract that derives its value from the performance of an
underlying entity. This underlying entity can be an asset, index, or interest rate, and
is often simply called the "underlying". Derivatives can be used for a number of
purposes, including insuring against price movements (hedging), increasing
exposure to price movements for speculation or getting access to otherwise hard-
to-trade assets or markets. Some of the more common derivatives include
forwards, futures, options, swaps, and variations of these such as synthetic
collateralized debt obligations and credit default swaps. Most derivatives are traded
over-the-counter (off-exchange) or on an exchange such as the Bombay Stock
Exchange, while most insurance contracts have developed into a separate industry.
Derivatives are one of the three main categories of financial instruments, the other
two being stocks (i.e., equities or shares) and debt (i.e., bonds and mortgages).

Derivatives enable the investor to make money from both rise and fall in the
market. These are also used as a risk management tool by many. However, to take

25
advantage of this investment form, one needs sufficient research and advisory
solutions along with in depth understanding of this market.

Systematic Investment Plan

Equity Systematic Investment Plan (SIP) is an instrument which helps you avoid
the risk of timing the markets and facilitate wealth creation. Systematic Investment
Plan enables you to build a portfolio over a longer time horizon with small
investments at regular intervals reducing the risk of market volatility. You can
choose between Quantity based and Amount based SIPs.
Build stock portfolio with help of expert advice. Equity SIP will help you to avoid
rise of timing the market and invest in disciplined manner. Investor can purchase
shares at an average cost as per desired interval. SIP is hassle free, disciplined and
forced savings approach for wealth creation. SIP average your investment cost.
This small drops of savings lead to your desired long term wealthy creation.

Investment Advisory Service

In todays complex financial environment, investors have monetary goals that
require intervention by experts. Their high risk appetite vis--vis their even higher
desire for returns, without capital erosion, are the pillars on which Pentad
Securities introduced its Portfolio Advisory Services.

This value added service is for investors who seek research driven guidance but
want to retain their investment independence. Wealth management advisory
ensures such investors are dealt with, on an individual basis. Stated below are the
benefits.

Dedicated Wealth Advisory Desk, ready to answer your queries and address
investment concerns

Assessment of risk profile which helps to construct and rebalance portfolio

to maximize returns
26
 Access to high quality research and investment strategies by one of the best
fundamental and technical analysts

Under these services, wealth desk will only suggest investments that match the
assessed risk-reward profile agreed by the investor. The choice as well as execution
of the investment decision rests solely with the Investor.

Three types of investment schemes are as follows:

Conservative
This kind of investing is carried by investors will low risk appetite; Investors who
seek consistent and dependable income rather than huge profits that come from
even bigger risks. This approach involves scrips that protect principal investment.
However, the involved returns do not tally with the rising inflation cost, due to
which investors purchasing power eventually takes a dip.

Moderate
Investors with relatively higher risk tolerance can opt for this approach wherein
their long-term returns account for inflated cost levels too. A balance of high-risk
stocks and some stable ones is a standard practice by investors to ensure they book
some profit in case the markets nosedive. Such an approach might give lower
profits but assures stability in the portfolio. In effect, investor is protected to a great
extend against volatility.

Aggressive
Higher the risk, higher the return This is the mantra aggressive investors live by.
This approach is best suited to individuals, who have the potential, over time, to
mitigate the losses incurred due to short-term fluctuations. However, such
approach benefits investors the most, when they shift their focus to long-term
historical growth of equity markets. Such an approach needs thorough
understanding of the involved risk by the investor.

Fee Option

AMC 1% charged at the beginning of the year + 10% profit share above
10% returns per annum

27
 25% profit share above 10% returns per annum. No AMC

Research
In times of volatility, access to high quality, actionable research is the most sought
after intelligence in the stock market. To provide insightful ideas and
recommendations, Pentad Research publish reports to clients spread across various
parts of U.K. and Europe Head-Quartered at Dubai, United Arab Emirates, Pentad
Research Centre enables clients to take faster decisions, improve portfolio and
provide clarity in terms of planning for the future. It is one of the preferred
research centers in the world which adopts research and analytical platforms that
are applicable to the on-going situation of the stock market.

Analysts use comprehensive research practices which take in to account both,

fundamental and technical principles. Combined with their expertise, they not only
analyse a stock, but also its industry and its peer group to provide earnings and
valuation estimates, that have chances of fetching higher returns. The emphasis on
research is also because it fills the knowledge void amongst investors.

However, when it comes to stock market research, the bottom-line is the reputation
and credibility of a firm which our present clientele can vouch for.

28
 CHAPTER 4
FUNCTIONS OF DEPARTMENTS

29
Organisational structure

Top level Management

CEO - Nikhil Gopalakrishnan

COO - Vinson Victor

Chairman - Sajid Ahammed

Regional Structure

Regional
manager

Branch
manager

Marketing Relationship Authorised Support

executives manager Partners staffs

30
Departments
Administration department

Client relationship department

Finance Department

Marketing Department

Sales department

Human Resources Department

Accounts handling department

Equity Research Department

Systems Department

Trading Department

Administration department
An administration department is responsible for providing administrative aid in
five areas of a business: information management systems, human resources,
payroll, acquisition and communication. The goal of the administration department
is to keep all departments within a business operating at maximum capacity.

The daily functions of operating a business require time, precision and expertise.
The administrative department of a business is able to provide systematic support
in every area of a business without any interruption in services. This department
keeps an effective communication channel open, so everyone is informed of any
new changes and how the changes may affect the organization.

31
Client relationship department
Client relations managers are key members of a companys sales management
team. They also take other job titles, including key accounts manager and client
services manager. Their role is to manage and protect the relationship between the
company and its most important clients. Client relationship managers aim to
maximize long-term revenue opportunities by becoming trusted advisers to clients
and strengthening their loyalty.

Client service managers build relationships with different members of the client
team who make or influence purchasing decisions, including senior executives,
purchasing managers, technical managers and finance directors. Successful client
relations managers build relationships with clients based on trust and value. By
working with clients to help them improve business performance and profitability,
they take the role of trusted advisers. Relationships based on value help to
overcome issues of price and create strong barriers to competition.

Finance Department
This is the part of an organization that manages its money. The business functions
of a finance department typically include planning, organizing, auditing,
accounting for and controlling its company's finances. The finance department also
usually produces the company's financial statements.

The finance department plays a huge role in business because that's where the
money is. The finance department knows how much money is needed to pay
vendors, secure clients, cover bills and pay employees. This department is also in
charge of filing taxes, keeping up with the current value of assets, and knowing
how much cash flow the company has at any given time.

Anything involving money passes through the finance department. In a large

company, there may be more than one department under the larger umbrella of the
finance department such as payroll, accounts payable, accounts receivable and
sales. The payroll department keeps track of employee hours worked, sets current
salary or hourly rates, manages vacation and sick leave time, adheres to current tax
laws and cuts checks for employees. The accounts payable department receives
32
invoices from vendors and contract employees, matches them to inventory or
receipts and enters them into the system for payment. This department also cuts
and mails checks for payables other than payroll. The accounts receivable
department receives payments and makes sure that they are accurately entered into
the system. Many finance departments also have a financial forecasting segment
that studies market trends to help determine how much money the company can
expect to make from current and future ventures.

Marketing Department

Marketing departments of companies and organizations are responsible for market

research, solution development, promotional campaigns and customer relationship
programs. While marketing departments engage in several different activities, its
primary role is to boost revenue for the business.

Before it implements marketing strategies, a marketing department develops a

marketing plan. This plan sets out marketing objectives that align with the
company's goal of building brands, attracting customers and generating revenue.
Market research strategies are typically included in the plan. Market research is
used to identify the needs and preferences of targeted customers. Knowing what
customers want or expect in certain product or service categories improves a
company's ability to develop and promote valuable solutions.

Advertising and promotion are key roles of marketing. Advertising is the paid
promotional component and uses up much of the department's budget. A company
has control over advertising messages and placements. Public relations, which
includes free publicity, and personal selling are other communications strategies
managed by marketing departments.

33
Sales department

The function of a sales department is to engage in a variety of activities with the

objective to promote the customer purchase of a product or the client engagement
of a service, according to the American Marketing Organization. Some business
management professionals consider sales an outgrowth of the marketing function,
but others consider it an independent aspect of an enterprise's overall operational
scheme, also according to the AMO.

The sales department develops customer or client relation by implementing a

protocol to sell a product or service that is suitable to the nature of the product or
service by connecting with prospective customer or client. For instance, selling out
a product or service it may require face-to-face interaction between the customer
and the sales team. Other products or services can be sold out through online sales.

The sales department takes lead in setting strategies and decides what marketing
communication it needs to support its efforts. The very basic decision is whether to
hire a sales force or simply contract with representatives outside the organization.
They develop strategies on how to maintain existing or attract potential customers
or client.

The sales department selects channels through which the product or service will be
distributed. They decide as to whether the product or goods go through retailers,
jobbers or possible direct to customers

Human Resources Department

Human resource management (HRM or simply HR) is the management of human

resources. It is a function in organizations designed to maximize employee
performance in service of an employer's strategic objectives. HR is primarily
concerned with the management of people within organizations, focusing on
policies and on systems. HR departments and units in organizations typically
undertake a number of activities, including employee benefits design, employee
recruitment, "training and development", performance appraisal, and rewarding
(e.g., managing pay and benefit systems). HR also concerns itself with
organizational change and industrial relations, that is, the balancing of

34
organizational practices with requirements arising from collective bargaining and
from governmental laws.

Equity Research Department

The research department explores investment opportunities to determine which are

the most suitable and beneficial for clients and for the firm's own trading activities.
The so-called full-service brokerage firms provide their clients with the firm's
research at no additional cost. The cost of providing this research is built into the
commissions that the clients pay when they buy and sell securities. Another type of
brokerage firm, called a discount firm, does not provide its clients with research.
Instead, they charge reduced commission rates for executing orders and clearing
trades.

Operations department

The operations department is responsible for processing all of the paperwork

generated by the firm's other departments, most of it having to do with "clearing"
the firm's trade. This department also handles all of the clients' bills and
statements.

Trading Department

The trading department is responsible for executing clients' securities orders. This
department affects the actual purchases and sales of securities, in accordance with
the clients' instructions. In addition, the trading department tries to buy and sell
securities profitably with the firm's own money.

35
 CHAPTER 5
SWOT ANALYSIS

36
SWOT Analysis
Strength, weakness, opportunity, and threats (SWOT) of Stock Market is given
below:

Strength:

The first and for most thing of strength of Pentad is its ability to provide
high return on its investment schemes.
Have one of the best research teams in India that protects the interest of the
investors.
Large number of investment schemes which provides medium for
investment.
Skilled brokers who plays a role of facilitator for investment.
One of the cheapest brokerages offered in kerala.

Weakness:

Low quality of human resources in the organization.

Lack of motivation to the employees.
Deteriorating skills of the employees due to poor education and training
facilities.
Lack of loyal customers.
Poor marketing strategy.

Opportunity:

The organization provides an opportunity to money lender and money seeker

to invest and use money.
It provides an opportunity to the investor to be the owner of a company and
contribute in the business decision of the company.
Opening up of new markets due to the introduction of new products and
services.
Due to recent acquisitions of new and potential customers, income level is at
a constant increase.
Indian security market is developing constantly as more and more investors
are stepping forward.

37
Threats:

There are many competitors in the stock market such as post office savings,
public provident fund, company fixed deposits, fixed deposits with bank etc.
which provides fixed and assured returns.
The weak point is volatility of stock market (i.e., high risk).
Changing of economic condition.
Complicated tax structure existing in the economy
Capital market instrument is highly risky than money market.
Changing of government rules and regulations.

38
 CHAPTER - 6
REPORT ON ROUTINE WORK

39
Routine report

I was appointed as a Marketing intern in PENTAD Securities. Marketing

Department took care of the Promotional activities and all sales related activities. I
reported Directly to DINOY DAVIS, Relationship manager of pentad securities,
COCHIN. I was given different responsibilities every week and was provided
directions by Mr. Dinoy. I worked From Moday till Saturday. The main focus of
my internship consisted of the Marketing of T20 accounts and DALAL Times.

Routine activities:

1st week: Learning about the security market and the Business conducted at
PENTAD Securities, Cochin.

2nd week: Helping the customers with their queries through phone.

3rd week: Assisting the team in field work

4th week: Promotional activities For boosting the sales of PENTAD Securities.

5th week: Sales.

6th week: Sales.

7th week: Filing.

I adapted quite quickly in PENTAD Securities. Dinoy Davis, Relationship

Manager was responsible for me. And I was given Guidance personally by Dinoy. I
was given constant tutoring during the first week. I learned about Securities Market
first before they assigned me any responsibilities. The main focus of my internship
was related to the Marketing of T20 accounts and DALAL Times.

Second week, I was asked to assist in handling queries through telephone. I

handled the queries related to PENTAD Securities except the trading related

40
queries which were handled by my superior. I was able to familiarize with the work
environment and got to know how business in PENTAD Securities was conducted.

Third week, after concluding my telephone assistance phase, I was dispatched to

assist the team in field work. I went with my superiors to sell the accounts of T20,
SIP and DALAL times.

This week I was given the responsibility of promotional activities. I had to attract
customers for both T20 accounts and DALAL Times in Ernakulam district. The
highlight of the week was advertising in fliers with the help of newspaper delivery
boys. Then I had to visit colleges in Ernakulam which had a chance of becoming
our future customers. The responses from the professional colleges were
promising.

This week I was responsible for getting T20 accounts and DALAL Times. With the
help of Database provided by the PENTAD Securities I was able to contact them
through phone. I was tasked to persuade them to open an account with the
PENTAD Securities by listing our advantages. Although slow at first, some of
them began to sway in favour of us.

This week I was tasked with getting Franchisee accounts for PENTAD Securities.
It was much more difficult than getting T20 accounts. I focused on Insurance
agents to accomplish my target.

Last week there were not any specific responsibilities for me. I helped with the
Recording and telephonic marketing. I finalised my paperwork for the internship. I
finished my internship in PENTAD Securities.

41
Conclusion

During my Internship, I had been exposed to the working life in a Stock trading
firm. Throughout my internship, I could understand more about the Security
trading and Marketing and prepare myself to become a responsible and innovative
in future. Along my training period, I realize that observation is a main element to
improvisation, especially for the daily activities. During my Internship, I cooperate
with my colleagues and supervisors to work more efficiently. Moreover, the
Internship indirectly helps me to learn independently, discipline myself, be
considerate/patient, self-trust, take initiative and the ability to solve problems.
Besides, my communication skills is strengthen as well when communicating with
others. During my training period, I have received criticism and advice from
colleagues and supervisors when mistakes were made. However, those advices are
useful guidance for me to change myself and avoid myself making the same
mistakes again. In sum, the activities that I had learned during industrial training
really are useful for me in future to face challenges in a working environment.