A

Contemporary Issue Report

(Paper Code-M 207)
on
TRADING AND CAPITAL MARKET

Submitted in partial fulfillment for the

Award of degree of
Masters of Business Administration (2012-2014)
(Subject: M-207)

Submitted By: SHAIFALI CHADDHA

MBA, Sem. II

Department of Management and Technology

 CHAPTER – ONE

INTRODUCTION

1.1 INTRODUCTION TO TRADING AND CAPITAL

MARKET

1.2 INTRODUCTION TO THE COMPANY

TRADING
INTRODUCTION

The trading on stock exchanges in India used to take place through open Outcry without
use of information technology for immediate matching or Recording of trades. This was
time consuming and inefficient. This imposed limits on trading volumes and efficiency.
In order to provide efficiency, liquidity and transparency, NSE introduced a nation-wide
on-line fully automated screen based trading system (SBTS) where a member can punch
into the computer quantities of securities and the prices at which he likes to transact and
the transaction is executed as soon as it finds a matching sale or buy order from a counter
party. SBTS electronically matches orders on a strict price/time priority and hence cuts
down on time, cost and risk of error, as well as on fraud resulting in improved operational
efficiency. It allows faster incorporation of price sensitive information into prevailing
prices, thus increasing the informational efficiency of markets. It enables market
participants, irrespective of their geographical locations, to trade with one another
simultaneously, improving the depth and liquidity of the market. It provides full
anonymity by accepting orders, big or small, from members without revealing their
identity, thus providing equal access to everybody. It also provides a perfect audit trail,
which helps to resolve disputes by logging in the trade execution process in entirety. This
sucked liquidity from other exchanges and in the very first year of its operation, NSE
became the leading stock exchange in the country, impacting the fortunes of other
exchanges and forcing them to adopt SBTS also. Today India can boast that almost 100%
trading take place through electronic order matching.

Technology was used to carry the trading platform from the trading hall of stock
exchanges to the premises of brokers. NSE carried the trading platform further to the PCs
at the residence of investors through the Internet and to handheld devices through WAP
for convenience of mobile investors. This made a huge difference in terms of equal
access to investors in a geographically vast country like India.
AN OVERVIEW OF THE INDIAN SECURITIES MARKET [Capital
Market]
INTRODUCTION

Securities markets provide a channel for allocation of savings to those who have a
productive need for them. As a result, the savers and investors are not constrained by
their individual abilities, but by the economy’s abilities to invest and save respectively,
which inevitably enhances savings and investment in the economy.

MARKET SEGMENTS

The securities market has two interdependent and inseparable segments: the primary and
the secondary market.

Primary Market

The primary market provides the channel for sale of new securities. Primary market
provides opportunity to issuers of securities; Government as well as corporate, to raise
resources to meet their requirements of investment and/or discharge some obligation.

They may issue the securities at face value, or at a discount/premium and these securities
may take a variety of forms such as equity, debt etc. They may issue the securities in
domestic market and/or international market.

The primary market issuance is done either through public issues or private placement. A
public issue does not limit any entity in investing while in private placement, the issuance
is done to select people. In terms of the Companies Act, 1956, an issue becomes public if
it results in allotment to more than 50 persons. This means an issue resulting in allotment
to less than 50 persons is private placement. There are two major types of issuers who
issue securities. The corporate entities issue mainly debt and equity instruments (shares,
debentures, etc.), while the governments (central and state governments) issue debt
securities (dated securities, treasury bills).

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.

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. Majority
of the trading is done in the secondary market. Secondary market comprises of equity
markets and the debt markets.

The secondary market enables participants who hold securities to adjust their holdings in
response to changes in their assessment of risk and return. They also sell securities for
cash to meet their liquidity needs. Once the new securities are issued in the primary
market they are traded in the stock (secondary) market. The secondary market is operated
through two mediums, namely, the Over-the-Counter (OTC) market and the Exchange-
Traded market. OTC markets are informal markets where trades are negotiated. Most of
the trades in the government securities are in the OTC market. All the spot trades where
securities are traded for immediate delivery and payment take place in the OTC market.

The exchanges do not provide facility for spot trades in a strict sense. Closest to spot
market is the cash market in exchanges where settlement takes place after some time.
There are 19 exchanges (at the end of March 2008) in India and all of them follow a
systematic settlement period. All the trades taking place over a trading cycle (day=T) are
settled together after a certain time (T+2 day). Trades executed on NSE only are cleared
and settled by a clearing corporation which provides novation and settlement guarantee.
Nearly 100% of the trades in capital market segment are settled through demat delivery.
NSE also provides a formal trading platform for trading of a wide range of debt securities
including government securities in both retail and wholesale mode. NSE also provides
trading in derivatives of equities, interest rate as well indices. In derivatives market (F&O
market segment of NSE), standardized contracts are traded for future settlement. These
futures can be on a basket of securities like an index or an individual security. In case of
options, securities are traded for conditional future delivery. There are two types of
options – a put option permits the owner to sell a security to the writer of options at a
predetermined price while a call option permits the owner to purchase a security from the
writer of the option at a predetermined price. These options can also be on individual
stocks or basket of stocks like index. Two exchanges, namely NSE and the Stock
Exchange, Mumbai (BSE) provide trading of derivatives of securities. Today the market
participants have the flexibility of choosing from a basket of products like:

 Equities
 Bonds issued by both Government and Companies
 Futures on benchmark indices as well as stocks
 Options on benchmark indices as well as stocks
 Futures on interest rate products like Notional 91-day T-Bills, 10 year Notional
zero coupon bond and 6% notional 10 year bond.

The past decade in many ways has been remarkable for securities market in India. It 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, and investor population.

Along with this growth, the profiles of the investors, issuers and intermediaries have
changed significantly. The market has witnessed several institutional changes resulting in
drastic reduction in transaction costs and significant improvements in efficiency,
transparency, liquidity and safety. In a short span of time, Indian derivatives market has
got a place in list of top global exchanges. In single stock futures category, the Futures
Industry Association (FIA) placed NSE in second position in the year 2000.
Reforms in the securities market, particularly the establishment and empowerment of
SEBI, market determined allocation of resources, screen based nation-wide trading,
dematerialization and electronic transfer of securities, rolling settlement and ban on
deferral products, sophisticated risk management and derivatives trading, have greatly
improved the regulatory framework and efficiency of trading and settlement. Indian
market is now comparable to many developed markets in terms of a number of qualitative
parameters.

MAJOR ENTITIES INVOLVED IN THE CAPITAL MARKET

 SEBI (regulator)
 Stock Exchanges
 Clearing Corporations (CC)/ Clearing Houses (CH)
 Depositories and Depository Participants
 Stock Brokers and their Sub-Brokers
 Custodians
 Mutual Funds
 Merchant Bankers
 Credit Rating Agencies
 Financial Institutions
 Non-banking Institutions
 Issuers/Registrar and Transfer Agents
 Investors
ONLINE SHARE TRADING

“Under this type of trading, the trading is done by the investors themselves through the
internet using the Trading Software or web based platform provided to him by his
broker.”

PARTIES INVOLVED IN ONLINE SHARE TRADING

 BSE & NSE

 NSDL / CDSL
 Depository Participants
 Brokers
 Clients

Basic terms related to trading

PRIMARY MARKET: This is the first market where a newly issued security is offered.
E.g. IPO

IPO (Initial Public Offer): A company’s first sale of stock to the public.

PRICING OF IPO:

 FIXED PRICE IPO: The offer in the primary market, where the price of
security is fixed.
 BOOK BUILDING OFFER: There will be a price band with a lower
price and higher price. The customer has to select the price at what he
wants to apply for IPO.
SECONDARY MARKET: Trading of stocks is done only in the secondary market.
Shares issued in the primary market are listed on the secondary market where the stocks
are available for trading in the stock market.

LISTING: Listing means admission of securities for trading on a recognized stock

exchange.

ROLLING SETTLEMENT: Rolling settlement is the time period for settling of the
obligation. At NSE & BSE both trades are settled on rolling settlement basis. Rolling
settlement = t+2 basis i.e. t is trading day + 2 working days.

MARKET CAPITALIZATION: Market capitalization of a company is the current

market price of a share multiplied by total number of outstanding shares- large cap, mid
cap, small cap.

BSE SENSEX: The SENSEX, short form of the BSE- sensitive Index, is a “Market
Capitalization Weighted” index of 30 stocks representing a sample of large, well
established and financially sound companies.

CLOSING PRICE CALCULATION O BSE: The closing price is computed taking

weighted average of all the trades SENSEX constituents in the last 15 minutes of trading
session.

CLOSING PRICE CALCULATION OF NSE: S & P CNX Nifty or Nifty 50 stock

index accounting for 24 sectors. The nifty closing prices are calculated by taking the half
an hour weighted average closing prices of the constituents of the index.

PAY-IN & PAY-OUT: Pay-in day is the day on which the securities or funds are
delivered /paid by the customer to the exchange.
Payout is the day on which securities and funds are delivered /paid to the client by the
clearinghouse of the exchange.
DEPOSITORY: Like a bank where securities / shares are held in the electronic form
(NSDL- National Securities Depository Limited / CDSL – Central Depository Services
Limited)

Depository participant- Investors avail services of a depository through depository

participants.

CORRECTION: Temporary reversal of trend in share prices. This could be a reaction (a

decrease following a consistent rise in prices) or a rally (an increase following a
consistent fall in prices).

FLOATING STOCK: The fraction of the paid-up equity capital of a company, which
participates in day-to-day trading. E.g. 30% of equity capital held by promoters, another
30% held by financial institutions and balance 40% by the public.

CIRCUIT FILTER: Circuit filter is a mechanism by which exchanges temporarily

suspend the trading in a security when its prices rise too high or too low. (Band of 2%,
5%, 10% and 20% depending on the security)

What is the lot size of a contract?

Lot size refers to number of underlying securities in one contract. The lot size is
determined keeping in mind the minimum contract size requirement at the time of
introduction of derivative contracts on a particular underlying. For example, if shares of
XYZ Ltd are quoted at Rs.1000 each and the minimum contract size is Rs. 2 lacs, then
the lot size for that particular scripts stands to be 200000/1000 = 200 shares i.e. one
contract in XYZ Ltd. covers 200 shares.

What is the margining system in the derivative markets?

Two type of margins have been specified –
Initial Margin – Based on 99% VaR and worst–case loss over a specified horizon, which
depends on the time in which Mark to Market margin is collected.
Mark to Market Margin (MTM) – Collected in cash for all futures contracts and adjusted
against the available Liquid Net worth for option positions. In the case of futures
contracts MTM may be considered as Mark to Market Settlement.

INTRODUCTION TO SHRIAM FINANCIAL PVT LTD

SHRIAM Group is a well diversified financial services group having businesses in

stocks and commodities. Their services include equities, derivatives, portfolio
management, IPO and depository services.

We are the proud members of NSE, BSE, MCX-SX in the cash and F & O segment and
MCX, NCDEX, ICEX in commodities segment. Shriam Financial Pvt. Ltd. being one
of the best-capitalized firms in the broking industry in terms of net worth holds a
dominant position in both institutional and retail broking.

Shriam Financial Private Limited (SFPL) since its inception in 1995 has had a vision
to create a global business of excellence. With consistent focus on customer-first-attitude,
ethical and transparent business practices, respect for professionalism, research-based
value investing and implementation of cutting-edge technology the company has
blossomed one of India’s most esteemed stock-broking house.

Subsequently, SFPL spread its wings in all important functions of the financial markets
and exchanges to provide new, better and all possible avenues, to our constituents viz.
our Business Associates and the investor community at large, for profit making and
capital appreciation.

Today, SHRIAM GROUP one of the most trusted names in broking has been successful
in creating a niche for itself in both the securities and commodity ecosystem.
At present they are members of various Stock & Commodity Exchanges under the
following trade names of the group.
1. Shriam Financial Pvt Ltd (SFPL): Securities division
2. Shree Commodities and Derivatives: Commodities division

SERVICES:

SHRIAM group includes following services-:

 Equities
 Derivatives
 IPO
 Commodity market
 Mutual funds
 Currency Trading

1) Equities:

In equity markets, the SHRIAM GROUP has acquired knowledge of the financial markets of the
country during the last years of its business. The group and all companies can boast of sound
domain knowledge because its Professional Management and Manpower are well assisted by the
hi-tech upgraded infrastructure, which has been put in place at a huge cost.
They serve multitude of retail customers through their own corporate offices in Bikaner and with
numerous Business Associates spread over many cities throughout the country.

2) Derivatives:

Derivatives are financial contracts, which derive their value from the underlying assets such as
 Equity
 Stocks
 Bonds
 Stock-indices
  Commodities
 Precious Metals
 Foreign exchange or any other asset

Broadly four types of derivatives are traded:

 Forwards
 Futures
 Options
 Swaps
The world over, derivatives are key part of the financial system.

Advantages of Derivatives

 Derivatives help to improve market efficiency because risks can be isolated and
sold to those who are willing to accept taking these risks at the least cost.
 The use of derivatives breaks risk into pieces, which can be managed
independently. Thus, from the market prospective, derivatives offer the free trading
of financial risks.
 The Bombay Stock Exchange (BSE), Mumbai launched its first Exchange traded
financial derivative product in Sensex Futures on June 9, 2000. National Stock
Exchange (NSE) commenced trading in Index Futures on June 12, 2000.
 It took one more important step forward in the Capital Market Reforms when
Securities &Exchange Board of India (SEBI) allowed trading in equities-based
derivatives on the Stock Exchanges in the country in June 2000.
 In view of positive market & investors interest in derivatives, NSE introduced
trading in index options on June 4, 2001 while options on individual securities was
launched on July 2, 2001.

In this segment also, SHRIAM GROUP has promptly taken a plunge in making huge investments
to obtain membership of all concerned exchanges and has upgraded its technology to serve all their
Business Associates and investor-clientele to provide them better and varied opportunities for
profit making and capital appreciation.
And, they feel very happy to pronounce that they have recorded excellent progress in having very
deep and wide client-base from multi-centers and multi-states in the country with good turnover in
a wide spectrum of commodities. They are in the fast-pace growth mode in this vital segment and
wish to double-up and develop their client base to many more centers and states to offer better
services of SHRIAM GROUP resulting in ever increasing profit-making chances to our existing
and prospective clients.
As regards futures trading in commodities is concerned, it has resulted in transparent and fair price
discovery on account of large scale participations of entities associated with different value chains
and reflects views and expectations of wider section of people related to these commodities.
Futures trading also provides effective platform for price risk management for all segments of
market participants ranging from producers, traders, processors, exporters/importers and end-users
of the commodity.

3) IPO-:

IPO or Initial Public Offer presents good opportunities for netting high returns on your investments
in a relatively short period of time, provided you invest early. Shriam Financial Pvt. Ltd. has made
investing in IPO’s so simple.

4) Commodity Market-:

India has a deep ingrained knowledge in commodity trading (and particularly forward trading in
commodities), especially in the interior heartland. For last 40 years or so, such forward (futures)
trading was banned in the country for a variety of reasons and it is being revived now. The ban has
meant that two generations have lost touch with the trading skills and the related knowledge levels
in the commodity space. Fortunately much of the skill sets have migrated to stock exchanges.
In our country, Multi Commodity Exchange of India (MCX), National Commodity and
Derivatives Exchange Ltd. (NCDEX) and Indian Commodity Exchange Ltd. (ICEX) are the three
state-of-the-art commodity trading platforms for Futures Trading which commenced operations in
November 2003, December 2003 and November 2009 respectively. All three are national level, hi-
tech driven and online commodity exchanges, which provide a very wide spectrum of derivatives
driven by best global practices, professionalism and transparency for all market participants. Both
– MCX & NCDEX – are headquartered in Mumbai and ICEX in Gurgaon are led by expert
Management Teams with deep domain knowledge of commodity futures market having integrated
dedicated resources and infrastructure.
This Commodity segment has proved to be one more pillar of strength of the SHRIAM GROUP,
and this has been made possible due to the positive and enthusiastic response from our Business
Associates and our retail clientele spread over many trading centres in multi-states.

Why Commodity Market?

Commodity derivatives records high volumes in the markets the world over compared to equity
derivatives. In an era where risks to investments are on the rise and India being predominantly an
agrarian economy, needs to switch to commodity derivatives to top the list of developed nations.
With the other asset classes offering attractive returns, "Why Commodities?" is the inevitable
question that pops in one's mind today, more so considering that the BSE Sensitive Index and NSE
Nifty are scaling new highs by the day. Commodity derivatives provide unique money-making
opportunities to a wider section of market participants, starting from planters to exporters,
importers et al. And to the agrarian Indian population commodities are obviously not new, nor are
the advantages of trading in them unknown.
No balance sheet, P&L statement, EBITDA and reading between the lines. Commodity trading is
about the simple economics of supply and demand. Supports are known, only resistance matters!
Minimum support price acts as a statutory support for many commodities.
No breaking of heads over market direction. Seasonality patterns quite often provide clue to both
short- and long-term players.
No scam, no price rigging. Commodity trading comes with nil insider trading and company
specific risk.
What's more, why invite risk by investing in a metal company when you can trade in the metal
itself? After all, while the stock price of the company is dependent on several factors including the
company's own fundamentals, the price of the metal is driven by the simple economics of demand
and supply. Also compared to equities it is much cheaper to trade in commodities, where margin
requirements are lower.

5) Mutual Funds-:

To enable clients diversify their investments Shriam has added another product in its bouquet and
will now offer mutual funds.
Shriam Group mutual team is in close contact with various fund houses and interactive sessions are
held with fund managers. They will provide regular updates on products and new schemes. Being
one of the largest stock brokers of India they keep a close watch on the markets. Based on
customers risk appetite, investment horizon and their existing investments they will suggest
investment in mutual fund schemes, which are best, suited to clients. The fund and scheme
selection is done after an in-depth research on parameters like risk adjusted returns, rolling returns,
volatility and portfolio churn. They advise a mature and long-term view on mutual fund
investments.
Shriam Mutual doesn't stop at just that, we go a step further to ensure that you get the right NAV,
your dividends are credited on time and your account statements are regularly received.

6) Currency Trading-:

Shriam Group has always believed in addition of new products as an when introduced in the
Market. It has started providing Currency derivative trading platform to all its clients right from
day one, when it was first started by NSE on 29th August 2008.
Shriam Group through its group companies has taken membership of all the three prominent
Currency derivative exchanges in India namely:
 # NSE
 # BSE
 # MCX-SX
The main feature of trading in Currency Derivatives are as follows:
1) Market timings: 9.15 A.M. to 3.30 P.M. Monday to Friday

2) Trading: US$-INR (initially) Bid/Offer will be 4 decimal point e.g. Rs. 43.2345

3) Market Lot: 1000 USD

4) Tick size: Rs.0.0025

5) Contract Cycle: 12 - month trading cycle.

6) Base Price: Calculated on the basis of last half-hour weighted average price

7) Price Operating Range: +/- 3% of base price -- Tenure up to 6 months +/- 5% of base
price -- Tenure greater than 6 months

8) Minimum Initial Margin: Approx. margin will be around 3%.

9) Last Trading day: Two working days prior to the last business day of the expiry month.

10) Final Settlement Price: Final Settlement Price for a future contract shall be the RBI
Reference Rate on the last trading day of such future contract. The expiry day will be announced
by the Exchange at the opening of every new contract.

11) Expiry date: The monthly expiry date will be 2 working days before last working days of
month. There will be 12 months contract available for trading. The contract will expire at 12 noon
on expiry day.
12) Daily Pay-in/Pay-out settlement: T+2 day

Depository:

Capital Markets in India have been growing at a tremendous pace in terms of Market
Capitalization and number of investors. So as to facilitate paperless settlement, involving
buying/selling and transfer of shares and securities in the country, the Government of India
promulgated The Depositories Act, 1996 in August 1996.
The Depositories Act also aimed at improving the efficiency of the capital markets and the
financial system, while protecting the interests of the investor- community. The Regulations under
the act obviate the host of problems the investors used to face earlier in respect of delayed transfer
of shares, non-receipt of dividends, bonus and rights, etc. The implementation of the regulations,
under the said act, has helped investors get their lawful dues, in shape of dividends, bonus and
rights, with transfer of shares in their names more promptly and efficiently. This can be ensured by
opening a demat account.

Under the provisions of the said Act, two Depositories have been approved to operate in India viz.
National Securities Depository Ltd., (NSDL) and Central Depository Services (India) Ltd.,
(CDSL).

A depository holds shares and securities in electronic form in your name, just as a bank holds your
deposits in your account. Besides holding securities, a depository also provides services related to
your transactions in securities.

Central Depository Services (India) Ltd., (CDSL) has received approval from SEBI in February
1999. It is promoted by The Bombay Stock Exchange, Mumbai (BSE) jointly with leading banks
such as State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered
Bank, Union Bank of India and Centurion Bank. CDSL commenced its operations from July 1999.
It has depository participants (like agents called branches) through out India.
Portfolio Management:

Shriam Financial Pvt. Ltd. is a SEBI registered Portfolio Manager.

Portfolio Management services is provided to our customers whereby professionals having rich
experience in the market handles client money invested in various capital market products.

 Competitive Portfolio Management fees.

 Transparent Operations
 Vision to enhance clients wealth
 Dedicated Relationship Manager
 Regular updates
 BIBLIOGRAPHY
Websites

www.nseindia.com

www.bseindia.com

www.depositoryindia.com

www.sebiindia.com

www.shriamonline.com

Books

Kothari, C.R., Research Methodology, New Delhi, Vikas Publishing House, 1999.

D.K.Khatri, Investment Management and Securities Analysis, New Delhi, Macmillan

India Ltd., 2006.

S.P. Gupta, Statistics, New Delhi, Sultan Chand & Sons, 2002.

Philip Kotler, Marketing management, New Delhi, Prentice Hall of India, 2000.

BSE’s Certification on Central Depository module.

Capital Market (Dealers) Module from NCFM.