Professional Documents
Culture Documents
For
Demat &trading account
By
Ritesh kumar Sonwani
BBA 5th
Rol No:-7621041
To
The successful completion of this project was a unique experience for me because by
visiting many place and interacting various person, I achieved a better knowledge
about sales. The experience which I gained by doing this project was essential at this
turning point of my career this project is being submitted which content detailed
analysis of the research under taken by me.
The research provides an opportunity to the student to devote his/her skills knowledge
and competencies required during the technical session.
The research is on the topic “Sales & Marketing Division For Demat & trading
account”
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Acknowledgement
Firstly,I take this opportunity to express my sincere gratitude to completed this project
Respected Pro. Dr.Rajneesh Srivastava, Principle of Sherwood college of
professional management And Our course coordinator Mr. R. Haque who
simultaneously is my project guide, without whose guidance ,inception and
motivation, I could not have completed successfully.
I am indebted to all staff of SAL SECURITIES Ltd for their valuable support and
cooperation during the entire tenure of this project.
I would also like to express my thanks in no less measure to my internal guide. I put
my sincere thanks and regard to Mr.Gaurav Singh my internal project guide for his
valuable guidelines.
I would like to thank our Company Guide Mr. Chandra Bhushan Shahi, Training
Manager who has been a constant source of inspiration for me during the completion
of this project. He gave me invaluable inputs during my endeavor to complete this
project.
Not to forget, all those who have kept my spirits surging and helped delivering my
best.
At last I would like to thank all the respondents met in the preparation, who gave their
valuable time to provide us required information and their honest support to complete
our project in time.
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DECLARATION
I hereby declare that the Summer Training Report, which is entitled “Sales &
Marketing Division For Demat &trading account”, is compiled and submitted by
me is my original frame work.
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INDEX.
Executive summary
CHAPTE 1 8-9
Company profile
CHAPTER 2 10-24
Working of stock exchange in INDIA
Light on stock exchange and it services.
Role of SEBI.
Terminologies associated with stock exchanges.
CHAPTER 3 25-44
Bombay Stock Exchange.
Introduction.
Capital listed and market capitalization.
BSE Sensex.
Trading system.
Settlement and clearing.
Demat pay in.
Computation of closing price.
Shortages and objections.
Basket trading system.
Settlement system.
Closing system.
Opportunities for foreign investors.
Transfer of ownership.
Safeguards.
Arbitration machinery.
Customer protection fund.
Grievances redressal.
Disciplinary actions.
Indices.
Disclosures and listing norms.
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Computerized trading.
Future developments.
CHAPTER 4 45-58
National Stock Exchange.
Introduction.
Locations.
Listing.
Constitution.
Trading members.
Trading mechanism.
Market types.
Order books.
Order matching rules.
Order conditions.
Quantity conditions.
Trading workstation.
Computer to computer links facility.
National Securities Clearing Corporation Limited.
CHAPTER 5 59-64
Badla trading.
Substitutes for Badla.
Financial derivatives.
Trading options.
CHAPTER 6 65-72
Research Methodology
ANNEXURE
Bibliography.
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EXECUTIVE SUMMARY
Training and development is the essential job of human resources department of every
organization. It is necessary to help employees in dealing with the changes caused by
the changing business environment.
I, Ritesh Kumar Sonwani had done my project in SAL SECURITIES. LTD. which
is a leading company in finance industry. The main objective of my project was to
“Sales & Marketing Division For Demat &trading account”
The training design included departments, and their training needs, month of training,
sequence of training and methods of training. A proper matrix was formed differently
for each level highlighting the requirements to be trained. It also includes different
skills workshop including the contents, objectives of the skills imparted to the
employees.
Most important in training process are the ice breakers and games which helps the
trainees in feeling relaxed and refreshed.
Each level in organization was considered as separate entity and training procedure
for them was
also different.
The second part is the study made of different methods of trading and In all they offer
9 different avenues for investing, which have been explained in length in the pages to
come.
The third part is the Case, attached with the report, which is also taken from Franklin
Templeton India Ltd. The case speaks about 3 facts of investing; first being that
growth and value do not move in tandem; second being, value investing has rewarded
long term investors; and the third one as, value stocks have provided low relative
volatility over time
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CHAPTER 1
Company Profile
INTRODUCTION
SAL Securities Private Limited (SAL) is a SEBI registered Category one Merchant
Banker and Member of the National Stock Exchange Of India Limited in the Capital,
Futures & Options segments and Wholesale Debt Market. The Company is also a
Member of the Central Depository Services (India) Limited. SAL endeavors to be a
leading Financial Services Provider Company in the Country. Having made a humble
start in 2004, SAL has been successfully able to establish itself and expand its nature
of activities over the financial services horizon. Our core business activities are as
under:
Equity Broking
Fixed Income Broking
Commodity Broking
Depository Services
Distribution of Financial Products
Merchant Banking Services
Equity Broking
SAL is engaged in servicing the Institutional and Retail segments of the market.
Currently the Company is member of the National Stock Exchange Of India Limited
in the Cash and Futures & Options Segments. Institutional Business The company
started its institutional broking services in November 2005. The institutional business
caters to a wide range of domestic institutions like – Banks, Financial Institutions,
Insurance Companies, Mutual Funds etc. The Company has a strong team of Research
Analysts, Technical Analysts and Sales Traders to help our clients in the execution of
business. The Company also has an in house research desk which provides reports of
understanding on the financial markets on a regular basis. The Company has a well
equipped and fully functional modern dealing room, with an equally strong back
office team, which is centered at the corporate office in Mumbai. With its dedicated
quality services the Company has been steadily increasing its association with the
various client groups. Retail Business With the success and confidence gained out of
servicing its institutional clients the Company has also started catering to the retail
segment from 2008. The Company has a dedicated team of relationship managers
provide personalised services to the clients. On the electronic platform, the Company
currently provides e-broking solutions through ODIN terminals and has plans to start
its online internet based trading platform system in the coming future.
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value based advice and service to banks, Mutual Funds, Insurance Companies,
Financial Institutions, Primary Dealers, Corporate Treasuries, Trusts & Leading PF
Trusts.
Commodity Broking A subsidiary of the group, SAL Comm Trades Private Limited is
a member of the NCDEX and is servicing the clients in dealing in commodities. The
Company has a dedicated team of relationship managers provide personalised services
to the clients.
Depository Services
With a view to provide enhanced value added services to the clients, the Company
has become a Depository Participant with Central Depository Services (India)
Limited. This allows the Company to facilitate Its clients to achieve hassle free
trading and settlement. The Company provides all the Depository facilities viz.
Dematerialisation, Rematerialisation, Pledging, Nomination, Transmission of
Securities and Online account view facility.
The Company is also engaged in the distribution of various financial products, with a
view to offer wider choice of investment avenues to its clients. There is a dedicated
team of relationship managers who are continuously engaged in providing advisory
services to the clients regarding their investments and monitoring their portfolio
performances. The horizon of financial products includes: Mutual Funds, Tax Saving
Instruments, Fixed Deposits and other Fixed Income Products.
Merchant Banking
Services As part of the Merchant Banking Activities, SAL has been successfully
associated in Public Issues of Companies and Takeovers and various other activities
as per SEBI Rules, Regulations and Guidelines. Currently, we are actively associated
with:
Issue Management related activities
Mergers, Acquisitions & Takeovers
Preferential Allotment Matters
Buyback of Shares
Capital Planning & Corporate Restructuring
Company Law & Income Tax matters
Project Financing and Appraisal
Loan Syndication
Working Capital Arrangement etc.
CHAPTER 2
9
WORKING OF STOCK EXCHANGE IN INDIA
Of all the modern service institutions, stock exchanges are perhaps the most crucial
agents and facilitators of entrepreneurial progress. After the industrial revolution, as
the size of business enterprises grew, it was no longer possible for proprietors or
partnerships to raise colossal amount of money required for undertaking large
entrepreneurial ventures. Such huge requirement of capital could only be met by the
participation of a very large number of investors; their numbers running into
hundreds, thousands and even millions, depending on the size of business venture.
10
for someone with savings, especially with a small amount of savings, to readily find
an appropriate business opportunity, or a part thereof, for investment. These problems
will be even more magnified in large proprietorships and partnerships. Nobody would
like to invest in such partnerships in the first place, since once invested, their savings
would be very difficult to convert into cash. And most people have lots of reasons,
such as better investment opportunity, marriage, education, death, health and so on for
wanting to convert their savings into cash. Clearly then, big enterprises will be able to
raise capital from the public at large only if there were some mechanism by which the
investors could purchase or sell their share of business as ands they wished to do so.
This implies that ownership in business has to be “broken up” into a lager number of
small units, such that each unit may be independently & easily bought and sold
without hampering the business activity as such. Also, such breaking of business
ownership would help mobilize small savings in the economy into entrepreneurial
ventures.
This end is achieved in a modern business through the mechanism of shares.
What is a share?
A share represents the smallest recognized fraction of ownership in a publicly held
business. Each such fraction of ownership is represented in the form of a certificate
known as a share certificate. The breaking up of total ownership of a business into
small fragments, each fragment represented by a share certificate, enables them to be
easily bought and sold.
The institution where this buying and selling of shares essentially takes place is
the Stock Exchange.
In the absence of stock exchanges i.e.Institutions where small chunks of businesses
could be traded, there would be no modern business in the form of publicly held
companies. Today, owing to the stock exchanges, one can be part owners of one
company today and another company tomorrow; one can be part owners in several
companies at the same time; one can be part owner in a company hundreds or
thousands of miles away; one can be all of these things. Thus by enabling the
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convertibility of ownership in the product market into financial assets, namely shares,
stock exchanges bring together buyers and sellers (or their representatives) of
fractional ownerships of companies. And for that very reason, activities relating to
stock exchanges are also appropriately enough, known as stock market or security
market. Also a stock exchange is distinguished by a specific locality and
characteristics of its own, mostly a stock exchange is also distinguished by a physical
location and characteristics of its own. In fact, according to H.T.Parekh, the earliest
location of the Bombay Stock Exchange, which for a long period was known as “the
native share and stock brokers’ association”, was probably under a tree around 1870!
The stock exchanges are the exclusive centers for the trading of securities. The
regulatory framework encourages this by virtually banning trading of securities
outside exchanges. Until recently, the area of operation/ jurisdiction of exchange was
specified at the time of its recognition, which in effect precluded competition among
the exchanges. These are called regional exchanges. In order to provide an
opportunity to investors to invest/ trade in the securities of local companies, it is
mandatory foe the companies, wishing to list their securities, to list on the regional
stock exchange nearest to their registered office.
A stock exchange in India operates with due recognition from the government
under the Securities and Contracts (Regulations) Act, 1956. the member
brokers are essentially the middlemen who carry out the desired transactions
in securities on behalf of the public(for a commission) or on their own behalf.
New membership to a Stock Exchange is through election by the governing
board of that stock exchange.
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At present, there are 23 stock exchanges in India, the largest among them
being the Bombay Stock Exchange. BSE alone accounts for over 80% of the
total volume of transactions in shares.
The overall development and regulation of the securities market has been
entrusted to the Securities and Exchange Board of India (SEBI) by an act of
parliament in 1992.
All companies wishing to raise capital from the public are required to list their
securities on at least one stock exchange. Thus, all ordinary shares, preference
shares and debentures of the publicly held companies are listed in the stock
exchange.
Exchange management
Made some attempts in this direction, but this did not materially alter the situation. In
view of the less than satisfactory quality, of administration of broker-managed
exchanges, the finance minister in march 2001 proposed demutualisation of
exchanges by which ownership, management and trading membership would be
segregated from each other. The regulators are working towards implementing this.
Of the 23 stock exchanges in India, two stock exchanges viz., OTCEI and NSE are
already demutualised. Board of directors, which do not include trading members,
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manages these. Theses are purest form of demutualised exchanges, where ownership,
management and trading are in the hands of three sets of people. The concept of
demutualisation completely eliminates any conflict of interest and helps the exchange
to pursue market efficiency and investors interest aggressively.
Role of SEBI
The SEBI, that is, the Securities and the Exchange Board of India, is the national
regulatory body for the securities market, set up under the securities and Exchange
Board of India act, 1992, to “protect the interest of investors in securities and to
promote the development of, and to regulate the securities market and for matters
connected therewith and incidental too.”
SEBI has its head office in Mumbai and it has now set up regional offices in the
metropolitan cities of Kolkata, Delhi, and Chennai. The Board of SEBI comprises a
Chairman, two members from the central government representing the ministries of
finance and law, one member from the Reserve Bank of India and two other members
appointed by the central government.
As per the SEBI act, 1992, the power and functions of the Board encompass the
regulation of Stock Exchanges and other securities markets; registration and
regulation of the working stock brokers, sub-brokers, bankers to an issue (a public
offer of capital), trustees of trust deeds, registrars to an issues, merchant bankers,
under writers, portfolio managers, investment advisors and such other intermediaries
who may be associated with the stock market in any way; registration and regulations
of mutual funds; promotion and regulation of self- regulatory organizations;
prohibiting Fraudulent and unfair trade practices and insider trading in securities
markets; regulating substantial acquisition of shares and takeover of companies;
calling for information from,undertking inspection, conducting inquiries and audits of
stock exchanges, intermediaries and self- regulatory organizations of the securities
market; performing such functions and exercising such powers as contained in the
provisions of the Capital Issues (Control) Act,1947 and the Securities Contracts
(Regulation) Act, 1956, levying various fees and other charges, conducting necessary
14
research for above purposes and performing such other functions as may be prescribes
from time to time.
SEBI as the watchdog of the industry has an important and crucial role in the market
in ensuring that the market participants perform their duties in accordance with the
regulatory norms. The Stock Exchange as a responsible Self Regulatory Organization
(SRO) function to regulate the market and its prices as per the prevalent regulations.
SEBI and the Exchange play complimentary roles to enhance the investor protection
and the overall quality of the market.
Membership
The trading platform of a stock exchange is accessible only to brokers. The broker
enters into trades in exchanges either on his own account or on behalf of clients. The
clients may place their order with them directly or a sub-broker indirectly. A broker is
admitted to the membership of an exchange in terms of the provisions of the SCRA,
the SEBI act 1992, the rules, circulars, notifications, guidelines, etc. prescribed there
under and the byelaws, rules and regulations of the concerned exchange. No
stockbroker or sub-broker is allowed to buy, sell or deal in securities, unless he or she
holds a certificate of registration granted by SEBI. A broker/sub-broker compiles with
the code of conduct prescribed by SEBI.
The stock exchanges are free to stipulate stricter requirements for its members than
those stipulated by SEBI. The minimum standards stipulated by NSE for membership
are in excess of the minimum norms laid down by SEBI. The standards for admission
of members laid down by NSE stress on factors, such as, corporate structure, capital
adequacy, track record, education, experience, etc. and reflect the conscious
endeavors to ensure quality broking services.
Listing
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Listing means formal admission of a security to the trading platform of a stock
exchange, invariably evidenced by a listing agreement between the issuer of the
security and the stock exchange. ; Listing of securities on Indian Stock Exchanges is
essentially governed by the provisions in the companies act, 1956, SCRA, SCRR,
rules, bye-laws and regulations of the concerned stock exchange, the listing
agreement entered into by the issuer and the stock exchange and the circulars/
guidelines issued by central government and SEBI.
Index services
Stock index uses a set of stocks that are representative of the whole market, or a
specified sector to measure the change in overall behavior of the markets or sector
over a period of time. India Index Services & Products Limited (IISL), promoted by
NSE and CRISIL, is the only specialized organization in the country to provide stock
index services.
Trading Mechanism
All stock exchanges in India follow screen-based trading system. NSE was the first
stock exchange in the country to provide nation-wide order-driven, screen-based
trading system. NSE model was gradually emulated by all other stock exchanges in
the country. The trading system at NSE known as the National Exchange for
Automated Trading (NEAT) system is an anonymous order-driven system and
operates on a strict price/time priority. It enables members from across the countries
to trade simultaneously with enormous ease and efficiency. NEAT has lent
considerable depth in the market by enabling large number of members all over the
country to trade simultaneously and consequently narrowed the spreads significantly.
A single consolidated order book for each stock displays, on a real time basis, buy and
sell orders originating from all over the country. The bookstores only limit orders,
which are orders to buy or sell shares at a stated quantity and stated price. The limit
order is executed only if the price quantity conditions match. Thus, the NEAT system
provides an open electronic consolidated limit order book (OECLOB). The trading
system provides tremendous flexibility to the users in terms of kinds of orders that can
16
be placed on the system. Several time-related (Good-Till-Cancelled, Good-Till-Day,
Immediate-or-Cancel), price related (buy/sell limit and stop-loss orders) or volume
related (All-or-None, Minimum Fill, etc.) conditions van be easily built into an order.
Orders are sorted and match automatically by the computer keeping the system
transparent, objective and fair. The trading system also provides complete market
information on-line, which is updated on real time basis. The trading platform of the
CM segment of NSE is accessed not only from the computer terminals from the
premises of brokers spread over 420 cities, but also from the personal computers in
the homes of investors through the internet and from the hand-held devices through
WAP. The trading platform of BSE is also accessible from 400 cities.
Internet trading is available on NSE and BSE, as of now. SEBI has approved the use
of Internet as an order routing system, for communicating clients’ orders to the
exchanges through brokers. SEBI- registered brokers can introduce internet-based
trading after obtaining permission from the respective Stock Exchanges. SEBI has
stipulated the minimum conditions to be fulfilled by trading members to start internet-
based trading and services.
NSE was the first exchange in the country to provide web-based access to investors to
trade directly on the exchange. It launched Internet trading in February 2000. It was
followed by the launch of Internet trading by BSE in March 2001. The orders
originating from the personal computers (PCs) of investors are routed through the
Internet tot eh trading terminals of the designated brokers with whom they have
relations and further to the exchange of trade execution. Soon after these orders get
matched and result into trades, the investors get confirmation about them on their PCs
through the same Internet routes.
SEBI approved trading through wireless medium or WAP platform. NSE is the only
exchange to provide access to its order book through the hand held devices, which use
WAP technology. This serves primarily retail investors who are mobile and want to
trade from any place when the market prices for st0ocks of their choice are attractive.
Demat Trading
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A depository holds securities in dematerialized form. It maintains ownership records
of securities in a book entry form and also effects transfer of ownership through book
entry. SEBI has introduced some degree of compulsion in trading and settlement of
securities in dematerialized form. While the investors have a right to hold securities in
either physical or demat form, SEBI has mandated compulsory trading and settlement
of securities in dematerialized form. This was initially introduced for institutional
investors and was later extended to all investors. Starting with 12 scrips on January
15, 1998, all investors are required to mandatory trade in dematerialized form in
respect of 2,335 securities as at end-June, 2001.
Demat Account
Demat account allows you to buy, sell and transact shares without the endless
paperwork and delays. It is also safe, secure and convenient.
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What is demat account?
Demat refers to a dematerialised account. Just as you have to open an account with a
bank if you want to save your money, make cheque payments etc, you need to open a
demat account if you want to buy or sell stocks. So it is just like a bank account where
actual money is replaced by shares. You have to approach the DPs (remember, they
are like bank branches), to open your demat account.
Let’s say your portfolio has 100 of Satyam, 200 of IBM and 120 of TCS shares. All
these will show in your demat account. So you don’t have to possess any physical
certificates showing that you own these shares. They are all held electronically in your
account. As you buy and sell the shares, they are adjusted in your account. Just like a
bank passbook or statement, the DP will provide you with periodic statements of
holdings and transactions.
Why demat?
The demat account reduces brokerage charges, makes pledging/hypothecation of
shares easier, enables quick ownership of securities on settlement resulting in
increased liquidity, avoids confusion in the ownership title of securities, and provides
easy receipt of public issue allotments.
It also helps you avoid bad deliveries caused by signature mismatch, postal delays and
loss of certificates in transit. Further, it eliminates risks associated with forgery,
counterfeiting and loss due to fire, theft or mutilation. Demat account holders can also
avoid stamp duty (as against 0.5 per cent payable on physical shares), avoid filling up
of transfer deeds, and obtain quick receipt of such benefits as stock splits and bonuses.
Bank vs Broker
With every bank and broking firm queuing up to provide demat and trading services,
selecting the most appropriate Depository Participant (DP) can be quite a task. Here’s
an analysis to bail you out of the confusion…
With an increased use of high end technology and the convergence of multiple
platforms, buying and selling shares and undertaking other investments has become
swift and secure. The introduction of online trading and dematerialization of shares
has changed the face of investing in stocks.
Let’s analyze the pros and cons associated with having a demat account with a bank,
in comparison to a brokerage house. Three way integration provided by banks Banks
offer a three-in-one account, namely, a savings account, demat account and an online
trading account. All these three accounts ensure you a completely paperless
mechanism for trading and to facilitate the smooth transfer of funds to and from your
bank account.
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The minimum balance to be maintained in these accounts is comparatively low or at
times, even a zero balance account is offered. Banks charge brokerage in the range of
0.5 per cent to 0.7 per cent, subject to a minimum brokerage amount, excluding the
applicable Securities Transaction Tax (STT) and service tax. These rates are
negotiable for an investor who generates higher volumes of trades.
How Broking firms fare When you open an account with a brokerage house, they
provide you with a demat account and a trading account. The trading account is then
linked with a particular bank (with whom your broker has a tie up with) for transfer of
funds. The brokerage structure is more competitive than banks. The minimum
delivery based brokerage can be as low as 0.3 per cent and goes down significantly
with a spurt in trading volumes. In addition to this, there is no minimum fixed
brokerage. You need to pay brokerage only on the trades undertaken. Banks offer
security Demat accounts with banks are much more secure than those provided by
lesser-known brokerage houses.
There have been instances in the past when the markets have witnessed a sharp
correction and many brokers have gone bust, failing to meet their margin
requirements and this has forced them to shut shop. Opening a demat account with a
bank gives you more options to choose from when funds need to be transferred to the
trading account, as most of the banks allow online transfers of funds. However, in the
case of a brokerage house, transfer of funds is not always online and can take
anything between one to three days.
Broking firms score on charges The cost rises considerably if trading is done below a
certain number of shares or below a certain amount, with a bank. Another aspect is
the quality of equity research reports provided by the banks and broking firms. Short-
term investment calls and trading tips provided by the latter are perceived to be far
more superior to the same services rendered by banks.
Take your call Depending on your priorities, you can select your demat provider. If
safety is your prime concern, you will be better off with a bank even if it means
paying slightly higher charges.
However, if you can meticulously keep an account of your exposure limit utilizations,
interest charged thereon and ultimate benefits accruing out of such exposure, opening
an account with a brokerages house could be more rewarding.
Banks provide a three way integrated trading, demat and saving bank account
to facilitate paperless trading and ease in transfer of funds.
The brokerage and pricing structure is more competitive from a broking firm
than from banks.
Demat accounts with banks are much more secure than those provided by
lesser-known brokerage houses.
While both have their set of advantages, ascertain your priorities before you
choose between a bank and a brokerage house for your demat needs.
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The procedure for buying and selling dematerialised securities is similar to the
procedure for buying and selling physical securities. The difference lies in the
process of delivery (in case of sale) and receipt (in case of purchase) of securities.
In case of purchase:-
The broker will receive the securities in his account on the payout day
The broker will give instruction to its DP to debit his account and credit
investor’s account
Investor will give ‘Receipt Instruction to DP for receiving credit by filling
appropriate form. However one can give standing instruction for credit in to
ones account that will obviate the need of giving Receipt Instruction every
time.
In case of sale:-
The investor will give delivery instruction to DP to debit his account and credit the
broker’s account. Such instruction should reach the DP’s office at least 24 hours
before the pay-in as other wise DP will accept the instruction only at the investor’s
risk.
Rights
Procedure
Trading in dematerialised securities is done through your broker just like trading in
physical securities. After your broker executes the trade, your DP will help to deliver
shares to your broker (in case you sell) on the basis of valid instruction given by you
to your DP and receive shares from your broker (in case you buy) on basis of valid
instruction given by your broker to his DP.
21
1. You purchase securities in any of the stock exchanges connected to NSDL
through a broker of your choice and make payment to your broker. Make sure
you tell your broker you want only demat shares.
2. Broker arranges payment to clearing corporation/ clearing house of the stock
exchange.
3. Broker receives credit in his clearing account with his DP on the pay-out day.
He can immediately transfer these securities to your depository account,
provided your account is already active.
4. Broker gives instructions to his DP to debit his clearing account and credit
your depository account.
5. You give instruction to your DP for receiving credit in your depository
account. If you have given standing instruction to receive credits, no separate
instruction for receiving credit will be required.
6. If the instructions match, your account with your DP is credited.
1. You sell your dematerialised securities in any of the stock exchanges linked to
NSDL through a broker of your choice.
2. You give instruction to your DP for debit of your depository account and
credit of your brokers clearing member account at least 24 hours i.e. one
working day prior to the pay-in date or before the deadline prescribed by your
DP, so that your brokers clearing account is credited at the time arranged with
him.
3. On the pay-in day, your broker gives instruction to his DP for delivery to
clearing corporation/clearing house of the relevant stock exchange.
4. The broker receives payment from the clearing corporation / clearing house.
5. You receive payment from the broker for the sale in the same manner you
would receive payment for a sale in the physical mode.
Points To Remember
22
incurred, provided your instruction was in order and has been submitted to the
DP at least 24 hours i.e. one working day prior to the pay-in date or before the
deadline prescribed by DP. In case the DP fails to resolve your problem, you
can contact NSDL.
Demat Benefits
Demat Conversion
In order to dematerialise physical securities one has to fill in a DRF (Demat Request
Form) which is available with the DP and submit the same along with physical
certificates one wishes to dematerialise. Separate DRF has to be filled for each ISIN
Number.
23
CHAPTER 3
BOMBAY STOCK EXCHANGE
INTRODUCTION
24
The Stock Exchange, Mumbai, popularly known as "BSE" was established in 1875 as
"The Native Share and Stock Brokers Association", as a voluntary non-profit making
association. It has evolved over the years into its present status as the premier Stock
Exchange in the country. It may be noted that the Stock Exchanges is the oldest one in
Asia, even older than the Tokyo Stock Exchange, which was founded in 1878.
The Exchange, while providing an efficient and transparent market for trading in
securities, upholds the interests of the investors and ensures redressal of their
grievances, whether against the companies or its own member-brokers. It also strives
to educate and enlighten the investors by making available necessary informative
inputs and conducting investor education programmes.
A Governing Board comprising of 9 elected directors (one third of them retire every
year by rotation), two SEBI nominees, a Reserve Bank of India nominee, six public
representatives and an Executive Director is the apex body, which decides the policies
and regulates the affairs of the Exchange.
The Executive Director as the Chief Executive Officer is responsible for the day-to-
day administration of the Exchange.
The average daily turnover of the Exchange during the year 2000-2001 (April-
March), was Rs.3984.19 crores and average number of daily trades was 5.69 lakhs.
However, the average daily turnover of the Exchange during the year 2001- 2002 has
declined to Rs. 1244.10 crores and number of average daily trades during the period
to 5.17 lakhs. The ban on all deferral products like BLESS and ALBM in the Indian
capital Markets by SEBI w.e.f. July 2, 2001, abolition of account period settlements,
introduction of Compulsory Rolling Settlements in all scrips traded on the Exchanges
w.e.f. December 31, 2001, etc. have adversely impacted the liquidity and
consequently there is a considerable decline in the daily turnover at the Exchange.
CAPITAL LISTED AND MARKET CAPITALIZATION
The Stock Exchange, Bombay (BSE) is the premier Stock Exchange in India. The
BSE accounted for 46 per cent of listed companies on an all India basis as on 31st
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March 1994. It ranked first in terms of the number of listed companies and stock
issues listed. The capital listed in the BSE as on 31st March 1994 accounted for 50%
of the overall capital listed on all the stock exchanges. Its share of the market
capitalization was around 74% as on the same date. The paid-up capital of equity,
debentures/bonds and preference were 73%, 31%, 44% respectively of the overall
capital listed on all the Stock Exchanges as on the same date.
On the BSE, the Steel Authority of India had the largest market capitalization of
Rs.19, 908 crores as on the 31st March, 1994 followed by the State Bank of India
with the market capitalization of Rs.16, 702 crores and Mahanagar Telephone Nigam
Limited with the market capitalization of Rs.11, 700 crores.
BSE SENSEX
The BSE SENSEX, short form of Sensitive Index, first compiled in 1986 is a “market
Capitalization-Weighted” index of 30 component stocks representing a sample of
large, well-established and financially sound companies. The index is widely reported
in both, the domestic international, print electronic media and is widely used to
measure the used to measure the performance of the Indian stock markets.
The BSE SENSEX is the benchmark index of the Indian capital market and one,
which has the longest social memory. In fact the SENSEX is considered to be the
pulse of the Indian stock markets. It is the oldest index in India and has acquired a
unique place in collective consciousness of the investors. Further, as the oldest index
of the Indian Stock Market, it provides time series data over a fairly long period of
time. Small wonder that the SENSEX has over the years has become one of the most
prominent brands of the Country.
Objectives of SENSEX
The BSE SENSEX is the benchmark index with wide acceptance among individual
investors, institutional investors, foreign investors, foreign investors and fund
managers. The objectives of the index are:
26
To measure market movements
Given its long history and its wide acceptance, no other index matches the BSE
SENESX in the reflecting market movements and sentiments. SENSEX is widely
used to describe the mood in the Indian stock markets.
27
Larsen & toubro Diversified
Cipla Healthcare
Hindalco Metals and mining
HPCL Metal and mining
TISCO Metal and mining
Nestle FMCG
Trading System
Till Now, buyers and sellers used to negotiate face-to-face on the trading floor over a
security until agreement was reached and a deal was struck in the open outcry system
of trading, that used to take place in the trading ring. The transaction details of the
account period (called settlement period) were submitted for settlement by members
after each trading session.
The computerized settlement system initiated the netting and clearing process by
providing on a daily basis statements for each member, showing matched and
unmatched transactions. Settlement processing involves computation of each
member's net position in each security, after taking into account all transactions for
the member during the settlement period, which is 10 working days for group 'A'
securities and 5 working days for group 'B' securities.
Trading is done by members and their authorized assistants from their Trader Work
Stations (TWS) in their offices, through the BSE On-Line Trading (BOLT) system.
BOLT system has replaced the open outcry system of trading. BOLT system accepts
two-way quotations from jobbers, market and limit orders from client-brokers and
matches them according to the matching logic specified in the Business Requirement
Specifications (BRS) document for this system.
The matching logic for the Carry-Forward System as in the case of the regular trading
system is quote driven with the order book functioning as an "auxiliary jobber".
TRADING
28
The Exchange, which had an open outcry trading system, had switched over to a fully
automated computerized mode of trading known as BOLT (BSE on Line Trading)
System. Through the BOLT system the members now enter orders from Trader Work
Stations (TWSs) installed in their offices instead of assembling in the trading ring.
This system, which was initially both order and quote driven, was commissioned on
March 14, 1995. However, the facility of placing of quotes has been removed w.e.f.,
August 13, 2001 in view of lack of market interest and to improve system-matching
efficiency. The system, which is now only order driven, facilitates more efficient
processing, automatic order matching and faster execution of orders in a transparent
manner.
Earlier, the members of the Exchange were permitted to open trading terminals only
in Mumbai. However, in October 1996, the Exchange obtained permission from SEBI
for expansion of its BOLT network to locations outside Mumbai. In terms of the
permission granted by SEBI and certain modifications announced later, the members
of the Exchange are now free to install their trading terminals at any place in the
country. Shri P. Chidambaram inaugurated the expansion of BOLT network the then
Finance Minister, Government of India on August 31, 1997.
In order to expand the reach of BOLT network to centers outside Mumbai and support
the smaller Regional Stock Exchanges, the Exchange has, as on March 31, 2002,
admitted subsidiary companies formed by 13 Regional Stock Exchanges as its
members. The members of these Regional Stock Exchanges work as sub-brokers of
the member-brokers of the Exchange.
Trading on the BOLT System is conducted from Monday to Friday between 9:55 a.m.
and 3:30 p.m. The scrips traded on the Exchange have been classified into 'A', 'B1',
'B2', 'F' and 'Z' groups. The number of scrips listed on the Exchange under 'A', 'B1 ',
'B2' and 'Z' groups, which represent the equity segment, as on March 31, 2002 was
29
173, 560,1930 and 3044 respectively. The 'F' group represents the debt market (fixed
income securities) segment wherein 748 securities were listed as on March 31, 2002.
The 'Z' group was introduced by the Exchange in July 1999 and covers the companies
which have failed to comply with listing requirements and/or failed to resolve investor
complaints or have not made the required arrangements with both the Depositories,
viz., Central Depository Services (I) Ltd. (CDSL) and National Security Depository
Ltd. (NSDL) for dematerialization of their securities by the specified date, i.e.,
September 30, 2001. Companies in "Z" group numbered 3044 as on March 31, 2002.
Of these, 1429 companies were in "Z" group for not complying with the provisions of
the Listing Agreement and/or pending investor complaints and the balance 1615
companies were on account of not making arrangements for dematerialization of their
securities with both the Depositories. 1615 companies have been put in "Z" group as a
temporary measure till they make arrangements for dematerialization of their
securities. Once they finalize the arrangements for dematerialization of their
securities, trading and settlement in their scrips would be shifted to their respective
erstwhile groups.
The Exchange has also the facility to trade in "C" group which covers the odd lot
securities in 'A', 'B1', 'B2' and 'Z' groups and Rights renunciations in all the groups of
scrips in the equity segment. The Exchange, thus, provides a facility to market
participants of on-line trading in odd lots of securities and Rights renunciations. The
facility of trading in odd lots of securities not only offers an exit route to investors to
dispose of their odd lots of securities but also provides them an opportunity to
consolidate their securities into market lots.
The 'C' group can also be used by investors for selling upto 500 shares in physical
form in respect of scrips of companies where trades are to be compulsorily settled by
all investors in demat mode. This scheme of selling physical shares in compulsory
demat scrips is called as Exit Route Scheme.
With effect from December 31, 2001, trading in all securities listed in equity segment
of the Exchange takes place in one market segment, viz., Compulsory Rolling
Settlement Segment.
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Permitted Securities
The Exchange has since decided to permit trading in the securities of the companies
listed on other Stock Exchanges under " Permitted Securities" category which meet
the relevant norms specified by the Exchange. Accordingly, to begin with the
Exchange has permitted trading in scrips of five companies listed on other Stock
Exchanges w.e.f. April 22, 2002/
Under a rolling settlement environment, the trades done on a particular day are settled
after a given number of business days rather than settling all trades done during a
period at the end of an 'account period'. A T+3 settlement cycle means that the final
settlement of transactions done on T or trade day by exchange of monies and
securities, occurs on fifth business day after the trade day.
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The transactions in securities of companies which have made arrangements for
dematerialization of their securities by the stipulated date are settled only in Demat
mode on T+3 on net basis, i.e., buy and sale positions in the same scrip are netted and
the net quantity is to be settled. However, transactions in securities of companies,
which have failed to make arrangements for dematerialization of their securities or
/are in "Z" group, are settled only on trade to trade basis on T+3 i.e., the transactions
are settled on a gross basis and the facility of netting of buy and sale transactions in a
scrip is not available. For example, if one buys and sells 100 shares of a company on
the same day which is on trade to trade basis, the two positions will not be netted and
he will have to first deliver 100 shares at the time of pay-in of securities and then
receive 100 shares at the time of pay-out of securities on the same day. Thus, if one
fails to deliver the securities sold at the time of pay-in, it will be treated as a shortage
and the position will be auctioned/ closed-out.
The following tables summarizes the steps in the trading and settlement cycle for
scrips under CRS:
DAY ACTIVITY
32
T+1
Confirmation of 6A/7A data by the Custodians. Downloading of securities and funds
obligation statement by members.
T+3
Pay-in of funds and securities by 11:00 a.m. and pay-out of funds and securities by
2:00 p.m
T+4
Auction on BOLT.
T+5
Auction pay-in and pay-out.
Thus, the pay-in and pay-out of funds and securities takes places on the 3rd working
day of the execution of the trade.
The settlement of the trades (money and securities) done by a member on his own
account or on behalf of his individual, corporate or institutional clients may be either
33
through the member himself or through a SEBI registered Custodian appointed by
him or the respective client. In case the delivery/payment is to be given or taken by a
registered Custodian, he has to confirm the trade done by a member on the BOLT
System through 6A-7A entry. For this purpose, the Custodians have been given
connectivity to BOLT System and have also been admitted as members of the
Clearing House. In case a transaction is not confirmed by a registered Custodian, the
liability for pay-in of funds or securities in respect of the same devolves on the
concerned member.
Demat pay-in
The members can effect demat pay-in either through Central Depository Services (I)
Ltd. (CDSL) or National Securities Depository Ltd. (NSDL). In case of NSDL, the
members are required to give instructions to their Depository Participant (DP)
specifying settlement no., settlement type, effective pay-in date, quantity, etc. The
securities are transferred to the Pool Account. The members are required to give
delivery-out instructions so that the securities are considered for pay-in.
As regards CDSL, the members give pay-in instructions to their DP. The securities
are transferred to Clearing Member (CM) Principal Account. The members are
required to give confirmation to their DP, so that securities are processed towards
pay-in obligations. Alternatively, members may also effect pay-in from clients'
beneficiary accounts for which member are required to do break-up on the front-end
software to generate obligation and settlement ID.
The Clearing House arranges and tallies the securities received against the receiving
member wise report generated on the Pay-in day. Once this reconciliation is complete,
the bank accounts of members with seven clearing banks having pay-in positions are
debited on the scheduled pay-in day. This procedure is called Funds Pay-in. In case of
the demat securities, the securities are credited in the Pool Account of the members or
34
the Client Accounts as per the client details submitted by the members. In case of
Physical securities, the Receiving Members collect securities from the Clearing House
on the payout day and the accounts of the members having payout are credited on
Friday. This is referred to as Payout. In case of the Rolling Settlements, pay-in and
payout of both funds and securities is on the same day, in case of Weekly settlements,
pay-in of funds and securities is on Thursday and payout is on Friday.
The auction is conducted for those securities which members fail to deliver/short
deliver during the Pay-in. In case the securities are not received in an auction, the
positions are closed out as per the closeout rate fixed by the Exchange in accordance
with the prescribed rules. The close out rate is calculated as the highest rate of the
scrip recorded in the settlement in which the trade was executed and in the subsequent
settlement upto the day prior to the day of auction, or 20% above the closing price on
the day prior to the day of auction, whichever is higher. However, in case of close-out
for shares under objection or traded in "C" group, 10% instead of 20% above the
closing price on the day prior to the day of auction and the highest price recorded in
the settlement in which trade took place upto a day prior to auction is considered.
The Exchange has strictly adhered to the settlement schedules for various groups of
securities and there has been no case of clubbing of settlements or postponement of
pay-in and pay-out during the last six years.
The Exchange is also maintaining a database of fake/forged, stolen, lost and duplicate
securities with the Clearing House so that distinctive numbers submitted by members
on delivery may be matched against the database to weed out bad paper from
circulation at the time of introduction of such securities in the market. This database
has also been made available to the members so that delivering and receiving
members can check the entry of fake, forged and stolen shares in the market
Objections
When receiving members collect the physical securities from the Clearing House on
the Payout day, the same are required to be checked by them for good delivery as per
the norms prescribed by the SEBI in this regard. If the receiving member does not
35
consider the securities good delivery, he has to obtain an arbitration award from the
arbitrators and submit the securities in the Clearing House on the following day of the
Pay-Out (T+4). The Clearing House returns these securities to the delivering members
on the same day, i.e., (T+4). If a delivering members feels that arbitration awards
obtained against him is incorrect, he is required to obtain arbitration award for invalid
objection from the members of the Arbitration Review Committee. The delivering
members are required to rectify/replace the objections and return the shares to the
Clearing House on next day (T+5) to have the entry against them removed. The
rectified securities are delivered by the Clearing House to the buyer members on the
same day (T+5). The buyer members, if they are not satisfied with the rectification,
are required to obtain arbitration awards for invalid rectification from the Bad
Delivery Cell on T+6 day and submit the shares to the Clearing House on the same
day.
If a member fails to rectify/replace the objections then the same are closed-out. This is
known as "Objection Cycle" and the entire process takes 3 days.
Close Out:
There are cases when no offer for particular scrip is received in an auction or when
members who offer the scrips in auction, fail to deliver the same. In the former case,
the original seller member's account is debited and the buyer member's account is
credited at the closeout rate. In the latter case, the offerer member's account is debited
and the buyer member's account is credited at the close-out rate. The closeout rates for
closing the positions in different segments are as under:
For 'A' + 'B1' + 'B2' + 'Z', 'Rolling demat' and 'F' group
The closeout rate is higher of the following rates:
The highest rate of the scrip from the first day (trading day in case of Rolling
demat segment) to the day prior to the day on which the auction is conducted for
the respective settlement.
20% above the closing rate as on the day prior to the day of auction of the
respective settlement.
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For 'C' group segment
In the 'C' group, i.e., Odd Lot Segment, no auction session is conducted. The
shortages are directly closed out.
The Exchange has commenced trading in the Derivatives Segment with effect from
June 9, 2000 to, enable the investors to hedge their risks. Initially, the facility of
trading in the Derivatives Segment has been confined to Index Futures. Subsequently,
the Exchange has since introduced the index options and options & futures in select
individual stocks. The investors in cash market had felt a need to limit their risk
exposure in the market to movement in Sensex.
With a view to provide investors with this facility of creating Sensex linked portfolios
and also to create a linkage of market prices of the underlying securities of Sensex in
the Cash Segment and Futures on Sensex, the Exchange has provided the facility of
Basket Trading System on BOLT. In Basket Trading System, the investors are able to
buy/ sell all 30 scrips of Sensex in the proportion of their respective weights in the
Sensex, in one go. The investors need not calculate the quantity of Sensex scrips to be
bought or sold for creating Sensex linked portfolios and this function is performed by
the system. The investors are also allowed to create their own baskets by deleting
certain scrips from the Sensex basket of 30 scrips.
Further, the Basket Trading System provides the arbitrageurs an opportunity to take
advantage of price differences in the underlying securities of Sensex and Futures on
37
the Sensex by simultaneous buying and selling of baskets covering the Sensex scrips
and Sensex Futures. This is expected to have balancing impact on the prices in both
cash and futures markets.
The Basket Trading System would, thus, meet the needs of investors and also boost
the volumes and depth in cash and futures markets.
The Basket Trading System has been implemented by the Exchange w.e.f. Monday,
the 14th August 2000. The trades executed under the Basket Trading System are
subject to intra-day trading/gross exposure limits and daily margins as are applicable
to normal trades.. To participate in this system the member indicates number of
Sensex basket(s) to be bought or sold, where the value of one Sensex basket is arrived
at by the system by multiplying Rs.50 to prevailing Sensex.
SETTLEMENT SYSTEM
Securities traded on BSE are classified into three groups, namely, specified shares or
'A' group and non-specified securities that are sub-divided into 'B1' and 'B2' groups.
Presently, equity shares of thirty-two companies are classified as specified shares.
These companies typically have a large capital base with widespread shareholding, a
steady dividend, good growth record and a large volume of business in the secondary
market. Contracts in this group are allowed to be carried over to subsequent
settlements upto a maximum permissible period of 75 days.
495 relatively liquid securities are placed in a category called 'B1' group. The
remaining securities-about 5800 as on May 31, 1996 are placed in the 'B2' group. All
newly listed securities are placed in the 'B2' group.
38
Clearing System
The Clearing House of the Exchange handles the share and the money parts of the
settlement process in the case of 'A' and 'B1' groups. The Clearing House handles only
the money part of 'B2' group while securities are physically exchanged between the
brokers.
TRANSFER OF OWNERSHIP
SAFEGUARDS
1. Margins are collected from the brokers on buying and selling positions at the
end of the day. The total outstanding position is further subject to capital
adequacy norms laid down from time to time.
2. A comprehensive insurance cover for the Exchange and the members is about
to be put in place.
3. Guaranteeing trades is the cornerstone of a mature clearing and settlement
process. BSE is in the process of establishing a Clearing Corporation that will
guarantee trades.
4. Companies are required to publish half-yearly unaudited results and other
price sensitive information. This imparts greater transparency to the stock
market operations.
5. Insider Trading Regulations have been laid down and a 'Take-Over' code has
been created.
39
ARBITRATION MACHINERY
There exists three level arbitration machinery. The first two levels, which are
adjudicated by member brokers, comprise of a two-member bench and a full bench
that is to comprise of at least sixteen members respectively. The highest arbitrator in
the Exchange is the Governing Board. Disputes unresolved in the Exchange are taken
to the Court of Law.
GRIEVANCE REDRESSAL
The Investor's Services Cell redresses investors' grievances against listed companies
and stockbrokers. However, the Exchange does not have power to take penal action
against listed companies, except delisting for specified periods.
DISCIPLINARY ACTION
The Exchange has an eight member Disciplinary Action Committee (DAC) which
decides on punitive action in disciplinary cases referred to it by the Surveillance and
inspection departments of the Exchange Administration.
INDICES
40
The Exchange compiles four indices, which are based on market capitalization. The
first index to be compiled was the BSE Sensitive Index with 1978-79 as the base year.
It comprises of equity shares of 30 companies from both specified and non-specified
securities groups. The companies have been selected on the basis of market activity.
Subsequently, a more broad based index, BSE National Index with 1983-84 as base
year, was compiled. This index is made up of 100 scrips, 98 of which are quoted on
Bombay. This index also includes prices on the other major stock exchanges of Delhi,
Calcutta, Ahmedabad and Madras. If scrip is actively quoted on more than one
Exchange the average price of the scrip is used in the compilation of the index.
It was felt that the sensitive index-the most popular indicator of market movement-
had become oversensitive to a handful of scrips. With divestment of Public Sector
Unit (PSU) equity by government and a sharp increase in the number of companies
listed over the last few years, it was felt that a new index, which is more
representative of the recent changes and is more balanced is necessary. The BSE-200,
which was introduced in May 1994, consists of equity shares of 200 companies,
which have been selected on the basis of market capitalization, volume of turnover
and strength of the companies' fundamentals. 1989-90 has been chosen as the base
year for BSE-200.
As the presence of the foreign investors grew, a need was felt to express the index
values by taking into account the Rupee-Dollar conversion rate. Consequently,
dividing the current Rupee market value by Rupee-Dollar modifies the BSE-200
conversion rate in the base year. This index, which indicates the movement of the
market in dollar values, is called the Dollex.
DISCLOSURE & LISTING NORMS
Companies who wish to raise money from capital market follow guidelines relating to
disclosure, laid down by the Securities and Exchange Board of India. Some of the
disclosure norms are:
Details of other income if it constitutes more than ten percent of total income.
All adverse event affecting the operations of the company.
Any change in key managerial personnel.
41
Risk factors specific to the project and those which are external to the
company.
The listing requirements with the Exchange call for further disclosure by companies
to promote public confidence. Important disclosures are:
The company is required to furnish unaudited half-yearly financial results in
the prescribed Performa.
The company must explain to the Stock Exchange any large variation between
audited and unaudited results in respect of any item.
When any person or an institution acquires or agrees to acquire any security of
a company which would result in his holding five percent or more of the
voting capital of the company, including the existing holding the Exchange
must be notified within two days of such acquisition by the company or by
authorized intermediary or by the acquirer.
Any take-over offer made either voluntarily or compulsorily to a company
requires a public announcement by both the offeror and the offeree company.
Computerized Trading
Phase I: The primary objective of this phase was the real time dissemination of price
data through the Display Information Driver System (DIDS). DIDS was
commissioned in November 1992 to disseminate bids, offers, actual rates of
transactions and indices on a real time basis.
Phase II: In 1994, settlement related daily transactions inputs and outputs were
uploaded and downloaded from the TWS in the brokers’ offices.
Phase III: Commissioned on March 14, 1995. Although, screen based trading started
with 818 scrips, by the 70th day of its commissioning, all scrips-exceeding 5000 had
been put on the BOLT system. The BOLT system was commissioned with the
42
Himalaya K 10,000 central trading computer hardware. Since then the hardware has
been upgraded to the Himalaya K 20,000 system. The system provides for a response
time of two seconds and can handle more than two hundred thousand trades in a day.
Future Developments
43
In 1995, the President of India promulgated an Ordinance, which allowed for
establishment of depositories.
BSE in collaboration with Bank of India (BOI) will shortly establish a depository.
BSE has applied for permission from SEBI to expand BOLT to other centres.
Expansion of BOLT would bring more investors into the ambit of the capital market
and consequently add depth to it.
CHAPTER 4
NATIONAL STOCK EXCHANGE
INTRODUCTION
The National Stock Exchange (NSE) is India's leading stock exchange covering
around 400 cities and towns all over India. NSE introduced for the first time in India,
fully automated screen based trading. It provides a modern, fully computerized
trading system designed to offer investors across the length and breadth of the country
a safe and easy way to invest or liquidate investments in securities.
44
Sponsored by the industrial development bank of India, the NSE has been co-
sponsored by other development/ public finance institutions, LIC, GIC, banks and
other financial institutions such as SBI Capital Market, Stockholding corporation,
Infrastructure leasing and finance and so on. India has had a history of stock
exchanges limited in their operating jurisdiction to the cities in which they were set
up.
NSE started equity trading on November 3, 1994 and within a short span of 1 year
became the largest exchange in India in terms of volumes transacted. Trading
volumes in the equity segment have grown rapidly with average daily turnover
increasing from Rs.7 crores in November 1994 to Rs.6797 crores in February 2001
with an average of 9.6 lakh trades on a daily basis. During the year 2000-2001, NSE
reported a turnover of Rs.13, 39,510 crores in the equities segment accounting for
45% of the total market.
Locations
45
One of the objectives of NSE was to provide a nationwide trading facility and to
enable investors’ spread all over the country to have an equal access to NSE. NSE
uses sophisticated telecommunication technology through which members can trade
remotely from their offices located in any part of the country. NSE trading terminals
are present in around 400 cities and towns all over India.
Listing
Securities listed on the Exchange are required to fulfill the listing eligibility criteria.
Various types of securities of a company are traded under a unique symbol and
different series. This section provides a direct link to the web site of companies traded
on the Exchange.
Constitution
The NSE has two segments for trading in securities: Wholesale Debt Market (WDM)
and Capital Market (CM). Separate membership is required for each segment.
Trading members
They are recognized members of NSE. The persons eligible to become TMs are body
corporates, subsidiaries of banks and financial institutions. They are selected on the
basis of a comprehensive selection criterion. The whole time directors/dealers of thess
Trading mechanism
46
Rolling Settlement
In a rolling settlement, each trading day is considered as a trading period and trades
executed during the day are settled based on the net obligations for the day.
In NSE, the trades in rolling settlement are settled on a T+5 basis i.e. on the 5th
working day. For arriving at the settlement day all intervening holidays, which
include bank holidays, NSE holidays, Saturdays and Sundays are excluded. Typically
trades taking place on Monday shall be settled on the next Monday, Tuesday's trades
shall be settled on the next Tuesday and so on.
Institutional Segment
Trading in this market segment is available for institutional investors only. In order to
ensure that the overall FII ceiling limits are not violated, trading members are allowed
to enter sell orders in this market segment only for their FII clients. However,
members can enter buy orders on behalf of FII/FI clients. The settlement of
transactions in this segment is in demat mode only.
Trading in this segment is available only for those securities, which have not
established connectivity with both the depositories as per SEBI directive. The list of
these securities is notified by SEBI from time to time.
Trading System
47
NSE operates on the 'National Exchange for Automated Trading' (NEAT) system, a
fully automated screen based trading system, which adopts the principle of an order
driven market. NSE consciously opted in favour of an order driven system as opposed
to a quote driven system. This has helped reduce jobbing spreads not only on NSE but
in other exchanges as well, thus reducing transaction costs.
Till the advent of NSE, an investor wanting to transact in a security not traded on the
nearest exchange had to route orders through a series of correspondent brokers to the
appropriate exchange. This resulted in a great deal of uncertainty and high transaction
costs. NSE has made it possible for an investor to access the same market and order
book, irrespective of location, at the same price and at the same cost.
Market Types
The NEAT system in NSE has four types of market. They are:
Normal Market
All orders which are of regular lot size or multiples thereof are traded in the Normal
Market. For shares, which are traded in the compulsory dematerialised mode the
market lot of these shares, is one. Normal market consists of various book types
wherein orders are segregated as Regular lot orders, Special Term orders, Negotiated
Trade Orders and Stop Loss orders depending on their order attributes.
All orders whose order size is less than the regular lot size are traded in the odd-lot
market. An order is called an odd lot order if the order size is less than regular lot size.
These orders do not have any special terms attributes attached to them. In an odd-lot
market, both the price and quantity of both the orders (buy and sell) should exactly
match for the trade to take place. Currently the odd lot market facility is used for the
Limited Physical Market as per the SEBI directives.
48
Spot Market
Spot orders are similar to the normal market orders except that spot orders have
different settlement period’s vis-à-vis normal market. These orders do not have any
special terms attributes attached to them. Currently the Spot Market is being used for
the Automated Lending & Borrowing Mechanism (ALBM) session.
Auction Market
In the Auction Market, the Exchange on behalf of trading members for settlement
related reasons initiates’ auctions.
There are 3 participants in this market.
Initiator
The party who initiates the auction process is called an initiator.
Competitor
The party who enters orders on the same side as of the initiator is called a
Competitor.
Solicitor
The party who enters orders on the opposite side as of the initiator is called a
Solicitor.
Order Books
The NSE trading system provides complete flexibility to members in the kinds of
orders that can be placed by them. Orders are first numbered and time-stamped on
receipt and then immediately processed for potential match. Every order has a
distinctive order number and a unique time stamp on it. If a match is not found, then
the orders are stored in different 'books'. Orders are stored in price-time priority in
various books in the following sequence:
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Best Price- Price priority means that if two orders are entered into the system, the
order having the best price gets the higher priority.
Within Price, by time priority-Time priority means if two orders having the same
price are entered, the order that is entered first gets the higher priority.
The best buy order is matched with the best sell order. An order may match partially
with another order resulting in multiple trades. For order matching, the best buy order
is the one with the highest price and the best sell order is the one with the lowest
price. This is because the system views all buy orders available from the point of view
of a seller and all sell orders from the point of view of the buyers in the market. So, of
all buy orders available in the market at any point of time, a seller would obviously
like to sell at the highest possible buy price that is offered. Hence, the best buy order
is the order with the highest price and the best sell order is the order with the lowest
price.
Members can proactively enter orders in the system, which will be displayed in the
system till the full quantity is matched by one or more of counter-orders and result
into trade(s) or is cancelled by the member. Alternatively, members may be reactive
and put in orders that match with existing orders in the system. Orders lying
unmatched in the system are 'passive' orders and orders that come in to match the
existing orders are called 'active' orders. Orders are always matched at the passive
order price. This ensures that the earlier orders get priority over the orders that come
in later.
Order Conditions
A Trading Member can enter various types of orders depending upon his/her
requirements. These conditions are broadly classified into three categories: time
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related conditions, price-related conditions and quantity related conditions. For
example
Limit Price/Order
An order, which allows the price to be specified while entering the order into the
system.
Market Price/Order
An order to buy or sell securities at the best price obtainable at the time of entering
the order.
Sell order
A sell order in the Stop Loss book gets triggered when the last traded price in the
normal market reaches or falls below the trigger price of the order.
Buy order
A buy order in the Stop Loss book gets triggered when the last traded price in the
normal market reaches or exceeds the trigger price of the order.
e.g. If for stop loss buy order, the trigger is 93.00, the limit price is 95.00 and the
market (last traded) price is 90.00, then this order is released into the system once the
market price reaches or exceeds 93.00. This order is added to the regular lot book
with time of triggering as the time stamp, as a limit order of 95.00
Quantity Conditions
Disclosed Quantity (DQ)- An order with a DQ condition allows the Trading Member
to disclose only a part of the order quantity to the market. For example, an order of
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1000 with a disclosed quantity condition of 200 will mean that 200 is displayed to the
market at a time. After this is traded, another 200 is automatically released and so on
till the full order is executed. The Exchange may set a minimum disclosed quantity
criteria from time to time.
MF - Minimum Fill (MF) orders allow the Trading Member to specify the minimum
quantity by which an order should be filled. For example, an order of 1000 units with
minimum fill 200 will require that each trade be for at least 200 units. In other words
there will be a maximum of 5 trades of 200 each or a single trade of 1000. The
Exchange may lay down norms of MF from time to time.
Trading Workstation
The trader workstation is the terminal from which the member accesses the trading
system. Each trader has a unique identification by way of Trading Member ID and
User ID through which he is able to log on to the system for trading or inquiry
purposes. A member can have several user IDs allotted to him by which he can have
more than one employee using the system concurrently.
The Exchange may also allow a Trading Member to set up a network of dealers in
different cities all of whom are provided a connection to the NSE central computer. A
Trading Member can define a hierarchy of users of the system with the Corporate
Manager at the top followed by the Branch Manager and Dealers.
The Trader Workstation screen of the Trading Member is divided into several major
windows:
Title Bar
The title bar displays the current time, Trading system name and date.
Tool Bar
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A window with different icons which provides quick access to various functions such
as Market By Order, Market By Price, Market Movement, Market Inquiry, Auction
Inquiry, Snap Quote, Market Watch, Buy order entry, Sell order entry, Order
Modification, Order Cancellation, Outstanding Orders, Order Status, Activity Log,
Previous Trades, Net Position, Online Backup, Supplementary Menu, Security List
and Help. All these functions are also available on the keyboard.
Ticker Window
The ticker displays information about a trade as and when it takes place. The user has
the option to set-up the securities, which appear in the ticker.
To monitor various securities, the trading member can set them up by typing the
Security Descriptor consisting of a Symbol field and a Series field. Invoking the
Security List and selecting the securities from the window can also set up securities.
The Symbol field incorporates the Company name and the Series field captures the
segment/instrument type. A third field indicates the market type.
For each security in the Market Watch window, market information is dynamically
updated on a real time basis. The market information displayed is for the current best
price orders available in the regular lot book. For each security, the corporate action
indicator (e.g., Ex or cum dividend, interest, rights etc.), the total buy order quantity
for the best buy price, best sell price, total sell order quantity for the best sell price,
the Last Traded Price (LTP), the last traded price change indicator ('+' if last traded
price is better than the previous last traded price and '-' if it is worse) and the no
delivery indicators are displayed. If the security is suspended, "SUSPENDED"
appears in front of the security.
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With every trade in a security participating in Index, the user has the information on
the current value of the Nifty. This value is displayed at the extreme right hand corner
of the ticker window.
Index Inquiry gives information on Close, Open, High, Low and current index values
at the time of invoking this inquiry screen.
Inquiry Window
In this window, the inquiries such as Market by Order, Market by Price, Previous
Trades, Outstanding Orders, Activity Log, Order Status and Market Inquiry can be
viewed.
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Activity Log (AL)
The Activity Log shows the activities, which have been performed on any order of the
Trading Member such as whether, the order has been traded against fully or partially,
it has been modified or has been cancelled. It displays information only of those
orders in which some activity has taken place. It does not display orders, which have
entered the books but have not been matched (fully or partially) or modified or
cancelled.
Net Position
This functionality enables the user to interactively view his net position for all
securities in which he has traded.
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Snap Quote
The Snap Quote feature allows a Trading Member to get instantaneous market
information on any desired security. This is normally used for securities which are not
already on display in the Market Watch window. The information presented is the
same as that of Market Watch window.
Order/Trade Window
Order entry mechanisms enable the Trading Member to place orders in the market.
The system will request re-confirmation of an order so that the user is cautioned
before the order is finally released into the market. Orders once placed on the system
can be modified or cancelled till they are matched. Once orders are matched they
cannot be modified or cancelled.
This window is used to view messages from the Exchange to all specific Trading
Members.
Supplementary Menu
Some of the supplementary features in the NEAT system are:
On line back up
An on line back up facility is provided which the user can invoke to take a back up of
all order and trade related information. There is an option to copy the file to any drive
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of the computer or on a floppy diskette. Trading members find this convenient in their
back office work.
Through CTCL facility Trading Members can use their own software running on any
suitable hardware/software platform of their choice. This software would be a
replacement of the NEAT front-end software that is currently used by members to
trade on the NSE trading system. Members can use software customized to meet their
specialized needs like provision of on-line trade analysis, risk management tools,
integration of back-office operations etc. The dealers of the member may trade using
the software remotely through the member's own private network, subject to
approvals from Department of Telecommunication etc. as may be required in this
regard.
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NSCCL carries out the clearing and settlement of the trades executed in the Equities
and Derivatives segments and operates Subsidiary General Ledger (SGL) for
settlement of trades in government securities. It also undertakes settlement of
transactions on other stock exchanges like, the Over the Counter Exchange of India.
NSCCL assumes the counter-party risk of each member and guarantees settlement
through a fine-tuned risk management system and an innovative method of on-line
position monitoring. It operates a well-defined settlement cycle and there are no
deviations or deferments from this cycle. It aggregates trades over a trading period,
nets the positions to determine the liabilities of members and ensures movement of
funds and securities to meet respective liabilities. It provides a facility for multiple
settlement mechanisms including, account period settlement for dealings in physical
securities and dematerialized securities, rolling settlement (T+5 basis) in
dematerialized segment etc.
CHAPTER 5
BADLA TRADING
Badla is a complex system that contains many a pitfall for the uninitiated and the
unwary. Investors need to be aware of the problems, especially when brokers on BSE
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and other regional stock exchanges are marketing vyaj badla schemes to their clients
aggressively.
Before an investor start believing in the stories of superlative returns (in excess of 20
per cent), coupled with liquidity, safety and flexibility, it is imperative that one takes a
hard, rational look at the entire mechanism. This is so because financing badla is a
definite no-no for the first-time investor in the stock market and also for those who
don't have the time to constantly monitor the status of his/her investments and
fluctuations in the market returns
Vyaj Badla
In the vyaj badla system, there was a very high chance that an investor may end up
with an average annual return of 14-18 per cent or sometimes even higher. But having
said that, unfortunately, the returns were not guaranteed. This rosy picture could well
be a reality during a bull run, but when the market was under a bear hug, returns could
diminish to just around 6-8 per cent a year. Comparing it with a steady 12 per cent
annual return offered by a bank fixed deposit or any AAA rated corporate bandit
seemed that The high-risk and uncertain return of vyaj badla would start looking like
a bad investment option.
And then the taxman cometh! Vyaj badla transactions began to be treated as purchase
and sale of shares, thus getting subjected to capital gains tax of 30 per cent. Thus, an
investor’s final returns get lopped off to that extent. Although nay Sayers might feel
that vyaj badla provides an investor with an opportunity to maximize his earnings in a
bull market, the fact remains that it is a good option for the experienced investor. Else,
the nerve-wracking tension that accompanies stock market fluctuations may well take
its toll.
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to deliver the shares while four were keen on carrying their positions forward. Now
six buyers made the payment for their purchases, while eight sellers effect delivery.
Six buyers and six sellers got squared off. Four "buy" carry-forward positions get
matched against four "sell" carry-forward positions.
To ensure payment to the remaining two sellers for their 200 shares, vyaj badla
financiers came in. This financier charged interest (badla) for the money paid on
behalf of the two buyers for them. The demand and supply of funds and shares
determined this rate. Shares delivered by the seller were kept by the exchange in the
clearing-house and allocated to the financier's broker in a special account, forming the
financier's collateral.
On the BSE, brokers who were sure of taking or making delivery of shares mark their
respective "for delivery" positions. This helped the exchange to arrive at the net
outstanding positions on Friday evening (the last day of the settlement on BSE), by
deducting them from the broker's weekly out standings. The difference is threw open
to the market's badla trading session on Saturday. Prior to the commencement of this
session, the base price (hawala rate) is fixed, which was normally the closing price of
the scrip on Friday. An outstanding "buy" position in a stock sees a "seedha badla"
where the financiers participate. An outstanding "sell" position in the stock sees an
"ulta" or "undha badla" where the stock lenders participate. Specified quantities of the
stock on offer are bought and sold at the financier's desired interest rate - the badla
rate.
In this case, let's assume the hawala rate to be Rs 69. If the financier wants to pay for
100 shares at 20 per cent per annum and the trade gets matched, the interest rate is
converted into a weekly figure. In this case, it would be 0.38 per cent. On the hawala
rate of Rs 69, this 0.38 percent works out to 26 paise. The terminals would constantly
keep flashing the best badla rate and the best annual yield for each stock on offer for a
particular quantity. A constant fluctuation in these values during the two-and-a-half
hour session is due to the constant change in demand and supply, and also market
perception. The broker would give the financier a badla bill or informal contract note,
which would have two entries. One would show a purchase of 100 shares at Rs 69 per
share, while the other would show a sale of 100 shares at Rs 69.26 per share. The
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difference will be the financiers earning for that week. With the next trading cycle
ending, the financier can either receive the difference or roll over his/her money to a
new badla transaction.
Most brokers don't accept anything less than Rs 1 lakh per client for badla financing.
And the stock selection too is at their discretion. But it would be prudent for you to
know the basis of allocation of stocks to you, as you would be one among a lot of
clients whose money has been collectively invested in vyaj badla. Badla rates vary
between stocks, depending upon their demand and supply. These rates fluctuate
considerably throughout the session.
Ideally, brokers using the discretionary allocation of stocks to the badla account
should pay a weighted average return to each client. This should be reflected in the
badla bills. For getting the weighted average return on badla finance, it is advisable to
look for brokers who have automated this process.
As in any other market transaction, one cannot avoid brokerage in a vyaj badla
transaction too. Brokerage for such deals could range between 1-2.5 per cent,
trimming down your annual yield further. It is advisable to enter into a firm brokerage
percentage prior to the commencement of the relationship.
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In the recent history of BSE, there have been instances of brokers (having large carry-
forward positions in highly speculative stocks) defaulting. Although these shares were
enjoying very high badla rates at the time of the default, the prices had dipped sharply
by the time the financiers got their shares.
If the broker defaults, the financier is in a larger mess. Apart from the large
institutional brokers, most brokers on BSE have a net worth of Rs 1-2 crore. Badla
positions taken by them sometimes go up to 15-20 times their net worth. Even a 10
per cent downward shift in their position would wipe out the broker's entire net worth.
And then you could bid goodbye to your money too. The BSE's Trade Guarantee
Fund could be of some succor and solace in these situations, but just that.
Failure to cash in on your interest gain at the end of the trading cycle gives the
confidence to your broker to automatically roll over your investment to the next cycle.
While opting out, always time your exit. By virtue of the exchange's settlement cycle,
your money gets released within a ten-day period. This further reduces your yield.
As in the case of defaults, the delay in the release of your money can be detrimental.
So factor in those extra days while calculating your actual return. Although vyaj badla
is considered to be an effective short-term instrument, as is the case with all such
instruments, the delay can really eat into your returns. Given the quirks of the vyaj
badla transactions and the inherent risks involved, it can be concluded that amateurs
should stay away - it is strictly for the pro and the strong hearted.
Substitutes to Badla
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Financial derivatives
By far the most significant event in finance during the past decade has been the
extraordinary development and expansion of financial derivatives...
These instruments enhance the ability to differentiate risk and allocate it to those
investors most able and willing to take it -- a process that has undoubtedly improved
national productivity growth and standards of living. -- Fed Chairman Alan
Greenspan
Following the introduction of index futures, the Securities and Exchange Board of
India (SEBI) permitted the BSE and the NSE to introduce more derivatives, such as
options on indices and individual stocks. But an instrument that may be more in line
with the domestic market structure -- single-stock futures -- is not under
consideration.
Single-stock futures are a way to reap the benefits of a stock's performance without
actually owning the stock. Theoretically, they offer the benefits of ownership, of
leveraging the stock or its underlying asset. But a similar opportunity is not available
to the speculator-investor to sell options in the underlying scrip. As delivery of futures
contracts is on a future date, the investor has to put up only the margin money. Hence,
he can leverage on the margins to buy more units of the underlying security.
One of the advantages enjoyed by single-stock futures is that they are cheaper to trade
and easier to use for hedging strategies than options. Cheaper, because margins in
futures trading are lower than in options. But the valuation of futures contracts are not
as complicated as that of options. Hence, small investors find them relatively easy to
understand and use.
Trading options
Trading options are riskier than futures. This is purely from the options-writer's
perspective. Market making in options depends to a great extent on institutions
willing to write the contracts. Since the buyer of an option contract is not under any
63
obligation to exercise his right, his risk is limited to the premium paid for purchasing
the right.
However, the writer is under an obligation to deliver. This means the risk borne by the
option-writer is enormous. Exchanges normally guarantee the writer's position.
Hence, to limit default in the market, the margin requirements are quite high. For
instance, in international markets, while the margin rate for index futures contracts is
around 5 per cent, that for index options works out to the commission received plus
around 15 per cent of the contract's notional value.
Thus, in this situation, there is excessive risk for the options-writer and transactions
costs could be high. Currently, the regulations prevent funds from taking speculative
positions in the spot market. So, they may not be allowed to write options. A market
exists only if there is a writer and a buyer. But given that there are few takers for the
futures market, it is difficult to foresee a lot of interest in the options market.
CHAPTER 6
RESEARCH METHODOLOGY
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Research Methodology refers to search of knowledge .one can also define reseach
methodology as a scientific and systematic search for required information on
aspecific topic.
The word research methodology comes from the word “advance learner ‘s dictionary
meaning of research as a careful investigation or inquiry especially through research
for new facts in my branch of knowledge for example some author have define
research methodology as systemstized effort to gain new knowledge.
TYPES OF RESEARCH
ANALYTICAL RESEARCH:-
It has to used facts or information already available and analyze these to make a
critical evaluation of material.
SAMPLE SIZE :Considering the constraints it was decided to conduct the study
based on sample size of 50 people in specific age groups.
In the project work Primary data secondary data (both) sources of data has been
used .
TOOLS OF ANALYSIS
In the project work quantitative technique & percentage method are has been used.
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RESEARCH DESIGN
For the proper analysis of data simple quantitative technique such as percentage were
used . It help in marketing more accurate generalization From the data available .The
data which was collected from a sample of population was assumed to be representing
entire population was interested .Demographic factor like age, income and
educational background was used for the classification purpose .
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Mutual Funds
Bonds Derivatives
67
INTERPRETATION:- 37% have respondent Yes, 63% have respondent No
Q4. Do you know about the facilities provided by SAL Securities Private Limited ?
Yes
No
68
HDFC
ICICI
Others (please specify)
69
INTERPRETATION:- 5% have respondent of SAL , 29% have respondent Angel
Broking ,35% have respondent of ICICI , 31% have respondent HDFC and
70
INTERPRETATION:- 15% have respondent of SAL , 25% have respondent Angel
Broking ,35% have respondent of ICICI , 30% have respondent HDFC
71
SUGGESTION
The Brand image of Reliance Money is good in market but according to customer
saticfaction the company have to provide the better service.
And also change the Market strategy.
Limitations
72
Bibliography
Websites
www.salsecurities.com
www.reliancemoney.com
www.hdfc.com
www.icicidirect.com
Referencebooks
73
ANNEXURE
QUESTIONNAIRE
Name:-……………………………………………………………………………..
Address:-…………………………………………………………………………...
E-mail:-…………………………………………………………………………….
Phone no:-Mobile…………………………………..
Land line:-………-……………………….
Q4. Do you know about the facilities provided by SAL Securities Private Limited ?
Yes
No
74
ICICI
Others (please specify)
75
76