A PROJECT REPORT ON BACK OFFICE FUNCTIONS OF STOCK HOLDING CORPORATION OF INDIA LIMITED

BY R.ASHOK 3511010102 PROJECT GUIDE Dr.K.JEYARAMAN., M.Com., MBA.,Ph.D., PGDLL&AL

IN PARTIAL FULLFILLMENT OF THE REQUIREMENTS OF THE TWO YEAR FULLTIME MBA PROGRAMME OF

SRM UNIVERSITY SCHOOL OF MANAGEMENT

KATTANKULATHUR A.Y 2010-2012

BONAFIDECERTIFICATE
Certified that this project report titled BACK OFFICE FUNCTIONS OF STOCK HOLDING CORPORATION OF INDA LIMITED. Under the guidelines of Dr K.Jeyaraman, SRM School of ManagementisBonafideworkofR.ASHOKRegno3511010102whocarriedouttheprojectworkunder my supervision. Certified further, that to the best of my knowledge the work reported herein does not form a part of any other project reports or dissertation on the basis of which a degree or award was Conferredonanearlieroccasiononthisoranyothercandidate. InternalGuide ExternalGuide

ACKNOWLEDGEMENT

It gives me great pleasure in presenting the Project Report that gives the details of my project on back office function of a Stock Holding Corporation of India Limited carried out in stock holding corporation of india ltd(shcil).

I thank my guide Prof. Dr.K.JEYARAMAN., M.Com., MBA.,Ph.D., PGDLL&AL for his kind and consistent guidance and help during the project work. It is impossible to list all the people who have helped me during my project. I take this opportunity to express whole hearted thanks to Mr.AR LOKESH BABU Branch manager of Stock Holding Corporation of India ltd, Mr.THOMAS KURIAN Area Manager-TN2 who gave me the opportunity to undertake the project work.

I would like to thank Mr.KEERTHI who guided me at every step in the execution of the project & their experience and valuable guidance and they were very helpful.

I would like to express our deep sense of gratitude towards all Managers, Staff and workers and to all those who directly or indirectly helped me in successful completion of project.

R. ASHOK.

CONTENTS SL.NO 1 2 3 4 5 6 7 8 9 10 11 12 13 TITLE EXECUTIVE SUMMARY INTRODUCTION COMPANY PROFILE INDUSTRY PROFILE OBJECTIVE METHODOLOGICAL ADOPTED INFORMATION ANALYSIS BACK OFFICE FUNCTIONS OBSERVATION AND FINDINGS RECOMMENDATION AND SUGGESTION CONCLUSION CHRONOLOGICAL ORDER BIBLIOGRAPHY PG.NO 3 4 6 12 35 36 37 47 53 54 56 57 58

EXECUTIVE SUMMARY This project underlines the need and importance of the back office function in a share broking firm with special reference to its deployment in Stock Holding Corporation of India Limited.

Back office is the back bone of any broking business. The main and important function of the back office is to ensure that the rules and regulations are strictly adhered to and the control is maintained on the operations of the firm. The success of the back office largely depends on the efficient functioning of the back office. It can be well understood by each and every broking firm that in order to gain a competitive edge and sustain the challenges of a dynamic environment today it must have a very efficient back office.

This project tries to tell us that the why back office functioning is essential for every firm in this kind of business, so as to increase its profitability, efficiency and sustain the pressures posed by competition. This project also tries to bring out the role of the personnel working in the back office, and how their efficiency and devotion plays an important role in the success of any broking firm.

The project contents are followed by the objectives which will be followed by the introduction to the topic. Methodology adopted will help us to know how the project has been carried out. Observations and Findings will be followed by the suggestions to improve the efficiency of the back office function in Stock Holding Corporation of India Limited.

CHAPTER 1 INTRODUCTION
In world of commerce, apart from money equally revolutionary concept was the concept of limited liability. Before the industrial revolution economy was self sufficient village economy. The artisans produced goods and services on demand. It was industrial revolution which paved the way for production in anticipation of demand, and along with it came the economies of large scale production and to support this was needed huge finance. Innovative forms of business establishment, incorporating the principle of limited liability emerged. Form the highly imaginative world of business, a novel form of business organization viz. Joint Stock Companies, with the features like limited liability and the separation of ownership and management was born. Risk is an important and inherent part of any business. Risk cannot be avoided. You can only try to manage it. This was the best example of risk management by spreading it in small proportions amongst large number of shareholders. This was achieved by a concept called shares or stock and the need for trading in these stocks was felt. The following project is a study of the Indian Stock Market & an investment opportunity in the cement sector in India. The capital market (securities markets) is the market for securities, where companies and the government can raise long-term funds. The capital market includes the stock market and the bond market. A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. The objective of my internship is as follows: 1. Understanding the various activities in an E- Broking firm.

2. To get acquainted with all the workings of online trading. 3. To gain practical knowledge in share trading 4. To analyze the financial market & the share movements in order to study the prospects of investing in a particular stock or sector.

The aim of the project is to understand the overall equity market, to get to know the trading, clearing & settlement aspect of the equity market. As far as this project is concerned, it will help us to understand the overall working of the equity market & its importance to the economy of the India. A huge amount of money flows & millions of shares exchange hands in a single market day. This exchange of shares enables the flow of money in & out of a firm. The company whose shares are listed & the government who plays a pivotal role through the policies formed in the market, helps them to raise long term funds which can be used for the benefit & the growth of the companies & also give back some part of their profit to the investor in the form of dividends. Also through this project what I am trying to derive is the analysis of oil & gas sector concluding with the opportunities of investing in the sector. The reason why I have selected oil & gas sector is because of the huge investment opportunities in the Sector and also to understand this sector for my future growth to pursue a career in this sector. For my internship Im working in(SHCIL).

Stock Holding Corporation of India ltd. (SHCIL) was promoted by the public financial institutions and corporated as a limited company on July 28, 1986. SHCIL provides post trading and custodial services to institutional investors, mutual funds, banks and insurance companies. SHCIL has 231 offices across the country. With the introduction of the depository system in the country. SHCIL commenced offering depository related services to the retail segment and over the last few years, it has come to acquire the stature of being one of the largest depository participants, besides being the countrys largest and premier custodian. The company also provides professional clearing member service to trading members in the futures and options segment. The company has continued to forge tie-ups with several agencies for offering various third party financial products to clients. The company also provides sub broking services. The company has been authorized by government of India to act as central record keeping agency for computerization of stamp duty administration system for an initial period of give years. The last addition to the basket of services is the National pension system

(formerly known as new pension scheme) and SHCILs empanelment with national spot exchange ltd. To enable its customers to hold commodities such as e-gold, e-silver, e-copper etc in dematerialized form. SHCIL has been earning profit consistently and declaring dividend right from its inception. With a share capital of Rs. 211 million, SHCILs tangible net worth stood at Rs. 3775 million as on march 31, 2010. Mission Statement To be world class technology driven and client focused market leader in financial and technical services Our values 1. Safety and efficiency of operations is a hallmark of SHCIL 2. Building strong relationship 3. To place our customers above all things 4. Professionalism and integrity 5. Commitment to quality irrespective of asset size PRODUCTS AND SERVICES The focus of the corporation has always been to direct its product and services for the all round benefit of the investors. The corporation provides wide range of financial services under one roof, which has always been a priority while safety and investor friendliness have been the hallmark of SHCILs products and services. INSTITUTIONAL SEGMENT SHCIL is trusted custodian for institutional clients across the financial services industry. SHCILs deep understanding of local regulations is core to providing customized solution to its clients. SHCIL provides custodial services for different types of financial instruments like equity, debt, cp, cd, pass through certificates etc. the custodial services include clearing and settlement, electronic and physical safe keeping, corporate actions and valuation of securities.

SHCIL provides customized reporting through web based and electronic media for maximizing value for its clients. Each clients requirement is unique and different. To provide world class services, each client is assigned a personalized and dedicated relationship manager who deals with their day requirements.SHCIL follows best industry practices in audit and risk management. RETAIL SEGMENT Depository services, sub broking services, distribution of large number of financial products and auxiliary services are offered to clients in the retail segment. DEPOSITORY SERVICES Since 1998, SHCIL has been extending depository related services to the retail segment. The services offered by SHCIL include account opening, dematerializations and

rematerialisation of securities, transaction processing and creation/ closure of pledge. SHCIL is also empanelled as a depository participant with national spot exchange limited for customers to hold commodities such as e-gold, e-silver, e- copper etc in dematerialized form. SUB BROKING SERVICE As a part of its endeavor to be a market lender in financial services and provide quality services to its clients, SHCIL offers sub broking service in cash and derivative segments through its subsidiary company SHCIL services ltd.(ssl),which is a member of BSE and NSE. SHCIL through SSL, provides speedy, safe, reliable and affordable broking services to retail, HNI and corporate clients through its wide network of branches spread across the country. The client also has the option of trading online through internet. DERIVATIVES SHCIL is a professional clearing member / custodian at the F and O segment of NSE and derivative segment at Bombay Stock Exchange. SHCIL has sophisticated in-house Back Office systems and procedures to cater to the needs if various entities in this segment in terms of clearing, settlement, collateral and risk management.

DISTRIBUTION OF THIRD PARTY PRODUCTS SHCIL distributes mutual fund schemes and fixed deposits/bonds of reputed institutions and corporates. The corporation a corporate agent for LIC of India and The New India Assurance company ltd for promoting their life and non-life insurance products respectively. It also distributes/ provides Initial Public Offers and Western Union money transfer services to its clientele. The corporation has tied up with IDBI Bank ltd for enabling its investors to avail of loan against securities and a3-in1 product for direct credit and debit of bank account for the securities sold of bought by the investors. SHCIL has also strated offering New pension scheme(NPS) through designated branches. GOI BONDS These Bonds are held in electronic form in an account called Bond Ledger Account (BLA). Bond Ledger Accounts can be opened and operated with RBI designated Receiving Offices. SHCIL has been designated as one of the Receiving Offices by RBI for this purpose. Subscriptions for Savings Bonds can be submitted at any of our branches.

Savings Bonds being sovereign in nature are absolutely safe and an attractive investment option in the current volatile market situation. Icome Tax Act, 1961- Section 193 - 8 % Savings (Taxable) Bonds, 2003 -TDS

10

CONSTITUENT SUBSIDIARY GENERAL LEDGER ACCOUNT

11

CSGL Account stands for Constituent Subsidiary General Ledger Account (phew!). Certain SGL holders like corporates, PF trusts, individuals, institutions, state governments, Nri, Ocbs, FIIs, registered with Sebi/Rbi can open a CSGL account but not a SGL account. It is a second SGL account at a PDO so that they can act as a custodian on behalf of their constituents for holding T-Bills, and G-secs in demat form. It is not opened with the RBI (like the SGL). SGL account denotes Subsidiary General Ledger which is maintained with Reserve Bank of India for holding Government Securities and T-Bills in paperless form (or what in retail is called the demat account for G-secs!). This is obviously done to facilitate Delivery v/s Payment (DvP) trades. All big banks and Primary dealers have a SGL account with RBI at Mumbai. I am not sure about the limits for the size of the transactions now. Once upon a time it used to be Rs. 100,000 and then in multiples of Rs. 10,000. Only banks and PDs are allowed to open an account with RBI. Others have to open CSGL as mentioned above. E- STAMPING The corporation has been authorized by the ministry of finance government of India to act as a Central Record-keeping agency to design and implement an electronic method of stamp duty collection. E-Stamping is a web based solution for payment and collection of non-judicial stamp duty. SHCIL is the sole CRA for e-stamping in India. The corporation has entered into agreements and implemented e-stamping in India. The corporation has entered into agreements and implemented e-stamping system in the states of Gujarat, Karnataka, NCT of Delhi, Maharashtra, Assam and Tamil Nadu SHCIL has signed agreement with the Government of Bihar. SHCIL is in discussion with other state government.

12

CHAPTER 2 INTRODUCTION INDUSTRY PROFILE OVERVIEW OF THE FINANCIAL MARKET FINANCIAL MARKET In economics, a financial market is a mechanism that allows people to buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient-market hypothesis. Both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded) exist. Markets work by placing many interested buyers and sellers in one "place", thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a commandeconomy or to a non-market economy such as a gift economy. In finance, financial markets facilitate:

The raising of capital (in the capital markets) The transfer of risk (in the derivatives markets) The transfer of liquidity(in the money markets) International trade (in the currency markets) and are used to match those who want capital to those who have it.

Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends.

13

In mathematical finance, the concept continuous-time Brownian motion stochastic process is sometimes used as a model. Types of financial markets The financial markets can be divided into different subtypes: Capital markets Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof. Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof. Commodity markets, Which facilitate the trading of commodities Money markets Which provide short term debt financing and investment. Derivaties markets, Which provide instruments for the management of financial risk. Futures markets, Which provide standardized forward contracts for trading products at some future date; see also forward market.

14

Insurance markets, Which facilitate the redistribution of various risks. Foreign exchange markets, Which facilitate the trading of foreign exchange. CAPITAL MARKET Capital Market is one of the significant aspect of every financial market. Hence it is necessary to study its correct meaning. Broadly speaking the capital market is a market for financial assets which have a long or indefinite maturity. Unlike money market instruments the capital market intruments become mature for the period above one year. It is an institutional arrangement to borrow and lend money for a longer period of time. It consists of financial institutions like IDBI, ICICI, UTI, LIC, etc. These institutions play the role of lenders in the capital market. Business units and corporate are the borrowers in the capital market. Capital market involves various instruments which can be used for financial transactions. Capital market provides long term debt and equity finance for the government and the corporate sector. Capital market can be classified into primary and secondary markets. The primary market is a market for new shares, where as in the secondary market the existing securities are traded. Capital market institutions provide rupee loans, foreign exchange loans, consultancy services and underwriting.

15

PRIMARY MARKET The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary markets create long term instruments through which corporate entities borrow from capital market. Features of primary markets are:

This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).

In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.

The primary market performs the crucial function of facilitating capital formation in the economy.

16

The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."

The financial assets sold can only be redeemed by the original holder.

Methods of issuing securities in the primary market are: 1. Initial public offering; 2. Rights issue (for existing companies); 3. Referential issue. SECONDARY MARKET

The market where securities are traded after they are initially offered in the primary market. Most trading is done in the secondary market. To explain further, it is trading in previously issued financial instruments. An organized market for used securities. Examples are the New York Stock Exchange (NYSE), Bombay Stock Exchange (BSE), National Stock Exchange NSE, bond markets, over-the-counter markets, residential mortgage loans, governmental guaranteed loans etc. Market participants May years ago worldwide buyers and sellers were individual investors, such as wealthily businessmen, with long family histories (and emotional ties) to particular corporations. Over time markets have become more institutionalized buyers and sellers are largely institutions (eq., pension funds investors groups, and banks). The rise of the institutional investor has brought with it some improvements in market operation. However; corporate governance (at least in the west) has been greatly affected by the rise of institutional owners.

17

Significance, Role or Functions of Capital Market Like the money market capital market is also very important. It plays a significant role in the national economy. A developed, dynamic and vibrant capital market can immensely contribute for speedy economic growth and development. Let us get acquainted with the important functions and role of the capital market. 1. Mobilization of Savings : Capital market is an important source for mobilizing idle savings from the economy. It mobilizes funds from people for further investments in the productive channels of an economy. In that sense it activate the ideal monetary resources and puts them in proper investments. 2. Capital Formation : Capital market helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy. Through mobilization of ideal resources it generates savings; the mobilized savings are made available to various segments such as agriculture, industry, etc. This helps in increasing capital formation. 3. Provision of Investment Avenue: Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a long period of time. It provides suitable interest rate returns also to investors. Instruments such as bonds, equities, units of mutual funds, insurance policies, etc. definitely provides diverse investment avenue for the public. 4. Speed up Economic Growth and Development: Capital market enhances production and productivity in the national economy. As it makes funds available for long period of time, the financial requirements of business houses are met by the capital market. It helps in research and development. This helps in, increasing production and productivity in economy by generation of employment and development of infrastructure. 5. Proper Regulation of Funds: Capital markets not only helps in fund mobilization, but it also helps in proper allocation of these resources. It can have regulation over the resources so that it can direct funds in a qualitative manner. 6. Service Provision: As an important financial set up capital market provides various types of services. It includes long term and medium term loans to industry, underwriting services,

18

consultancy services, export finance, etc. These services help the manufacturing sector in a large spectrum. 7. Continuous Availability of Funds: Capital market is place where the investment avenue is continuously available for long term investment. This is a liquid market as it makes fund available on continues basis. Both buyers and seller can easily buy and sell securities as they are continuously available. Basically capital market transactions are related to the stock exchanges. Thus marketability in the capital market becomes easy. These are the important functions of the capital market. Final Glance and Conclusion on Capital Market The lack of an advanced and vibrant capital market can lead to underutilization of financial resources. The developed capital market also provides access to the foreign capital for domestic industry. Thus capital market definitely plays a constructive role in the over all development of an economy. STOCK EXCHANGE Stock Exchange (also called Stock Market or Share Market) is one important constituent of capital market. Stock Exchange is an organized market for the purchase and sale of industrial and financial security. It is convenient place where trading in securities is conducted in systematic manner i.e. as per certain rules and regulations. It performs various functions and offers useful services to investors and borrowing companies. It is an investment intermediary and facilitates economic and industrial development of a country.

19

Stock exchange is an organized market for buying and selling corporate and other securities. Here, securities are purchased and sold out as per certain well-defined rules and regulations. It provides a convenient and secured mechanism / platform for transactions in different securities. Such securities include shares and debentures issued by public companies which are duly listed at the stock exchange, and bonds and debentures issued by government, public corporations and municipal and port trust bodies. Stock exchanges are indispensable for the smooth and orderly functioning of corporate sector in a free market economy. A stock exchange need not be treated as a place for speculation or a gambling den. It should act as a place for safe and profitable investment, for this, effective control on the working of stock exchange is necessary. This will avoid misuse of this platform for excessive speculation, scams and other undesirable and anti-social activities. London stock exchange (LSE) is the oldest stock exchange in the world. While Bombay stock exchange (BSE) is the oldest in India. Similar Stock exchanges exist and operate in large majority of countries of the world.

20

Definition of Stock Exchange According to Husband and Dockerary Stock exchanges are privately organized markets which are used to facilitate trading in securities. The Indian Securities Contracts (Regulation) Act of 1956, defines Stock Exchange as an association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities. Features of Stock Exchange Features of Stock Exchange:1. Market for securities: Stock exchange is a market, where securities of corporate bodies, government and semi-government bodies are bought and sold. 2. Deals in second hand securities: It deals with shares, debentures bonds and such securities already issued by the companies. In short it deals with existing or second hand securities and hence it is called secondary market. 3. Regulates trade in securities: Stock exchange does not buy or sell any securities on its own account. It merely provides the necessary infrastructure and facilities for trade in securities to its members and brokers who trade in securities. It regulates the trade activities so as to ensure free and fair trade 4. Allows dealings only in listed securities: In fact, stock exchanges maintain an official list of securities that could be purchased and sold on its floor. Securities which do not figure in the official list of stock exchange are called unlisted securities. Such unlisted securities cannot be traded in the stock exchange. 5. Transactions effected only through members: All the transactions in securities at the stock exchange are effected only through its authorized brokers and members. Outsiders or direct investors are not allowed to enter in the trading circles of the stock exchange. Investors have to buy or sell the securities at the stock exchange through the authorized brokers only.

21

6. Association of persons: A stock exchange is an association of persons or body of individuals which may be registered or unregistered. 7. Recognition from Central Government: Stock exchange is an organized market. It requires recognition from the Central Government. 8. Working as per rules: Buying and selling transactions in securities at the stock exchange are governed by the rules and regulations of stock exchange as well as SEBI Guidelines. No deviation from the rules and guidelines is allowed in any case. 9. Specific location: Stock exchange is a particular market place where authorized brokers come together daily (i.e. on working days) on the floor of market called trading circles and conduct trading activities. The prices of different securities traded are shown on electronic boards. After the working hours market is closed. All the working of stock exchanges is conducted and controlled through computers and electronic system. 10.Financial Barometers: Stock exchanges are the financial barometers and development indicators of national economy of the country. Industrial growth and stability is reflected in the index of stock exchange. FIRST STOCK MARKET The Dutch East India Company (Dutch: Vereenigde Oost-Indische Compagnie, VOC) was a chartered company established in 1602, when the States-General of the Netherlands granted it a 21-year monopoly to carry out colonial activities in Asia. It was the first multinational corporation in the world and the first company to issue stock. It was also arguably the worlds first mega corporation, possessing quasi-governmental powers, including the ability to wage war, imprison and execute convicts, negotiate treaties, coin money, and establish colonies. Statistically, the VOC eclipsed all of its rivals in the Asia trade. Between 1602 and 1796 the VOC sent almost a million Europeans to work in the Asia trade on 4,785 ships, and netted for their efforts more than 2.5 million tons of Asian trade goods. By contrast, the rest of Europe combined sent only 882,412 people from 1500 to 1795, and the fleet of the English (later British) East India Company, the VOCs nearest competitor, was a distant second to its total traffic with 2,690 ships and a mere one-fifth the tonnage of goods carried by the VOC. The VOC enjoyed

22

huge pro ofits from its spice mon nopoly throu ugh most of f the 17th ce enturyHaving g been set up u in 1602, to profit from the Maluka an spice trad de, in 1619 th he VOC established a capital c in the e port city of Batavia (now Jakarta). Ov ver the next two centurie es the Company acquired d additional ports as trading g bases and safeguarded d their intere ests by takin ng over surro ounding terr ritory It rema ained an impor rtant trading g concern an nd paid an 18% annual dividend d for r almost 200 0 years. Wei ighed down by y corruption in the late e 18th centur ry, the Com mpany went bankrupt an nd was form mally dissolved d in 1800, its s possession ns and the de ebt being tak ken over by the governm ment of the Dutch D Batavian n Republic. The T VOCs territories t be ecame the Du utch East Indies and wer re expanded d over
h the cours se of the 19th century to include the whole of the Indonesian n archipelag go, and in the e 20th

century would w form Indonesia. I Dutch Ea ast India Com mpany

Former type Industry y Fate

Public company Trade Bankrup ptcy

20 Marc ch 1602

Founded d

23

Defunct

17 March 1798 East India

Headquarters

House, Amsterdam, Holland, Dutch

1. Stock market and how it works 1. Stock means ownership. As an owner, you have a claim on the assets and earnings of a company as well as voting rights with your shares. 2. Stock is equity, bonds are debt. Bondholders are guaranteed a return on their investment and have a higher claim than shareholders.

3. SEBI (Security and Exchange Board of India) having a control over all stock exchanges all over India. 4. This is generally why stocks are considered riskier investments and require a higher rate of return. 5. Stock prices change according to supply and demand. There are many factors influencing prices, the most important of which is earnings. 6. The two main types of stock are common and preferred. It is also possible for a company to create different classes of stock.

BOMBAY STOCK EXCHANGE

24

1. Established as " The Native Share & Stock Brokers' 2. Association" in 1875. 3. Index of 30 stocks representing 12 major sectors. 4. World' s number 1 exchange in terms of the number Of listed companies. 5. World' s 5th in transaction numbers. 6. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion More than 4,700 listed companies. 7. Classified into A, B, S, T and Z groups National stock exchanges 1. Bunch of 50 Stocks 2. NSE is a complete capital market Prime over. 3. Its wholly-owned subsidiaries, National Securities Clearing Corporation Ltd. (NSCCL) provides Clearing and settlement of securities, 4. India Index Services and Products Ltd. (IISL) provides indices and index services with a consulting and licensing agreement with Standard & Poor & apposes (S&P), 5. And NSE.IT Ltd. forms the technology strength that NSE works on. Reforms

25

1. From its 30 stocks, Cipla replaced with Tata Power on 28 July and Cement major Ambuja Cements replaced by Sterlite. 2. In Nov 2007 Dr. Reddy Lab was replaced with DLF. 3. Only pharma stock left in the Sensex is Ranbaxy. 4. Sensitive to market sentiments and market realities. 5. Offers 21 indices, including 12 sector indices. 6. Stock market liberalization is the decision by a government to allow foreign investors to purchase shares in the local stock market and domestic investors to purchase shares abroad. 7. International asset pricing models predict that the integration with world financial markets should lead to a reduction in the cost of capital. 8. A number of papers assess the impact of stock market liberalization on the cost of equity capital, finding evidence of an increase in share prices around the liberalization date and a reduction in the cost of capital afterwards. 9. As part of the capital market reform programs, governments approved new laws and regulations aimed at creating the proper legal and regulatory framework for capital markets to flourish. 10. Many countries tried to improve corporate governance practices, by introducing new standards in a number of different areas, including voting ratings, tender procedures, and the structure of the board of directors. 11. These reforms were expected to improve market performance, by increasing liquidity, enhancing efficiency, and reducing trading costs. 12. Focus on analysis on the replacement of traditional trading floors, on which brokers manually match orders using an open outcry system, by fully automated electronic trading systems.

26

13. Electronic trading systems may increase liquidity and improve efficiency by reducing transaction costs and increasing information availability. 14. These trading systems may also attract new pools of liquidity, by providing affordable remote access to investors. 15. Some countries also enacted new insider trading regulations and improved accounting and disclosure standards. Impact in current market scenario 1. The brave face put up by the financial markets wilted away as major stock indices plummeted to historic lows. 2. Brokers said over Rs 1, 00, 000 crore of market capitalization was wiped out on May 14, probably the highest ever in a single day. 3. Weak trend in the various international markets, particularly in the emerging ones, also dampened the local sentiment. 4. As per Brokers, Fins were major sellers in most of the index counters and in mid-cap stocks where they had taken exposures in the last few months.

CAPITAL FORMATION AND ECONOMIC DEVELOPMENT

Multiplicity of wants and scarcity of means to satisfy these unlimited wants has continued to be the fundamental of economic problem. Money resources are required to move physical

27

resources. Mobilization of resources for economic development was and continues to be the major problem with all developing and developed nations.

In a capitalist economy the key decisions like what to produce? When to produce? And how much to produce is driven by market forces, the where withal for all this provided by money, by capital. The capital might be from within the country or outside the country. But one of the greatest challenges of nations today is creating conditions conducive for capital formation as also for attracting capital from various countries. A growing economy with vibrant capital and money market with rules and regulations in place is a prerequisite for attracting capital. Stock market plays a key role in the entire gamut of financial system.

Having broadly discussed the developments and the basic issues involved, we will now try to review the Indian Financial System. India has come a long way during the last decade of the 20th Century. With the path-breaking budget of 91-92 presented by Dr. Manmohan Sign an era of globalization, liberalization, decontrol and de-regulation was adhered in. Since then a lot of water has flown from under the bridge and lot of development has taken place. The focus all along has been to faster economic development.

INDIAN FINANCIAL SYSTEM The financial system comprises a variety of intermediaries, markets, and instruments. It provides the principal means by which savings are transformed into investments. Given its role in the allocation of resources, the efficient functioning of the financial system is critical to a modern economy.

A CONCEPTUAL FRAME WORK OF HOW THE FINANCIAL SYSTEM WORKS THE FINANCIAL SYSTEM

28

The financial system performs the following interrelated functions that are essential to a modern economy:

1. It provides a payment system for the exchange of goods and services. 2. It enables the pooling of funds for undertaking large-scale enterprises.

3. It provides a mechanism for managing uncertainty and controlling risk. 4. It generates information that helps in coordinating decentralized decision making

5. It helps in dealing with the incentive problem when one party has an information

29

advantages. NEED FOR REGULATORY FRAME WORK There were major policy changes like the opening up of the economy and greater role of the private sector, when the Sixth five-year Plan was launched in 1985. The need to set up a regulatory agency for the stock and capital markets was recognized at that time. The malpractices prevailing in these markets reduced the confidence of investors. This in turn created obstacles in mobilizing the funds. The entire edifice of capital market is based on the trust in the financial system of the country. The scams in the resent past are a testimony to the importance of a sound financial system. Loss of trust and confidence of the investor in the working of the system and the ability of regulatory framework to vouch safe the same from the predators can bring the untold misery and the whole edifice can fall like a castle of cards.

REGULATORY FRAME WORK IN PLACE As the maker and enforcer of laws in a society, the government has the responsibility for regulating the financial system. The two major regulatory arms of the Government of India are the Reserve Bank of India and the Securities Exchange Board of India.

SECURITIES EXCHANGE BOARD OF INDIA The Securities Exchange Board of India (SEBI) which was established on April 12, 1988 through an Extraordinary Notification of the Government of India in the Gazette of India was given statutory recognition with the promulgation of the Securities and Exchange Board of India Ordinance on January 30, 1992 and the Board was statutorily set up on February 21, 1992. The SEBI Act from April 4, 1992 replaced the Ordinance. The Board consists of a Chairman and five other members, one each from the Ministry of Finance and the Ministry of Law, Justice and Company Affairs, one from the Reserve Bank of India and two others to be appointe3d by the Central Government. The basic aim of the SEBI is to regulate the capital market to protect the interests of investors.

ORGANISATION OF SEBI

30

After it became a statutory body, SEBI restructured its organization and rationalized it in line with its activities into five operational departments, each headed by an Executive Director, Apart from these, there are two other departments viz. Legal and Investigations Department.

Following are the five operational departments

1. Primary Market Development 2. The Issue Management Department. 3. The Institutional Investment Department. 4. The Institutional Investment Department. 5. The Investigation Department. 6.

SEBI also has two advisory committees, one each for the primary and secondary markets, to provide advisory inputs in framing the policies and regulations. These are constituted firm among the market players recognized investors associations and eminent persons associated with the capital market. The committees are however non-statutory in nature and SEBI is not bound by their advisory committees.

The SEBI of India has been entrusted with the responsibilities of dealing with various matters relating to the capital market. The SEBI is the regulatory authority established under section 3 of SEBI ACT 1992 to protect the interests of the investors in securities and to promote the developments of, and to regulate, the securities market and for matters connected therewith and incidental there to.

SEBI s PRINCIPAL TASKS ARE TO 1. Regulate the business in stock exchange and any other securities markets. 2. Register and regulate the capital market intermediaries (brokers, portfolio managers etc. 3. Register and regulate the working of mutual funds

31

4. Promote and regulate self-regulatory organizations. 5. Prohibit fraudulent and unfair practices in securities markets.promote investors education and training of securities markets. 6. Prohibit insider trading in securities. 7. Regulate substantial acquisition of share and takeovers of companies 8. Perform such other functions as may be prescribed.

FORMATION OF SELF REGULATORY ORGANISATION The Legislative scene depicted above notwithstanding, SEBI has been advocating a selfregulatory set up for regulation of capital markets, and in this connection, the stock exchanges have designated to play the role of self-regulatory organizations for brokers/sub brokers etc. There are at percent 23 stock exchanges in India, in addition to OTC Exchange. Similarly, the Association of Merchant Bankers of India, (AMBI) a representative organization of merchant bankers is being established as a self-regulatory organization, where after SEBI will consider grant of recognition to it. ROLE OF STOCK EXCHANGE

The Stock Market is an open auction market, where the buyer and sellers meet to deal in securities. Stock exchange provides a regular and continuous market for buying and selling of securities. The usual procedure is that when an enterprise is in need of funds, it approaches the investing public, both individuals and institutions, to subscribe to its issue of funds; it approaches the investing public, both individuals and institutions, to subscribe to its issue of capital. The securities thus floated are subsequently purchased and sold among the individual and institutional investors.

There are, in other words, two stages involved in the purchase and sale of securities. In first stage, the securities are acquired from the issuing companies them selves and these are, in the second stage, purchased and sold continuously among the investors without any involvement of the companies whose securities constitute the stock-in-trade except in the strictly limited sense of

32

registering the transfer of ownership of the securities.

The importance of stock exchanges can be well deciphered from the fact that it imparts liquidity to the scrips held. It provides price continuity to the shares traded on the stock exchange, the market price of shares reflects the intrinsic value of the security and the trading is conducting under the supervision of the stock exchange authorities, thereby providing reasonable degree of safety and fair dealings to the investors.

The stock exchanges have exhibited a perceptible change in the level of activities during the 1980 s and particularly during the second half of the decade. The growth is evident from the dramatic increase in the amounts of funds raised from the markets annually and from the volume of turnover in the secondary markets. The developments in the markets also include

establishment of new financial institutions to meet requirements of the growing economy, and use of innovative financial instruments to sub serve the needs of investors at whom these instruments are aimed.

With all the above developments, Capital Market has now developed to cater to the needs of growing corporate sector. The secondary market in India has also shown maturity by registering enormous growth in the recent years in terms of the number of listed companies, market capitalization, market value of listed companies to gross national product, number of shareholders, and so on. There are 23 recognized stock exchanges in the country. The organization of the exchange varies: 14 are public limited companies, 6 are companies limited by guarantee and 3 are companies limited by guarantee and 3 are voluntary non-profit organizations. The Government of India/SEBI ensures broad uniformity in the structures while granting recognition; only 9 stock exchanges have got permanent recognition, other have to renew it every year until permanent recognition is granted. All Stock Exchanges are managed by a governing body which consists of elected broker-directors, public representatives and Government SEBI nominees. The number of stock broker-directors members has now been reduced to about 40%. For regulation and control of transactions, each stock exchange has byelaws and regulations which are more or less uniform in all stock exchanges.

33

The most active of the stock exchanges are located at Bombay, Calcutta, Madras, Delhi and Ahemdabad. The number of listed companies increased from 3118 in 1983 to over 9800 during 1999-2000. The total market capitalization of all companies listed on the Stock Exchange Mumbai was 5853 indicating a rise of 20.78%.

The Government too, with a view to encourage the corporate to approach the capital markets to meet their requirements for funds, has initiated policy measures to open up the capital markets. These policy measures include steps to streamline the procedures and to impart transparency to operations at the stock exchanges. Although by international standards, the Indian capital markets are still immature, they have certainly developed to cater to the needs of the growing corporate sector. The developments in the stock markets are reflected through

1. Heightened state of activity reflected through sharp rise in both resources mobilized 2. It through corporate securities and investments and investments schemes of mutual funds. 3. Increased trading activity at the secondary markets. 4. Increased trading activity at the secondary markets. 5. Progressive role of institutional investors at the capital markets. 6. Indian Securities Market has undergone a complete transformation

In recent years with a broadening of the money market and capital markets significant institutional developments has been noticed in the Indian markets. Following are the details of the institutions and their functions:-

DISCOUNT AND FINANCE HOUSE OF INDIA The RBI jointly with the public sector banks and financial institutions on the recommendations of the working group on money market, set up an apex body named Discount

34

and Finance House of India . The main objective of DFHI is of imparting liquidity to such instruments like treasury bills etc. CREDIT RATING AND INFORMATION SERVICES OF INDIA It is first credit rating agency in the country to evaluate debt obligations of the companies, depending on their ability to service these obligations and assigns rating to them expressed as numeric and alphabetical symbols. The ratings convey the credit agency s opinion on the risk associated with a particular debt obligation. The credit rating is however not the recommendation of the credit rating agency to the investor to buy or sell the securities. INVESTMENT INFORMATION AND CREDIT RATE AGENCY OF INDIA LTD(ICRA) The ICRA has been set up with the primary objective of providing guidance to the investors/ creditor in determining the credit risk associated with a debt instrument/ credit obligation. CREDIT ANALYSIS AND RESEARCH LTD(CARE) The ICRA has been set up with the primary objective of providing guidance to the investors/ creditor in determining the credit risk associated with a debt instrument/ credit obligation. OBJECTIVES In order to retain investor confidence there are regulatory authorities like SEBI to regulate and control activities of capital market, But in order to achieve this precautions should be taken at the grass- root level that is at each broker s place. For obtaining this it becomes essential to have qualified personnel at the back office of each broker so that the back office function is carried out smoothly and In order to understand the process of back office function my objectives while undergoing project were

In order to retain investor confidence there are regulatory authorities like SEBI to regulate and control activities of capital market, But in order to achieve this precautions should be taken at the grass- root level that is at each broker s place.

Methodology Adopted.

35

Information to prepare this project report on back office function in a share broking firm was gathered through

1. Discussion with the company project guide and college project guide.

2. Discussion with the company project guide and college project guide.

3. Information published in various publications, books, journals, web sites etc.

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

INFORMATION AND ANALYSIS CAPITAL MARKET

36

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

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

SECONDARY MARKET Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and / or listed on the Stock Exchange. It comprises of equity market and the debt market. STOCK EXCHANGE A market place where shares are traded. It is usually a building where members of the exchange, acting as brokers of client or dealing on their own, buy or sell shares. It facilitates entry and exit of the investment of the clients.

SHARE MARKET It is a place where buying and selling of shares and securities take place of different

37

companies. It is of great importance because it is a barometer of the country s economy i.e. if economy is sound; market normally goes up visa a versa. Performance of the company is reflected by the value of share price without that raising of the funds is difficult for the economy.

BROKER A broker is a member of a recognized stock exchange, who is permitted to do trades on the floor/screen-based trading system of different stock exchanges. He is enrolled as a member with the concerned exchange and is registered with SEBI. They come under the SEBI Guide line. SUB BROKER A sub broker is a person who is registered with SEBI as such and is affiliated to a member of a recognized stock exchange. They also come under SEBI guideline, but they are nominated by main broker to carry out transaction in the market.

Their various repost prepared by them some of them are as follows-

VALAN TRAIL BALANCE Valan trial balance is a summary of debit and credits given to each and every client and then the grand total of all the debits and credits. It also gives the client wise brokerage receivable. Every client is allotted a client code and the description of the transactions is given client code wise. Valan trial balance is one of the daily reports that are prepared and from that the required figures posted wherever require

Valan number means the settlement number given by NSE, and the valan trial balance gives for that settlement that client s balance, which is then sent to accounts department for the recovery, which is deposited in NSE s account after which NSE gives Broker s account debit.

38

A/c code

Account Head

Debit

Credit

4506 Ravi Inv.

6367.54

8378.43

194909.8 7014 Ram Inv. . . 9

* Client Total *Net balance 76446

593127.38 102744.73 490382.65

Valan Control A/c Group E 645.76 Service Tax Payable .. ..

CLIENT WISE DELIVERY STATEMENT It maintains the Clientwise report in the books of brokers a/c, i.e. this statement gives the details of all the clients one by one, deliveries taken from a client and deliveries given to the client.

Scrip Brought Client Quantity Code name Book Closure Record date Sold Qty

39

320

103

Reliance

. .

100

250

215

Satyam comp.

320

. .

..

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

Scrip Name: Satyam Comp

Brought Client

Client

Book Record

Sold

Qty.

Code

name

closure date date

Qty

200

2049

Anand .

25/06

275

300

2252

Ravi .

WORKING OF THE STOCK EXCHANGE

40

Buyer-A/ Seller-A

Depository

Participant

Broker- A

NSDL NSE

Broker-B

Buyer-B/Seller-B Client

Depository Participant

Settlement of shares

Settlement of money

Detailed explanation with example:-

Buyer-B of Broker-B purchases 100 shares Reliance from Broker-A at the same time Seller-A sells 100 shares of Reliance to Broker B through Broker-A then following procedure take place

41

Detailed explanation with example:-

1. B pays to broker-B the amount due on the shares purchased by him. 2. Broker-B pays the settlement amount to NSE (Funds Pay in) 3. NSE pays the amount to the Seller Broker-A 4. Then Seller Broker-A pays the amount to seller-A (Funds Pay out)

A. Simultaneously Seller-A delivers 100 Reliance to Broker-A in his depository account (Shares Pay in) B. Broker-A delivers the shares to NSDL through his Depository Participant. C. NSDL then gives the shares to broker-b D. Finally Broker-B delivers the shares to Buyer-B (Shares Payout)

An investor who wants to hold his securities in electronic form he has to approach a Depository Participant and through him open an account at NSDL. After getting Client I.D. no. from NSDL then client goes to a registered broker of NSE/BSE for investing in the shares. The client gives the order to the operator seating on the NEAT software (National Exchange for Automated Trading) for particular scrip at a specific price when the bid matches on the screen the confirmation tag blinks with the scrip ISIN no.(International Securities Identification Number) for which he has to take the delivery and make the payment on T+2 basis, if he doesn t make the payment it goes to Auction and he has to pay the penalty and the auction price for the shares traded.

Existing Depositories in India

Presently there are two depositories in the country, namely National Securities Depositories

42

Limited (NSDL) and Central Depositories Services Limited (CDSL). NSDL was set up as the first depository company in the country; it has been sponsored by the Unit Trust of India, NSE, State Bank of India, HDFC Bank and City Bank. Its performs the following functions through depository participants enables the surrender and withdrawal of securities to, and from, the depository; it maintains investors holdings in the electronic form; effects settlement of securities traded on the exchanges; it carries out settlement of trades not done on the stock exchange (off market trades); transfers of securities; electronic credit in public offerings of companies; receipt of non-cash corporate benefits like bonus, rights, and so on in electronic form; Stock lending and borrowing.

The Mumbai Stock Exchange in association with the Bank of Baroda, State Bank of India and HDFC Bank have promoted CDSL as a secondary depository in India for dealing in securities, in the electronic form, by the name of Central Depository Services (India) Limited (CDSL). The main objectives are as to accelerate the growth of scripless trading; to make a major trust in the individual investors participation in the depository, to create a competitive environment which will be responsive to the user s interests and demands, to enhance liduidity.

Accounting Period Settlement

It is the settlement where the trade pertaining to a period stretching over more than one day is settled.

Rolling Settlement

The execution made during the day is settlement i.e. by squaring off the position by either taking delivery or giving the delivery. The trades pertaining to the rolling settlement are settled on a T+2.

Meaning of T+2 basis T+2 basis means for e.g. if the transaction has taken place on say Monday then the pay in and

43

pay out of that settlement will take place on wednesday.

STT is a tax being levied on all transactions done on the stock exchange at the rates prescribed by the Central Government from time to time.

Pay in day and Pay out day

Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay out of the day is the day when the exchanges make payment or delivery of securities to the broker. Settlement cycle is on T+2 rolling settlement bases. The exchanges have to ensure that the payout of funds and securities to the clients is done by the broker with in 24 hours of the payout.

The pay in and payout days for funds and securities are prescribed as per the settlement Cycle. Like a Typical Settlement of Normal Settlement is as follows-

Activity Trading Rolling Settlement T

Day

44

Trading Clearing Custodial Confirmation Delivery Generation Settlement Securities and Funds Payin Securities and Funds Payout Post Settlement Auction Bad delivery Reporting Auction Settlement Close out Rectified bad delivery payin and payout Re-bad delivery reporting and pick up Close Delivery out of re-bad T+9working days T+8working days T+5working days T+6working days T+3working days T+4working days T+5working days Valuation Debit T+2working days T+2working days T+1working days T+2working days T+1working days

Brokerage and other charges

Minimum brokerage is 1 new paisa

45

Maximum brokerage is 2.5% Service tax @ 8.5 of the brokerage Transaction charges as levied by the NSE. SEBI fees on turn over is 0.01%

Contract Notes

It is the confirmation note of the trade done on a particular day for a client, which is being issued in the format and manner prescribed by NSE and has to be acknowledged by the client on getting the duplicate.

Screen Reading

NEAT is the name of the Software used for online trading of NSE so it is important to be able to read and understand the NSE s screen as it shows which trades are being carried out, if the operator puts a transaction purchase then a red strip arises in front of that scrip which is demanded by the client.

IMPORTANT KEYS FOR VARIOUS PURPOSES

F1 - For placing order for buying the shares. F3 F4 F6 F7 F8 F9 F10 F11 Outstanding order. Scrip update. Market by 1st five buys. Market by order (active log). Previous trades. Snap quote. Full message display. Market inquiry.

46

F12 Alt F6 Alt F7

Supplementary menu. Net position. Online Back-up.

Ctl F3 Index

BACK OFFICE FUNCTIONS

This report is about the study undertaken by me during a period of two months for my summer project in Stock holding corporation of india limited. The Back office function acts as a back bone of any share broking firm as the work which the personnel in back office has to perform is very crucial and important for the client as well as the firm. Any mistake from the personnel might become a liability for the firm, for e.g. if there is short delivery or pay in of clients share then for those shares auction takes place for which they have to pay the price for the same. Hence the back office function calls for the full concentration level of the personnel while doing his or her work.

If the back office section detects any error it should draw the attention of the higher authority for the corrective action. Basically the back office function includes responsibilities like transaction processing, settlement and other administration functions.

So the key result activity in a share broking firm is the back office function which operates through different department like Crd department, Delivery department, Accounts Department, Compliance department etc.

DEPARTMENTS 1. Client registration Department (CRD)

In order to trade in the market the client has to fill up the agreement between the Client

47

Broker-Sub broker which is know as tripartite agreement and also know your client forms with necessary requirement attached to it, has to been send to CRD. In the mean while the client or sub broker has to feed the all information in masters and has to submit it in s/w which can viewed by the client broker and sub brokers end. After receiving the forms the employees in the CRD verifies it and checks with the master, and everything is matched, it gives instructions for the activation of the client to the surveillance department. And once it get activated CRD informs to client by putting the details in the ftp site which can be viewed at their end and can start trading.

And if the details do not match or any particular attachment is not there then they inform through ftp site where the client and sub broker can view the current status. If any changes has to made like change in name or address or in brokerage they have to inform to CRD and they get it changed.

2. Delivery and Accounts Department

Basically the employees in the Delivery department have to look after the pay in and pay out of shares and Accounts department has to look after the pay in and pay out of funds.

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

48

Pay out of shares and funds When shares are purchased by the client then he gives money to sub broker which he delivers to SHCIL and SHCIL sends to nse/bse as funds pay in against which nse/bse gives pay out funds and also gives delivery of shares and pay out of funds to respective sub brokers at present T+2 basis, which means the day of trade plus two days with in which the pay in and pay out of shares and funds should take place simultaneously.

Intersettlement transaction Intersettlement transaction are the necessary adjustment between the broker and the client has to give request to the broker, for e.g. if the client has sold 20 shares of reliance in settlement number 154, but if the client request to broker/sub broker to adjust this pay in against the pay out in settlement number 158 then it is called as inter settlement transaction. Cash management and transfer of funds cash/funds is the lifeblood of any organization so management of cash and transfer of funds from a very important aspect of the accounts department. This includes constant check and reconciliation of the bank account of the sub broker.

Preparation Bank reconciliation Statement Bank reconciliation statement is very important as it helps the accountant to understand the balance of cash in the respective bank account and if there is any difference between in balance as per the sub brokers book and as per our books it has to be rectified immediately and should be informed immediately. There could be many reasons because of which there can be indifference in cash and bank balances and doing bank reconciliation statement can rectify these difference.

Preparing the cash statement This statement gives the details of the transactions of previous days. It shows all the debits and credits given to each and every client, margin from the sub broker, net balances, net stock payment (normal/auction)and net stock receivable(normal/auction) Checking the Daily Funds Statements Daily funds give the details of pay in and pay out of funds and also show whether it was normal or auction. This report has to be checked by the account and find whether there is any short delivery, if yes then get the short delivery report from the delivery department. Undertake the work of recovery as well

49

The job of recovery is very is very function of the accounts personnel for this he job is done.

difficult and this is one of the important has to be very shroud person and see that the

2. COMPLIANCE DEPARTMENT

Compliance has acquired a lot of importance these days as there are penalties if you fail to comply as per the requirement of NSE. For those purpose of compliance SHCIL has to submit a compliance report to NSE s

Inspection and investigation department signed by the Managing director on the behalf of the company under the common seal. They have to inform to sub broker regarding the inspection or meetings which are duly held like AGM, has to prepare minutes of the meeting, has to inform any changes in rules, regulations and laws etc

4.

Surveillance Department

As the securities transactions are prone to verity of manipulations, the nse has instituted a strong surveillance mechanism to protect market integrity. It includes-

Online monitoring - The National Securities Clearing Corporation Ltd.

has in place an online monitoring and surveillance system whereby exposure of the member is monitored on a real time basis. A system of alerts has been built in so that both the member and NSCCL are altered as per pre-set levels (reaching 70, 85, 95, and 100 percent) when the members approach their allowable limits. The system enables the NSCCL to further check the micro details of members positions, if required, and take proactive action.

The online surveillance mechanism also generates various alerts/ reports on any price/volume movement of securities not in line with past trends/patterns. For this purpose, the nse has put in

50

place a system that generates alerts. Alerts are scrutinized and are taken up for follow up action. Open positions of securities are also analyzed. Besides this, rumours in the print media are tracked and, where they are sensitive, companies are contacted for verification. Replies are informed to the members and the public.

Investigation and inspection As per regulatory requirements, a minimum of 10% of the active trading members are to be inspected every year to verify the level of compliance with various rules, byelaws and regulations of the nse. Usually, inspection of more members than the regulatory requirement is under taken every year. The inspection randomly verifies if investors interests are being compromised in the conduct of business by members. The investigation is based on various alerts which require further analysis. If the analysis suggest any possible irregular activity which deviates from trends/patterns and concentration of trading at the nse, at the member level, then a more detailed investigation is undertaken. If the detailed investigation establishes any irregular activity, then disciplinary action is initiated against the member. If the investigation suggests possible irregular activity across the exchange and/ or possible involvement of clients, then the same is informed to the SEBI.

5.

Depository participant (DP)

Once the trade is done on the stock exchange, client/sub broker gets reports of their net obligation. A clearing member (CM) has to open a clearing and settlement of trades with a

51

DP. On opening of such account an account, the depositories allots a number identified as CMBusiness partner- Id. The DP opens an account and the CM is allotted a number (Client ID).

The delivery account consists of three parts pool a/c; delivery a/c; receipt a/c, to facilitate easy book keeping. The role of the pool account in clearing of securities is twofold- a.) the selling client of the CM transfers securities from his client account to the pool a/c of the CM before pay in and b.) after payout, the CM transfers securities(to the extent of his obligation to the clearing operation) from the pool a/c to the delivery a/c , before pay in. On pay in day the depository flushes out the securities in the delivery a/c and transfers the same to CC automatically. On pay out day, the CC transfers securities to the pool a/c (to extent of the net receipt) through the receipt a/c. This account can be used to trace the details of settlement-wise receipt into the clearing.

On off market trades, these include trades where the seller and buyer deal directly with each other, without any intervention of the CC. The seller would give his DP a delivery instruction slip instructing him to debit his account with the transacted securities and the buyer would give his DP a receipt instruction slip to credit his account. Both the instructions would have the same execution date. The transaction would match at the depository, and credit and debit would be given by the DPs to their respective Client account.

OBSERVATION AND FINDINGS

During the actual two months period of doing this project I was able to observe some important elements in favor of Stock holding corporation of india limited and some against them and in

52

order to put it in a better way I carried out a swot analysis which is as under.

1. Strength of SHCIL Good and Highly qualified and cooperating Staff 2. Weakness of SHCILLess Manpower.

3. Opportunities The Company has made an application to NSE for the F & O membership, for which approval is awaited. The exchange is planning to commence Investors Service Centers in Satara, Sangli and Kolhapur to provide services relating to Capital Market to the investors in these cities and around 4. Threats to SHCIL Threats from competitors like icicidirect.com

RECOMMENDATIONS AND SUGGESTIONS

Findings and suggestions

53

Findings

At the time of doing my project in SHCIL I found that there could be time saving as number of employees working over there were less in each department so depended was more on these employees and at that time some of the well set expert employees working over there were leaving the job due to their future growth or personal reasons, and work load was huge so it was pretty difficult for employee over their, as they have stand by longer time, much pressure were on them for the completion of job and there is always a state were at the end of day some of other thing used to be pending. And few people who were newly joint in the SHCIL at that moment were not that much trained and were not much confident as they are well qualified but didn t had experience in this field. So lots of time used to be wasted in order to build confidence by themselves and grasp the knowledge.

Other things were, in SHCIL they do not have HR department so that employees can tell their problems, need and demands to them and if they had also they used to tell to DGM or to AGM or to the Director and if they get time they used to solve it or it used to be on priority basis and they didn t had canteen facilities also.

Suggestions

Instead of employing the no experienced employees or fresher, they should have employed experienced employees in the departments at that moment of time, so work load could have been

54

reduced and could not had been much pending work and tension also.

There are lots of requirement of employees in each department so that work can be evenly distributed and their will be flow in the work and doesn t have to depend on anybody.

Their should be a HR department on high priority basis because they can understand the nature of employees, their need and demands or requirements, can try to understand their problem or any grievances and can give immediate solutions to it, and can create working atmosphere for the employee so that they can work smoothly and happily without any tension or fear in mind.

CONCLUSION In the present scenario every individual who is searching for the job, wants to do a front office job, but they don t realize how important the Back Office Function is.

55

In a share broking firm like SHCIL where I did my project, the back office function is highly important, as many things are dependent on performance of back office and if it is not performed with full understanding and concentration, it could lead to blunder mistake and can put any broker into monetary loss, so after completing the project I could understand functioning of any broking firm lies in the hands of back office personnel this shows how important is the back office function.

The whole project is based on the back office function and its importance implications in the routine of SHCIL s functioning and after completing the project I can confidently say that I have got a glimSHCIL of the working in a share broking firm.

On the basis of the whole project, as a part it suggests a systematic way to Stock holding corporation of india limited to increase the efficiency of back office function, considering the time factor.

THE CHRONOLOGICAL ORDER

56

This report has been prepared in a chronological sequence explaining the flow of work logically which is as under

1.

The Indian Financial System.

2. Stock Exchange as a part of the whole financial system. 3. Role of Stock Exchange.

4.

Need for the regulation and control.

5. Role of SEBI as a regulating and controlling authority. 6. Broker as a part of stock exchange s working.

7.

Importance of back office functions in a share broking firm.

BIBLIIOGRAPHY

1.

Website of RBI, SEBI and NSE, BSE.

57

2.

Financial Management Module of ICFAI.

3. C.S. Module (for few definitions)

4.

The Economic Times (newspaper)

5. Book Reference a. Indian Financial System

b. Advance Financial System

6.Discussion with the senior staff of SHCIL. 7.WWW.SHCIL.COM

58