T.John Business School

T.
JOHN BUSINESS SCHOOL
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1.1
EXECUTIVE SUMMARY
Introduction of demat and e-trading has revolutionized the capital market.
Internet trading has made the process of buying and selling of shares much faster and easier than physical broker. It provides integration of bank, broker stock exchange and depository participants. This eliminates the rigorous process of investing in stock exchange. Today when one wants to invest in stock market, he has to contact broker on phone or meet him personally to place order. Broker gives such importance and additional service only to high net worth customers. But the Internet trading has given an opportunity to small investor to get best service at much lower price than physical broker over the phone, Online trading has given customer a real time access to account information, stock quotes elaborated market research and interactive trading. The prerequisites of Internet trading are a computer, a modem and a telephone connection, registration with broker, a bank a/c and depository account. Introduction of depository service are considered as the Beginning of the Era of Stocks @ click . This means that you can arrange delivery of scrips sold any time, anywhere to anyone by click of a mouse. Dematerialization facilitates to keep the securities in electronic form instead of paper form. It offers more advantageous than the physical certificate form. This study involves understanding the various concepts of demat and analyzing the feasibility of E-Broking in India keeping in view of global scenario of e-broking system and study on Analysis of On Line Trading and Dematerialization in Indian Stock Market has been submitted to
MANONMANIAM SUNDARANAR UNIVERSITY as a part of curriculum for the partial completion of "MBA".
T.JOHN BUSINESS SCHOOL
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1.2
REVIEW OF LITERATURE
Review of literature means the literature review followed for the
purpose of preparing this report. If the literature followed is sound in nature, surely the report is going to be shaped literally sharp, which not only attracts the reader but also gives him the quality of work done. Firstly, for the introduction and other aspects the literature was taken from daily newspapers, business magazines, company journals etc. For the second chapter, i.e. research methodology of the study, the information was taken from previous project reports and guidelines provided by the collage staff. Information regarding the various depository participants in the industry was taken from magazines, journals, stock exchanges. Company brochures and yearly magazines. The literature processed from these sources was made use of in an organized manner to shape this study or report.
1.3
STOCK EXCHANGES
The investor wants liquidity for their investments. The securities, which
they hold should easily be sold when they need cash. Similarly, there are others who want to invest in new securities. There should be a place where the securities need to be sold and purchased. Stock Exchanges provide a place where securities of different companies can be purchased and sold. Stock Exchange is a body of persons, whether incorporated or not formed, with a view to help, regulate and control the business of buying and selling securities. Stock Exchanges are organized and regulated markets for various securities issued by corporate sector and other institutions. The stock
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Exchanges enable flexible purchase and sale of securities as commodity exchanges allow trading in commodities. Stock Exchanges are an integral part of nation's economic life. By virtue of holding the responsibility of mobilizing savings of small and big investors and allocating them to the business firms and for the entrepreneurs, towards productive investment. The following definitions explain the meaning and scope of Stock exchanges.
Definitions:
According to the securities contract act, 1956 Stock Exchange means any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying and selling in securities" PYLE,- Security Exchange is market places where securities that have been listed there on may be bought and sold for either investment or speculation." Hartley withers A Stock Exchange is something like a vast warehouse where securities are taken away from the shelves and sold across the countries at a fixed price in a catalogue which is called the official list" Husband and Dockeray Securities or Stock Exchanges are privately organized markets, which are used to facilitate trading securities.".
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1.4
SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI):

Recommendations of Narasimham committee as well as of other
committees and groups pointed out a number of shortcomings in the functioning of stock markets in India, such as long delays, lack of transparency in procedures, vulnerability to price rigging and inside trading. To counter these shortcomings, Securities and Exchange Board of India (SEBI) was initially established as a non-statutory body in April 1988 for 1. Dealing with all matters relating to the development and regulation. 2. Providing investor protection. 3. Advising the government on all these matters.
SEBI was given statutory status by an Act of Parliament on April 4, 1992. SEBI was authorized 1. To regulate all merchant banks on issue activity 2. To lay guidelines, and supervise and regulate the working of mutual funds and 3. To oversee the working of Stock Exchanges in India.
FUNCTIONS OF SEBI:
Under the SEBI Act, SEBI has been assigned the following main functions; 1. Regulating the business in Stock Exchanges and other securities markets. 2. Registering and regulating the working of stock-brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deals, registrars to an issue, merchant bankers, underwriters, portfolio managers, and other intermediaries associated with the securities markets.
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3. Registering and regulating of collective investment schemes including mutual funds. 4. Promoting and regulating the working of self-regulatory organizations. 5. Prohibiting fraudulent and unfair trade practices relating to securities market. 6. Promoting investors education and training of intermediaries of Securities market 7. Prohibiting insiders trading in securities 8. Regulating substantial acquisition of shares and takeover of companies.
Recent developments in Secondary Market and role of SEBI in regulating the markets:
The century-old Indian capital market is two steps forward and one step back, or vice-versa, but whatever may be the phrase, according to some surveys made recently, it is found that though Indian capital market is firmly on the road to renewed growth, the investor's confidence is totally shattered and the SEBI's reformist's will did not find much favor to investors, in restoring their faith in the capital market. Since 1995-96, SEBI has been showing its reformist will in more than one way. Several measures in conjunction with the stock exchanges were introduced by SEBI, for safeguarding the investor's interests by ensuring better transparency and efficiency of markets. Some notes worthy reforms in the capital market introduced by SEBI are as follows: Electronic trading Demat trading Stock trading Stock watch surveillance system Fast clearance of investigation Levy of heavy penalty of defaulting brokers Buy back of shares by the corporate
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Compulsory rolling settlement Swadeshi EDGAR (Electronic Data Gathering, Analysis and Retrieval) etc The constitution of SEBI has heralded a new era in the Indian Capital Market with its heavy agenda
To protect the interest of investors To promote and regulate the securities market by regulating the business in stock exchanges To regulate the working of stock brokers, merchant bankers and other intermediaries To regulate the working of depositories and participants To regulate the working of venture capital funds and mutual funds To prohibit the fraudulent and unfair trade practices To promote invests education and to train intermediaries To prohibit insider trading in securities To regulate substantial acquisition of shares and take-over of companies etc.
1.5
NATIONAL STOCK EXCHANGE (NSE)

The National Stock Exchange was set up by IDBI and other financial
institutions in Bombay in 1993. It was recognized by the Government in the same year and the exchange started wholesale debt market in June 1994 and equity trading in November 1994. The wholesale debt market or the money market segments would cater to banks, FII's etc. to encourage high value transactions in PSU bonds, Units, treasury bills, Govt. securities and call money. There is no trading floor of the exchange. Trading is done on computer with the help of PC terminals in broker's offices. The capital market segment is
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also similarly on computer based trading. The settlement was earlier on T+5 bases but is changed to T+3 bases from 1st April. Benefits accrue to both issuers and investors. As this is screen based trading with national network, transparency and cost effectiveness is ensured. Besides, the investment counters can be spread wide in the country under the NSE electronic network. More than 3000 companies are already listed on NSE. Trading in them is continuing simultaneously with those in the principal and regional stock exchanges. NSE became the first exchange to grant approval to its members for providing internet based trading services. Internet trading is possible on both the Equities as well as the Derivatives segments of NSE.
Characteristics:
The characteristics of national market system are as follows: 1) Completely automated system in terms of both trading and settlement procedures to be provided through the Securities Facilities Support Corporation. 2) 3) Compulsory market makers to provide liquidity and ready market. The members would be as large as 1000 and corporate and institutional members would also be there, drawn from various parts of the country and to represent the professionals on all India basis. 4) Only medium sized companies and PSUs are expected to be listed on this exchange and it will complement the existing exchanges. 5) The NSE would have a separate trading facility and time allotted for debt instruments in order to have beneficial effect of creating on active secondary market in debt instruments. 6) National clearing and settlement system for making settlement on national basis.
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7)
The central depository trusts to keep physical custody of shares and to usher in scrip less trading system.
8)
The securities facilities support corporation for providing supporting infrastructure facilities
Objectives:
The objectives of the NMS are as follows: 1. To help the privatization of public sector units through listing of their shares on this exchanges. 2. To spread the investment habit and cult the savers in the rural and semiurban areas as well. 3. To professionalize the members with a view to improve the investor services. 4. To create more employment opportunities in the service sector within the orbit of capital market.
National stock exchange set-up:

The National Stock Exchange has set up facilities, which serve as a model for the securities industry in terms of trading systems, practice4s and procedures. Though the impetus for its establishment came from policy makers in the country, it has been set up as a public limited company, owned by the leading institutional investors in the country. NSE is different from most stock exchanges in India where membership on a exchange also meant ownership of the exchange. The ownership and the management of the Exchange is completely separated from the right to trade. The Exchange is managed by a Board of Directors. The Board to an Executive Committee, which includes representatives from the Trading Members, the
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public and the management, delegates decisions relating to market operations. Besides, the Exchange operates various committees to advise it on areas such as good market practices, settlement procedures, risk containment systems etc. Industry professionals, Trading Members and Exchange staff, man these committees. The day-to-day management of the Exchange is delegated to the managing director who is supported by a team of professional staff.
Trading system on NSE:

The NSE provides a facility for screen based trading with order matching facility. The members are connected from their respective officers at dispersed location to the main system at the NSE premises through a high efficient satellite telecommunication network. The trading system is an order driven, automated order matching system, which does not reveal that identity of parties to an order or a trade. This helps orders whether large or small to be placed without the members being disadvantaged by disclosure of their identity. The computer keeping the system transparent, objective and fair matches orders automatically. Where an order does not find a match it reminds in the system is displayed to the whole market, till a fresh order, which matches, comes in or the earlier order is cancelled or modifies. The trading system provides tremendous flexibility to the users in terms of the type of order that can be placed on the system. Several time related, price related or volume related conditions could easily be placed an order. That trading system also provides complete online market information through various inquiry facilities.
The process of buying or selling:

As the client comes for the NSE information. He can see the various quotations of the scrips of various companies on the computer screen. If the interested company is not in the screen then, a click is given on the snap quote
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option then it will ask for code of the security, if the code is entered then it will be displayed on the screen. A part from this the client can know the opening of share market, the intra day high and low of the market. If we want to buy a security an order or a trade helps him. Order entry mechanism enables the trading member to place order in the market. The system will request reconfirmation of order so that the user is cautioned before the order is finally released into the market. Order once placed on the system can be modified or cancelled till they are matched. Once orders are matched they cannot be modified or cancelled. There is a facility to generate online order confirmation slips as soon as an order is placed or a trading is done. The order confirmation slip contain among other things, order member, security name, price, quantity, order
condition or disclosed or minimum fill quantity etc. the trade confirmation slip contains the order and trade number, date, trade time, price and quantity traded, amount etc. Orders and trades are identified and linked by unique numbers so that the investors can check his order and trade details.
Clearing and Settlement:

Transaction Cycle
Placing Order Trade Execution Clearing of Trades
Transaction Cycle
Decision to Trade
Funds/ Securities
Settlement of Trades
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From 1st April 2002 the settlement period has changed from T+5 to T+3 that is if the shares are traded on Monday the settlement will be after 3 working day generally if there is no holiday the settlement will be on Thursday evening. A broker has to deliver all his pay in and pay out on Thursday evening. The broker has to pay only the difference of amount that if he makes the purchases of worth 1 crore of rupee and sales 1 .5 crore rupee. He is entitled to receive Rs.50 lakh from the exchange. And he will be getting them within the 48 hr after the settlement. National securities clearing corporation limited (NSCCL), A wholly owned subsidiary of NSE, was incorporated in August 1995 and commenced clearing operation in April 1996. It has been set up with a philosophy to sustain confidence in clearing and settlement of security; promoting and maintaining, short and consistent settlement cycle, to provide counter party risk guarantee, and to operate a tight risk containment system. If assumes the counter party risk of each member and guarantees financial settlement. It has successfully brought about an up gradation of clearing and settlement procedure and has brought Indian financial market in line with international market. NSCCL carries out the clearing and settlement of the date 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 transaction on other stock exchanges like, the Over the Counter Exchange of India. NSCCL assumes that the counter party risk of each member and guarantees settlement through a fine tuned risk management system and an innovative method of online position monitoring. It operates a well-defined settlement cycle and there are no deviations or postponement from this cycle. It aggregates trade over a trading period, nets the position to determine liability of members and ensures movement of funds and securities to meet respective liability. It provides a facility for multiple settlement mechanism including,
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account period settlement, for dealing in physical securities and dematerialized security, rolling settlement (T+3 bases) in dematerialized segment etc. NSCCL has empanelled 9 clearing bank to provide banking service to trading members and has established connectivity with both the depository for electronic Settlement of securities Settlement Cycle: Normal market: Table 1 Activity Trading Clearing Rolling Settlement Trading Custodial Confirmation Delivery Generation Settlement Securities and Funds pay in Securities and Funds pay out Valuation of shortages based on closing at prices Post Settlement Bad Delivery Reporting Auction settlement T+4 working days T+5 working days Auction T+3 working days Day T T+1 Working days T+1 Working days T+2 working days T+2 working days T+1 closing prices
Rectified delivery pay in and T+6 working days pay out Re-bad delivery reporting and T+8 working days pickup Close out of re-bad delivery and T+9 working days funds pay in and pay out
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Limited Physical Market: Delivery of shares in street name and market delivery (clients holding physical shares purchased from the secondary market) is treated as bad delivery. Any delivery of shares which bears the last transfer date on or after the introduction of the security for trading in the LPM is construed as bad delivery. Shortages, if any are compulsorily closed out at 20% over the actual traded price. Uncertified bad delivery and re-bad delivery are compulsorily closed-out at 20% over the actual traded price. The buyer must compulsorily send the securities for transfer and dematerialization, latest within 3 months from the date of pay-out. Table 2 Activity Rolling settlement trading Custodial confirmation Day T T+1 days Delivery generation T+1 days Securities and funds pay in T+2 days Securities and funds pay out T+2 days Assigning of shortages for bad T+3 delivery days Reporting and pick-up of bad T+4 delivery days Close out of shortages T+5 days Replacement of bad delivery T+6 days Reporting of re-bad and pick-up T+8 days Close out of re-bad delivery T+9 days
Trading Clearing
working working working working working working working working working working
Settlement
Post Settlement
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2.1
INTRODUCTION
Motilal Oswal Securities Ltd. (MOSL) was founded in 1987 as a small sub-
broking unit, with just two people running the show. Focus on customer-firstattitude, ethical and transparent business practices, respect for professionalism, research-based value investing and implementation of cutting-edge technology has enabled us to blossom into an almost 2000 member team. Today we are a well diversified financial services firm offering a range of financial products and services such as Wealth Management Broking & Distribution Commodity Broking Portfolio Management Services Institutional Equities Private Equity Investment Banking Services Principal Strategies. We have a diversified client base that includes retail customers (including High Net worth Individuals), mutual funds , foreign institutional investors, financial institutions and corporate clients. We are headquartered in Mumbai and as of December 31st, 2010, had a network spread over 595 cities and towns comprising 1,568 Business Locations operated by our Business Partners and us. As at December 31st, 2010, we had 693,978 registered customers. In 2006, the Company placed 9.48% of its equity with two leading private equity investors based out of the US New Vernon Private Equity
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Limited and Bessemer Venture Partners. The company got listed on BSE and NSE on September 9, 2007. The issue which was priced at Rs.825 per share (face value Rs.5 per share) got a overwhelming response and was subscribed 27.18 times in turbulent market conditions. The issue gave a return of 21% on the date of listing. As of end of financial year 2008, the group networth was Rs.7 bn and market capitalization as of March 31, 2008 was Rs.19 bn.
Institutional Equities Asset Management
Investment Banking Private Equity
OUR BUSINESS
Wealth Management
Portfolio Management services Private Equity Structured Products Investment Banking Services Insurance
Broking & Distribution

Equities & Derivatives Commodities Depository Services Portfolio Management Services Mutuals Funds IPO
Principal Strategies
Research is the solid foundation on which Motilal Oswal Securities advice is based. Almost 10% of revenue is invested on equity research and we hire and train the best resources to become advisors. At present we have a expert team of Research Analysts researching over 27 sectors and 24 commodities. From a fundamental, technical and derivatives research perspective; Motilal Oswal's research reports have received wide coverage in the media (over a 1000 mentions last year). Our consistent efforts towards
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quality equity research has reflected in an increase in the ratings and rankings across various categories in the AsiaMoney Brokers Poll over the years. Our unique Wealth Creation Study, authored by Mr. Raamdeo Agrawal, Jt. Managing Director, is now in its 15th year. Investors keenly await this annual study for the wealth of information it has on the companies that created wealth during the preceding five years.
2.2
Our Core purpose & our Values
Teamwork
Attaining goals collectively and collaboratively
Our Core Purpose

To be a well-respected and preferred global financial services organisation enabling wealth creation for all our customers.
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2.3
MANAGEMENT
Joint Managing Director & Co- founder RAAMDEO AGRAWAL Director NAVIN AGRAWAL
Chairman & M.D. MOTILAL OSWAL
Business Heads
Institutional Equites Investment Banking Private Equity Asset Management Broking & Distribution Principal Strategies Wealth Management
NAVIN AGRAWAL ASHUTOSH MAHESHVARI VISHAL TULSYAN NITIN RAKESH VIJAY GOEL SRIKANTH LYENGAR HARSH JOSHI
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Support Function Heads
Research Market Operations Business Strategy & New Initiatives Corporate Planning & Investor Relations Marketing Business Process Excellence & IT
RAJAT RAJGARHIA AJAY MENON MANISH SHAH
NITIN RAKESH
RAMNIK CHHABRA
ANURAGI RAMAN
2.4
Corporate Social Responsibility
Your Company always believes in managing its affairs with diligence, transparency, responsibility, and accountability. Your Company is of the firm conviction that good governance is a pre-requisite to attainment of excellent performance in terms of stakeholder value creation. The Company has a professional Board which provides strong foresight and strategic counsel to the operational management. In India, Corporate Governance standards for listed companies are regulated by the Securities and Exchange Board of India (SEBI) through Clause 49 of the Listing Agreement with the Stock Exchanges. The stipulations mandated by Clause 49 became applicable to your Company since the time of listing of its Equity Shares on Bombay Stock Exchange Limited and National Stock Exchange of India Limited, following a successful Initial Public Offering in September, 2007, and have been fully complied with since then.
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This chapter, along with the chapters on Management Discussion and Analysis and General Shareholders' Information, reports the Company's compliance with the Clause 49.
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3.1 EVOLUTION OF ON-LINE TRADING
The history of e-trading began in 1983, when a doctor in Michigan placed the first online trade using E TRADE technology. What began with a single click over 16 years ago has now taken the world by storm. The concept was visualized by one Bill Porter, a physicist and inventor with more than a dozen patents to his credit, who provided online quotes and trading services to Fidelity, Charles Schwab, and Quick & Reilly. This led Bill to wonder why, as an individual investor, he had to pay a broker hundreds of dollars for stock transactions. With incredible foresight, he saw the solution at hand: Someday, everyone would own computers and invest through them with unprecedented efficiency and control. And today his dream has become a reality. e trading has become a way of investing in the developed world and is soon catching on in developing countries too. Imagine a scenario where you log on to your account, get the live quotes of scrips you are interested in, get advise from experts and research reports on your investment choice and then just click the mouse to place your order, pay the amount due (which automatically gets debited into your account with the on line brokerage firm), get your account statement, and the delivery of your shares into your DeMat account. All this through just the click of a mouse. Seems like a dream? But with online trading this has become a reality. Sitting in ones own home or office or even from your car, as long as you can access the net, you can trade on the market. There are three basic things needed for e-trading, a bank account, a D-Mat account and a brokerage account. The steps in e-trading replicate the real life situation and are fairly simple to follow. Once these three accounts are opened, the money and shares are transferred to your bank and demat account automatically, electronically and without any paper work.
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The first step is of course to open an account. One can open multiple accounts with himself or herself as the first name in the account. Then it is necessary to determine the type of account that you want and how you want to pay for the trades you make. Joint accounts are allowed but for that you will need to have certain information about those people. Accounts can be Individual, Joint, Sole Proprietorship, Corporate, or Partnership etc. The form filling requires simple personal details like Full legal name, Citizenship status, Residency status, employer's name and address, your passport\PAN number, Date of birth etc. One can download the forms or request for them by post or even request for a representative of the firm to come over to help you with the form. Postsubmitting, you are allotted a USER ID and PASSWORD while giving details for registration. Then an Account Reference Number is generated and displayed to you. These three things are unique to an individual and ensure security of transactions. The acceptance of the application is communicated by email. Once you have got your USER ID and PASSWORD and your account has been set up, you can access the website and login using the same. The second step is then to Fund Your Account. In order to start trading online it is important that you deposit money in your bank account before placing a buy order. In order to place a sell order you must have shares in your DEMAT Account. You can sell your shares anytime as long as shares are there in your DEMAT Account. In order to place a buy order you need to fund your account. You can do this by depositing money in your bank account or else you can sell some shares existing in your demat account and use the proceeds of sale to fund your purchase transaction. The amount of money required before placing a buy order would depend on the value of order and the type of e-invest account you have enrolled for - whether cash or margin. In a Margin account one can use a line of credit to buy marginable securities or for overdraft
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protection. Such an account is opened after taking into consideration Annual income, Net worth, description of your investment objectives, as it involves lending a line of credit. In a cash account, the amount of securities bought has to be backed by the cash in the account. Then comes placing the order. For this you enter your Trading password and go to trade. From the Trading tab, select Enter Order under the Stocks heading. Select a transaction type: Buy, Sell. At 'Number of Shares', type the number of shares that you want to buy. At 'Stock Symbol or Name(s)', type the stock symbol. If you don't know the symbol click 'Find Symbol', type the company name, click 'Search' and click the symbol that you want from the list. For a market order, select 'Market'. Otherwise, select 'Limit', 'Stop' or 'Stop Limit' and enter the price. 'Market Order': you just ask the broker to buy or sell your stocks at the best price available. 'Limit Order': you tell the broker to trade only when the stock hits a certain price or better. 'Stop Order': you tell the broker to sell your shares if the stock drops below a certain price. Select either 'Good for Day' or 'Good Until Canceled'. If you want to place an 'All-or-None' order, click 'All or None'. Type your trading password and click 'Preview Order'. If you want to change your order, click 'Cancel' and make your changes. To see if your order has been executed and filled as you expect, check your account balance. The 'Account Balances' page shows your account equity (the value of your account) and your buying power. To check your account balance, click the 'Accounts Services' tab, make sure the correct account number displays at 'Select Account' and click 'Go'. At 'Total Account Value', see your account balance. If an order to buy or sell stock hasn't been executed yet, you might be able to change or cancel the order. Orders that you have placed but for which you haven't yet received execution reports appear when you click 'View Open Orders' under the 'Stocks' heading of the 'Trading' tab. To change a stock order from the 'Trading' tab, select 'View Open Orders', make sure you're currently in
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the correct account, the click 'Change' beside the order you want to change. Enter your change or changes - you can change the quantity, price, and term. For a new price, select the appropriate option button and then enter the price (unless you're changing it to a market order). You cannot change the stock symbol or the transaction type (Buy, Sell, Sell Short, or Buy to Cover). Enter your trading password and click 'Preview Change Order'. Or, if you want to cancel your changes, click 'Do Not Change'. In order to cancel a stock order, from the 'Trading' tab, select 'View Open Orders' under the 'Stocks' heading. Make sure you're currently in the correct account. Click 'Cancel' beside the order you want to cancel. Review the information presented to make sure this is the order you want to cancel. Click 'Cancel Order'. Enter the symbol or the name of the scrip, press "GO" or the relevant button. The account opening charge, commission rates and the minimum limit of transaction vary from site to site. Other charges can include Annual Services Charges, Custody charges, D-Mat account charges etc. Also most online traders offer a host of other tools to aid the investment decision. A full research back up in terms of reports, articles, opinions, etc., live time quotes, latest news on the scrip, technical charts to see how the stock's price has changed over time. So sitting at home one can take an investment decision at ease after having researched and read up fully about the stock. With the advent of online trading, it would seem that the markets are just a click away. Please however, do remember that currently in India the handful of online trading offers are mere order routing systems. But it will not be long enough before the entire system goes online. That then will be change for the better.
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3.2
ONLINE TRADING
The National Stock Market system provides single, nation wide
securities. It enables LAN investors in one part of the country to trade at the best quotes with an investor located in any other part of the country through the members of the stock exchange and subsequently clears and settle the trade in an efficient and cost effective manner. The primary objective of the Stock Market is to provide clear opportunity to the investors throughout the country to trade any security irrespective of the size of the order or the broker through whom the order is routed. This provides the facility to execute the buy order at the lowest price in the stock market located anywhere in the country without any extra cost to the investors. There will be no trading floor in the exchange. Instead, each trading member will have a computer at his own office any where in India which will be connected to the central computer system at the NSE through leased line or VSATs (very small aperture terminals), for an interim transition period of 6 months & subsequently by satellite link. VSATs are relatively smaller dishes similar to dish antenna for cable TV & have the benefit of not being very expensive. A satellite network makes it possible to connect almost all the parts of the nation quickly as it is easy to install, as against the ground lines such as dial up modems leased lines, which are prone to disruptions, satellite links, on the other hands ensure high speed, availability and quality of the connection. This mode of trading is known as "Online Trading" Objectives of Present Trading System: Reduce and eliminate operational inefficiencies inherent in manual systems Increased trading capacity in Stock Market Improve market transparency, eliminate unmatched trades and delayed reporting
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Provide for on-line and off-line monitoring, control and surveillance of the market. Promote fairness and speedy matching Smooth market operations using technology while retaining the flexibility of conventional treading practices Set up various limits, rules and controls centrally Consolidate the trades data on electronic media to interface will the brokers back office system Provide public information on scrip prices, indices for all users of the system Provide analytical data for use of Stock Market.
Mechanism: The broker of stock trading gets the membership at the stock exchange after fulfilling a set of conditions. The broker is connected online with the stock exchange. On the system he constantly gets the real quotes in the market, their position, the demand and supply rates, number of buyers and sellers at various rates. The customer drops in the office of the broker or gives him a call regarding sale or purchase of particular number shares. The broker takes his order and inputs that in his online system. If a proper match regarding that price is available in that market i.e. if both the buy and sale rates match, then it implies that the deal in stuck. If the suitable match is not found, the order gets stacked in the system till a suitable counter order emerges and the transaction is closed at the point of time. The trading system on NSE provides enormous flexibility to the trading member. The members can easily exercise the various options available to them on a trading floor and when entering the order can place limit on either
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the number or the higher order and accordingly the order would be matched at the best price available. The member would also have the facility of canceling all outstanding orders in one stroke if deemed necessary or he may choose the entire order to be carried out as one deal or in smaller lots. The system would provide complete transparency. the identity of the trading members entering orders in the system will be protected and will have direct participation by the large player also without the fear of their order influencing the state of the market. There will be a book entry transfer system for securities, which will operate just like passbook system in a bank. Accounts will be maintained against each member, detailing the securities held in trading member's name. At the end of each trading day the exchange computer will generate a report of matched trades on each trading member, which in turn would be received by each trading member and the money refundable /deliverable to the clearing agency. Such a system would also reduce the bank office work of the trading members, thus allowing them to provide better services to the investors. In order to expedite the settlement process, a depository is being established where securities, as and when sold and delivered to the clearing system, would be transferred. Whenever the investor wishes to take the physical possession of the security for some reason, physical withdrawal of the security from eh depository will be permitted. Thus, through this system the trade transaction have shown a tremendous increase both in value and volume. The investors get the desired and the best rates, as the markets are more transparent and convenient to trade. Procedure for dealing at Stock Exchanges: Trading on a Stock Exchange is officially done in the trading ring for a few hours from 9.30 am to 3.30 p.m Trading before or after official hour is called curb trading. In trading ring space is provided for specified and nonspecified sections the members of their authorized assistants have to wear a
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badge or carry with them identity cards given by the Exchange to enter the Trading ring. They carry a Souda block book or confirmation memos duly authorized by the Exchange and carry a pen will them. The stock exchange operations at floor level are highly technical in nature. Non-members are not permitted to enter into stock market. Hence, various stages have to be completed in executing a transaction at a stock exchange. The steps involved in the methods of trading have been given below: The buying and selling at stock exchange is not allowed to outsiders. They have to approach brokers who are members of the exchange and the dealings can only be through them. The following procedure is followed for dealings at exchanges: 1. Election of Broker: The first thing to be done is to select a broker through whom the purchase or sale is to be made. The intending investor or seller may approach his bank for the purchase. The banks can appoint their own brokers at exchanges and they contact for dealings on behalf of their customers. On a recommendation from eh bank the broker opens the client's account. The bank assures about the financial condition of the client.
2. Placing an order: After selecting the broker the client places an order for purchase or sale of securities. The broker also guides the client about the type of securities to be purchased and the proper time for it. If a client is to sell the securities then the broker tells him about the favorable time for sale. The broker is told to purchase shares, their number and price to be paid. Sometimes a definite price is given on which the purchase is to be made, sometimes the tentative price is told, sometimes the minimum price to be paid, is told etc, the broker will try to make purchase as far as possible to the nearest price offered by the client. The
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broker is giving some choice of bargaining. The same type of choice is given to the broker for selling the securities. 3. Making the contact: The trading floor of the stock exchange is divided into different parts known as trading posts. Different posts deal in different types of securities. The authorized clerk of the broker goes to the concerned post and expresses his intention to buy and sell the securities. A deal is struck when the other party also agrees. The bargain struck by outcry mentioning the price and number of securities contracted by both the clerks. Both the parities in their notebooks note the bargain. The slop giving brief details of the bargain is put in a box for making announcement in the official price list for publicity. 4. Contract note: The buying and selling brokers prepare notes after their mutual consent next day. The seller is sent the selling note and the buyer is sent the buying note. The details of securities traded are given, mentioning their number, price, etc. 5. Settlement: The settlement is made and means of delivering the share certificate along with the transfer deed. The transferor duly signs the transfer deed i.e. in the seller. It bears the stamp of the selling broker. The buyer then fills up the particulars in the transfer deed. The spot dealing are settled there is full. The selling broker hands over the transfer form an share certificate to the buying broker after receiving the price. The settlement for ready delivery and forward contracts is done with a different procedure.
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Settlement of ready delivery contracts: The settlement in different stock exchanges is done between 3 to 7 days of the transaction. If giving actual delivery of securities on receiving the price does the settlement it is called liquidation in full. In another method the dealings are squared by the adjusting price difference only. Settlement of forward delivery contracts: The forward delivery contracts are done for speculative purposes. Only the active and broad market securities are traded in forward contracts. The settlement of forward contracts can be done in any of the three ways: 1. Liquidation in full: The securities are delivered and payment is received or vice-versa after crossing all intermediate purchases and sales. 2. Liquidation by payment of differences: The purchases and sales are offset at the ruling price by paying or receiving the difference amount. The securities are not delivered but only the difference of prices contracted and current prices are received or paid as the case may be. 3. Carry over to the next settlement: When the buyer does not want to settle the contract but wants to carry it to a future data then it is called carry over. The buyer will have to pay certain amount to the seller for this concession and the amount paid is known as Badla or contango charge.
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Different methods of settlement: At present, any one of the following methods can make the settlement: Spot settlement: Under this method, the delivery of securities and payment for them are affected on the date of the contract itself or on the next working day. Weekly settlement: Under this method, the delivery of securities and payments for them are settled within a time span of 7-14 days. Rolling settlement: Each settlement being and conclude on the same day i.e. on daily basis, the trading is Trading day (T) + 5 i.e. Monday is the trading day next Monday Pay-in date. In case of non-delivery the securities will go for auction. Clearing House: The exchange has set-up a clearing house to collect eh Securities from all the members and distributor to each member, all the Securities that are due to him in respect of every settlement. The whole of the operations of the clearinghouse is now computerized. Thus, trading o the Stock Exchange was officially done in the trading ring for a few hours from 9.55 am to 3.30 p.m .But now the opening bell will ring an hour earlier for Indian bourses. Trading will start at 9 am instead of the present 9.55 p.m the change in timing has become necessary as the settlement cycle will be further shortened to T+1. This means pay-in of shares and funds will take place the next day after trade. Since the back-office work of the brokering houses and clearing corporation will have to start early, to deal with the early settlement of trades, trading will also have to end earlier. The change I timing is needed to enable the exchanges to calculate the margin of each
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trading member and collect eh upfront margins on the value-at-risk (Vary) basis.
3.3 RECENT DEVELOPMENTS

The bumpy bull run in the stock markets has triggered a slowdown in the opening of new account by the depository participants (DPs). Faced with the sudden dip in the number of new account being opened the DPs are devising ways to attracts customers. On offer is Interactive Voice Response (IVR) for the latest update on demat accounts and services through the Internet. There is a 20% decline in the number of new account opening. Perhaps the volatility in the market has made investors worry. Analysts said there was booms in demat account opening as retail customers were riding high on the loans extended to pick up initial public offers. Most of these demat accounts are now dormant. Several DPs are planning to launch Interactive Voice Response (IVR) units and demat services on the Net, Through these IVR units , investor will be able to know the current value of their portfolio, current holdings, transaction list, etc. Some DPs are providing demat services on the Net to enable customer to access their account and get the holding and transaction statement on a daily basis. For eg: HDFC Bank.
Indian Stock Market Overview: The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchanges in India. In addition, there are 24 Regional Stock Exchanges. However, the BSE and NSE Have established themselves as the two leading exchanges and account for about 80 percent of the equity volume traded in India.
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The NSE and BSE are almost equal in size in terms of daily traded volume. The average daily turnover at the exchange has increased from Rs 851 crore in 1997-98 to Rs.2,273 crore in 1999- 2000 (April August 1999) and further to 3000 crore. NSE has around 1600 shares listed with a total market capitalization of around Rs 9, 21,500 crore. The BSE has over 6000 stocks listed and has a market capitalization of around Rs 9, 68,000 crore. Most key stocks are traded on both the exchanges and hence the investor could buy them on either exchange. Now both the exchange has same settlement cycle, which does not allow investors to shift their positions on the bourses. The primary index of BSE is BSE Sensex comprising 30 stocks. The BSE Sensex is the older and more widely followed index. Both these indices are calculated on the basis of market capitalization and contain the heavily traded shares from key sectors. The timing of trading hours starts from 9.55 am to 3.30 pm. The markets are closed on Saturdays and Sundays. The key regulator governing Stock Exchanges, Brokers, Depositories participants, Mutual Funds FIIs and other participants in Indian secondary and primary market is the Securities and Exchange Board Of India (SEBI) Ltd. The Indian stock market has the potential of becoming one of the most active in the world primarily on account of its retail investor base, listed and traded companies, if the efficient and inexpensive infrastructure is made available. India ranked top 10 countries in term of the market capitalization of its stock market. If you decide to operate through an exchange, you have to avail the services of a SECURITIES AND EXCHANGE BOARD OF INDIA registered broker/sub-broker. You have to enter into a broker-client agreement and file a client registration form. Since the contract note is a legally enforceable
document, you should insist on receiving it.
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You have the obligation to deliver the shares in case of sale or pay the money in case of purchase within the time prescribed. If you have opted for transaction in physical mode, in case of bad delivery of securities by you, you have the responsibility to rectify them or replace them with good ones. For securities in Physical mode, To effect a transfer in the physical mode the securities should be sent to the company along with a valid, duly executed and stamped transfer deed duly signed by or on behalf of the transferor (seller) and transferee (buyer). It would be a good idea to retain photo-copies of the securities and the transfer deed when they are sent to the company for transfer. It is essential that you send them by registered post with acknowledgement due and watch out for the receipt of the acknowledgement card. If you do not receive the confirmation of receipt within a reasonable period, you should immediately approach the postal authorities for confirmation. Sometimes, for your own convenience, you may choose not to transfer the securities immediately. This may facilitate easy and quick selling of the securities. In that case you should take care that the transfer deed remains valid. However, in order to avail the corporate benefits like the
dividends, bonus or rights from the company, it is essential that you get the securities transferred in your name. On receipt of your request for transfer, the company proceeds to transfer the securities as per provisions of the law. In case they cannot effect the transfer, the company returns back the securities giving details of the grounds under which the transfer could not be effected. This is known as Company Objection. When you happen to receive a company objection for transfer, you should proceed to get the errors/discrepancies corrected. You may have to
contact the transferor (the seller) either directly or through your broker for rectification or replacement with good securities. Then you can resubmit the securities and the transfer deed to the company for effecting the transfer. In case you are unable to get the errors rectified or get them replaced, you have
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recourse to the seller and his broker through the stock exchange to get back your money. However, if you had transacted directly with the seller originally, you have to settle the matter with the seller directly. Sometimes, your securities in physical form may be lost or misplaced. You should immediately request the company to record a stop transfer of the securities and simultaneously apply for issue of duplicate securities. For
effecting stop transfer, the company may require you to produce a court order or the copy of the FIR filed by you with the Police. Further, to issue duplicate securities to you, the company may require you to submit indemnity bonds, affidavit, sureties etc. besides issue of a public notice. You have to comply with these requirements in order to protect you own interest. For securities in demat mode: For transactions in demat mode you are requested to refer to the trading/settlement in depositories section. Whom to approach for Grievance Redressal ? There will be occasions when you have a grievance against the company in which you are a stake-holder. It may be that if you have opted for shares in physical mode, you have not received the share certificates on allotment or on transfer; it may be that you did not receive the dividend / interest warrant or refund order; perhaps you did not receive the annual accounts etc. while you would first approach the concerned company, Mutual Fund or Depository Participant (DP), as the case may be, you may not be satisfied with the companys response thereto.
DEPOSITORY SERVICES-BEGINNING OF THE ERA OF STOCKS AT CLICK
Today it is a practical reality that you can arrange delivery of securities (shares) sold anytime, anywhere to anyone by a click of the mouse and it is possible to trade in securities and settlement of the accounts from the convenience of a sitting room or via a laptop. This is made possible because of
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the Internet facility. The depository is responsible to deliver and receive securities trade at the stock exchange, which are the business partners of the depository. It does not deal with financial aspect of the settlement of the trade. Dematerialization of securities (shares) was the commencement of the era of stocks. The beginning was made in 1996, with legislation of the depository act 1996 and SEBI regulations 1996.
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4.1 Introduction
The Indian capital market witnessed an explosive growth between mid eighties and mid nineties. The total number of companies listed in the stock exchanges had grown by 72.3% fro006D 2729 in 4702 in 1995. The market capitalization of the companies listed with stock exchanges had gone up from Rs.21, 000 crores in 1985 to more than Rs.4, 50,000 crores in 1995.The secondary market trading activity also gathered momentum. There has been tremendous growth in secondary market trading at BSE and NSE. Other regional exchanges like Calcutta, New Delhi have also become active players in the market. This sudden growth had exposed the limitations of the system. The system used was not able to withstand the strain caused by the tremendous growth in the securities market. The entire securities market started experiencing a gridlock, posing obstacles in its growth. Moreover, this sudden growth has also magnified the risks that have always been plaguing the Indian system, viz., credit risk and systematic risk.. International institutional investors wanting to invest in India had become apprehensive about the reliability of the trade settlement mechanisms used in the country, which did not match international standards. Besides affecting the inflow of foreign capital, the lack of efficient settlement systems had affected all those operating in the stock market, be it institutional investors, individual investors or brokers. They suffered due to lost trading days (liquidity), lost scrips improperly paid dividends, mistaken registration, unnecessary financing cost, inappropriate risk like failure of counter party and fraud. ERA OF SCRIP LESS AND PAPERLESS TRADING: To sort out the above mentioned problems and to restore the investors confidence in the stock market the depository system was set up. It was against this background that the Government of India enacted the Depositories Act in 1996, which ushered an era of scrip less trading and settlement, efficient
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market infrastructure, investor protection, reduced risks and transparency of transaction in the securities market. DEPOSITORY ACT, 1996 The concept of Depository is known to the world since 1949 when the first depository was set up in Germany. There were 112 depositories in operation by the year 2001. Every depository operates under a countrys specific law and regulation in order to ensure safety, liquidity, rights and liabilities to the security holders. Depository: A depository is an organization where the securities of an investor are held in electronic form. A depository can be compared to a bank. To avail of the services of a depository, an investor has to open an account with the depository through a depository participant, just as he opens an account with the bank. Holding shares in the account is a kin to holding money in the bank Depository participant: A depository participant is an agent appointed by the depository and is authorized to offer depository services to all investors. An investor cannot directly open a demat account with the depository. An investor has to open his account through a DP only. The DP in turn opens the account with the depository. The DP in turn takes up the responsibility of maintaining the account and updating them as per the instructions given by the investor from time to time. The DP generates and provides the holdings statement from time to time as required by the investor. Thus, the DP is basically the interface between the investor and the depository. The person who holds a demat account is a beneficiary owner. In case of a joint account, the account holders will be beneficiary holders of that joint account.
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The demat account number of the beneficiary holder(s) is known as the BO Id. A DP id is the number of the depository participant allotted by the depository.
DEPOSITORY PARTICIPANTS IN INDIA At present, India has only two depositories-National Securities Depository Ltd. (NSDL) and Central Depository Services Ltd (CDSL). NSDL is the first depository in the county, which is promoted by three major financial institutions- Unit Trust of India. Industrial development, Bank of India and National Stock Exchange of India Limited. The second depository of the country (CDSL) is set up in 1999 by the Mumbai Stock Exchange and Bank of India However, most of the services offered by both these depositories are similar. Today almost all the companies listed in dematerialized from with NSDL are available with CDSL. FUNCTIONS OF DEPOSITORY: In the depository system, securities are held in depository accounts, which is more or less similar to holding funds in bank account. Transfer of ownership of securities is done through simple account transfers. This method does away with all the risks and hassles normally associated with paperwork. Consequently, the cost of transacting in a depository environment is considerably lower as compared to transacting in certificates. The depository system also allows distribution of dividends through the RBIs ECS system, whenever the participating company has agreed to such services. Other entitlements such as bonuses, split-ups are also directly effected by the depository into the investors account.
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The following can be held in the depository (electronic) form: Shares (listed or unlisted) Stocks Bonds Debentures RBI Relief Bonds Government Securities (through a primary Dealer) Units of Mutual Funds Commercial Paper Money Market Instruments
BENEFITS OF DEPOSITORY SYSTEM: In the depository system, the ownership and transfer of securities takes place by means of electronic book entries, which are facilitated by executing the demat request slip (which is similar to a cheque leaf) or through direct instruction system on the internet. The following are some of the benefits of depository system. Elimination of bad deliveries Elimination of all risks associated with physical certificates No stamp duty Immediate transfer and registration of securities Faster settlement cycle Faster disbursement of non-cash corporate benefits like rights, bonus etc. Reduction in brokerages by many brokers for trading in dematerialized securities. Reduction in handling of huge volumes of paper. Periodic status reports.
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Elimination of problems related to change of address of investor, transmission etc. Elimination of problems related to selling securities on behalf of a minor Ease in portfolio monitoring.
Safety concerns: There are various checks and measures in the depository system to ensure safety of the investor holdings. One is concerned as to dealing with individual depository participant. These concerns include: A DP can be operational only after registration by SEBI which is based on the recommendation from the depository and their own independent evaluation. SEBI has prescribed criteria for becoming a DP in the regulations. Depository Participant is allowed to affect any debit and credit to an account only on the basis of valid instruction from the client. Every day, there is a system driven mandatory reconciliation between participant and the depository. There are periodic inspections into the activities of both DP and R&T agent by the depository. This also includes records based on which the debit or credit are affected. The data interchange between depository and its business partners is protected by protection measures of international standards such as encryption hardware lock. The protection measures adopted by the depositories are in lines prescribed in the SEBI Regulations. All transactions are recorded at depositorys Central system and in the databases maintained by business partners. All investors have a right to receive their statement of accounts periodically from the DP.
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Every month the depository forwards statement of account to a random sample of investors as a counter check. In the depository, the depository holds the investor accounts on trust. Therefore, if the DP goes bankrupt the creditors of the DP will have no access to the holdings in the name of the clients of the DP. These investors can transfer their holdings to an account held with another DP. Certification in depository operations: The depository has introduced a certification program in depository operations, and it has been made compulsory for all DPs to appoint a person qualified in this certification in each of its branches. This way, NSDL wants to ensure that each branch of a DP that services investors has at least one person who has thorough knowledge about depository system.
Investor grievance: All grievances of the investors are to be resolved by the concerned business partner. If they fail to do so, the investor has the right to approach the depository.
Periodic Review: The hardware, software and communication systems are continuously reviewed in order to make them more secure and adequate for the size of business. These reviews area part of an ongoing exercise where in security considerations are given as much importance as operational efficiency.
OPENING A DEPOSITORY PARTICIPANT ACCOUNT: Individuals, companies, Trusts, Partnership firms, NRIs, HUF, Banks and Institutions are allowed to open a depository account with any depository through a depository participant. The investor would need to execute a standard form giving all his details, bank details, instruction details, nomination details
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and off-course photograph and signature. Along with this form, the investor would also have sign an agreement with the depository participant which usually forms a standard part of the account opening process. The details on the form have to be matched with a photocopy of the investors passport, driving license etc. to certify the mentioned details. If the investor is an NRI, then the client will have to provide overseas address, provide copy of RBI Approval, if any. The RBI Approval is not mandatory for opening of a DP. Account but is required to receive shares into the account when purchased through the secondary market.
4.2
DEMATERIALISATION
AND
REMATERIALIZATION
(DMAT AND REMAT):

Dematerialization is the process by which a client can get physical certificates converted into electronic balances maintained in its account with the DP. Securities held in dematerialized form are fungible, i.e. they do not bear any different features. An investor intending to dematerialize its securities needs to have an account with a DP. The client has to deface and surrender the certificates registered in its name to the DP. After intimating NSDL electronically, the DP sends the securities to the concerned Issuer/ R&T agent. NSDL in turn informs the Issuer/ R&T agent electronically, using NSDL Depository system, about the request for dematerialization. If the Issuer or R&T agent finds the certificates in order, it registers NSDL as the holder of the securities (the investor will be the beneficial owner) and communicates to NSDL the confirmation of request electronically. On receiving such confirmation, NSDL authorizes Credits to the relevant client account with the DP.
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FEATURES: Holdings in only those securities that are admitted for dematerialization by NSDL can be dematerialized.
Structure of holding in the securities should match with the account structure of the depository account.
If the same set of joint holders held securities in different sequence of names, these joint holders by using ' Transposition cum Demat facility' can dematerialize the securities in the same account even though share certificates are in different sequence of names. E.g. If there are two share certificates one in the name of X first and Y second and another in the name of Y first and X second, then these shares can be dematerialized in the depository account which is in any name combination of X and Y i.e., either X first and Y second or Y first and X second. Separate accounts need not be opened to demat each share certificate. If shares are in the name combinations of X and Y, it cannot be dematerialized into the account of either X or Y alone. Only those holdings that are registered in the name of the account holder can be dematerialized. Transfer cum demat scheme for some companies, which have provided for additional risk containment systems. Demat requests received from client (registered owner) with name not matching exactly with the name appearing on the certificates merely on account of initials not being spelt out fully or put after or prior to the surname, can be processed, provided the signature of the client on the Dematerialization Request Form (DRF) tallies with the specimen signature available with the Issuers or its R & T agent. A client may, in the normal course, receive demat
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confirmation in about 30 days from the date of submission of demat request to the DP. There are special processes for Securities issued by Government of India and simultaneous transmission and demat.
PROCEDURE: The client (registered owner) will submit a request to the DP in the Dematerialization Request Form for dematerialization, along with the certificates of securities to be dematerialized. Before submission, the client has to deface the certificates by writing "SURRENDERED FOR
DEMATERIALISATION". The DP will verify that the form is duly filled in and the number of certificates, number of securities and the security type (equity, debenture etc.) are as given in the DRF. If the form and security count is in order, the DP will issue an acknowledgement slip duly signed and stamped, to the client. The DP will scrutinize the form and the certificates. This scrutiny involves the following: Verification of Client's signature on the dematerialization request with the specimen signature (the signature on the account opening form). If the signature differs, the DP should ensure the identity of the client. Compare the names on DRF and certificates with the client account. Paid up status ISIN (International Securities Identification Number) Lock - in status Distinctive numbers
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In case the securities are not in order they are returned to the client and acknowledgment is obtained. The DP will reject the request and return the DRF and certificates in case: A single DRF is used to dematerialize securities of more than one company. The certificates are mutilated, or they are defaced in such a way that the material information is not readable. It may advise the client to send the certificates to the Issuer/ R&T agent and get new securities issued in lieu thereof. Part of the certificates pertaining to a single DRF is partly paid-up; the DP will reject the request and return the DRF along with the certificates. The DP may advise the client to send separate requests for the fully paid-up and partly paid-up securities. Part of the certificates pertaining to a single DRF is locked-in, the DP will reject the request and return the DRF along with the certificates to the client. The DP may advise the client to send a separate request for the locked-in certificates. Also, certificates locked-in for different reasons should not be submitted together with a single DRF. The DP will verify the nature of the security, its paripassu status with reference to the list of ISIN codes available with it. The allotment of ISIN must be verified at a second level. Wrong allocation may result in avoidable losses to the clients. The ISIN is entered in the space provided for it in the dematerialization request form. In case the securities are in order, the details of the request as mentioned in the form are entered in the DPM (software provided by NSDL to the DP) and a Dematerialization Request Number (DRN) will be generated by the system. The DRN so generated is entered in the space provided for the purpose in the dematerialization request form. A person other than the person who entered the data is expected to verify details recorded for the DRN. The request is then released by the DP
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which is forwarded electronically to DM (DM - Depository Module, NSDL's software system) by DPM. The DM forwards the request to the Issuer or R&T agent electronically. The DP will fill the relevant portion viz., the authorization portion of the demat request form. The DP will punch the certificates on the company name so that it does not destroy any material information on the certificate. The DP will then dispatch the certificates along with the request form and a covering letter to the Issuer or R&T agent. The Issue or R&T agent confirms acceptance of the request for dematerialization in his system DPM (SHR) and the same will be forwarded to the DM, if the request is found in order. The DM will electronically authorize the creation of appropriate credit balances in the client's account. The DPM will credit the client's account automatically. The DP must inform the client of the changes in the client's account following the confirmation of the request. The issuer or R&T may reject dematerialization request in some cases. The issuer or its R&T Agent will send an objection memo to the DP, with or without DRF and security certificates depending upon the reason for rejection. The DP/Investor has to remove reasons for objection within 15 days of receiving the objection memo. If the DP fails to remove the objections within 15 days, the issuer or its R&T Agent may reject the request and return DRF and accompanying certificates to the DP. The DP, if the client so requires, may generate a new dematerialization request and send the securities again to the issuer or its R&T Agent. No fresh request can be generated for the same
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securities until the issuer or its R&T Agent has rejected the earlier request and informed NSDL and the DP about it.
PRECAUTIONS: Holdings in those securities that have not yet been admitted for dematerialization by NSDL cannot be dematerialized. List of securities admitted for dematerialization should be verified before defacing the securities. Holdings in street name cannot be dematerialized. A new procedure is in place for transfer and demats to be done together. The combination of names of holders as printed on the physical certificate should be identical with the names initiating the dematerialization request. Separate dematerialization requests will have to be filled for locked-in and free holdings. Separate dematerialization requests will have to be filled for holdings locked-in for different reasons. Separate dematerialization requests will have to be filled for fully paid up and partly paid-up holdings. Separate dematerialization requests will have to be filled for holdings in the different ISINs of a company.
PROCEDURE FOR TRANSFERS AND DEMAT TO BE DONE TOGETHER: SEBI Guidelines for Dematerialization of shares sent for Transfer by the investors.
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STEPS FOR INVESTORS: Investors shall send shares of the company for transferring to their name. If the issuer is offering transfer-cum-demat facility, Investor will receive an option letter to dematerialize such shares. Investors exercising the option of dematerializing the shares shall
submit the following documents to the DP: Dematerialization Request Form (DRF) Original option letter received from the issuer or its registrar and Transfer Agent. STEPS FOR DPS: The words as mentioned in the letter have already been shall be inserted in place of the words are here by on the client portion of the Dematerialization Request Form (DRF) by the DP. The DP shall add the words an option letter in respect of after the words we here by acknowledge the receipt of in the acknowledgement portion of the DRF and return the counterfoil of the DRF to the investor duly signed and stamped. The DP shall add the words option letter in respect of after the words the application form is verified with the and replace the words option letter in place of the word certificates on the Participant Authorization portion of the DRF. The DP shall affix its seal and signature on the original option letter. The DP shall execute the request for dematerialization in the Depository Participant Module (DPM).
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The DP shall maintain records indicating the names of beneficial owners of the securities surrendered, the numbers of securities and other details of the certificate of securities sent for dematerialization. The DP shall dispatch the DRF along with the original option letter to the issuer or its Registrar and Transfer Agent and keep a copy here of for its records. DEMATERIALISATION OF SECURITIES: Every Client shall submit to the Participant the securities for dematerialization along with the Dematerialization Request Form (DRF). The participant other than from a registered holder of securities shall entertain no dematerialization request. The Participant shall first ensure that the certificates submitted by its Client for dematerialization belong to the list of securities admitted by the Depository as eligible for dematerialization. The Participant shall ensure that the DRF submitted by its Client is completely filled and duly signed. The Participant shall forward the DRF to the Issuer or its Registrar and Transfer Agent only after ascertaining that the number of certificates annexed with the DRF tallies with the number of certificates mentioned on the DRF. The Participant shall also verify the details of the certificates submitted for dematerialization with the details filled up in the corresponding DRF. The Participant shall ensure that the certificates submitted for dematerialization are marked by the Client with the words "Surrendered for Dematerialization" which should be at least four inches in length and one inch in width.
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The Participant shall ensure the safety and security of the certificates submitted for dematerialization till the certificates are forwarded to the Issuer or its Registrar and Transfer Agent. The Participant shall cancel the security certificates by drawing two parallel lines across the certificate and punch two holes on the company name on the security certificates in the manner laid down in Annexure E before forwarding the same to the Issuer or its Registrar and Transfer Agent. The Participant shall ensure that a separate DRF is filled in by the Client for securities having distinct International Securities Identification Numbers [ISINs]. The Participant shall ensure that a separate DRF is filled in by the Client for locked in and free securities having the same ISIN. The Participant shall ensure that the Client submits a separate DRF for each of its accounts maintained with the Participant. The securities which have been dematerialized shall be credited to the accounts maintained with a Participant only when the pattern of holdings in the account of the Client matches with the pattern of holdings as per the security certificates. In the case of securities which have been submitted for dematerialization for which any objection memo has been received from the Issuer or its Registrar and Transfer Agent, the Participant shall facilitate the correction of such objections on a timely basis. In case of a public or rights issue with respect to a security which has been admitted to the Depository to be held in dematerialized form, the Issuer or its Registrar and Transfer Agent shall provide the Clients with the facility to indicate their option between electronic and physical holdings in the share application form.
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In the case of such issue in electronic form as specified above, the account of the Client maintained with the Participants shall be credited with such securities issued only when the pattern of holdings of such account matches with the pattern of application of the Client in the form specified above. Further to the Rules 11.1.1 to 11.1.16 above, the Participant shall process the request for dematerialization of shares sent for transfer as per the procedure prescribed in the Guidelines for dematerialization of shares sent for transfer issued by the Securities and Exchange Board of India. The Depository may notify from time to time the ISINs, which will be eligible for dematerialization under the said Guidelines.
4.3
ONLINE BROKERING GLOBAL SCENARIO

The Internet has revolutionized the brokerage industry. Online
brokerage has grown substantially since the introduction of Internet and now account for 33% of retail trade. This change has come in because individual investors want to increase control over their finances and do not want someone else to manage the money. American workers have realized that social security will no longer be enough to provide for retirement and corporate security. It has moved away from definite benefit penetration due to substantially lower commission structure. The average commission per trade has declined from $50 in mid 1996 to $18 in1999 and further to $15 in 2002. Online trade, which NOW account for 40% of all retail trade, is forecasted to increase to 75% by 2008. At present online brokers hold $3trillion. In assets but this figure is expected to grow to $7 trillion by end of
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2008. The key online players include Charles Schwad, E trade, TD water house and Datek. The market has become saturated and very competitive. As number of players increased it becomes very difficult to deferentiate themselves. The volatility in US equity, market in 1999 and September 11 World Trade Center attack has hurt the online brokerage trading volumes. Until now the major player havent had much to fear mostly because technologies are difficult to mater. Established E-brokerage firms have created barier to entry (Economies of scale and brand name) that makes it difficult for new player to enter the market. The next bear market will consolidate the industry and will reduce the number of players.
4.4
INDIAN E-BROKERING SCENARIO

The Indian stock broking business has gone through a sea change. From
that of a business dominated by few individual players to institutional members, as did trading open outcry and hidden deeds to screen based and transparency. Online trading has become very popular in last couple of years because of convenience of ease of use. Numerous companies have gone on-line to meet their customers demands enabling them to trade when they want and how they want to. India enters the cyber trading era to equal the current market trends taking into consideration the need to facilitate inflow of funds in the capital market. The trading system will enable all categories of investors, resident and non-resident Indian, to trade online. Online trading has basically replaced a phone call with Internet. Online brokerage in India is still in its early days. Though the trade through online broking is very miniscule compare to total trading, the signs are that it will grow to 20% to 25% YOY.
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EFFECT ON OFF-LINE BUSINESS With the emergence of e-broking, which offers many benefits like, level playing filled to all investors, comfort of the house, simplicity, low brokerage and value added services it could be possible for some of the offline trade to shift to online trade. The proportion of online broking business compare to off line broking is miniscule about less than 1%. The offline player would not be affected unless the figure reaches a minimum of 8-10%. More importantly on line broking is said to have brought in a whole new segment of investors. These are the hidden investors who did not have a dedicated broker. Online trade has not started to eat the volumes of, off line business till now. But at he same time it has created new set of clients for e.g., NRIs who were not very active in the market due to lack of transparency and information, have moved to use this facility. Housewives are another new category. Net savvy students and retired persons are the next expected category. But a question is still there, those who get value added services from broker will continue to stay offline and those that are like any other normal retail investors, will have no hesitation to shift to online trading. The fact is that over a few years you would see more non-professionals getting to access to the market. Ebroking has eaten the share of offline broking business especially into the sub broking where the same investors used to go and get whatever services he provided at rate since they would no longer be taken for a right, online trading is transparent.
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5.1 Statement of the problem:

Analysis of online trading and dematerialization The Indian capital market is punctuated with constant influx of huge number of new securities. The serious risk associated with paper based settlement system were bad deliveries, delays in transfer and registration, mutilation, loss, forgery and theft of certificates. The electronic trading introduced by the NSE to a large extent stream lined trading activities. However, physical mode continued. This resulted in the establishment of multi depositories by the 'Depositories Act'. The Depository Act" brought in dematerialization of securities custody and trading in electronic book entry form scrip less trading paved the way to a paper free market that rid the stock market of the mundane problems that were inevitable in a paper based market. Scope of the study: According to the data collected from the various books, journals, electronic media, and personal interviews, the study was done with respect to: Evolution and regulations of the stock market On-line share trading procedure Dematerialization and Re-materialization of shares Analysis of the profiles of Demat users
Nature of the study: Stock exchanges are the integral part of the capital market. It is the most perfect type of market for securities whether of government bodies or other public bodies as for shares and debentures issued by the joint stock enterprise. Stock exchange provides liquidity to the listed companies they give quotations to the listed companies and help in trading, raising funds from the
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market stock. Exchange provides ready marketability and unequalled facility for the transfer of ownership of stock shares and securities. The official GDP growth, build-up of foreign exchange, agriculture due to adequate monsoon, trade figures, trade relations with neighboring countries, regulatory and policy initiatives which makes stock market considerably safer, a revival in the new issue market, which is vital to capital formation, corporate performance, fundamentals and not by speculative forces alone are some of the factors boosting the confidence of the investors in the stock market. Thus, stock market is important because it allows companies to raise money to conduct the business of the corporation, and thus affect the economy of the country.
5.2: Objectives of the study:

To study the traditional and present trading system To study on-line share trading To study about depositories and dematerialization of shares To study about re-materialization of shares Mode of settlement To study the profile of Demat users To study the progress, performance, grievances and to suggest the remedial measures. Due to time constraint and according to the data available a brief study was done.
5.3 Research Design:

The present study was based on an exploratory research design to understand the working of Online Trading and Dematerialization in Indian stock market, conducted in a systematic manner.
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Sampling Design: The sampling units were authorized clerks and members of the Exchange. The samples were selected using convenience sampling. The sample size was 100 members of the Exchange. Collection of data: The data used is collected from two sources that include primary data and Secondary collection data: Primary data: Data obtained from personal discussions with the authorized clerks, and personal interviews with the members of the Exchange. Secondary data: Data collected from the news magazines of the NSE. Different books relating to the issue of the study. Information available from various websites.
5.4 Limitation of study:

The Indian capital market is punctuated with constant influx of huge
number of new securities. The serious risk associated with paper based settlement system were bad deliveries, delays in transfer and registration, mutilation, loss, forgery and theft of certificates.
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6.1 PROFILE OF THE RESPONDENTS

The interviews with the respondents resulted in the follows: (1) What is your time horizon in investment? Table 3 Number of investors Time horizon of investment
short-term long term
50 50 100
Graph 1
100% 80% 60% 40% 20% 0% short trem long term time horizon of investment
Interpretation: The table above shows that 50% of investors prefer short term horizons of investment And the rest of investors prefer long term horizons. The sample size taken was 100 investors.
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(2) What is the amount you have invested? Table 4 Number of investors Investment amount < Rs. 50,000 Rs. 50,000 - 2,00,000 > Rs. 2,00,000 55 18 27 100
Graph 2
60 50 40 30 20 10 0 < Rs. 50,000 Rs. 50,000 > Rs. - 2,00,000 2,00,000
amount of investment
Interpretation Out of the 100 investors 55 % of them have invested up to Rs. 50,000. 18% of them have invested Rs. 50,000-Rs.2,00,000. And 27% of them invested more than 2,00,000.
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(3) What is your preferred trading interval? Table 5 Number of investors daily Trading interval weekly fortnightly rarely 23 30 32 15 100
Graph 3
40 30 20 10 0 daily fortnightly trading interval
Interpretation: Out of 100 investors 32% of the investors prefer to trade fortnightly and 30% prefer weekly. 23% of the investors trade daily. And where as 15% rarely trade.
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(4) Which do you prefer: Off-line trading or On-line trading? Table 6 number of investors preference of mode of Offtrading line
40
On-line 60 100
Graph 4
60 40 20 0 Off-line On-line preference of mode of trading
Interpretation:
As shown in the above graph majority of the investors prefer to trade online.
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6.2 HYPOTHESIS TESTING

A Statistical hypothesis is some assumption or statement , which may or may not be true, about a population or equivalently about the probability distribution characterizing the given population , which we want to test on the basis of the evidence from a random sample. (1) Time horizon: H0: Preference of mode of trading is not related to time horizon of the investor. H1: Preference of mode of trading is related to time horizon of the investor. The variables were cross-tabulated, and the following were the results: Table 7 preference of mode of trading
Off-line Type of investor shortterm long term
On-line
TOTAL
(a)
43
(b)
50
(a+b)
33 40
(a+c)
(c)
17 60
(d) (b+d)
50 (c+d) 100
N (ab-bc)2 / (a +b) (b+d)(a+b)(c+d)
= 28.166667 The chi-square test was used to verify the hypothesis, and the calculated value obtained was 2cal = 28.166667, with p-value = 0.00000011305. Thus, it can be concluded that there is a significant statistical relationship between time horizon of the investor and preference of mode of trading: generally, short-term
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investors preferred On-line trading, while long-term investors preferred Offline trading. (2) Investment amount: H0: Preference of mode of trading is not related to the amount invested by the investor. H1: Preference of mode of trading is related to the amount invested by the investor.
The variables were cross-tabulated, and the following were the results: Table 8 preference of mode of trading
Off-line Investment amount
On-line
Total
< Rs. 50,000 Rs. 50,000 2,00,000 > Rs. 2,00,000
14
41
55
8 18 40
10 9 60
18 27 100
2
Where, O= observerd E = expected E(14) = (55*40)/100 = 22 E(18) = (27*40)/100 = 10.8 E(10) = (18*60)/100 = 10.8
E(8) = (18*40)/100 = 7.2 E(41) = (55*60)/100 = 33 E(9) = (27*60)/100 = 16.2

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So,
2 =[(14-22)2/ 22] + [(41-33)2/ 33] +[(8-7.2)2/ 7.2] + [(10-10.8)2/ 10.8] + [(18-10.8)2/ 10.8] + [(9-16.2)2/ 16.2]
= 12.996633
The chi-square test was used to verify the hypothesis, and the calculated value obtained was 2cal = 12.996633, with p-value = 0.001505972. Thus, it can be concluded that there is a significant statistical relationship between the amount invested by the investor and preference of mode of trading: generally, small investors preferred On-line trading, medium investors roughly equally preferred On-line and Off-line trading, while large investors preferred Off-line trading. (3) Trading interval: H0: Preference of mode of trading is not related to trading interval preferred by the investor. H1: Preference of mode of trading is related to trading interval preferred by the investor. The variables were cross-tabulated, and the following were the results: Table 9 preference of mode of trading Off-line daily Trading interval weekly fortnightly rarely 7 8 15 10 40 On-line 16 22 17 5 60 23 30 32 15 100
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2
Where, O= observerd E = expected E(7) = (23*40)/100 = 9.2 E(8) = (30*40)/100 = 12 E(15) = (32*40)/100 = 12.8 E(10) = (15*40)/100 = 6
E(16) = (23*60)/100 = 13.8 E(22) = (30*60)/100 = 18 E(17) = (32*60)/100 = 19.2 E(5) = (15*60)/100 = 9
So,
2 =[(7-9.2)2/ 9.2] + [(16-13.8)2/ 13.8] + [(8-12)2/ 12] + [(22-18)2/18] + [(15-12.8)2/ 12.8] + [(17-19.2)2/19.2] +[(10-6)2/ 6] +[(5-9)2/ 9] = 8.173686594 The chi-square test was used to verify the hypothesis, and the
calculated value obtained was 2cal = 8.173686594, with p-value = 0.04255525. Thus, it can be concluded that there is a significant statistical relationship between the trading interval preferred by the investor and preference of mode of trading: generally, investors who preferred daily trading and weekly trading preferred On-line trading, investors who preferred fortnightly trading roughly equally preferred On-line and Off-line trading, while investors traded rarely preferred Off-line trading. Conclusion: Thus, from the above tests, it can be concluded that the main users of On-line trading are short-term, small investors, who prefer daily/weekly trading.
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FINDINGS:
After the introduction of dematerialization the stock market become more transparent and it attract more investors day by day.. When the number of users is more on line, the speed of the transaction is affected. Some securities have not started Interactive Voice Response (IVR) units and demats on net. Even through online trading provides privacy to the clients, trends available from the trading room will not help most of the online traders. Those who are dealing through online must possess good knowledge for analyzing the information passing by the companies through net. Short-term investors preferred On-line trading, while long-term investors preferred Off-line trading. Small investors preferred On-line trading, medium investors roughly equally preferred On-line and Off-line trading, while large investors preferred Off-line trading. Investors who preferred daily trading and weekly trading preferred On-line trading, investors who preferred fortnightly trading roughly equally preferred On-line and Off-line trading, while investors traded rarely preferred Off-line trading. The main users of On-line trading are short-term, small investors, who prefer daily/weekly trading.
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SUGGESTIONS:
Online trading is beneficial to investors but it is very expensive, so, the organizations should provide the depository services with low cost.
Since more and more companies are planning to enter into online trading, quality of service should be continuously updated.
Companies have to offer Interactive Voice Response (IVR) facility to its clients since it will help clients to know the current value of their portfolio, current holding, transaction list etc.
Clients will be more happy if they can access demat account reports through net.
Online professional assistance will be helpful to investors. It will increase the customer base in online because it will be helpful to those who are not very much aware of the market trends.
Since the number of customers is increasing, online facility always to be updated. Other wise speed of the system will be affected.
It is important to maintain a very good relationship with the partners-banks, depositories.It is important to have good relation with the channel participants and the sub brokers. There should be responsibility and accountability.
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As the whole set up is getting sophisticated, and one is moving from offline to online the war and the differentiated factor could be technology. One has to constantly innovate and offer better products.
Target the new hidden customers, for whom the net can bring out convenience and comfort like NRI, women, Young executives,
professionals etc.
It is very important to educate and train the customer on the use and limitation of your services. This helps him to have a realistic expectation of the use.
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BIBLIOGRAPHY
BOOKS REFERRED:
Investment Management Financial Systems of Services
Avadani Khan and Jain
NEWS PAPERS:
Economic times Business Line Business Standard Old Reports
WEBSITES VISITED:
www.nsdl.co.in www.cdsl.com www.nseindia.com www.google.com www.bseindia.com www.sebi.gov.in
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ANNEXURE
QUESTIONNAIRE
I (PRESHKUMAR R. DETROJA, 4th SEM, MBA{industrial interactive}) am the student of T.JOHN BUSINESS SCHOOL, Bangalore conducting a survey to know your perception towards MOTILAL OSWAL SECURITIES LTD.. Kindly extent your cooperation in filling this questionnaire and enable me to do this project work successfully. I will be grateful if you spare a few minutes and answer the questions below:-
1. Name of the investor: 2. Address and Website:
3. Nature of occupation: 4. Income 5. Do you invest in securities: 6. Amount of investment: a) yes b) no
a) < Rs.50000 b) Rs.50000 Rs.200000
c) > Rs.200000 7. what is your investment horizon: a) short term b) long term
8. What is your preferred trading interval?
a) Daily
b) Weekly
c) Fortnightly d) Rarely
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9. What is your preferred mode of trading? a) Online b) Offline
10. Rate the advantages you perceive in the On line system? a) Cost savings b) Time saving 11. c) Convience d) Security
What are the difficulties you have faced in using the Demat system? . .
12. What would you suggest to improve the Demat system? .
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DEPOSITORY SERVICES-BEGINNING OF THE ERA OF STOCKS AT CLICK

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E(8) = (1840)/100 = 7.2 E(41) = (5560)/100 = 33 E(9) = (27*60)/100 = 16.2