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Sample of Title/ cover page A SUMMER INTERNSHIP REPORT ON (TOPIC)

Submitted to L.J. Institute of Management Institute/ L.J. Institute of Computer Application/ L.J. Institute of Engineering and Technology ( Please write as applicable)

In requirement of partial fulfillment of Masters of Business Administration(MBA) 2 year full time Program of Gujarat Technological University

Submitted on: 14th July 20___ Submitted by:

Students Name Enrolment number Batch No.: 20__ - __

OVERVIEW
JM Financial is an integrated financial services group, offering a wide range of services to a significant clientele that includes corporations, financial institutions, high networth individuals and retail investors. The company has interests in investment banking, institutional equity sales, trading, research and broking, private and corporate wealth management, equity broking, portfolio management, asset management, NonBanking Finance Company activities, private equity and asset reconstruction. JM Financial Services Private Ltd is the dedicated financial services arm of in India, offering comprehensive investment advisory and investment management services to institutions, banks, corporate, ultra high networth individuals and Family offices.

the JM Financial Group. JM Financial are one of the largest brokerage firms

With more than three decades of experience & expertise in managing wealth, the company offer clients guidance to grow, protect & transfer their wealth. An exclusive level of personal attention, research capabilities and indepth capital market expertise enables the company to design and execute customized investment solutions for our clients. Company provides comprehensive financial planning, research based investment consulting services and execution capabilities.

What Company Does


The Company is among the largest distributors of third party products (Mutual funds/IPO). The company has a strong network of more than 25,000 IFAs spread across India. The company facilitates client transactions with a diverse group of financial institutions, investment funds, governments and individuals, trading of and investing in fixed income and equity products and derivatives on these products. The company facilitate client transactions with a diverse group of financial investing in fixed income and equity products and derivatives on these products

institutions, investment funds, governments and individuals, trading of and

JMs VISION
To be the most trusted partner for every stakeholder in the financial world.

Its VALUES
The company has always sought to be a valuedriven organization, where our values direct our growth and success.

Integrity:- The Company adheres to moral and ethical principles


everything they do as professionals, colleagues and corporate The companys reputation based on high standards of integrity is invaluable.

citizen

Teamwork:- The Company believes extensive teamwork is what makes it


possible for them to work together towards a common goal. The Company value and respect each individual's commitment to group effort.

Client Focus:- The Company always put the interest of our clients before
our own. They understand their client needs, seek new opportunities for them, address them and deliver unique solutions as per their expectations. success of their clients is the biggest reward for the company. The

Innovation: - The Company understands their clients' needs and develop


solutions for the most complex or the simplest, the biggest or the smallest financial transactions, whether for individuals or institutions. Creativity and innovation are key factors to everything company does. The company

encourages new ideas, which help us address unique opportunities.

Implementation: - Companys expertise, experience and its continuous


focus on the quality of execution ensures effective implementation of our strategies

Performance: - The Company believes in development of our people and


continuously hones our skills, setting higher targets of performance for ourselves. The company strives to attract, develop and retain the best talent. JM Financial recognize and reward talent based on merit.

Partnership:- J Ms relationships with all our stakeholders reflect its spirit


of partnership. Clients see company as trusted advisors, shareholders see us as partners and employees see the company as family. JM Financial respect trust and support all our stakeholders.

Its PHILOSOPHY
The company believes selftrust is the first step towards trusting others. Its philosophy is to provide advisory services to make your investments as successful as you.

For JM Financial anything worth doing is worth doing well.

Its Belief
Earning trust is a process (it can be gained and lost every day!) Sharing trust creates great teams (whether between employees or organizations) Being trustworthy is the most efficient way of generating and retaining longterm business

FUNCTION/OPERATIONS

Market Segments

Securities markets provide a channel for allocation of savings to those who ha a productive n e e d f o r t h e m . The s e c u r i t i e s market h a s t w i n t e r d e p e n d e n t a n d inseparable segments: (1)Primary market (2) Secondary market

Primary market

MARKET SEGMENT

IPO/RETAIL FUNDING

PMS

MUTUAL FUNDS

GOVERNMENT SECURITY

IPO / RETAIL FUNDING

Under Companies Act, 1956, an issue is referred as public if it results in allotment of securities to 50 investors or more. However, when the issu makes an issue of securities to a select group of persons not exceeding 49 and which is a right do not issue nor a public issue it is called a private placement. The company is leading firm in ipo(initial public offer) retail funding. The company started its financing activities with IPO financing and is an active player in the IPO financing segment catering to the high net worth individuals category.

The company decided the margin according to the credentials of the issue.

The company collects the margin from the customer and makes rest of the payment it provides ease for the clients to subscribe for issue without having full amount of money.

PMS (portfolio management services)

PMS gives investors access to an institutional process of money manageme Provides a customized solution by matching the unique circumstances and objectives of each investor.

Wealth creation based on disciplined investment process is the crux of PMS Effective diversification helps reduce portfolio volatility and enhances riskadjusted returns over long term PMS gives investor direct ownership of the individual securities in the portfolio

MUTUAL FUND

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund.

Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, minimizing risk & maximizing returns.

GOVERMENT SECURITY

The Government securities comprise dated securities issued by the Government of India and state governments as also, treasury bills issued by the Government of India. Reserve Bank of India manages and services these securities through its public debt offices located in various places as agent of the Government.

Government Securities are mostly interest bearing dated securities issued b RBI on behalf of the Government of India. GOI uses these funds to meet its expenditure commitments. These securities are generally fixed maturity and fixed coupon securities carrying semi-annual coupon. Since the date of maturity is specified in the securities, these are known as dated Government Securities,

e.g. 8.24% GOI 2018 is a Central Government Security maturing in 2018, which carries a coupon of 8.24% payable half yearly.

Secondary market
Secondary market refers to a market where securities are traded after being offered to the public in the primary market or listed on the Stock Exchange. Secondary market comprises of equity, derivatives and the debt markets. The secondary market is operated through two mediums, namely, the Over-the-Counter (OTC) market and the Exchange-Traded market. OTC markets are informal markets where trades are negotiated .

MARKET SEGMENT

WHOLESALE DEBT MARKET

CAPITAL MARKET

FUTURE & OPTIONS

CURRENCY DERIVATIVE

Wholesale Debt Market (WDM) Segment:


This segment at NSE commenced its operations in June 1994. It provides the trading platform for wide range of debt securities which includes State and Central Government securities, T-Bills, PSU Bonds, Corporate debentures, Commercial Papers, Certificate of Deposits etc.

Capital

Market

(CM)

Segment:

This segment at N S E c o m m e n c e d its operations in November 1994. It offers a fully automated screen based trading system, known as the National Exchange for Automated Trading (NEAT) system. Various types of securities e.g. equity shares, warrants, debentures etc. are traded on this system.

Futures & O p ti on s ( F&O) S e g m e n t :


This s e g m e n t p r o v i d e s t r a d i n g i n derivatives instruments like index futures, index options, stock options, and stock futures, and commenced its operations at NSE in June 2000.

Currency D e r i v a t i v e s S e g m e n t ( CDS)

Segment:

This s e g m e n t a t N S E commenced its operations on August 29, 2008, with the launch of currency futures trading in US DollarIndian Rupee (USD-INR). Trading in other currency pairs like Euro-INR, Pound Sterling-INR and Japanese Yen-INR was further made available for trading in February 2010. Interest rate futures was another product made available for trading on this segment with effect from August 31, 2009.

DERIVATIVES
The term derivatives are used to refer to financial instruments which derive their value from some underlying assets. The underlying assets could be: 1. Equity 2. Debt (bonds, T bills, notes) 3. Currency 4. And even indices of these various assets such as Nifty 50 index.

PURPOSE OF DERIVATIVES:

The basic purpose of derivatives is to transfer the price risk (inherent in fluctuations of the asset prices) from one party to another.

They facilitate the allocation of risk to those who are willing to take it.

E.g.: On Nov 1, 2009 a rice farmer may wish to sell his harvest at the future date (say Jan 1, 2010) for a predetermined fixed price to eliminate the risk of change in prices by that date. Such a transaction is an example of a derivatives contract. The price of derivatives contract is driven by the spot price of rice which is the underlying.

ORIGIN OF DERIVATIVES:

The earliest evidence of derivatives can be traced back to ancient Greece. Derivatives were is existence in some or the other form since ancient time. The advent of modern day derivatives was attributed to protect farmers against decline in crop prices.

The securities contract (regulation) act, 1956 defines derivatives to include:

I.

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

instrument, or contract for difference or any other form of security II. A contract which derives its value from the price or index of price of underlying security

The first step towards introduction of derivatives trading in India was the on promulgation Options to in of The which Securities withdrew market The Laws the for no the (Amendment) prohibition regulatory SEBI set Ordinance, 1995,

securities.

derivatives, however, did not take off, as there was framework up a govern member trading 24 Committee under

of derivatives.

Chairmanship of Dr.L.C.Gupta on November 18, 1996 to develop appropriate regulatory framework for derivatives trading in India. The committee submitted its report on March 17, 1998 prescribing necessary pre conditions for introduction of derivatives trading in India. The committee declared as recommended securities so that that derivatives regulatory should be framework

applicable to trading of securities could also govern trading of securities. SEBI also set up a group in June 1998 under the Chairmanship of Prof.J.R.Varma, to recommend measures for risk containment in derivatives market in India. The report, which was submitted in October 1998, worked out the operational details of margining system, charging initial margins, broker net methodology worth, for deposit

requirement and realtime monitoring requirements. The Securities Contract Regulation Act (SCRA) was amended in December 1999 to include derivatives within the ambit of securities and the regulatory framework were developed for governing derivatives trading. The act also made it clear that derivative shall be legal and valid only if such contracts are

traded on a recognized stock exchange, thus precluding OTC derivatives. The government also rescinded in March 2000, the three decade old notification, which prohibited forward trading in securities.

Derivatives trading commenced in India in June 2000 after SEBI granted the final approval to this effect in May 2001. SEBI permitted the derivative and BSE, segments and of their two stock exchanges, NSE clearing

house/corporation to commence trading and settlement in approved derivatives contracts. To begin with, SEBI approved trading in index futures contracts based on S&P CNX Nifty and BSE30(Sensex) index. This was followed by approval for trading in options based on these two indexes and options on individual securities. The trading in BSE Sensex options commenced on June 4, 2001 and the trading in options on individual securities commenced in July 2001. Futures contracts on individual stocks were launched in November 2001. The derivatives trading on NSE commenced with S&P CNX Nifty Index futures on June 12, 2000. The trading in index options commenced on June 4, 2001 and trading in options on individual securities commenced on July 2, 2001. Single stock futures were launched on November 9, 2001. The index futures and options contract on NSE are based on S&P CNX Trading and settlement in derivative contracts is done in accordance with the rules, byelaws, and regulations of the respective exchanges and their clearing House/corporation duly approved by sebi and and notified in the official gazette. Foreign Institutional Investors (FIIs) are permitted to trade in all Exchange traded derivative products

The following are some observations based on the trading statistics provided in the NSE report on the futures and options (F&O): Singlestock futures continue to account for a sizable

proportion of the F&O segment. It constituted 70 per cent of the total turnover during June 2002. A primary reason attributed to this phenomenon is that traders are comfortable with singlestock futures than equity options, as the former closely resembles the erstwhile badla system.

On relative terms, volumes in the index options segment continues to remain poor. This may be due to the low volatility of the spot index. Typically, options are considered more valuable when the volatility of the underlying (in this case, the index) is high. A related issue is that brokers do not earn high commissions by recommending index options to their clients, because low volatility leads to higher waiting time for roundtrips.

Put volumes in the index options and equity options segment have increased since January 2002. The callput volumes in index options have decreased from 2.86 in January 2002 to 1.32 in June. The fall in callput volumes ratio suggests that the traders are increasingly becoming pessimistic on the market. Farther month futures contracts are still not actively traded. Trading in equity options on most stocks for even the next month was nonexistent.

Daily option price variations suggest that traders use the F&O segment as a less risky alternative that the option premiums tail (read substitute) stock prices to is generate profits from the stock price movements. The fact intraday evidence to this. Calls on Satyam fall, while puts rise when Satyam falls intraday.

If calls and puts are not looked as just substitutes for spot trading, the intraday stock price variations should not have a onetoone impact on the option premiums.

TYPES OF DERIVATIVES

DERIVATIVES
FUTURE OPTIONS FORWARD SWAPS

(1)Forward contracts
A forward contract is one to one bi-partite contract, to be performed in the future, at the terms decided today. (E.g. forward currency market in India). Forward contracts offer tremendous flexibility to the parties to design the contract in terms of the price, quantity, quality (in case of commodities), delivery time and place. Forward contracts suffer from poor liquidity and default risk.

(2)Future contracts

Contracts are organized/ standardized contracts, which are traded on the exchanges. These contracts, being standardized and traded on the exchanges are very liquid in nature. In futures market, clearing corporation/ house provides the settlement guarantee.

Features
Operational Mechanism Contract Specifications

Forward Contract
Not traded on exchange Differs from trade to trade.

Future Contract
Traded on exchange Contracts are standardized contracts. Exists, but assumed by Clearing Corporation/ house. Very high Liquidity as contracts are standardized contracts. Better; as fragmented markets are brought to the common platform.

Counterparty Risk

Exists Poor Liquidity as contracts are tailor maid contracts.

Liquidation Profile

Price Discovery

Poor; as markets are fragmented.

(COMPARISION BETWEEN FUTURE AND FORWARD CONTRACT)

(3)OPTIONS
Options are instruments whereby the right is given by the option seller to the option buyer to buy or sell a specific asset at a specific price on or before a specific date. OPTIONS CALL OPTION PUT OPTION

TERMINOLOGY
Option Seller - One who gives/writes the option. He has an obligation to perform, in case option buyer desires to exercise his option. Option Buyer - One who buys the option. He has the right to exercise the option but no obligation. Call Option - Option to buy. Put Option - Option to sell.

American Option - An option which can be exercised anytime on or before the expiry date.

European Option - An option which can be exercised only on expiry date. Strike Price/ Exercise Price - Price at which the option is to be exercised. Expiration Date - Date on which the option expires. Exercise Date - Date on which the option gets exercised by the option holder/buyer. Option Premium - The price paid by the option buyer to the option seller for granting the option. In the money options: An in the money option is an option that would lead to a positive cash flow to the holder if it were exercised immediately. A call option on the index is said to be in the money when the current index stands at a level higher than strike price (i.e. spot price > strike price). If the index is much higher than strike price the call is said to be deep in the money. In the case of put the put is in the money if the index is below than strike price.

At the money options: At the money option is an option that would lead to zero cash flow if it were exercise immediately. An option on the index is at the money when the current index equals the strike price (i.e. spot price = strike price).

Out of the money options: An out of the money is an option that would lead to negative cash flow if it were exercise immediately. A call option on the index is out of the money when the current index stands at a level which is less than strike price (i.e. spot price < strike price). If the index is much lower than strike price the call is said to be deep out of the money.

(4) SWAPS:Swaps are transactions which obligates the two parties to the contract to exchange a series of cash flows at specified intervals known as payment or settlement dates. They can be regarded as portfolios of forward's contracts. A contract whereby two parties agree to exchange (swap) payments, based on some notional principle amount is called as a SWAP. In case of swap, only the payment flows are exchanged and not the principle amount. The two commonly used swaps are: INTEREST RATE SWAPS: Interest rate swaps is an arrangement by which one party agrees to exchange his series of fixed rate interest payments to a party in exchange for his variable rate interest payments. The fixed rate payer takes a short position in the forward contract whereas the floating rate payer takes a long position in the forward contract. CURRENCY SWAPS: Currency swaps is an arrangement in which both the principle amount and the interest on loan in one currency are swapped for the principle and the interest payments on loan in another currency. The parties to the swap contract of currency generally hail from two different countries. This arrangement allows the counter parties to borrow easily and cheaply in their home currencies. Under a currency swap, cash flows to be exchanged are determined at the spot rate at a time when swap is done. Such cash flows are supposed to remain unaffected by subsequent changes in the exchange rates. FINANCIAL SWAP:

Financial swaps constitute a funding technique which permit a borrower to access one market and then exchange the liability for another type of liability. It also allows the investors to exchange one type of asset for another type of asset with a preferred income stream. The other kind of derivatives, which are not, much popular are as follows: (5)BASKETS Baskets options are option on portfolio of underlying asset. Equity Index Options are most popular form of baskets

(6)LEAPS Normally option contracts are for a period of 1 to 12 months. However, exchange may introduce option contracts with a maturity period of 2-3 years. These long-term option contracts are popularly known as Leaps or Long term Equity Anticipation Securities (7)WARRANTS Options generally have lives of up to one year, the majority of options traded on options exchanges having a maximum maturity of nine months. Longer-dated options are called warrants and are generally traded over-thecounter. (8)SWAPTIONS Swaptions are options to buy or sell a swap that will become operative at the expiry of the options. Thus a swaption is an option on a forward swap. Rather than have calls and puts, the swaptions market has receiver swaptions and payer swaptions. A receiver swaption is an option to receive fixed and pay floating. A payer swaption is an option to pay fixed and receive floating

FREQUENTLY USED TERMINOLOGY IN INDEX FUTURE MARKET

Contract Size - The value of the contract at a specific level of Index. It is Index level * Multiplier. Multiplier - It is a pre-determined value, used to arrive at the contract size. It is the price per index point. Tick Size - It is the minimum price difference between two quotes of similar nature. Contract Month - The month in which the contract will expire. Expiry Day - The last day on which the contract is available for trading. Open interest - Total outstanding long or short positions in the market at any specific point in time. As total long positions for market would be equal to total short positions, for calculation of open Interest, only one side of the contracts is counted. Volume - No. of contracts traded during a specific period of time. During a day, during a week or during a month. Long position- Outstanding/unsettled purchase position at any point of time. Short position - Outstanding/ unsettled sales position at any point of time. Open position - Outstanding/unsettled long or short position at any point of time. Physical delivery - Open position at the expiry of the contract is settled through delivery of the underlying. In futures market, delivery is low.

Cash settlement - Open position at the expiry of the contract is settled in cash. These contracts are designated as cash settled contracts. Index Futures fall in this category. Alternative Delivery Procedure (ADP) - Open position at the expiry of the contract is settled by two parties - one buyer and one seller, at the terms other than defined by the exchange. Worldwide a significant portion of the energy and energy related contracts (crude oil, heating and gasoline oil) are settled through Alternative Delivery Procedure.

Market player
Hedgers: The objective of these kind of traders is to reduce the risk. They are not in the derivatives market to make profits. They are in it to safeguard their existing positions. Apart from equity markets, hedging is common in the foreign exchange markets where fluctuations in the exchange rate have to be taken care of in the foreign currency transactions or could be in the commodities market where spiraling oil prices have to be tamed using the security in derivative instruments. Speculators: They are traders with a view and objective of making profits. They are willing to take risks and they bet upon whether the markets would go up or come down. Arbitrageurs: Riskless Profit Making is the prime goal of Arbitrageurs. Buying in one market and selling in another, buying two products in the same market are common. They could be making money even without putting their own money in and such opportunities often come up in the market but last for very short timeframes. This is because as soon as the situation arises arbitrageurs take advantage and demand-supply forces drive the markets back to normal.

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