Introduction to Secondary Market

Presentation Plan
What is secondary market? Four Ps of secondary market

Platform People Processes Post

Trade

Some important terms Special transactions Dos and Donts

Secondary Markets

Financial instruments once issued are traded

Exchange and Securities Brokers

Investor

Investor

Financial Instruments flow Funds flow

Secondary Markets

What are the different securities bought and sold in the secondary market?

Equity
Ordinary shares Preference shares Warrants

Debt securities
Bonds Debentures Convertibles

Derivative securities
Futures Options

Secondary Markets- Buyers and Sellers

Who buys and sells these securities? Investors with different perceptions about market, risks and securities are buyers and sellers in the secondary market

Four Ps of Stock Trading

Platform People Process Post Trade

Platform

Stock Exchanges
Securities

are listed here Liquidity to securities Meeting point for buyers and sellers Seek compliance of listing agreement from issuers

Platform

Stock Exchanges
Auction

market / Dealer market

The listing day and after

On

the first day of listing, trading takes place without regulatory intervention From next day, price bands become applicable as per exchange regulations

People

Main entities associated with Stock Trading

Brokers
Sub-brokers Traders

Investors
DPs Clearing

Houses and others

People
People associated with secondary market Their population
(As on 31March 2009)

Stock exchanges and Brokers Sub-brokers

19 and 8,652
62,471

Investors (Equity, Bonds, 190 lacs households Derivatives) Depository and 2 and 714 respectively Depository participants Clearing corporations 2

People
People associated with secondary market Merchant Bankers Custodians Underwriters RTAs Their population
(As on 31March 2009)

134 16 19 71

FIIs

1635

Investors and Traders

Investors - Who hold securities Traders

Position

traders Day traders Scalpers Arbitrageurs

Process of Trading

Stock market timings

Uniform

timing 9.00 AM to 3.30pm Post Close session

BSE/NSE:

3.40-3.50,3.50-4.00

Process of Trading

Beginning of Trade
Investor

/ trader decides to trade Places order with a dealer or Places order himself through web based platform

Process of Trading

Placing of Order
Order

screen-BOLT / NEAT/ NOW / Other software A trader may place order on his own through net Available information Securities, Prices, Volume , LTP, Best fife quotes, Bid and offer rates Price-Time Priority Corporate hierarchy

Process of Trading
Components of Order
What to trade : Security Name/ Number/Symbol

How much to trade : Quantity

Price to trade at
Client id What to do

: Price : In whose name to trade

: Buy / Sell

Process of Trading

Order Conditions
Price
Market

order Limit order Stop loss order

Time
Immediate

or cancel

Quantity
Disclose

quantity All or none

Process of Trading

Order Matching
Matching

on Price Time priority Active and passive orders

Process of Trading

Change of Mind?
Modify

the order Cancel the order

Process of Trading

Order Execution
Execution

message on terminal Cancellation of order by end of session

Post trade

Post Execution
Contract

Note Contents of Contract Note Digital Contract Note Regulatory requirements

Post Trade

At the Back Office

Broker

gets Trade file from exchange Broker conforms trades to exchange Payin and Pay-out

Transaction Cycle
Decision to trade Placing of order Trade execution Clearing of trades Settlement of trades Funds/securities

Schedule Rolling Settlement

S.No. Day Time
1 T

Activity
Trade Day

T+1

By 11.00AM By 1.30 PM

Confirmation of all trades Processing and downloading of obligation files to brokers / custodians
Pay in of securities and funds Pay out of securities and funds

T+2

By 11.00AM

By 1.30 PM

Post Trade

Settlement
Pay-in

and Pay-out Actual payment of funds Actual delivery of securities Deadline - T + 2 days

Settlement Process
Trade recording Trade Confirmation Determination of obligation Pay-in of funds and securities Pay-out of funds and securities Risk Management

Settlement Process

Pay in of securities:

NSCCL asks depository to debit pool a/c of CM and credit its account NSCCL asks clearing banks to debit account of CM and credit its account NSCCL asks depository t o debit its account and credit a/c of CM NSCCL asks clearing banks to debit its account and credit account of CMs

Pay in of funds:

Pay out of securities:

Pay out of funds:

Post Trade

Trade not settled in normal course

Auction
Close

out

Special Transactions

Cross Deals- Between clients of a member Negotiated deals Between two member brokers Principal to Principal basis Between Broker and his client Block Deals special window,Rs.5 cr or 5.00 lac shares Bulk Deals-0.5% of no of equity shares of co, immediate reporting Basket Trading

Price bands
20%

10

% 5% 2% No price bands:
Derivative securities, Securities included in an index on which derivative products are available, and Day one of listing

Market wide circuit breakers

10 % Up or down
Between

10.00 to 1.00- halt 60 minutes Between 1.00 to 2.30 Halt for 30 minutes 2.30 onwards No trading for the day

15 % Up or down
10.to

1.00 ,halt for 2 hrs 1.00 to 2.00, halt for 1 hour 2.00 onwards halt for the day

20 % - No trading for the day

Specific Terms
Short Sale Margin Funding Groups of securities : A,B1,B2,Z,S ,T Cum dividend / bonus , ex dividend/ bonus Record date, book closure UCC,KYC DMA

Thank you

How to invest in secondary market?

A. B. C.

D.

Analysis Process demat a/c, bank a/c, etc. What to look for while selecting a broker On-line v/s off line

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How to invest in secondary market?

Analysis
Fundamental

analysis

Technical

analysis

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How to invest in secondary market?

Look for the value , not at the price Fundamental analysis

What to buy? and Why to buy?

Economic analysis Industry analysis Company analysis

Ratio analysis Funds flow analysis Corporate governance compliance

Application of Valuation techniques based on

Assets and / or earnings

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How to invest in secondary market?

Technical analysis
Deals

with price movement and volumes of trading rather than fundamentals It is an art of
identifying

movements in the market at the same time change in the direction of the movement at an early stage

It

assumes that

market

discounts every bit of news attitudes and emotions of traders matter more than fundamentals
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How to invest in secondary market?

The process
You
a

need to have

demat account for holding your securities in electronic form, and a trading account for buying and selling securities, and a
You

can open a demat account with any of the depository participant who can be a bank or a broker or a financial institution You can open a trading account with a broker of a recognised exchange or a sub broker
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How to invest in secondary market?

The process

Documents for opening demat and trading account

of identity PAN Card / Voters Id card Proof of residence Telephone / electricity bill Photograph Bank account details
Proof

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How to invest in secondary market?

The process
How

to choose a broker / demat service provider?

Trust

Cost
Convenience Ability

to understand and fulfill your needs

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How to invest in secondary market?

Which type of trading account Online or offline? Answer depends upon

Your

convenience Frequent trading or long term investing Cost considerations Familiarity and availability of technology

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How to invest in secondary market?

Trading Shorter duration Transaction costs can be high brokerage , service tax, STT, transaction tax etc Expectations of higher gain in a shorter duration Relatively higher risk bearing capacity Investing Presupposes longer duration of investment Transaction costs are relatively lower because of frequency of transactions is less Gains are generally expected over longer term Relatively lower risk bearing capacity
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Important Dos and Donts For Secondary Market Investors

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DOs
Always deal with the market intermediaries registered with SEBI / Exchanges. Give clear and unambiguous instructions to your Broker/ Agent / Depository Participant. Read Broker client agreement and Risk Disclosure Document carefully Understand risk of

Volatility,l

ower liquidity, higher spreads, new announcements, rumours , assignment etc.

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DOs
Always insist on contract notes from your Broker. In case of doubt of the transactions, verify the genuineness of the same on the Exchange website. Always settle the dues through the normal banking channels with the market intermediaries.

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DOs

Before placing an order with the market intermediaries please check about the credentials of the companies Adopt trading/investment strategies commensurate with your risk bearing capacity. Carry out due-diligence before registering as client with any intermediary. Remember Three Cs Credibility Convenience Cost

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DOs
Be cautious about stocks, which show a sudden spurt in price or trading activity, especially low price stocks. Be informed that there are no guaranteed returns on investment in stock markets.

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Donts
Don't deal with unregistered brokers/subbrokers, intermediaries. Don't deal based on rumors generally called tips'. Don't fall prey to promises of guaranteed returns.

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DONTS
Don't leave the custody of your Demat Transaction slip book in the hands of any intermediary. Don't get carried away with onslaught of advertisements about the financial performance of companies in print and electronic media.

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DONTS
Don't blindly follow media reports on corporate developments, as they could be misleading. Don't blindly imitate investment decisions of others who may have profited from their investment decisions.

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Wisdom of experts!
Buy businesses, not stocks. Watch business growth, not rise in stock prices The stock market is a serious long-term business, not a make-money-overnight casino. Dont be fooled by others so-called success stories. Time in the market is more important than timing the market.

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Redressal Mechanism

Compliance Officers of
Issuer

Company Brokerage Houses Depository participants

Investor Grievance Cells of Exchanges Investor Grievance Cells of Depositories

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Redressal Mechanism

Office of Investor Assistance and Education (OIAE) :

Remedy
Delay,

against companies for

Non-receipt of shares, Refund orders,

Stock

Exchanges, Brokers for

Certain

trade disputes or non receipt of payment / securities.

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Rederssal Mechanism
Arbitration: If no amicable settlement could be reached, then you can make application for reference to Arbitration under the Bye Laws of concerned Stock Exchange. Court of Law

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Common grievances and redressing authority

If you do not receive shares after

Approach

Transfer Transmission Split / consolidation endorsement

SEBI MCA Stock exchange

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ABOUT NISM
The Honble Union Finance Minister in his budget Speech in February 2005 announced that the Securities and Exchange Board of India (SEBI) would establish an institute to undertake securities market education and research. In pursuance of this mandate, SEBI has established the National Institute of Securities Markets (NISM) in Mumbai.

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1.

2.

3.

It appears that this is the first unified attempt of such magnitude and comprehension in the securities markets anywhere. NISMs purpose is to create a self-sustaining knowledge process for the securities industry in all its manifestations. NISM has launched an effort to deliver financial and securities education at various levels and across various segments in India and abroad.
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1.

2.

While SEBI and other market players have made attempts at promoting investor education there is a distinct need for an intensive, coordinated and continuous effort at promoting financial education. NISM, inter alia, has established the School for Investor Education and Financial Literacy (SIEFL) to take on this critical role for the development of Indian financial markets.
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1.

2.

The SIEFL will develop educational material that meet the needs of various sections of the population and coordinate its delivery to those who need it and when they need it, in a variety of innovative ways. The target groups of the SIEFL include School students (Primary, Middle and High school), Employees of organizations (different age groups targeted for different needs), Bank account holders, Investors in financial markets, Self employed, Semi urban and rural population
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THANK YOU!

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