A STUDY ON

ONLINE TRADING & DEMATERIALISATION

(With Reference to Usha Kiran Finance Ltd.,)
******
ANNEXURE – I

DECLARATION

I hereby declare that this Project Report titled

__________________________________________ submitted

by me to the Department of Business Management, O.U.,

Hyderabad, is a bonafide work undertaken by me and it is not

submitted to any other University or Institution for the award of

any degree diploma / certificate or published any time before.

Name and Address of the Student Signature of the

Student

1
 ANNEXURE – II

CERTIFICATION

This is to certify that the Project Report title

_________________________________________

____ submitted in partial fulfilment for the award

of MBA Programme of Department of Business

Management, O.U. Hyderabad, was carried out by

________________________________ under my

guidance. This has not been submitted to any other

University or Institution for the award of any

degree/diploma/certificate.

Name and address of the Guide Signature of the

Guide

2
CONTENTS

CHAPTER – I 1–4

INTRODUCTION
METHODOLOGY OF THE STUDY
DATA COLLECTION METHODS
CHAPTER – II 5 – 12

STOCK EXCHANGE
SEBI

CHAPTER – III 13 – 62

INDUSTRY PROFILE

CHAPTER – IV 63 – 81

COMPANY PROFILE
DATA ANALYSIS

CHAPTER – V 82 – 85

FINDINGS
SUGGESTIONS
CONCLUSIONS
BIBLIOGRAPHY

3
 LIST OF TABLES

Name of the table p.g. no

Table - 1 Charges for the depository services in 71
SBH
Table - 2 Demat account holders in SBH 73
Table - 3 Individual account holders in SBH 74
Table - 4 Corporate account holders in SBH 78

LIST OF CHARTS

Name of the table p.g. no

CHART - 1 Individual account holders in SBH 75
CHART - 2 Individual account holders in Percentage 77
CHART - 3 Corporate account holders in SBH 79
CHART - 4 Corporate account holders in Percentage 81

4
CHAPTER – I

5
 INTRODUCTION

Stock exchange is an organized market place where securities are

traded. These securities are issued by the government, semi-government

bodies, public sector undertakings and companies for borrowing funds and

raising resources. Securities are defined as any monetary claims (promissory

notes or I.O.U) and also include shares, debentures, bonds and etc., if these

securities are marketable as in the case of the government stock, they are

transferable by endorsement and alike movable property. They are tradeable on

the stock exchange. So is the case Shares of companies.

Stock exchange is defined as “an association, organization or body of

individual whether incorporated or not, Established for the purpose of

assessing, regulating and controlling business in buying, selling and dealing in

securities”.

Under the Securities Contract Regulation Act of 1956, Securities trading

is regulated by the Central Government and such place only in stock exchanges

recognized by the government under this Act. As referred to earlier there are at

present 23 such recognized stock exchanges in India. Of these, major stock

exchanges, like Bombay Stock Exchange, National Stock Exchange, Inter-

Connected Stock Exchange, Calcutta, Delhi, Chennai, Hyderabad and

Bangalore etc. are permanently recognized while a few are temporarily

recognized. The above act has also lad down that trading in approved contract
6
should be done through registered members of the exchange. As per the rules

made under the above act, trading in securities permitted to be traded would be

in the normal trading hours (9.55 A.M to 3.30 P.M) on working days in the

trading ring, as specified for trading purpose. Contracts approved to be traded

are the following:

A. Spot delivery deals are for deliveries of shares on the same day or the

next day as the payment is made.

B. Hand deliveries deals for delivering shares within a period of 7 to 14

days from the date of contract.

C. Delivery through clearing for delivering shares with in a period of two

months from the date of the contract, which is now reduce to 15 days.

(Reduced to 2 days in demat trading)

D. Special Delivery deals for delivering of shares for specified longer

periods as may be approved by the governing board of the stock

exchange.

Except in those deals meant for delivery on spot basis, all the rest are to be

put through by the registered brokers of a stock exchange. The securities

contracts (Regulation) rules of 1957 laid down the condition for such

trading, the trading hours, rules of trading, settlement of disputes, etc. as

between the members and of the members with reference to their clients.

7
OBJECTIVES OF THE STUDY :

The objectives of the study are as follows:

1) Study about Clearing & Settlements in the stock exchanges for easy

transfer and error prone system.

2) Study about computerization demand process.

3) To know about the settlement procedure involved in ISE and also

NSDL operations.

4) To study the stock exchange trading procedures.

5) To know the on-line screen based trading system

6) To study about the back up measures with respect to primary

communication facilities, in order to achieve network availability

and connectivity back-up options.

8
SCOPE OF STUDY:

The scope of the project is to study and know about Online Trading and

Clearing & Settlements dealt in Inter-Connected Stock Exchange.

By studying the Online Trading and Clearing & Settlements, a clear

option of dealing in stock exchange is been understood unlike olden

days the concept of trading manually is been replaced for fast interaction

of shares of shareholder. By this we can access anywhere and know the

present dealings in shares.

9
CHAPTER - II

10
 METHODOLOGY OF THE STUDY:

DATA COLLECTION METHODS:

The data collection methods include both the primary and secondary collection

methods

 Primary collection methods:

This method includes the data collection from the personal discussion with

the authorised clerks and members of the exchange.

 Secondary collection methods:

The secondary collection methods includes the lectures of the superintend

of the department of market operations and so on., also the data collected

from the news, magazines of the ISE and different books issues of this

study

11
 HISTORY OF STOCK EXCHANGES IN INDIA

The origin of the Stock Exchanges in India can be traced back to the later half

of 19th century. After the American Civil War (1860-61) due to the share mania

of the public, the number of brokers dealing in shares increased. The brokers

organized an informal association in Mumbai Named “The Native Stock and

Share Brokers Association in 1875”, later evolved as Bombay stock exchange.

Increased activity in trade and commerce during the First World War and

Second World War resulted in an increase in the stock trading. The Growth of

Stock Exchanges suffered a set after the end of World War. World wide

depression affected them most of the Stock Exchanges in the early stages had a

speculative nature of working without technical strength. After independence,

government took keen interest to regulate the speculative nature of stock

exchange working. In that direction, securities and Contract Regulation Act

1956 was passed, this gave powers to Central Government to regulate the stock

exchanges. Further to develop secondary markets in the country, stock

exchanges established at Mumbai, Chennai, Delhi, Hyderabad, Ahmedabad and

Indore. The Bangalore Stock Exchange was recognized in 1963. At present

there are 23 Stock Exchanges.

Till recent past, floor trading took place in all Stock Exchanges. In the

floor trading system, the trade takes place through open outcry system during

the official trading hours. Trading posts are assigned for different securities

12
where by and sell activities of securities took place. This system needs a face –

to – face contact among the traders and restricts the trading volume. The speed

of the new information reflected on the prices was rather than the investors.

The Setting up of NSE and OTCEI (Over the counter exchange of India

with the screen based trading facility resulted in more and more Stock

exchanges turning towards the computer based trading. BSE introduced the

screen based Trading system in 1995, which known as BOLT (Bombay on –

line Trading System) Madras Stock Exchange introduced Automated Network

Trading System (MANTRA) on October 7, 1996 Apart from Bombay Stock

Exchanges have introduced screen based trading.

FUNCTIONS OF STOCK EXCHANGE

Maintain Active Trading: Shares are traded on the stock exchanges, enabling

the investors to buy and sell securities. The prices may vary from transaction to

transaction. A continuous trading increases the liquidity or marketability of the

shares traded on the stock exchanges.

Fixation of Prices : Price is determined by the transactions that flow from

investors demand and the supplier’s preferences. Usually the traded prices are

made known to the public. This helps the investors to make the better decision.

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Ensures safe and fair dealings: The rules, regulations and bylaw of the Stock

Exchanges provide a measure of safety to the investors. Transactions are

conducted under competitive conditions enabling the investors to get a fair

deal.

Aids in financing the Industry: A continuous market for shares provides a

favorable climate for raising capital. The negotiability and transferability of the

securities, investors are willing to subscribe to the initial public offering (IPO).

This stimulates the capital formation.

Dissemination of Information: Stock Exchanges provide information through

their various publications. They publish the share prices traded on their basis

along with the volume traded. Directory of Corporate Information is useful for

the investor’s assessment regarding the corporate. Handouts, handbooks and

pamphlets provide information regarding the functioning of the Stock

Exchanges.

Performance Inducer: The prices of stocks reflect the performance of

the traded companies. This makes the corporate more concerned with its public

image and tries to maintain good performance.

Self-regulating organization: The Stock Exchanges monitor the integrity of the

members, brokers, listed companies and clients. Continuous internal audit

14
safeguards the investors against unfair trade practices. It settles the disputes

between members brokers, investors and brokers.

REGULATORY FRAME WORK:

This Securities Contract Regulation Act, 1956 and Securities and

Exchange board of India (SEBI) Act, 1992, provides a comprehensive legal

framework. A 3-tier regulatory structure comprising the ministry of finance,

SEBI and the Governing Boards of the Stock Exchanges regulates the

functioning of Stock Exchanges.

Ministry of finance: The Stock Exchange division of the Ministry of

Finance has powers related to the application of the provision of the SCR Act

and licensing of dealers in the other area. According to SEBI Act, The Ministry

of Finance has the appellate and the supervisory power over the SEBI. It has

powered to grant recognition to the Stock Exchange and regulation of their

operations. Ministry of Finance has the power to approve the appointments of

executives chiefs and the nominations of the public representatives in the

government Boards of the Stock Exchanges. It has the responsibility of

preventing undesirable speculation.

15
 THE SECURITIES AND EXCHANGE BOARD OF INDIA

The Securities and Exchange Board of India even though established in

the year 1988. Received statutory powers only on 30th January 1992. Under

the SEBI Act, a wide variety of powers are vested in the hands of SEBI.

SEBI has the powers to regulate the business of Stock Exchanges, other

security and mutual funds. Registration and regulation of market

intermediaries are also carried out by SEBI. It has responsibility to prohibit

the fraudulent unfair trade practices and insider dealings. Takeovers are also

monitored by the SEBI has the multi pronged duty to promote the healthy

growth of the capital market and protect the investors.

The Governing Board of stock exchanges: The Governing Board of the

Stock Exchange consists of elected members of directors, government

nominees and public representatives. Rules, by laws and regulations of the

Stock Exchange substantial powers to the executive director for maintaining

efficient and smooth day-to-day functioning of Stock Exchange. The

Governing Board has the responsibility to maintain the orderly and well-

regulated market.

The Governing body of the Stock Exchange consists of 13 members of

which

16
 A. Six members of the Stock Exchange are elected by the members of

the Stock Exchange.

B. Central Government nominates not more than three members.

C. The board nominates three public representatives.

D. SEBI nominates person not exceeding three and

E. The Stock Exchange appoints one Executive Director

One third of the elected members retire at annual general meeting (AGM). The

retired member can offer himself for election if he is not elected for two

consecutive years. If a member serves in the governing body for two years

consecutively, he should refrain offering himself for another two years.

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NATIONAL STOCK EXCHANGE

The National Stock Exchange (NSE) of India became operational in the

capital market segment on third November 1994 in Mumbai. The genesis of the

NSE lies in the recommendations of the pherwani committee (1991). Apart

from the NSE. It had recommended for the establishment of National Stock

market System also. The committee pointed out some major defects in the

Indian stock market. The defects specified are.

1. Lack of liquidity in most of the markets in terms of depth and breadth.

2. Lack of ability to develop markets for debt.

3. Lack of infrastructure facilities and outdated trading system.

4. Lack of transparency in the operations that affect investors’ confidence.

5. Outdated settlement system that are inadequate to cater to the growing

volume, leading to delays.

6. Lack of single marked due to the inability of various stock exchanges to

function cohesively with legal structure and regulatory framework.

These factors led to the establishment of the NSE.

The main objectives of NSE are as follows

1. To establish a nation wide trading facility for equities, debt and

hybrid instruments.

2. To ensure equal access investors all over the country through

appropriate communication network.

18
 3. To provide a fair, efficient and transparent securities market to

investors using an electronic communication network.

4. To enable shorter settlement cycle and book entry settlement system.

5. To meet current international standards of securities market.

Promoters of NSE: IDBI, ICICI, IFCI, LIC GIC, SBI, Bank of Baroda,

Canara Bank, Corporation Bank, Indian Bank, Oriental Bank of Commerce.

Union Bank of India, Punjab National Bank, Infrastructure Leasing and

Financial Services, Stock Holding Corporation of India and SBE capital

market are the promoters of NSE.

MEMBERSHIP:

Membership is based on factors such as capital adequacy, corporate

structure, track record, education, experience etc. Admission is a two-stage

process with applicants requiring going through a written examination

followed by an interview. A committee consisting of experienced people

from the industry to assess the applicant’s capability to operate as an

exchange member, interviews candidates. The exchange admits members

separately to Wholesale Debt Market (WDM) segment and the capital

market segment. Only corporate members are admitted on the debt market

segment whereas individuals and firms are also eligible on the capital

market segment. Eligibility criteria for trading membership on the segment

of WDM are as follows.

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1) The persons eligible to become trading members are bodies

corporate, companies institutions including subsidiaries of banks

engaged in financial services and such other persons or entities as

may be permitted form time to time by RBI / SEBI.

2) The whole-time directors should possess at least two years

experience in any activity related to banking or financial services or

treasury.

3) The applicant must possess a minimum net worth of Rs.2 crores.

4) The applicant must be engaged solely ion the business of securities

and must not be engaged in any fund-based activities.

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The eligibility criteria for the capital market segment are;

1) Individuals, registered firms, bodies corporate, companies and such

other persons may be permitted under SCRA, 1957.

2) The applicant must be engaged in the business of securities and must

not be engaged in any fund-based activities.

3) The minimum nets worth requirements prescribed are as follows;

a) Individual and registered firms – Rs.100 Lacs.

b) Corporate bodies – Rs. 100 Lacs.

4) The minimum prescribed qualification of graduation and two years

experience of handling securities as broker, sub-broker, authorized

assistant, etc must be fulfilled by

a) Minimum two directors in case the applicant is a corporate

b) Minimum two partners in case of partnership firms and

c) The individual in case of individual in case of individual or sole

proprietary concerns.

The two experienced director in a corporate applicant or trading member

should hold minimum of 5% of the capital of the company.

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CHAPTER - III

22
 ONLINE TRADING

To bring in the transparency, efficiency and depth in the market, NSE

provides a fully automated screen based trading system known as National

Exchange for Automated Trading (NEAT) also known as Online Trading. This

system is used for trading in the capital market segment by its trading members

across the country to trade simultaneously with enormous easy and efficiency.

This NEAT or online trading system has lent considerable depth in the

market by enabling large member of members all over the country to trade

simultaneously and consequently narrowed the spreads significantly. A single

consolidated order book for each stock displays, on a real time basis, buy and

sell orders originating from all over the country.

This makes NSE a real national market. It has improved information

efficiency by allowing faster incorporation of price sensitive information into

market prices. High speed of execution of trades has increased operational

efficiency. It is possible for market participants to see the full market, which

made the market more transparent, leading to increased investor confidence.

Since audit trail is absolutely perfect and disputes can be settled by

logging the trade execution process in its entirety, all investors irrespective of

their financial standing or geographical location are assured for fair treatment.

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 Technology has changed the land scope of the stock markets, they don’t

require a trading floor and they can trade from the single location, service

investors across the country.

Before screen based trading was introduces Regional Stock Exchanges

were playing a major role in the capital market as there were local investors.

Now all the exchanges have gone in for online trading as per the stipulations of

SEBI.

REASONS FOR INTRODUCTION OF ONLINE TRADING:

Previous when the out cry system of trading existed, the limitations of

the system decrease the level of confidence to investors on the Capital Market.

Some of them are:

# Lack of Transparency in the previous system.

# Delayed receipt of acknowledgement of transaction from the brokers.

# Procedure delays in share transfers.

In the present scenario to compete and to survive, the stock exchange

requires strong and sound infrastructure and trading systems per international

standards. So in order to facilitate that the online system of trading is

introduced.

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 The NSE (National Stock Exchange) has first introduced the Online

Trading System in mid 1990’s in India. The online trading system imparted a

greater level of transparency and investors preferred online trading facilities

due to following factors :

# The case of operation from the point of view of both the parties of the

transactions i.e., the members and the investors.

# Increase in the confidence of the investors due to higher level of

transparency.

# Facilitates better monitoring of market of the market by the exchange.

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EVOLUTION OF ONLINE TRADING:

Online trading has become very popular in the last couple of years

because of the convenience of ease and use. Number of companies have gone

online to meet their customer’s demands, enabling them to trade when they

want and how they want to. Trading is the buying and selling of goods and

services but in current context it refers to buying and selling of financial

services including securities, through World Wide Web.

Online trading has basically replaced a phone call with internet. Instead

of interacting with broker’s phone, the consumer is clicking the mouse, not to

mention that other options are still available, but at cost. Online trading has

given customer real-time access to account information, stock quotes, elaborate

market research and interactive trading. Further, online trading has led to

additional features such as:

# Limit/stop orders that can go unfilled, but there is an extra change for

this leeway facility since it needs to hold a price.

# Market orders that can filled at unexpected prices, but this type is

much more risky since you have to buy stock at the given price.

# Cash account – were orders can be placed against stocks.

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MERITS OF ONLINE TRADING:

* Online trading has made it possible for any one to have easy and

efficient access to more reports and charts it was previously possible if one

want to any discount broker’s office. This we access to lot of more

information online to self teach ourselves.

* Online trading has left room for smaller organizations to compete with

Multi National Organization.

* Online trading has allowed companies to locate themselves were they

are companies can establish themselves according to their gains and losses.

* Online trading gives control to individuals and they can exercise over

their accounts thus comprehend what is going on when they trade.

* Individual’s benefit by saving comparatively a lot more when trading

online as the cost per trade is less.

* Individuals can invest in a variety of products, unlike earlier.

* Online trading has made it possible for one to find investment options

that were not available on a regular basis, like offbeat net stocks, eccentric

unique things and trading in global market.

27
THEORITICAL FRAMEWORK OF ONLINE TRADING:

MANUAL MODEOF TRADING:

Prior to the introduction of online trading, securities used to be traded

manually. Manual mode of trading is also know as “Out Cry System”. The

process of manual mode of trading is very laborious and cumbersome with lot

of paper work at every stage right from the order booking, order execution, to

back office work. The process involved the following steps.

* Placing of the order by the client, order can be placed as line order,

best market price or open under.

* Enter in order book by the broker.

* Execution of the order.

* Preparation of contract note.

* Entry in settlement registers, client registers.

* Actual delivery of shares by brokers of client.

* Preparation of bill or order delivery notes.

* Enter in client ledger, scrip ledger.

* Payments.

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 In the trading whenever an investor wants to sell/buy the shares

he has to go to the stock exchanges and consult the brokers to sell the

securities at particular rate. Brokers take the certificates and will go to

trading hall and start shouting the order to one another i.e., how the

manual/outcry system has been arrived. The members who have similar

buy and sell orders will come together and the transaction would take

place.

The brokers who wants to sell the securities gives the price and

the bid price and both the brokers strike a balance between the asked

and bid price. Finally the securities have been taking when the deal has

strike by the buying broker and the selling order. While negotiation, it is

very important to specify the quantity and date.

After the deal has truck the seller takes out the name, quantity,

rate, selling number code, buying member code and signs on it. The

seller has one copy and buyer has one copy and original copy is

deposited with respective exchange. In the end the brokers gets the daily

volume sheet consisting of list of all the transactions done on that day.

Any discrepancies would be reported to the stock exchange by the

members is verified.

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DRAWBACKS OF MANUAL MODE OF TRADING

* Lack of Transparency

* High scope for manipulation and frauds.

* Time consuming process.

* Identification of buyers and sellers is a tedious work.

* Knowing which share was lastly traded could be misleading.

* There was a time lag between trade done and reported.

* Sometimes price discovery could be inefficient, as another buyer may be

willing to pay more or seller willing to sell for fewer amounts.

* Each member was given four authorized assistants who could enter into

transaction on behalf of the member and there is greater exposure to risk

factor, as there is scope for frauds and illegal manipulations.

30
PROBLEMS WITH PHYSICAL MODE OF
SETTLEMENTS:

The capital market was marginal institution in the financial market for

almost three decades after India’s Independence. However, until late eighties

the common man kept away from capital markets.

Not many companies accessed the capital market and, thus, the quantum

of funds mobilized through the market was meager. A major problem,

however, continued to plague the market. The India markets where literally

weighed down by the need to deal with shares in the paper form.

There were problems galore with handling documents – fake and stolen

shares, fake signatures and signature mismatches, duplication and mutilation of

shares, transfer problems etc., the trading volumes were small due to small

investing population.

The following are some of the major problems for physical certificates

by the investors:

a) Inordinate delay in receiving securities after transfer by the companies.

b) Return of share certificates as bad deliveries on account of signature

mismatches of Forged signature of transferor or fake certificates.

c) Delay in receipt of securities after allotment by the companies.

d) Non-receipt of securities.

e) Procedural delays in getting duplicate shares/debenture certificates.

f) Storing physical certificates.

31
 Lack of modernization became a hindrance to growth of secondary

market and resulted in creation of cumbersome procedures and paper work.

However, the real growth and change occurred form mid-eighties in the

wake of liberalization initiatives of the Government.

The reforms in the financial sector were envisaged in the banking sector,

capital market, securities market regulation, mutual funds, foreign

investments and Government control.

These institutions and stock exchanges experienced that the paper

certificates are the main cause of investor disrupters and arbitration cases.

Thus, the Government of India decided to set up a fully automated and high

technology based model exchange, which would offer screen based trading

and depositories as the ultimate answer to all such reforms.

Therefore the Government of India promulgated the Depositories Ordinance

in 1995. However, both Houses of parliament passed the Depositories Act

in 1996. The unparalleled success of the introduction of the depository

concept in the Indian capital markets in reflected in the ongoing successful

reduction in the period between trading and settlement.

32
TRADING:

Trading in dematerialized securities is quite similar to trading in

physical securities. The major difference is that at the time of settlement,

instead of delivery in the physical form, it is done through account transfer.

Trading at the stock exchange can be done only through registered trade

member’s of the stock exchange irrespective of whether the securities are in

physical form of Demat form. DP’s role will only be to facilitate the

settlement in demat form. Trading in dematerialized securities is presently

available at NSE, BSE, LSE, MSE, ISE and OCTEL. These exchanges have

segments exclusive for trading in dematerialized securities and a segment

where trade could be done either in physical or demat form as per the

choice of the delivering client.

HISTORICAL BACKGROUND OF TRADING:

Earlier records of securities trading in India are available from the end

of the eighteenth century. Before 1850, there was business conducted in

Mumbai in shares of banks and the securities of the East India Company,

Which were considered as Securities for buying, selling and exchange. The

shares of the commercial Bank, Mercantile Bank and Bank of Bombay were

33
some of the prominent shares traded. The business was conducted under a

sprawling banyan tree in front of the Town Hall, which is now in the

Harriman Circle Park.

In 1850, the Companies Act was passed and that heralded the

commencement of the joint stock companies in India. It was the American

Civil was that helped Indians to establish broking business. The leading

broker, Shri. Premchand Roychand designed and developed the procedure

to be followed while dealing in shares.

In 1874., the Dalal Street became the prominent place for meeting of the

brokers to conduct their business. The brokers organized an “Brokers

Association” to protect the character, status and interest of the native

brokers. That was the foundation of The Stock Exchange, Mumbai. The

Exchange was established with 318 members.

The Stock Exchange, Mumbai did not have to look back as it started

riding high in the ladder of growth. The Stock Exchange is a market place,

like any other centralized market, where buyers and sellers can transact

business in securities at a given point of time in a convenient and

competitive manner at the fairest possible price. In January 1899, Mr.,

James M.MacLean, M.P., inaugurated the Brokers” Hall.

34
 After the First World War, the Stock Exchange was housed property at

an old building near the Town Hall. In 1928, the present premised were

acquired surrounded by Dalal Street, Bombay Samachar Marg and Hamam

Street. A new building, the present location, was constructed and was

occupied on 1st December, 1930.

In 1950 the regulation of business in securities and stock exchanges

became an exclusively Central government subject following adoption of

the Constitution of India. In Securities Contracts (Regulation) Act was

passed by the Parliament of India. To regulate the securities market, SEBI

was initially established on October 12, 1988 as an interim board under

control of the Ministry of Finance, government of India, in 1992, the SEBI

Act was passed through which the SEBI came into existence.

Hence SEBI acquired statutory on 30th January 1992 passing an

ordinance, which was subsequently converted into an Act passed by the

parliament on April 4, 1992.

The main objectives of SEBI are of protect the interest of the investors,

regulate and promote the capital market by creating an environment, which

would facilitate mobilization of resources through efficient allocation, and

to generate confidence among the investors.

35
 As such, SEBI is responsible for regulating stock exchange and other

intermediaries who may be associated with capital market and the process

of public companies raising capital by issuing instruments that will be

traded on the capital market, SEBI has been empowered by the Central

Government to develop and regulate capital markets in India and there by

protect the interest of the investors.

In 1992, Over the Counter Exchange of India (OTCE) came into

existence where equities of small companies are listed. In 1994, National

Stock Exchange (NSE) came into existence, which brought an end to the

open cut-cry system of trading securities which was in vogue for 150year,

and introduced Screen Based.

Trading (SBT) system. BSEs on line trading system were launched on

March 14, 1995. Now the trading in securities is done using screen based

trading method through duly authorized members of the exchange.

In SBT, investors place buy and sale orders with their brokers who enter

the orders in the automated trading system. Where buy and sale orders

match, a trade is generated and trade details are give to the respective

brokers. After a trade has taken place, the buyer has to pay money and the

seller has to deliver securities.

36
 On the stock exchange(s) hundreds and thousands of trades take place

every day. Buyers are spread over a large geographical are due to these

problems completing a trade by paying cash to seller and securities to buyer

immediately in execution of trades on an individual basis in virtually

impossible. So the stock exchanges allow trading to take place for a

specified period, which is called as a “Trading Cycle”.

A unique settlement numbers identifies each trading cycle. Once trading

period is over, buyer broker pays money and seller broker delivers

securities to the CC/CH on a predefined day. This process is called as pay-

in, securities are given to the buyers and the CC/CH gives money to the

seller broker. This process is called as payout. This process of pay-in and

payout is called settlement.

Initially the trading cycle was of one fortnight, which was reduced to

one week. The transactions entered during this period, of a fortnight or one

week, were used to be settled either by payment for purchase or buy

delivery of share certificates sold on notified days one fortnight or one week

after the expiry of the trading. The settlement schedules are made known to

the members of the exchange in advance.

37
 The weekly settlement period was replaced by daily settlements,

popularly known as rolling settlements, in which each day is separate

trading day. With effect from December 2001, T+5, rolling settlement cycle

was introduced for all equities were ‘T’ is the ‘Trading Day’ and pay-in and

payout for the settlement was done on 5th business day after trade day. For

example, if T was Monday, the pay-in and payout were done on next

Monday, as Saturday and Sunday are not counted as business days. T+5

cycles were further shortened to T+3 settlement cycle w.e.f. April 1, 2002.

38
DEMATERIALISATION:
DEFINITION:

Dematerialization is the process by which a BO can get his physical

securities converted into electronic form.

Pre-requisites for dematerialization are:

1. Investor should have a demat account with any DP of CDSL.

2. Securities to be dematerialized must have been admitted in CDSL i.e.

ISIN for the securities should be available in CDSL.

Investor should be the registered holder for the securities in the books of

the Company.

The BO submits a request to the DP in the Dematerialization Request

Form (DRF) along with the certificates. The DP verifies the information on the

DRF and physical certificates and enters the details in the system to setup a

request electronically. The DP sends the physical documents to the concerned

issuer/RTA. If the issuer/RTA find the DRF and certificates in order, it

registers CDSL as the registered holder of the securities and confirms the DRF

electronically to CDSL. On receiving such confirmation, CDSL credits the BO

account. The process flow of a demat request is given below.

39
 If the issuer/RTA rejects all or some of the certificates in a demat

request the same are sent back to the DP mentioning the rejection reasons(s).

DP will then ask the BO to rectify the reason of rejection and send the

certificates again for dematerialization under a fresh demat request.

Dematerialization can be normal dematerialization as explained above

or it can be “Transfer-cum-Dematerialization (TCD)” or “Transposition-cum-

Dematerialization”.

PROCEDURE TO DEMATERIALIZE THE SECURITIES:

To dematerialize the securities, initially the Dematerialization Request

Form (DRF) is to be duly filled, which is available with the depository

participants.

Later the following steps are to be followed:

1. Ensure that the ISINs of the company indicated in the DRF are

Activated.

2. Ensure that separate DREs are filled for partly paid up and fully paid

up holdings.

3. Ensure that separate DRFs are filled for ISINSs Company.

40
 4. Ensure that the investors deface the share certificates Surrendered for

dematerialization.

5. Ensure that all joint holders have signed the DRF.

6. Ensure that the signatures on the DRF match the ones indicating in

the account opening form or the record maintained at branch.

7. Ensure the share certificates along with the DRF.

8. Receive credit for the dematerialized shares into Beneficiary

owner’s account in 15 days.

This investor can dematerialize only those certificates those are already

registered in his name and belong to the list of securities admitted for

dematerialization at NSDL.

If the shares the investor wants to dematerialize does not belong to the

list of the securities eligible for dematerialization specified by NSDL, can

approach the company and request them to sign up with NSDL to make their

securities available for dematerialization. Odd lots share certificates can also be

dematerialized.

41
BENEFITS OF DEMAT SECURITIES:

Various merits that associate the DEMAT securities are :

1. It reduces the risk of bad deliveries, in turn saving the cost and

wastage of time associated with follow up for rectification this had lead to

reduction on brokerage to the extent of 0.05% by quiet a few brokerage firms.

2. In case of transfer of electronic share, investor can save 0.05% in

stamp duty. The cost of courier/Notarization is avoided.

3. The investor can receive the Bonuses and rights into their DP as a

direct credit, thus eliminating the risk of loss on transit.

4. The investor can expect the lower interest charge for loans taken

against DMAT shares as compared to interest for loans on physical ones.

PROCEDURE TO SELL DEMATERIALISED SHARES:

Selling DEMAT shares in the stock exchange is very much similar to

the procedure followed as in case of physical shares to the broker. Instead of

delivering the DP to debit his account with the numbers of shares sold by him

and then credit the broker’s clearing.

For this, delivery instruction has to be given to the seller’s DP in a

standardized format, which is available with DP, in this delivery instruction the

complete details regarding the seller’s DP are mentioned.

42
 On the Pay-in Day, the brokers of the seller gives the instruction to his

DP for the delivery of the shares to the Clearing Corporation (CC) of the

relevant stock exchange. The broker receives the payment from the CC, the

seller receive the payment for sale in the physical mode or directly credited into

the account for which the intimation is made.

PROCEDURE TO BUY DEMAT SHARES:

When the investor wishes to purchase the shares in the electronic form,

the investor instruct his broker to purchase the DMAT shares from the stock

exchanges, which are linked with the Depository participants.

Once the delivery is done, the investor instructs his DP to receive the securities

from the investor’s broker’s clearing account.

Alternatively, the investor give the instruction to receive the credits.

43
DEPOSITORY SYSTEM:

A Depository can be compared to a bank. A depository hold securities

like shares debentures, bonds, govt. Securities, unit’s etc., of investors in

electronic form. Besides holding securities, a Depository also provides services

related to transactions in securities.

How to Avail the Services of a Depository?

A Depository interfaces with the investors through its agents called

DEPOSITORY PARTICIPANTS (DP). If the investor wants to avail the

services, he has to open an account with the DP.

OPENING AN ACCOUNT WITH DEPOSITORY

PARTICIPANT (DP):

* Initially fill up the Account Opening Form, which is available

with the DPs.

* Sign the d-client Agreement, which defines the rights and duties

of the person wishing to open an account.

* The investor receives the Client Account Number (Client ID),

this client ID along with the investor’s DP ID gives the unique identification in

the depository system. There is no restriction on the number of depository

accounts a person can open.

44
 * However if the existing physical shares are joint names, the

investor have to open the account in the same order of names before the shares

are submitted for the DMAT.

* A sole holder of the share certificates cannot add more names as

joint holders at the time of dematerialization of his share certificates.

A Beneficial Owner(BO) can open one or more accounts with one or

more participants and may close one or more account with any or all the

participants or transfer his securities in one account with a participant to

another account with the same participant for with other ones.

The BO shall pay fee, charges and deposits to the DP, as may be

mutually agreed upon, for carrying out the instructions and for rendering

such other services as are incidental or consequential to the BO holding

securities in and transacting through the said account with the DP. The DP

shall be entitled to change or revise the said fees charges or deposits form

time to time subject to such prior notice as may be agreed between the

parties.

The main objectives of account opening are to allow the investors to perform:

* Dematerialization physical securities currently held by them and reflect

security ownership by electronic book entries in the NSDL.

* Buying and selling dematerialized securities, which are admitted in

NSDL and other depository.

45
BENEFITS IN DEPOSITORY PARTICIPATION :

* Immediate transfer of securities.

* No stamp duty on transfer of securities.

* Elimination of risks associated with physical certificates such as

bad delivery, fake securities etc.

* Reduction in paperwork involved in transfer of securities.

Reduction in transportation cost.

* Nomination facility.

* Change in address recorded with DP gets registered electronically

with all companies in which investor holds securities eliminating the need to

correspond with each of them separately.

* DP eliminating correspondence with companies does

transmission of securities.

* Convenient method of consolidation of portfolios/accounts.

* Holding investments in equity, debt instruments and government

securities in a single account.

* Automatic credit into DMAT account of share, arising out of

split/consolidation/merger etc.

* At present there are two depositories in India, NATIONAL

SECURITIES DEPOSITORIES LIMITD (NSDL) and CENTRAL

DEPOSITORY SERVICES LIMITED (CDSL).

46
NATIONAL SECURITIES DEPOSITORIES LIMITED:
(NSDL)

NSDL commenced its operations from November 1996. Holding and

handling of securities in the electronic form eliminates problems that normally

associated with physical certificates, like mutilation loss in transit, problem of

bad delivery etc., Further it facilitates settlement cycles. Number of users of

NSDL depository system is steadily increasing. It is our endeavor-to keep all

the present and prospective uses of NSDL depository system.

The shareholders of National Securities Depository Limited (NSDL) are

Industrial Development Bank of India (IDBI) Unit Trust of India (UTI), HDFC

Bank, Deutsche Bank Deena Bank, Global Trust Bank, Standard Chartered

Bank, Citibank NA and Hong Kong & Shanghai Banking Corporation Limited

(HSBC). All the shareholders of NSDL depository facilities.

47
FACILITIES OFFERED BY NSDL:

Some of the facilities offered by NSDL are:

* Dematerialization i.e., converting certificates in electronic form.

* Dematerialization i.e., conversion of securities in DMAT form

into physical certificates.

* Facilitating repurchase/redemption of units of mutual funds.

* Electronic settlement of trades in stock exchangers connected to

NSDL.

* Pledging/hypothecation of dematerialized securities against loan.

* Electronic credit of securities allotted in public issues, rights

issue.

* Receipt of non-cash corporate benefits such as bonus, in

electrical form.

* Freezing of DMAT accounts, so that debits from the account are

not permitted.

* Nominations facility for DMAT accounts.

* Services related to change of addressed, change in bank account

details, and change in nominee.

* Effecting transmission of securities.

* Instructions to your DP over Internet through SPEED-e facility.

48
NSDL CHARGES FOR DPs:
CHARGES :

NSDL does not change the investor directly but charges its DP who are

agreed to charge their clients.

NSDL charges its DP under the following heads.

# Transaction fee

Market trades

Sale : nil

Purchase : 5 basis points (i.e. 0.1% of the value of the securities)

# Custody fee :

Basis points p.a. (0.035 p.a. of average value of securities)

Dematerialization :

Rs.10/- per certificate.

49
ONTIME PAYMENT SCHEME:

NSEL has announced the scheme under which of company as on time

payment of 5 basis point (0.05%) of the average market capitalization during

the proceeding 26 weeks, then NSDL will not future issues by such companies

would require a payment pay any additional amount, if they make a bond issue.

Other Services:

Besides DMAT and trading depositories also offer other services.

* Pledging/hypothecation of dematerializes securities.

* Electronic credit in public offering of the companies.

* Receipt of non-cash corporate such as bonus rights in electronic form.

* Stock lending and borrowing.

* Transmission of securities.

50
CENTRAL DEPOSITORY SERVICE LIMITED (CDSL):

A depository facilitates holding of securities in the electronic form and

enables securities transactions to be processed by book entry by a Depository

participant (DP), Who as an agent of the depository, offers depository services

to investors. According to SEBI guidelines, financial institutions, bank

custodians, stockbrokers etc., are eligible to act as DPs. The investor who is

knows as Beneficial owner (BO). Has to open a DMAT account through any

DP for dematerialization of his holdings and transferring securities.

The balances in the investors account is recorded and maintained with

CDSL can be obtained through the DP. The DP is required provide the

investor, at regular intervals, a statement of account, which gives the details of

the securities holding and transactions. The depository system has effectively

eliminated paper certificates, which are prone to be fake, forged counterfeit

resulting in bad deliveries. CDSL, offers an efficient and instantaneous transfer

of securities.

The Bombay Stock Exchange (BSE) promoted CDSL, jointly with

leading banks such as SBI, Bank of India, Bank of Baroda, HDFC bank, and

Standard Chartered Bank, Union Bank of India and Centurion Bank.

51
 CDSL was set up with the objective of providing convenient dependable

and secure depository services at affordable cost to all market participants.

Some of the important milestones of CDSL system are:

• CDSL was set up with the objective of commencement of business form

SEBI in February 1999.

• Honorable the then Union Finance Minister, Sri Yashwanth Sinha

flagged off the operations of CDSL on July 15, 1999.

• Settlement of trades in the DMAT mode through BIO Share Holding

Limited, the clearinghouse of BSE, started in July 1999.

• All leading stock exchanges like the NSE, BSE, Ahmedabad stock

exchange etc., have established connectivity with CDSL.

• At the end of December 2005, over 5000 issuers were admitted their

securities (equities, bonds, debentures and commercial papers), units of

mutual funds, certificate of deposits etc., into CDSL system.

52
ONLINE SUPPORT TO DPS USING ‘e-ARMS’:

CDSL maintains uninterrupted services using state of the art, electronic

Automated Remote Management Support (e-arms) facility, which provides

instant, on-line technical support and service to DPs through CDSL’s own,

secured network. This facility enables CDSL to access the users’ machine with

a view to resolve application software related issues, if any. Needless to say, all

this would be done with permission of the user who is able to observe the

action initiated by CDSL, E-ARMS also provides a chart facility, which

enables users to obtain operational clarifications from the staff of CDSL.

THE EASI ACCESS:

“Electronic Access to Securities information” (EASI) is the internet facility for

CDSL, DPs. BOs Cleaning Members (CMs) to have anywhere access, 24 hours

a day, seven days a week, to get information about their demat, accounts

through CDSL’s dedicated website www.edslindis.com.

Apart from proving almost real time formation of their holdings in their

demat account, easi also provides the status of instructions, details of past

transactions and enables users to taken a printout of their statement of account.

EASI also offers a useful facility of daily valuation of the stocks held in a

demat account and aggregate value of the portfolio. Through EASI, one can

also obtain the closing rates of stock held in an account as at the close of

business on the previous day at BSE.

53
SAFETY AND SECURITY :

CDSL has established a world-class secure and robust accounting and

transaction management system, which accurately processes over one hundred

thousand transactions daily. An additional server is on standby at CDSL’s main

site of operations to meet any contingencies, thereby ensuring uninterrupted

accessibility of the CDSL system to all users.

The data is continually auto mirrored on the EMC storage system at the

main site to ensure adequate backup and protection of data. A back up of the

data on Digital Linear Tapes is also taken daily and stored art a remote site

safely. Moreover, CDSL’s seamlessly operational state of-the-art disaster

recovery site ensures that data is also simultaneously updated at a remote site.

The data and massages communicated between CDSL, and its users are

encrypted in transmission to protect the interests of all users, CDSL does not

provide dial-up access and only authorized users can access CDSL system. In

other world, only a person at DP end who has been preauthorized by CDSL,

can access the CDSL, system, each BO in the CDSL system is allocated a

unique BO account number know as BO-ID.

54
ON-LINE INTER-DEPOSITORY TRANSFERS (OLIDT):

The OLIDT facility launched in India with effect from December 14,

2002 connecting CDSL, with the other depository on-line is one of its kinds in

the world it enables instantaneous transfer of securities between accounts held

with different depositaries as the convenience of investors. CMs, any time

during the specified business hours.

The OLIDT facility has increased the user’s options to utilize securities

received in payouts for subsequent transactions, particularly, for pay-in. The

securities received in the CDSL, account would be immediately available to

meet the pay-in obligations, using the multiple convenient pay-in options

available in the CDSL, system.

SETTLEMENT:

The Clearing Corporation/Clearing house of the corresponding stock

exchanges undertakes the settlement of trade in the stock exchange. While the

settlement of DMAT securities affected through Depository, the fund

settlement is effected through the clearing banks. The clearing members

directly with the CC/CH settle the physical securities.

55
 Exclusively segment follows settlement (T+2) cycle and the unified

segment follows account period settlement cycle.

• In case of settlement of trades done in DAMT segments the pay-in and

payout of he funds and securities are affected on the blockage of the

funds and limiting exposure to the clearing corporation.

• Settlement of funds is effected through the clearing banks and the

depository plays no role in this.

PROCEDURE:

• A BO wishing to become an account holder should approach a

Depository.

• In order to have an account, the investors need to duly fill in the

application furnishing all the required information.

• The BO and the DP will enter in to an agreement abiding by the terms of

agreement, however a BO belonging to any of the categories specified

under the National Securities Depository Limited (NDL) bylaws need

not enter into an agreement as the DP has entered with the BO pursuant

to SEBI Regulations 1996.

• The account opened for Individual Investors, intuitional Investors,

Corporate Investors, and CMS can be common. How ever a DP may

print separate forms for each type of BO if it is necessary or convenient.

• The sections of the application form, which is not relevant to any

particular type of BO, should be marked Not Applicable (NA).

56
• The documents specified in the instructions at the end of the account

opening from to be submitted alone with the account opening form.

• The BOs DP may also specify additional documents to be supplied with

the account opening form.

• A DP shall, before opening may account of any BO make enquires as

may be necessary and exercise due care and caution in ascertaining the

benefited of the intending BO, scrutinize the documents relating to the

securities in respect of which account is intended to be opened, for

authentication.

• The DP’s should ensure separate BO’s account fore different ISIN.

• The DP should obtain and maintain photocopies on regular paper.

• The DP must ensure that the BO’s desires to have their cash corporate

beneficiary like dividend, interest etc. On a reportable basis, must

forward a certified true copy of RBI approval to the R & Ts/issues

where the BO is holding the securities.

• The DP will send the account opening form along with the relevant

documents to the DP.

• The DP will check all the papers as correct and send the information to

the BO.

• Here, the DP accepts all the papers, and they will be sent back a

conformation to the BO.The DP enters the account opening information

to the front End system provided by NSDL, from the account opening

57
 form duly filled by BOs. The DP should accurately collect the BO

details.

• The DP will scan the signatures of the BOs as well as maximum of 2

power of attorney signatures.

• Once the DP commits the transactions, the date is collected and stored at

NSDL. A unique BO number is generated by the system and this can be

seen at the DP Front-End system. This will be done online and the

information gets transmitted to NSDL instantaneously. The DP should

record the BOs ID, the original application form and the DP BO

agreement for future cross-reference.

• The BOs account number is unique with the system and will serve as a

reference number for the BO in all his future dealing with the DPs.

• The DP should ensure that the information entered into its Front-End

system is correct.

• BOs status indicates if the BO is an individual minor, NRI, corporate

body, bank.

• The field to be captured for each BO will be different. The system will

allow capturing only the relevant fields as per the BO status with help of

“status codes”. By defining status codes, a user can decide which status

code to use for the set up of BO. Only these fields, which are defined in

the status code, will come up on the screen for the user to enter.

• All correspondence/querying relating to BO account will be sent to the

first holder only.

58
• Settlement of securities is affected through NSDL, depository system.

• Clearing and settlement of the regular market trades is affected through

the clearing member of the clearinghouses of the respective stock

exchange.

• Clearing members of the clearinghouse, dealing in DMAT securities are

expected to open a clearing with any DP for the purpose of settling

trades is dematerialized securities. If there is any short delivery at the

time of pay in the securities, these short positions are auctioned in the

DMAT segment as done in the unified segment.

59
ROLLING SETTLEMENT:

SEBI has since introduced T+2 rolling settlements from April 1, 2003,

T +2 settlement cycle means that the final settlement of transaction done on T,

i.e. trade day by exchanges of monies and securities between the buyers and

sellers respectively occurs on second business day after the trade excluding

Saturdays, Sunday, bank holidays and exchange holidays.

DAY ACTIVITY
T Trading and daily downloading statements showing details of
Transaction and margins at the end of each trading day.

6A/7A* entry by the member-brokers/confirmation by the

custodians.

T+1 Confirmation of 6A/7A data by the custodians up to a specified

deadline time. Downloading of securities and funds. Obligation
statement by members.

T+2 Pay-in funds and securities and pay out of funds and securities by
per-specified dead line times. The members are required to submit
the pay in instructions for funds and securities to banks and
depositories respectively.

T+3 Action for shortages in delivery of securities.

T+4 Action pay-in and pay-out of funds and securities.

60
*6A/7A: A mechanism whereby the obligation of setting the transactions done

by a member broker on behalf of a client is passed on it a custodian based on

his confirmation. The custodian can confirm the trades done by the members

on-line.

Treading on the on-line screen based system (BSE’s On-line Trading

system, BOLT for BSE and National Exchange for Automated Trading, NETA

for NSE) is conducted from Monday to Friday between 9:55 a.m. And 3.30

p.m. the scripts trades on the Stock Exchange, Mumbai are classified into ‘A’,

‘B1’, ‘B2’, ‘C’, ‘F’, ‘G’, and ‘Z’ groups.

A, B1, B2 and C group’s represent the equity market segment.

F group represents the debt market (fixed income securities) segment.

BSE has commenced trading in Govt. Securities for retail investors under G

group w.e.f. January 16, 2003.

Z group covers the companies, which have failed to comply with listing

requirements and/or failed to resolve investor complains or have not made the

required arrangements for dematerialization of their securities with both the

depositories.

61
As in the physical segment, the clearing corporation at the end of the day

downloads cumulative obligation in the evening of the trade day.

The main purpose of introducing rolling settlement was to eliminate any

kind of manipulation in the prices of the stocks and to reduce the higher

volatility in the stocks by the operators. This was introduced by SEBI for

investor protection and with dematerialization of securities into force, this

technique is growing fast.

ROLE ONLINE TRADING IN CAPITAL MARKETS:

PRIMARY MARKET:

Primary market refers to the new issue of securities by new companies

as well as the existing companies. Apart from the shares, other instruments

commonly issued are debentures convertible debentures and shares attached

with options like warrants etc.

The primary market, which changelises savings of investors to

productive uses, reflects interplay of the forces that affects the sentiments and

confidence of the corporate sector as well of the investors.

In order to regulate them, there are measures, which are initiated by the

government and the regulating body SEBI. The measures initiated during the

year 1998-1999 include.

62
SEBI GUIDELINES FOR NEW ISSUES IN DIFFERENT
CATEGORIES OF COMPANIES:

The SEBI guidelines for different categories of companies are:

a) New Company:

A new company is accompany, which has not completed 12 months of

commercial production and when ever the promoters do not have a track

recode.

These companies have to issue shares only a Par.

b) Private and Closely Held Co.:

These companies having a track record of consistent profitability for the

past three years are permitted to price their issues freely.

c) Existing Listed Companies:

The existing listed companies will be allowed to raise fresh capital by

freely pricing its securities provide the promoter’s contribution is 50%

on first Rs.100 crores of Issue.

63
BOOK BUILDING THROUGH ONLINE IPO SYSTEM:

The normal method of offering securities to the investing public at a

price fixed buy the issuer does not take into account the investor’s demands.

On line other hand, Book Building Method takes into account the

demand for shares at various prices as an important input to finalize the price.

In this strive continuously improving Indian securities. Market, NSE offers its

infrastructure for conducting online IPO’s for Book Building.

It is fully automated screen based bidding system that allows trading

members to enter into bids on behalf of their clients. All the bids received by he

system are numbered, time stamped and stored in the book till the Book

Building Process and the offer is determined after the bid closing date.

While ensuring efficient price discovery, this system reduces the time

taken for the completion of the issue process.

64
 The merits of this new system are:

• The investor parts with money only after the allotment.

• It eliminates refunds except in case of direct applications.

• It reduces the time taken for the issue process.

• The securities can get listed on the stock exchange from the 15th day

from the closure of the bidding date in the Issue process as against 45

days in case of normal issue.

[NSEs online IPO system launched with the book building process with

issue of Hughes Software Ltd., in September 1999, the book was

oversubscribed nearly 26 times.

HUL Technologies Ltd. (HUL) was the next issued handled by

the NSE in which 189 trading members having 535 users across the

country participated in the book building issue of HUL, Book was

opened between November 16th 1999- November 24th 1999. Book built

portion was 1,2780,000 equity shares of Rs.4 to Rs.820. HTL had

planned to raise Rs.741.24 crores. Instead the co., received a total

subscription of 33,54,80,750 share worth of Rs.20,100 crore which is 27

times of the offer size. Issue price for the fixed price portion was fixed

at Rs.580 per share.

65
SEBI GUIDELINES FOR ISSUES MADE THROUGH 100%
BOOK BUILDING:

SEBI had issued guidelines in October 1997 for book building, which

were applicable for 100% of the Issue size and for Issues above Rs.100 crore.

The guidelines were revised subsequently to reduce the limit to issue of %

Rs.25 crores to encourage the use of this facility.

However, no Issuer used this facility. SEBI modified the framework for Book

Building fu8rther in October 1999 to make more attractive. The modified

framework did not replace the existing guidelines. The issuer would have

option to issue securities using book-building facility under the existing

framework or the modified set up broadly as:

• The present requirement of geographical display of demand at bidding

terminal to syndicate members as well as the investors has been made

optional.

• The 15% reservation for individual investors bidding for up in 10

marketable slots may be merged with the 10% fixed prices offer.

• Allotments fore the Book Built portions shall be made in DANT form

only.

• The issue may be allotted to disclosure either the issue size or the

number of securities to be offered to the public.

66
SECONDARY MARKET :

Secondary market refers to the stock exchanges where an investor can

buy or see the securities. Equity shares have dominated India’s stock markets

with the objectives of improving market efficiency, enhancing transparency,

checking unfair trade practices and bringing the India market to the

International standards. A package of reforms consisting of measures to

liberalize, regulate and develop the securities market introduced.

This measures were taken to broaden the market and make it function

with greater transparency and in the best interest of the investors.

The steps taken are:

a) Continuous monitoring of stock market operations:

SEBI monitors the operation of stock exchange with a view to ensure

that the dealings are conducted in the best interest of the financial environment

in the country. Any violation of rules and regulations on the part of the stock

exchange or the trading members involves penalties.

b) Change in management structure :

In the earlier periods, brokers whose decisions were self-centers and

served their own interests dominated the boards of stock exchanges. According

to the recent guidelines. 50% of the directors must be not broker’s directors or

67
government representatives and a non-member professional shall be appointed

as the executive director.

c) Safeguarding the interests the investors:

Stock exchanges are instructed to take timely action for the redresses of

investor grievances. It is mandatory for stock exchanges to have an “investor’s

services cell” to look into the complaints of investors and take appropriate

action against the guilty.

Investors have been permitted to form associations and register them under

SEBI. These associations are expected to promote the investors and create

awareness about various investment avenues dealing in stock exchanges, illegal

transactions etc…

d) Transparency of accounting practices:

To ensure correct pricing mechanism and wider participation, all

attempts are being taken to achieve transparency in trading and accounting

procedure.

e) Prohibition of insider trading:

The ban of insider trading has prevented any insider from dealing in

securities of any listed company on the basis of any unpublished price

sensitivity information.

68
f) Prevention of price rigging:

SEBI has greater power to curb price rigging on stock exchanges. SEBI has

taken stringent action against the brokers who indulge in price rigging. Thus all

efforts are being made to protect the interest of genuine investors.

g) Discouraging price manipulation:

The SEBI took all the step to prevent price manipulations in all stock

exchanges. It has instructed all stock exchanges to keep special margins in

addition to the normal ones on the scripts, which are subject to wide price

fluctuation.

The stock exchange have been directed to suspend trading in a scrip in

case any ones of the stock exchange suspends trading in that scripts for more

than a day due to price manipulation or fluctuation.

h) Introduction of electronic trading :

The OTCEI and NSE started trading through electronic medium. Under

this system investment counters can be spread throughout the country under the

electronic network.

This has created a national market, with no physical location, no trading

ring, no stock exchange building, and no hustle and bustle scenes etc, which are

a common sight in a conventional exchange with a trading ring.

69
i) Introduction of depository system:

A depository participant is an organization were the securities of a

shareholder are held in the electronic form through a process of

dematerialization.

The physical transfer of shares is substituted through electronic media.

Since the operations are computer linked, they are transparent, speedier and

cost effective. The introduction of depository system has avoided deliveries,

forgeries, theft and delays in settlement.

j) Buy back of shares :

To strike a balance between the demand and supply of shares in the

market, companies are permitted to buy back their own shares.

It is expected that the idle cash in the hands of one company will be

channelized to another company having a pressing need and it will be used to

correct the valuation of their stock.

70
k) Trading in derivatives:

Dr.L.G.Gupta committee has recommended introducing trading in index

futures and options. The starting of derivative trading has opened a new chapter

in history of stock exchanges.

l) Rolling settlement:

To start with, SEBI has started rolling settlement on a T+5 cycle, then T+3

cycle, which is now T+2 cycle. It means the transactions on stock exchange

have to be settled 2 days after the trade day. From that is further reduced to T +

1.

The practice of allocation of resources among different competing entities

as well as its terms by a central authority was discontinued. The secondary

market has overcome the geographical barriers by moving to screen based

trading. Physical security certificates are disappearing very fast. The settlement

period was shortened to one week and it is approaching to one day.

Trading procedures and practices :

A security is listed any one or more stock exchanges in addition to the

regional exchange, which is compulsory. A security that is listed on the stock

exchange can be permitted for trading from another stock exchange. Every

stock exchange follows its own trading practices and procedures in respect

with:

71
* Settlement of transactions.

* Payment and delivery dates.

* Closure of books.

* Marketing of securities.

* Control over curb-activity.

* Trading hours etc…

Nowadays these procedures are being standardized. The fragmentation

of markets, particularly when the floating stock are not large, this leads to the

situation where the same security may be quoted widely different price at the

same time.

72
CHAPTER - IV

73
COMPANY PROFILE:

India is on the threshold of entering a new economic era. An era of fast

paces economic growth. With various new commercial opportunities opening

up. These new industries and business ventures are often global. Multinational,

collaborations, joint ventures, technology transfers are the new buzz words.

Establishing and developing these genres of companies is a complicated

process. In today’s scenario of frenetic activity, the need for quality financial

services is acute.

To crystallize these projects a financial company that understands the

individual needs is required. Thus the need for USHA KIRAN FINANCE

LIMITED is it providing corporate finance or in management of issues or in

dealing with the securities market.

And with the increase in the number of companies offering various

financial services, the need for complete financial services offered under one

roof has become inevitable, to keep pace with the rising competition. Usha

Kiran Finance Limited is committed to providing total financial services under

a single roof.

74
 USHA KIRAN FINANCE LIMITED is an existing profit making

company. It is an integrated finance company established essentially as a fund

based financial service organization as diversified it range of activities from

fund based to non fund based activities and further stepped up and expanded

the fund based activities and other financial services.

It is a professionally managed company comprising chartered

accountants, Company Secretaries, MBAs, Cost Accounts and software

professionals. With an infrastructure that matches with the international

standards and practices, staff support and strong network, the company

efficiently caters financial services to its diverse client’s.

The Board of Directors of the company comprises eminent and

experienced professionals who have got abundant experience by virtue of their

association earlier with public sector undertakings and multinational under

taking. Shri T. ADINARAYANA the Chief Promoter is a member of the

Institute of Chartered Accountants of India, the ICWA of India and ICS of

India.

He was associated with the financial institute for about 9 years and is

well versed in all aspects of term lending, projects financing, and project

advisory services. Many Leading industrial conglomerated has used the

services particularly in the areas of finance, taxation, and secretarial and public

issues related matters. He is also a member of the Hyderabad Stock Exchange

Limited.

75
MANAGEMENT TEAM:

Usha Kiran Finance brings together a highly professional core

management team that comprises of individual with extensive business as well

as industry experience.

In-Depth Research

Their research expertise is at the core of the value proposition that they

offer to their clients. Research teams across the firm continuously track various

markets and products. The aim is however common to far deeper than others,

to deliver incisive insights and be accountable for results.

Apart from these other strengths of Usha Kiran with respect to mutual

funds, Insurance, real estate, investment banking.

INITIAL PUBLIC OFFERING (IPO):

Usha Kiran Finance LTD, is a leading primary market distributor

across the country. Their strong performance in IPO has been a result of their

vast experience in the Primary Market, strong distribution capabilities and a

dedicated research team.

USHA KIRAN FINANCE research team provides clients with in-depth

overviews of forthcoming IPO’s as well as investment recommendations.

Online filling of forms is also available.

76
MUTUAL FUNDS:

Usha Kiran is one of Indian’s top mutual fund distribution houses. Their

success lies in their philosophy of providing consistently superior, independent

and unbiased advice to their clients backed by in-depth research. They firmly

believe in the importance of selecting appropriate asset allocations based on the

client’s risk profile.

USHA KIRAN FINANCE LTD., have a dedicated mutual fund

research cell for mutual funds that consistently churns out superior investment

ideas, packing best performing funds across asset classes and providing

insights into performance of select funds.

INSURANCE:

USHA KIRAN FINANCE LTD., provide to their clients

comprehensive risk management techniques, both within the business as well

as on the personal front. Risk management includes identification,

measurement and assessment of the risk and handling of the risk, of which

insurance is an integral part. The firm deals with both life insurance and

general insurance products across all insurance companies.

USHA KIRAN FINANCE LTD., guiding philosophy is to manage the

client’s entire risk set by providing the optimal level of cover at the least

possible cost. The entire sales process and product selection in research

77
oriented and customized to the client’s needs. They lay strong emphasis on

timely claim settlement and post sales services.

DERIVATIVES:

USHA KIRAN FINANCE LTD., provide end-to-end equity solutions to

institutional and individual investors. Consistent delivery of high quality advice

on individual stocks, sector trends and investment strategy has established us a

competent and reliable research unit across the country. Clients can trade

through online on BSE and NSE for both equities and derivative. They are

supported by dedicated sales & trading teams in trading desks across the

country. Research and investments ideas can be accessed by clients either

through their designated.

CAREER:

At Usha Kiran Finance Ltd., they nurture talent. Usha Kiran ability to

provide world class financial services is a resources operations is closely

integrated into the firm’s business strategy.

At Usha Kiran Finance Ltd., they believe in providing an

entrepreneurial environment, within a strong focus on result orientation. At

each level, Usha Kiran Finance Ltd., employees have a pre-defined career path

and hence an opportunity for continuously growth. They also believe in a

complete meritocracy in deciding on promotions and reward systems.

78
They are a learning organization committed to continuous skill enhancement

and training of all our employees they have a dedicated training cell that focus

on enhancing behavioral and technical skills of employees across the group.

Each employee has a pre-defined, mutually set training calendar that is

followed for the entire year.

ADVISORY SERVICES:

Usha Kiran Finance Ltd., Advisors assists companies in realizing tangible

improvements in various facets of their businesses by providing a range of

corporate advisory services that includes the entire gamut from financial,

organizational and operational restructuring, to profit improvement and

business turnaround strategies. Highly qualified and thoroughly professional,

our specialists, experts and associates assist you in conceptualizing problems

and devising effective solutions, whatever be your need.

Usha Kiran Finance Ltd., have successfully handled various

assignments.

MANAGEMENT SERVICES:

As a Management Service Provider Usha Kiran Finance Ltd., provides

systematic & timely information to the investors which helps in quick investing

and increase efficiency in business operations.

79
 The company caters mainly to the requirements of corporate clients in the

variety of activities that include the following:

• Leasing and Hire purchase finance

• Inter corporate deposits

• Bill Discounting

• Loans Syndication

• Placement of Commercial papers

• Mergers, Amalgamations and Acquisitions

• Project Counseling and Advisory Services

• Project Appraisals

• Under writings

• Merchant Banking

• Issue Management

• Placement of Securities

• Marketing of Public Issue

80
• Placement of share to NRIs/OCBs, FIs, and FIIs

• Fund Management

• Equity Reassert Analysis

• Investment Banking

• Stock Broking and Commodities trading

• Joint Ventures

81
 Table – 1

SCHEDULE OF CHARGES FOR THE DEPOSITORY

SERVICES IN SBH:

Sl.No. Particulars Charges

1. Agreement charges/Stamp Rs.100/-

Duty
2. Account Opening Charges Nil
3. Account Closing Charges Nil
4. Annual Maintenance Charges Rs.200/- p.a., Rs.100/- p.a. for SBH

staff and pensioners.

5. Advance Rs.300/-
6. IDEAS (internet facility) Rs.100/-
7. Dematerialization Rs.2/- per certificate (Mini. Rs.10/- +

courier charges Rs.25/- per request)

8. Dematerialization Rs.25/- per certificate or Rs.0.03% of

Market Value Shares whichever is

higher.
9. Transaction fees 0.04% of value Min Rs.18/- per

a) Market sale Retail customer and Rs.40/- for

Others per trade. For CP 0.02% of

face value. Max Rs.500/- per trade.

Retail Customers and Rs.40/- for

others per trade.

b) Off-market sale

82
10. Inter depository transactions Rs.18/- per transaction
11. Pledge: Rs.100/- per transaction
12. Service tax: On all above transactions service tax as applicable. Any

advance payments over and above the normal amount due can also be

made. Any such higher amount paid, then minimum amount payable at

the time of account opening shall be adjusted against the bills raised

from time to time.

83
 Table – 2

Table showing number of demat account holders in State Bank of

Hyderabad

Year Group Total

Individual A/c Corporate A/c
holders holders
2004 2,010 50 2,060
2005 2,120 60 2,180
2006 3,850 75 3,925
2007 4,130 79 4,209
2008 5,655 85 5,740

84
 Table – 3

Table showing number of demat account holders in State Bank of

Hyderabad

Year Account Holder

2004 2,010
2005 2,120
2006 3,850
2007 4,130
2008 5,655

Chart – I

Chart Showing no. of individual account holders in SBH

85
 6000 5655

5000
4130
3850
4000
A/C Holders

3000

2010 2120
2000

1000

Individual
0
2004 2005 2006 2007 2008

Interpretation:

From the above charts, it is observed that thee is an increasing trend in

the number of individual account holder for demat services. In 2004, the

number of account holders were 2,010 and it has increased to 5,655 in 2008.

86
Analysis of percentage (%) Change in

1. Number of Individual Account holder in State Bank of Hyderabad

Year Percentage change (%)

2004-05 5.47

2005-06 81.6

2006-07 7.27

2007-08 36.92

Chart – 2

chart showing (%) change in

Individual A/c holders in SBH

87
 90

80 81.6

70

60

% change
50

40
36.92
30

20

10
5.47 7.27
0
2004-05 2005-06 2006-07 2007-08
Years

--- individual
Interpretation:
From the above charts, it is observed that there is an increasing trend in

the number of individual account holder for demat services. It terms of the

percentage change it has show an increasing and decreasing trend as well. In

2004-05, it was 5.47 percent and increased tremendously to 81.6 percent in

2005-06, there was a drastic fall from 81.6 to 7.27 percent in 2006-07 and

thereafter it steeply increased to 36.96 percent (approx.40) in 2007-08.

88
 Table – 4

Table showing number of corporate account holders in State

Bank of Hyderabad

Year Account Holders

2004 50
2005 60
2006 75
2007 79
2008 85

Chart – III

89
 Chart Showing the no. of corporate account holders in SBH

90 85
79
80 75

70
60
60
A/C Holders

50
50

40

30 Corporate
20

10

0
2004 2005 2006 2007 2008

Interpretation:

In case of

corporate account

holders in SBH the number has increase from 50 to 85 in 2004-08.

90
Analysis of percentage (%) Change in

(2) Number of Individual Account holder in State Bank of Hyderabad

Year Percentage change (%)

2004-05 20

2005-06 25

2006-07 5.33

2007-08 7.29

91
 Chart – 4

Chart showing (%) change in

Corporate A/c holders in SBH

30

25 25

20 20
% change

15

10
7.29
5 5.33

0
2004-05 2005-06 2006-07 2007-08
Years

--- corporate
Interpretation:

In case of corporate account holders in SBH the number has increased

from 50 to 85 in 2004-08. In terms of percentage change, it showed an

increasing and decreasing trend as well. In 2004-05, there is an increase of 20

percent whereas in 2005-06, it went up to 25 percent and it has come down to

5.33 percent in 2006-07. Finally, it witnessed a gradual increase to 7.29 percent

in 2007-08.

92
CHAPTER – V

93
FINDINGS :

 In online trading the orders placed are electronically matcher and

confirmed through NEAT system. To day in India, there is no trading

floor as all exchanges operate through on-line trading.

 Bills are prepared and the brokerage commission, service tax, stamp

duty and security transaction tax are charged to the clients in this

process.

 Number of individual account holders in SBH are increased from 2010

to 5655 in 2004-2008.

 Number of corporate account holders in SBH are increased from 50 to

85 in 2004-2008.

94
SUGGESTIONS:-

 Well experienced computer operators should operate to reduce errors in

trading.

 Provide training programs to the employees in order to get them

adjusted to the changes in the stock market.

 They have to clarify the doubt of clients and give suggestions.

95
Conclusion

The NEAT (national exchange for automated trading) or online trading

system has lent considerable depth in the market by enabling large numbers all

of members all over the country to trade simultaneously and consequently

narrowed the spreads significantly. A single consolidated order book for each

stock displays, on a real time basis, buy and sell orders originating from all

over the country. This makes the NSE real national market. It has improved

information efficiency by allowing faster incorporation of price sensitive

information into market price. High speed of execution of trades has increased

operational efficiency. It is possible for market participations to see the full

market, which made the market more transparent, leading to increased investor

confidence. Since audit trail is absolutely perfect and disputes can be settled by

logging the trade execution process in its entirety, all investors irrespective of

their financial standing or geographical location are assured for fair treatment.

96
Bibliography

BOOKS REFERRED:

• M.Y.DHAN, edition (2000), “FINANCIAL SYSTEMS AND

SERVICES”, Tata McGraw-hill publication, New Delhi.

• S.N. MAHESHWARI, edition (2007) “FINANCIAL

MANAGEMENT”, Sulthan chand publications.

WEBSITES:

• WWW.NSEINDIA.COM

• WWW.BSEINDIA.COM

• WWW.NSDL.CO.IN

• WWW.CDSLINDIA.COM

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