INTERNSHIP REPORT ON Introduction to Stock Market Submitted in partial fulfillment of the requirements for the award of the Degree

of Bachelor of Business Management Of Christ University By Raghav Mittal (Reg. No. 1011007) Under the guidance of Prof. Shivi Khanna

Department of Management Studies CHRIST UNIVERSITY BANGALORE 2012

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Certificate

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ACKNOWLEDGEMENT

I would like to express my profound gratitude to all those who have been instrumental in the preparation of this Internship Report. I wish to place on records, my deep gratitude to my project guide Prof. Shivi Khanna, for guiding me through this project with valuable and timely advice. I would like to thank Mr. Manick Wadhwa,(Head Online Trading), SKI Capital Ltd for giving me an opportunity to intern in his company. I would like to thank Dr. (Fr). Thomas. C. Mathew, Vice Chancellor and Dr. Jain Mathew, HOD, for their encouragement. Last but not least, I would like to thank my parents and friends for their constant help and support.

Raghav Mittal (1011007)

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CERTIFICATE

This is to certify that the internship report on IDFC MUTUAL FUNDS submitted to Christ University, in partial fulfillment of the requirements for the award of the Degree of Bachelor of Business Management, is a record of original research work done by Dhruv Garg, during the period 2012 2013 of their study in the Department of Management Studies at Christ University, Bangalore, under my supervision and guidance and the report has not formed the basis for the award of any Degree/ Diploma/ Associate ship/ Fellowship or other similar title of recognition to any candidate of any University.

Date:

Prof Shivi Khanna

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ACKNOWLEDGEMENT

I would like to express our profound gratitude to all those who have been instrumental in the preparation of this Internship Report. I wish to place on records, our deep gratitude to our project guide, Prof. Shivi Khanna, for guiding us through this project with valuable and timely advice. I would like to thank Dr. (Fr). Thomas. C. Mathew, Vice Chancellor and Dr. Jain Mathew, HOD, for their encouragement. I would also like to thank my internship guide Mr Manick Wadhwa, for his continuous support and guidance. Last but not the least, I would like to thank my parents and friends for their constant help and support.

Raghav Mittal

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Chapter

Contents List of Tables

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Introduction Objective in studying the organization Overview of the organization Brief history Nature of the organization Business volume Profile of the employees Product lines

Organizational structure Main office Marketing operations Functions of marketing department Marketing strategy Product planning, development & management Pricing strategy Distribution strategy Promotional strategy Critical Analysis 1. Short-falls/weaknesses of the Marketing Department Critical analysis of the management patterns of the organization with reference to marketing, weak areas which need to be improved. Conclusions & Recommendation References & Sources

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INTRODUCTION
What is meant by a Stock Exchange? The Securities Contract (Regulation) Act, 1956 [SCRA] defines Stock Exchange as anybody of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities. Stock exchange could be a regional stock exchange whose area of operation/jurisdiction is specified at the time of its recognition or national exchanges, which are permitted to have nationwide trading since inception. NSE was incorporated as a national stock exchange. What is an Equity/Share? Total equity capital of a company is divided into equal units of small denominations, each called a share. For example, in a company the total equity capital of Rs 2,00,00,000 is divided into 20,00,000 units of Rs 10 each. Each such unit of Rs 10 is called a Share. Thus, the company then is said to have 20,00,000 equity shares of Rs 10 each. The holders of such shares are members of the company and have voting rights.

What is an Index? An Index shows how a specified portfolio of share prices is moving in order to give an indication of market trends. It is a basket of securities and the average price movement of the basket of securities indicates the index movement, whether upwards or downwards.

What is a Depository? A depository is like a bank wherein the deposits are securities (viz. shares, debentures, bonds, government securities, units etc.) in electronic form.

What is Dematerialization? Dematerialization is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited to the investors account with his Depository Participant (DP).

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Indian Scenario
The Indian retail brokerage industry consists of companies that primarily act as agents for the buying and selling of securities (e.g. stocks, shares, and similar financial instruments) on a commission or transaction fee basis. It has two main interdependent segments: Primary market and the Secondary market. The Indian broking industry is one of the oldest trading industries that had been around even before the establishment of the BSE in 1875. Despite passing through a number of changes in the post liberalization period, the industry has found its way towards sustainable growth The equity brokerage industry in India is one of the oldest in the Asia region. India had an active stock market for about 150 years that played a significant role in developing risk markets as also promoting enterprise and supporting the growth of industry. The roots of a stock market in India began in the 1860s during the American Civil War that led to a sudden surge in the demand for cotton from India resulting in setting up of a number of joint stock companies that issued securities to raise finance. Bombay, at that time, was a major financial centre having housed 31 banks, 20 insurance companies and 62 joint stock companies. In the aftermath of the crash, banks, on whose building steps share brokers used to gather to seek stock tips and share news, disallowed them to gather there, thus forcing them to find a place of their own, which later turned into the Dalal Street. A group of about 300 brokers formed the stock exchange in Jul 1875, which led to the formation of a trust in 1887 known as the Native Share and Stock Brokers Association. A unique feature of the stock market development in India was that that it was entirely driven by local enterprise, unlike the banks which during the pre-independence period were owned and run by the British. Following the establishment of the first stock exchange in Mumbai, other stock exchanges came into being in major cities in India, namely Ahmedabad (1894), Calcutta (1908), Madras (1937), Uttar Pradesh and Nagpur (1940) and Hyderabad (1944). The stock markets

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gained from surge and boom in several industries such as jute (1870s), tea (1880s and 1890s), coal (1904 and 1908) etc, at different points of time. The major growth drivers for brokerage revenue and trading volume are:

Continuous fall in brokerage fees Adoption of technology screen-based trading, electronic matching, and paperless securities

Centralized operations, effective risk management, and control on large interconnected operations spanning multiple locations, which is enabled by telecom connectivity and low costs

Increasing access to capital and the ability to provide margin finance

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OBJECTIVE OF STUDYING THE ORGANIZATION

The objective of the internship course was to facilitate reflection on experiences obtained in the internship and to enhance understanding of academic material by application in the internship setting. The Internship will provide me the opportunity to test my interest in a particular career before permanent commitments are made. Apart from that it is more important because: Through Internship I can develop skills and techniques directly applicable to my career. Internship will provide me the opportunity to develop attitudes conducive to effective interpersonal relationships Internship will provide me with an in-depth knowledge of the formal functional activities of a participating organization. Internship program will enhance advancement possibilities of graduates like me. Internship has helped me acquire good work habits. Internships has provided me the opportunity to understand informal organizational inter relationships. Internship has increased my sense of responsibility. Internship provided me with an in-depth knowledge of the formal functional activities of an organization. The Internship helped me discover a new field of study The internship gave me experience that can be beneficial to me in the future

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Introduction to Company
SKI Capital LTD Company.

BRIEF HISTORY SKI Capital Services Limited (SKI) is an established & premier financial and stock broking house with a vision to offer various financial services and products in such a way that it leads to optimum gains for the entities involved in these transactions. The company was incorporated as a Private Limited Company on 15th July 1993 and was converted into a Public Limited Company on 29th September 1993. The company enjoys the honor of serving a large number of valued customers to their satisfaction. Everything we do is backed by fundamentals so as to put our client's needs first. SKI is committed to provide a wide range of resources and expert, objective guidance that's not always driven by commission or clouded by conflicts of interest. Our group company SKI Consultancy Services Limited is a member of National Commodity Exchange of India Limited (NCDEX) and Multi Commodity Exchange (MCX ).

SKI is a member of National Stock Exchange of India (NSE) since 1995 and trading member in the Future & Option segment of NSE, Company is member of Bombay Stock Exchange since 2007. The company is also a Depository Participant of National Securities Depository Ltd. (NSDL) since 2000. Recently, the company has taken the memberships of National Commodity Exchange of India Limited (NCDEX) and Multi Commodity Exchange (MCX).

SKI is financially sound group with excellent track record of consistent market growth in all key business segments by offering basket of products. SKI is corporate member of NSE, BSE. NSE F&O,MCXSX, NCDEX, MCX & DP- NSDL

Equity & Derivatives

S K I offer both off line and online equity & derivatives trading facilities in NSE and BSE for investors who are looking for the ease and convenience and hassle free trading experience. We provide ODIN application, which is a high-end, integrated trading application for fast, efficient and reliable execution of trades. Client can trade in the NSE and BSE simultaneously from any destination at their convenience. Client can also access a multitude of resources like live quotes, charts, research, advice, and online assistance helps you to take informed decisions. Their TWS
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for franchisee is fast and offers robust surveillance in the hand of Franchisee

Commodity Trading S K I is member of two major national level commodity exchanges, i.e NCDEX and MCX. You can get Real-Time streaming quotes, place orders and watch the confirmation, all on a single screen. We provide our research reports on terminal and through sms service to our associate and clients for profitable trading in commodities

Forex Trading SKI is member of all three major national level exchange in foreign currency futures offers trading in forex on the same plate form, this segment offers great scope in future for imports , exports and dealer foreign exchange. A good future opportunity for Franchisee

Online back office support

SKI has on line back office facility t o provide robust back office support backed by excellent accounting standards to our branches and clients we have strong RMS system in place for smooth and strong working

Depository Services

SKI is depository participant of NSDL since 1999. Its offerings include demat operations, account transfers & settlements of trades, rematerialization ,pledging fund sheet etc. Clients and associates can see online holding and transactions on web.

Mutual Fund

Apart from operating in cash and derivatives market SKI also offers investment opportunities in other financial products like mutual fund and IPOs.

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Insurance Suriya Kiran Insurance Broking Pvt Ltd a group of company of SKI is offering Insurance broking services for life & non-life products Recent Achievements Dun & Bradstreet (worlds leading rating agency) has named SKI as one of the "Leading brokerage house in India Franchisor of the 2010 awarded by Franchisee Plus.com

SALIENT FEATURES
Revenue Sharing Out of the entire brokerage earned by SKI Capital Services Ltd./ SKI consultancy Services Ltd, on all trades executed by clients registered by the Sub-Broker / Authorize Person, a fixed % or a slab will be paid to the Sub-Broker / Branch Head as " service charges". All calculations will be done on MEMBER'S records and settlements will be on monthly basis.(The SKI will pay the difference of the gross brokerage received by the client and the brokerage amount mutually agreed between the Sub-Broker / Authorize Person and SKI on monthly basis). Additional Charges of Stock Exchange, Statutory Authorities, Service Tax, Securities Transaction tax & other charges applicable on actual. Margin Money Initial Margin deposit is Rs.1,00000/-, 50% at the timr of agreement &50% from your monthly brokerage by holding just 10% (Total Refundable)

Working Pattern All the trading clients will be registered separately under client registration agreement with SKI. Sub-Broker / Authorize Person would ensure that all clients complete the registration form (KYC) and send it to SKI head office. No Cash Transactions are allowed at any point of time. All pay-ins whether cheques or deliveries would be in favour of SKI and all pay-outs would be paid by SKI No payments would be made or accepted to/ by the Sub-Broker / Authorize Person directly
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indirectly on behalf of the client. The client requires to deposit an upfront margin amount with SKI (Subject to requirements of Regulatory Authorities, Stock Exchange or Market Conditions) and the gross exposure would be provided by SKI to the client accordingly. All securities that are sold by the client, should be delivered directly from the demat account mentioned in the Client Registration Form (KYC) to the MEMBER'S DP account. Similarly, shares purchased will be delivered to the client's DP Account in the demat account mentioned in the CRF. It is the responsibility of the Sub-Broker / Authorize Person to collect / pay SKI the pay-in/payout and margin obligations levied by the stock exchange from time to time. Sub-Broker /Authorize Person has to comply with all the stock exchange / SEBI rules, bye laws, regulations at all times.

NCFM & Sub -broker Registration . Person operating the Trading terminal should be NCFM qualified for cash and F&O segment. . It is NSDL:/ SEBI's mandatory requirement that every branch or franchisee should have at least one person trained by NSDL who should verify the identity and documents of the individual in person, for that one should qualify NCDO or NCFM depository module examination. . SEBI certificates of SKI and the Sub-Broker must be displayed in the office . Notice Board, as per the format of the Exchanges, must be displayed in the office. . Registration fee is Rs. 6,000/- (Rs. 3,000/- each exchange (NSE & BSE) . Registration would be valid up to 5 Years.

Marketing Support SKI believes in growing together. The leads generated by the advertising of various mediums are passed on to the Sub-Broker /Authorize Person of that particular area. SKI can assist you in designing of any promotional material through its branding / advertising agency.
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Investor awareness Seminar: SKI has a team of highly qualified professionals, specially deployed for the purpose of conducting seminars. Coordination Manager is provided to Sub-Broker / Branch Head for the convenience of getting All Solutions.

Glow Sign Boards Design / Flex of the Sign Board will be provided by SKI. Installation would be done by the Subbroker himself.

Back Office support (free of cost) SKI will provide the entire back office support system to the Sub-Broker / Authorize Person

Web based Accounting Web based back office Software - the clients can access their accounts / reports on the website of SKI i.e. 1. Back office reports for all segments i.e. NSE F&O, NSE CM, BSE CM, MCX , NCDEX, MCX-SX 2. Holding Report, A/c Statement, Client Dues and transaction ledger related to the Depository. 3. Reports available in Capital Market: 4) Interactive Account Statement 5) Trial balance 6) Net Position 7) Bills 8) Confirmation 9) Pending Delivery 10) Margin Shares & On behalf 11) P&L Report 12) Turnover 13) Over all Outstanding
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14) Contract Notes (Digital) 15) Reports available in F&O, NCDEX and MCX: 16) Account Statement 17 Combined detail 18) Combined Outstanding 19 Combined Sauda Summary 20) Trial Balance & Contract Notes(Digitally

Automated PAYIN SKI provides system of automated payin of demat shares which relieve clients from depositing the delivery instruction in physical form to the Depository Participant (DP) that means client don't have to give physical slip to DP for transfer of shares to brokers against there selling position. For availing this facility client must have demat account with us. Trading Software Odin & NOW

The ODIN software by Financial Technologies & NOW from the National Stock Exchange will be provided to the Sub-Broker / Branch Head by SKI

Research Sub-Broker / Authorize Person would be provided access to Technical & Fundamental Equity and Commodity Research of our R&D wing to be further distributed to clients via, Regular Intraday SMS and Research on ODIN terminal. Emails for both Equities and Commodities

Payments SKI is having tie-up with following banks - : HDFC , AXIS ,Canara ,SBI ,J&K and PNB to facilitate the Sub-Broker / Authorize Person for collection / distribution of pay-in / pay-out Cheques
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Help desk SKI is having a dedicated team in Help desk to provide you the best of the services and solutions. Risk Management System SKI would provide you reports which helps in risk management of clients and also helps in monitoring financial positions of Clients

Bad Debits It is the sole responsibility of the Sub-Broker / Authorize Person for any bad-debts.

Exposure Limits Limits will be given on the basis of the margin as per exchange on clients deposit.

Sharing of Revenue commission 1) As sharing 70 : 30, 75 :25,80:20 (based on volumes) ( 70, 75,80 is your share )

OR

2) fixed brokerage in which you may be interested :( .07....delivery .007... jobbing )

3) Commodity .006 (600/- PC)

4) Option Per Lot 20/-

5) Currency Per Lot 15/-

To reach out to more investors across India and abroad SKI has build partnership with high caliber and like minded individuals and companies who share similar business philosophy, ethics and values, sound client base and having the zeal and potential to capture a larger market share
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within their allotted territory. We provide all kind of support to our associate for the successful business. We work with complete transparency and fair trade practices

ORGANISATION STRUCTURE
The organization structure at SKI Capital Ltd is Horizontal. All the employees have free access to approach the top management of the company and offer any suggestions or complaints they might have which will help them to better run the organization. Although there is a Horizontal structure, there is a very clear and highly rigid hierarchy within the organization, with people spending years reaching the higher levels of management. The Directors of SKI Capital Ltd are: Mr. Rs Wadhwa ( Chairman) Mr. Narinder Wadhwa (Director) Mr. Kiran Chadda (Director) Mr. Anu Malik (Director) H.K Agarwal (Director)

MAIN OFFICE
The main office of SKI Capital Ltd New Delhi

ORGANISATION STRUCTURE
They have a flat (horizontal) organizational structure with several departments working together. The departments have a hierarchical structure. The departments reply on each other for their functions and have a semi-formal way of functioning.

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The Major departments at SKI Capital Ltd, New Delhi are 1. The Client Servicing department they are the ones who deal with the clients of the company. It is their duty to represent the agency to the client, get work for the company, then cross check the work by the agency and then get it approved by the client. They work as a Liaise between the agency and the client 2. The Creative department - they are the ones who come up with creative ideas, campaigns, etc for the client to implement. Right from simple print ads, radio spots to TVCs and other interactive media they work on all to give the client the best they can as per clients budget and requirements. The creative and the client departments are the main backbone of an ad agency without which no agency can function successfully. 3. The Planning department they supply the agency with information on market, new discoveries, feedback etc. 4. Studio they resize and work on the clarity of the ad, they are the technical department.

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Stock Exchanges of India STOCK EXCHANGES OF INDIA There are 24 stock exchanges in the country, 20 of them being regional ones with allocated areas. Three others set up in the reforms era, viz., National Stock Exchange (NSE) the Over the Counter Exchange of India Limited (OTCEI) and Interconnected Stock Exchange of India Limited (ISE) have mandate to nationwide trading network. The ISE is promoted by 15 regional stock exchanges in the country and has been set up at Mumbai. The ISE provides a member- broker of any of these stock exchanges and access into the national market segment, which would be in addition to the local trading segment available at present. The NSE and OCTEI, ISE and majority of the regional stock exchanges have adopted the screen based trading system (SBTS)to provide automated and modern facilities for trading in a transparent, fair and open manner with access to investors across the country. As on 31 March 1999, 9,877 companies were listed on the stock exchanges and the market capitalization was 5,30,772 crore. The total single sided turnover on all stock exchanges during 2998-99 was Rs 10,23,381. The following are the names of the various stock exchanges in India : The Mumbai Stock Exchange The Ahmadabad Stock exchange Association Ltd. Bangalore Stock Exchange Ltd. C Stock Exchange Association Ltd. The Calcutta Stock Exchange Association Ltd. Cochin Stock Exchange Ltd. The Delhi Stock Exchange Association Ltd. The Guwahati Stock Exchange Ltd. The Hyderabad Stock Exchange Ltd. Jaipur Stock Exchange Ltd. Kanara Stock Exchange Ltd. The Ludhiana Stock Exchange Association Ltd. Madras stock Exchange Ltd. Madhya Pradesh Stock Exchange Ltd. The Magadh Stock Exchange Ltd. Mangalore Stock Exchange Ltd. Pune Stock Exchange Ltd. Saurashtra Kutch Stock Exchange Ltd. The Uttar Pradesh Stock Exchange Association Ltd. Vadodara Stock Exchange Ltd. Coimbatore Stock Exchange Meerut Stock Exchange Ltd. Over The Counter (OTC) Exchange of India The National Stock Exchange of India

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National Stock Exchange (NSE) The National Stock Exchange (NSE India) is the worlds third largest stock exchange in terms of transaction volumes. NSE India is based out of Mumbai. The National Stock Exchange of India is the largest and most advanced exchange with 1016 companies listed and 726 trading members. NSE is the largest stock exchange in India in terms of daily turnover and number of trades, for both equities and derivative trading. National Stock Exchange (NSE India) was promoted by leading financial institutions, banks, insurance companies and other financial intermediaries in India but its ownership and management operate as separate entities eliminating any conflict of interest. National Stock Exchange (NSE India) was incorporated in November 1992 as a taxpaying company unlike other stock exchanges in the India. NSE India Market Operations NSE India commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operations in November 1994 and operations in FNO segment commenced in June 2000. NSE India pioneered commencement of Internet Trading in February 2000, which led to the wide popularization of the National Stock Exchange (NSE India) in the broker community. The year 2008 saw introduction of Stock and Currency derivatives by the NSE India. NSE India Advantage Today, the National Stock Exchange, in short, NSE India, is the heart of the Indian capital market, which beats in sync with the changing market trends. There are 2799 plus NSE VSAT terminals covering cover more than 1500 cities across the country, giving investors an added advantage. S&P CNX Nifty is the key index of NSE India; the performance of fifty major Indian stocks is displayed here. These stocks are weighted by market capitalization. Pioneering Efforts of National Stock Exchange NSE India has to its credit numerous pioneering efforts directed towards modernizing Indias financial and capital markets. The NSE model of market structure originated from the electronic limit order book (LOB) feature for trading of securities first implemented by the National Stock Exchange India. Online trading in India commenced in February 2000 under the efforts of this bourse. NSE India also happens to be the first and only exchange in the country for trading of GOLD ETFs (exchange traded funds).The other few firsts associated with the National Stock Exchange are launch of NSE-CNBC-TV18 media centre in association with CNBC-TV18, setting up the first clearing corporation National Securities Clearing Corporation Ltd. in India, co-promoting and setting up of the first depository in India (National Securities Depository Limited), and more. Today, the NSE India is counted amongst the topmost courses in the world.
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NSE is owned by the group of leading financial institutions such as Indian Bank or Life Insurance Corporation of India and IDFC. However, in the totally de-mutualised Exchange, the ownership as well as the management does not have a right to trade on the Exchange. Only qualified traders can be involved in the securities trading.

The NSE is one of the few exchanges in the world trading all types of securities on a single platform, which is divided into three segments: Wholesale Debt Market (WDM), Capital Market (CM), and Futures & Options (F&O) Market. Each segment has experienced a significant growth throughout a few years of their launch. While the WDM segment has accumulated the annual growth of over 36% since its opening in 1994, the CM segment has increased by even 61% during the same period. The National Stock Exchange of India has stringent requirements and criteria for the companies listed on the Exchange. Minimum capital requirements, project appraisal, and company's track record are just a few of the criteria. In addition, listed companies pay variable listing fees based on their corporate capital size. The National Stock Exchange of India Ltd. provides its clients with a single, fully electronic trading platform that is operated through a VSAT network. Unlike most world exchanges, the NSE uses the satellite communication system that connects traders from 345 Indian cities. The advanced technologies enable up to 6 million trades to be operated daily on the NSE trading platform. Interest Rate Futures was introduced for the first time in India by National Stock Exchange (NSE India) on 31st August 2009, exactly after one year of the launch of Currency Futures. Common segments dealt in include Equity Futures and Options Retail Debt Market Wholesale Debt Market Currency futures

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Bombay Stock Exchange (BSE) The Bombay Stock Exchange (BSE India) is the oldest stock exchange in Asia and the first in India. Established in 1875 as an AOP (Association of Persons), BSE India is now a corporatized and demutualised entity incorporated under the provisions of the Companies Act, 1956. With demutualization, BSE India has Deutsche Brse and Singapore Stock Exchange as its strategic partners, two of world's best managed stock exchanges providing BSE live updates to the investors in their countries. The Bombay Stock Exchange (BSE India) is situated at Dalal Street in Mumbai and has over 5,000 companies that are listed on it. The BSE India uses the latest technologies in the IT field to provide a single place where traders from across the world can buy and sell stock in the Indian stock market. Today, BSE India is the world's number one stock exchange in terms of the number of listed companies and the world's fifth in transaction numbers. The market capitalizations on August 31, 2009 stood at USD 1.09 trillion. For easy reference, a stock listed on the BSE India is classified into A, B, S, T and Z groups. The Bombay Stock Exchange (BSEIndia) also offers electronic trading system called BOLT providing BSE livestock prices.BSE India also offered India's first stock market index the Sensex (Sensitive index). It is an index of 30 stocks representing 12 major sectors. The Sensex is constructed on a 'free-float' methodology, and is sensitive to movement of its constituents and market sentiments. Apart from the SENSEX, the BSE India offers 21 indices, including 12sectoral indices in Indian share market.BSE India has an index cooperation agreement with Deutsche Brse stock exchange so the SENSEX and other indices are available to investors in Europe and America and investors are also able to check live BSE stock quotes there. Barclays Global Investors through its iShares brand, has created an ETF (Exchange Traded Fund) which tracks the SENSEX. The ETF enables investors in Hong Kong to take an exposure to share market India. Simplification of Trading in the NSE BSE Market Initially shares and stocks of the NSE BSE did not attract investors as in the current scenario. The complex processes involved and the lack of easy access to information, updates, stock tips, guidance, etc. were the key drawbacks. With online trading and with all inconveniences negated, the investor count increased rapidly. Today, companys listed in the NSE and BSE sell thousands of shares each day to the public, raising money for further expansion and related activities. Swimming against Volatility of NSE BSE Market the Indian stock market is often interpreted as the NSE BSE market. Investments are
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subject to market risks; it is the volatility that determines the rising and falling prices of stocks. Here, you can have access to the A-Z of information related to the NSE and BSE. Our commitment is to serve you and guide you towards achieving your trading goals. Online Share Market Trading in India The financial market in India is growing rapidly and is expected to emerge as one of the leaders in the international arena very soon. This boom in financial markets is stimulating the growth of the Indian share market encouraging the investors to invest in the share market. The history of the share market of India dates back to 1875. The name of the first share trading association in India was Native Share and Stock Broker's Association which later came to be known as Bombay Stock Exchange (BSE). This association began with318 members. Today India can boast of 24 share markets in the various parts of the country, and a number of financial intermediaries that include banks, Non Banking Financial Corporations, Insurance companies, Mutual Funds, etc.

About Share Market of India The Indian share market (capital market) is divided into two segments: I. Primary market II. II. Secondary market The Primary market is that market where new securities (like shares, debentures, government bonds, CDs, CPs, etc.) are issued to the public. Investors can subscribe to IPO of companies to buy new shares directly from the issuer of shares i.e. the company. The company receives the proceeds from the sale of these shares and uses it to fund its operations and expand its business. The Primary Market is also known as the New Issues Market. The Secondary market consists of trading in the shares of listed companies. Once the initial sale of shares is undertaken, buying and selling shares of companies can be undertaken between the traders and investors who want to purchase the shares and those share-holders who want to sell their shares. These operations are undertaken in the Secondary Market.

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The Secondary market consists of trading in the shares of listed companies. Once the initial sale of shares is undertaken, buying and selling shares of companies can be undertaken between the traders and investors who want to purchase the shares and those share-holders who want to sell their shares. These operations are undertaken in the Secondary Market. A newly issued IPO will be considered a primary market trade when the shares are first purchased by investors directly from the underwriting investment bank; after that any shares traded will be on the secondary market, between investors themselves. In the primary market, share prices are set by the merchant bankers using valuation methodologies, while the share prices in the secondary market are determined by the market forces of supply and demand. The share market of India is regulated by the Securities and Exchanges Board of India (SEBI). The primary objective of SEBI is to promote healthy and orderly growth of the share market and secure investor protection. The SEBI also regulates the share transactions done by foreign investors and traders and also keeps check against malpractices in the share market. The scope of the share market in India has widened tremendously over the past few years, thanks to the launch of a variety of products and services. Share markets are, by nature, extremely volatile and hence the risk factor is an important concern for the intermediaries. To reduce this risk, the concept of derivatives comes into the picture. Derivatives are products whose values are derived from one or more underlying assets. These assets can be forex, equity, etc. The derivatives market in India is also expanding immensely with an increased number of market participants using derivatives. The need for a derivatives market; the derivatives market performs a number of economic functions: I. people II. III. IV. They help in the discovery of future as well as current prices They boost entrepreneurial activity They increase the volume traded in markets because of participation of risk V. averse people in greater numbers They help in channelizing risks from risk-averse people to risk oriented

They increase savings and investment in the long run

The participants in a derivatives market:

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 Hedgers use futures or options markets to reduce or eliminate the risk associated with price of an asset Speculators use futures and options contracts to get extra leverage in betting on future movements in the price of an asset. They can increase both the potential gains and potential losses by usage of derivatives in a speculative venture Arbitrageurs are in business to take advantage of a discrepancy between prices in two different markets. If, for example, they see the futures price of an asset getting out of line with the cash price, they will take offsetting positions in the two markets to lock in a profit. `

To invest in stock, one could start by opening a demat account with a broker. While investing in stock market, one should make a detailed analysis of ones risk appetite. The investor must understand how much he must invest, when must he invest and for how long he must stay invested. One must diversify his portfolio in such a way that the risks arising due to the volatility in the market is spread over a variety of stock investment avenues. If he is not willing to take any risk in the short term, he can be called a Cautious stock market Investor. He may wish to invest in cash or near-cash assets. He may also think to invest in stock through Mutual Funds. But the potential for growth in such assets is not all that high. Also inflation can reduce the returns that some of these assets generate. If the investor decides to have a balance of risk and reward while investing in stock market, he can be called an investor with a balanced Portfolio. He may choose to diversify his risks over a plethora of stock investment options. An investor who chooses to have high risk levels in his portfolio can be called an Adventurous stock market investor. He is ready to forgo the short term losses caused by the fluctuations in the market and focus on the larger gains that await him in the long term. Such investors typically prefer investing in stock market in a narrow range of securities, primarily equity.

The place where such securities are traded by these investors is known as the secondary market. Securities issued A) Preference Shares
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B) Equity Shares C) Debentures Securities like Preference Shares and Debentures cannot be traded in the secondary market. Equity shares is issued by the under writers and merchant bankers on behalf of the company. Equity shares are tradable through a private broker or a brokerage house.

People who apply for these securities are: A) High net worth individual B) Retail investors C) Employees D) Financial Institutions E) Mutual Fund Houses F) Banks

In the context of financial market structure, Currently, NSE has the following major segments of the capital market: Equity: NSE plays an important role in helping an Indian companys access equity capital, by providing a liquid and well-regulated market. NSE has about 1319 companies listed representing the length, breadth and diversity of the Indian economy which includes from hitech to heavy industry, software, refinery, public sector units, infrastructure, and financial services. Listing on NSE raises a companys profile among investors in India and abroad. Trade data is distributed worldwide through various news-vending agencies. More importantly, each and every NSE listed company is required to satisfy stringent financial, public distribution and management requirements. High listing standards foster investor confidence and also bring credibility into the markets.

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Futures and Options: The National Stock Exchange of India Limited (NSE) commenced trading in derivatives with the launch of index futures on June 12, 2000. The futures contracts are based on the popular benchmark S&P CNX Nifty Index. The Exchange introduced trading in Index Options (also based on Nifty) on June 4, 2001. NSE also became the first exchange to launch trading in options on individual securities from July 2, 2001. Futures on individual securities were introduced on November 9, 2001. Futures and Options on individual securities are available on 224 securities stipulated by SEBI. The Exchange has also introduced trading in Futures and Options contracts based on CNX-IT, BANK NIFTY, and NIFTY MIDCAP 50 indices. This section provides you with an insight into the derivatives segment of NSE. Realtime quotes and information regarding derivative products, trading systems & processes, clearing and settlement, risk management, statistics etc. are available here.

Retail Debt Market: With a view to encouraging wider participation of all classes of investors across the country (including retail investors) in government securities, the Government, RBI and SEBI have introduced trading in government securities for retail investors. Trading in this retail debt market segment (RDM) on NSE has been introduced w.e.f. January 16, 2003. Trading shall take place in the existing Capital Market segment of the Exchange. In the first phase, all outstanding and newly issued central government securities would be traded in the retail segment. Other securities like state government securities, T-Bills etc. would be added in subsequent phases.

Wholesale Debt Market: The Wholesale Debt Market segment deals in fixed income securities and is fast gaining ground in an environment that has largely focused on equities. The Wholesale Debt Market (WDM) segment of the Exchange commenced operations on June30, 1994. This provided the first formal screen-based trading facility for the debt market in the country. This segment provides trading facilities for a variety of debt instruments including Government Securities, Treasury Bills and Bonds issued by Public Sector Undertakings/ Corporate/ Banks like Floating Rate Bonds, Zero Coupon Bonds, Commercial Papers, Certificate of Deposits, Corporate Debentures, State Government loans, SLR and Non-SLR Bonds issued by Financial
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Institutions, Units of Mutual Funds and Securitized debt by banks, financial institutions, corporate bodies, trusts and others. Large investors and a high average trade value characterize this segment. Till recently, the market was purely an informal market with most of the trades directly negotiated and struck between various participants. The commencement of this segment by NSE has brought about transparency and efficiency to the debt market.

Currency futures: Currency future is a forex derivatives contract to buy or sell one currency against the other on a specified future date, at a price decided in the contract. NSE has Started Forex futures trading from August 29th 2008. NSE is the first exchange in India to have obtained an in-principle approval from Securities and Exchange Board of India (SEBI) to set up currency derivative segment. All the trades done at NSE are clearly settled and risk managed by National Securities Clearing Corporation (NSCCL). NSCCL is set up as a separate and independent entity. Reserve Bank of India and SEBI jointly formed a Standing Technical Committee to evolve norms and oversee implementation of Exchange Traded Currency Derivatives.

Departments of SEBI regulating trading in the secondary market

(1) Market Intermediaries Registration and Supervision department (MIRSD) Registration, supervision, compliance monitoring and inspections of all market intermediaries in respect of all segments of the markets viz. equity, equity derivatives, debt and debt related derivatives. (2) Market Regulation Department (MRD) Formulating new policies and supervising the functioning and operations (except relating to derivatives) of securities exchanges, their subsidiaries, and market institutions such as Clearing and settlement organizations and Depositories (Collectively referred to as Market SROs).

(3)Derivatives and New Products Departments (DNPD) Supervising trading at derivatives segments of stock exchanges, introducing new product to be traded, and consequent policy changes.

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POWERS & FUNCTIONS 1. Regulating the business in stock exchanges and any other securities markets. 2.Registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers and such other intermediaries who may be associated with securities markets in any manner. 3. Registering and regulating the working of the depositories, participants custodians of securities, foreign institutional investors, credit rating agencies and such other intermediaries as the board may, by notification, specify in this behalf. 4. Registering and regulating the working of (venture capital funds and collective investment schemes) including mutual funds. 5. Promoting and regulating self-regulatory organizations. 6. Prohibiting fraudulent and unfair trade practices relating to securities markets. 7. Promotinginvestors'educationandtrainingofintermediariesofsecuritiesmarkets. 8. Prohibiting insider trading in securities.

Instruments Available For Trading

In recent years, derivatives have become increasingly popular due to their applications for hedging, speculation and arbitrage. Before we study about the applications of commodity derivatives, we will have a look at some basic derivative products. While futures and options are now actively traded on many Exchanges, forward contracts are popular on the OTC market. In this chapter, we shall study in detail these three derivative contracts. At present, only commodity futures trade on the NCDEX.

Forward Contracts
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A forward contract is an agreement to buy or sell an asset on a specified date for a specified price. One of the parties to the contract assumes a long position and agrees to buy the underlying asset on a certain specified future date for a certain specified price. The other party assumes a short position and agrees to sell the asset on the same date for the same price. Other contract details like delivery date, price and quantity are negotiated bilaterally by the parties to the contract. The forward contracts are normally traded outside the exchanges. The salient features of forward contracts are: They are bilateral contracts and hence exposed to counter party risk. Each contract is custom designed, and hence is unique in terms of contract size, expiration date and the asset type and quality. The contract price is generally not available in public domain. On the expiration date, the contract has to be settled by delivery of the asset. If the party wishes to reverse the contract, it has to compulsorily go to the same counterparty, which often results in high prices being charged.

However, forward contracts in certain markets have become very standardized, as in the case of foreign exchange, thereby reducing transaction costs and increasing transactions volume. This process of standardization reaches its limit in the organized futures market. Forward contracts are very useful in hedging and speculation. The classic hedging application would be that of an exporter who expects to receive payment in dollars three months later. He is exposed to the risk of exchange rate fluctuations. By using the currency forward market to sell dollars forward, he can lock on to a rate today and reduce his uncertainty. Similarly an importer who is required to make a payment in dollars two months hence can reduce his exposure to exchange rate fluctuations by buying dollars forward. If a speculator has information or analysis, which forecasts an upturn in a price, then he cango long on the forward market instead of the cash market. The speculator would go long on the forward, wait for the price to rise, and then take a reversing transaction to book profits.

Limitations of Forward Markets

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Forward markets world-wide are afflicted by several problems: Lack of centralization of trading, Illiquidity and Counterparty risk In the first two of these, the basic problem is that of too much flexibility and generality. The forward market is like a real estate market in that any two consenting adults can form contracts against each other. This often makes them design terms of the deal which are very convenient in that specific situation, but makes the contracts non-tradable. Counterparty risk arises from the possibility of default by any one party to the transaction. When one of the two sides to the transaction declares bankruptcy, the other suffers. Even when forward markets trade standardized contracts, and hence avoid the problem of illiquidity, still the counterparty risk remains a very serious issue.

Introduction to Futures Futures markets were designed to solve the problems that exist in forward markets. A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price.

Distinction between Futures and Forward Contracts Forward contracts are often confused with futures contracts. The confusion is primarily because both serve essentially the same economic functions of allocating risk in the presence of future price uncertainty. However, futures are a significant improvement over the forward contracts as they eliminate counterparty risk and offer more liquidity. Futures Terminology Spot price: The price at which an asset trades in the spot market. Futures price: The price at which the futures contract trades in the futures market. Contract cycle: The period over which a contract trades. The commodity futures contracts on the NCDEX have one month, two months, and three months etc (not more than a year) expiry cycles.

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Most of the agri commodities futures contracts of NCDEX expire on the 20th day of the delivery month. Thus, a January expiration contract expires on the 20th of January and a February expiration contract ceases to exist for trading after the 20th of February. If 20th happens to be a holiday, the expiry date shall be the immediately preceding trading day of the Exchange, other than a Saturday. New contracts for agri commodities are introduced on the 10th of the month. Expiry date: It is the date specified in the futures contract. This is the last day on which the contract will be traded, at the end of which it will cease to exist. Delivery unit: The amount of asset that has to be delivered under one contract. For instance, the delivery unit for futures on Soybean on the NCDEX is 10 MT. The delivery unit for the Gold futures contract is 1 kg. Basis: Basis is the difference between the futures price and the spot price. There will be a different basis for each delivery month for each contract. In a normal market, futures prices exceed spot prices. Generally, for commodities basis is defined as spot price futures price. However, for financial assets the formula, future price -spot price, is commonly used. Cost of carry: The relationship between futures prices and spot prices can be summarized in terms of what is known as the cost of carry. This measures the storage cost plus the interest that is paid to finance the asset. Initial margin: The amount that must be deposited in the margin account at the time a futures contract is first entered into is known as initial margin. Marking-to-market (MTM): In the futures market, at the end of each trading day, the margin account is adjusted to reflect the investor's gain or loss depending upon the futures closing price. This is called marking to market. Maintenance margin: This is somewhat lower than the initial margin. This is set to ensure that the balance in the margin account never becomes negative. If the balance in the margin account falls below the maintenance margin, the investor receives a margin call and is expected to top up the margin account to the initial margin level before trading commences on the next day.

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Introduction to Options In this section, we look at another interesting derivative contract, namely options. Options are Fundamentally different from forward and futures contracts. An option gives the holder of the option the right to do something. The holder does not have to exercise this right. In contrast, In a forward or futures contract, the two parties have committed themselves to doing something. Whereas it costs nothing except margin requirements to enter into a futures contract, the purchase of an option requires an up-front payment.

Option Terminology Commodity options: Commodity options are options with a commodity as the underlying. For instance, a gold options contract would give the holder the right to buy or sell a specified quantity of gold at the price specified in the contract. Stock options: Stock options are options on individual stocks. Options currently trade on over 500 stocks in the United States. A contract gives the holder the right to buy or sell shares at the specified price. Buyer of an option: The buyer of an option is the one who by paying the option premium buys the right but not the obligation to exercise his option on the seller/ writer. Writer of an option: The writer of a call/ put option is the one who receives the option premium and is thereby obliged to sell/ buy the asset if the buyer exercises on him.

There are two basic types of options: call options and put options. Call option: A call option gives the holder the right but not the obligation to buy an asset by a certain date for a certain price. Put option: A put option gives the holder the right but not the obligation to sell an asset by a certain date for a certain price. Option price: Option price is the price which the option buyer pays to the option seller. It is also referred to as the option premium. Expiration date: The date specified in the options contract is known as the expiration date, the exercise date, the strike date or the maturity.

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 Strike price: The price specified in the options contract is known as the strike price or the exercise price. In-the-money option: An in-the-money (ITM) option is an option that would lead to a positive cash flow to the holder if it were exercised immediately. A call option on the ndex is said to be in-the- money when the current index stands at a level higher than the strike price (i.e. spot price > strike price). If the index is much higher than the strike price, the call is said to be deep ITM. In the case of a put, the put is ITM if the index is below the strike price. At-the-money option: An at-the-money (ATM) option is an option that would lead to zero cash flow if it were exercised immediately. An option on the index is at-the money when the current index equals the strike price (i.e. spot price = strike price). Out-of-the-money option: An out-of-the-money (OTM) option is an option that would lead to a negative cash flow if it were exercised immediately. A call option on the index is outof-the-money when the current index stands at a level which is less than the strike price (i.e. spot price < strike price). If the index is much lower than the strike price, the call is said to be deep OTM. In the case of a put, the put is OTM if the index is above the strike price. Intrinsic value of an option: The option premium can be broken down into two components - intrinsic value and time value. The intrinsic value of a call is the amount the option is ITM, if it is ITM. If the call is OTM, its intrinsic value is zero. Putting it another way, the intrinsic value of a call is Max [0; (St - K)] which means the intrinsic value of a call is the greater of 0 or (St - K). Similarly, the intrinsic value of a put is Max[0;K - St],i.e. the greater of 0 or (K - St). K is the strike price and St is the spot price. Time value of an option: The time value of an option is the difference between its premium and its intrinsic value. Both calls and puts have time value. An option that is OTM or ATM has only time value. Usually, the maximum time value exists when the option is ATM. The longer the time to expiration, the greater is an option's time value, all else equal. At expiration, an option should have no time value.

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Basic Payoffs A payoff is the likely profit/ loss that would accrue to a market participant with change in the price of the underlying asset. This is generally depicted in the form of payoff diagrams which show the price of the underlying asset on the X-axis and the profits/ losses on the Y-axis. In this section, we shall take a look at the payoffs for buyers and sellers of futures and options. But first we look at the basic payoff for the buyer or seller of an asset. The asset could be a commodity like gold or chilli, or it could be a financial asset like a stock or an index.

Payoff for Buyer of Asset: Long Asset In this basic position, an investor buys the underlying asset, gold for instance, for Rs. 18,000 per 10 gms, and sells it at a future date at an unknown price, St. Once it is purchased, the investor is said to be 'long' the asset.

Payoff for Futures Futures contracts have linear payoff, just like the payoff of the underlying asset that we looked at earlier. If the price of the underlying rises, the buyer makes profits. If the price of the underlying falls, the buyer makes losses. The magnitude of profits or losses for a given upward or downward movement is the same. The profits as well as losses for the buyer and the seller of a futures contract are unlimited. These linear payoffs are fascinating as they can be combined with options and the underlying to generate various complex payoffs.

Payoff for Buyer of Futures: Long Futures The payoff for a person who buys a futures contract is similar to the payoff for a person who holds an asset. He has a potentially unlimited upside as well as a potentially unlimited downside. Take the case of a speculator who buys a two-month gold futures contract on the NCDEX when it sells for Rs.18000 per 10 gms. The underlying asset in this case is gold. When the prices of gold in the spot market goes up, the futures price too moves up and the long futures position starts making profits. Similarly, when the prices of gold in the spot market goes down, the futures prices too move down and the long futures position starts making losses.

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Payoff for Seller of Futures: Short Futures The payoff for a person who sells a futures contract is similar to the payoff for a person who shorts an asset. He has a potentially unlimited upside as well as a potentially unlimited downside. Take the case of a speculator who sells a two-month chilli futures contract when the contract sells at Rs.6500 per quintal. The underlying asset in this case is red chilli. When the prices of chilli move down, the chilli futures prices also move down and the short futures position starts making profits. When the prices of chilli move up, the chilli futures price also moves up and the short futures position starts making losses.

Payoff for Options The optionality characteristic of options results in a non-linear payoff for options. In simple words, it means that the losses for the buyer of an option are limited, however the profits are potentially unlimited. The writer of an option gets paid the premium. The payoff from the option written is exactly the opposite to that of the option buyer. His profits are limited to the option premium, however his losses are potentially unlimited. These non-linear payoffs are fascinating as they lend themselves to be used for generating various complex payoffs using combinations of options and the underlying asset. We look here at the four basic payoffs.

Payoff for Buyer of Call Options: Long Call A call option gives the buyer the right to buy the underlying asset at the strike price specified in the option. The profit/ loss that the buyer makes on the option depends on the spot price of the underlying. If upon expiration, the spot price exceeds the strike price, he makes a profit. Higher the spot price, more is the profit he makes. If the spot price of the underlying is less than the strike price, he makes loss. If he lets his option expire un-exercised, his loss in this case is the premium he paid for buying the option.

Payoff for buyer of call option on gold The figure shows the profits / losses for the buyer of a three-month call option on gold at a strike of Rs. 17000 per 10 gms. As can be seen, as the prices of gold rise in the spot market, the call option becomes in-the-money. If upon expiration, gold trades above the strike of Rs. 17000, the buyer would exercise his option and get profit. The profits possible on this option are potentially
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unlimited. However, if the price of gold falls below the strike of Rs. 17000, he lets the option expire. His losses are limited to the extent of the premium he paid for buying the option.

Payoff for Writer of Call Options: Short Call A call option gives the buyer the right to buy the underlying asset at the strike price specified in the option. For selling the option, the writer of the option charges a premium. The profit loss that the buyer makes on the option depends on the spot price of the underlying. Whatever is the buyer's profit is the seller's loss. If upon expiration, the spot price exceeds the strike price, the buyer will exercise the option on the writer. Hence, as the spot price increases, the writer of the option starts making losses. Higher the spot price, more is the loss he makes. If upon expiration the spot price of the underlying is less than the strike price, the buyer losses. If he lets his option expire un-exercised, the writer gets to keep the premium.

Payoff for Buyer of Put Options: Long Put A put option gives the buyer the right to sell the underlying asset at the strike price specified in the option. The profit/ loss that the buyer makes on the option depends on the spot price of the underlying. If upon expiration, the spot price is below the strike price, he makes a profit. Lower the spot price, more is the profit he makes. If the spot price of the underlying is more than the strike price, he makes loss. If he lets his option expire un-exercised, his loss in this case is the premium he paid for buying the option.

Payoff for Writer of Put Options: Short Put A put option gives the buyer the right to sell the underlying asset at the strike price specified in the option. For selling the option, the writer of the option charges a premium. The profit/loss that the buyer makes on the option depends on the spot price of the underlying. Whatever is the buyer's profit is the seller's loss. If upon expiration, the spot price happens to be below the strike price, the buyer will exercise the option on the writer. If upon expiration the spot price of the underlying is more than the strike price, the buyer lets his option expire un-exercised and the writer gets to keep the premium.

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Depositories A depository holds the securities in a dematerialized form for the investors in their beneficiary accounts. Each clearing member is required to maintain a clearing pool account with the depositories. They are required to make available the required securities in the designated account on settlement day. The depository runs an electronic file to transfer the securities from the accounts of the custodians/clearing member to that of the NSCCL (and vice versa) as per the schedule of allocation of the securities. The two depositories in India are the National Securities Depository Ltd. (NSDL) and the Central Depository Services (India) Ltd. (CDSL).

Professional Clearing Member The NSCCL admits a special category of members known as professional clearing members (PCMs). The PCMs may clear and settle trades executed for their clients (individuals, institutions, etc.). In such cases, the functions and responsibilities of the PCM are similar to those of the custodians. The PCMs also undertake the clearing and settlement responsibilities of the trading members. The PCMs in this case have no trading rights, but have clearing rights, i.e., they clear the trades of their associate trading members and institutional clients.

Trading Mechanism The NSE was the first stock exchange in the country and was set up as a national exchange having nationwide access with a fully automated screen-based trading system. The National Exchange for Automated Trading (NEAT) is the trading system of the NSE. The NEAT facilitates an online, fully automated, nationwide, anonymous, order driven, screen-based trading system. In this system, a member can enter the quantities of securities and the prices at which he/she would like to transact, and the transaction is executed as soon as it finds a matching sale for the buy order for counterparty. The numerous advantages of the NEAT system are listed below: It electronically matches orders on a price/time priority, and hence, cuts down on time, cost, and risk of error, as well as on fraud, resulting in improved operational efficiency. It allows the faster incorporation of price sensitive information into prevailing prices, thus increasing the informational efficiency of markets.

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 It enables market participants to see the full market in real time, making the market transparent. It allows a large number of participants, irrespective of their geographical locations, to trade with one another simultaneously, improving the depth and the liquidity of the market. It provides tremendous flexibility to the users in terms of the kinds of orders that can be placed on the system. It ensures full anonymity by accepting orders, big or small, from members without revealing their identity, thus providing equal access to everybody. It provides a perfect audit trail that helps to resolve disputes by logging in the trade execution process in its entirety.

Clearing and Settlement Process The clearing process involves the determination of what the counterparties owe, and which counterparties are due to receive on the settlement date, following which the obligations are discharged by settlement. The clearing and settlement process involves three main activities clearing, settlement, and risk management. The core processes involved in clearing and settlement include: a) Trade Recording: The key details about the trades are recorded to provide the basis for settlement. These details are automatically recorded in the electronic trading system of the exchanges. b) Trade Confirmation: Trades that are meant for settlement by the custodians are indicated with a custodian participant code, and the same is subject to confirmation by the respective custodian. The custodian is required to confirm the settlement of these trades on T+1 day by the cut-off time of 1:00 pm. c) Determination of Obligation: The next step is the determination of what the counterparties owe, and what the counterparties are due to receive on the settlement date. The NSCCL interposes itself as a central counterparty between the counterparties to trade and net the positions so that a member has a security-wise net obligation to receive or deliver a security, and has to either pay or receive funds. The settlement process begins as soon as the members obligations are determined through the clearing process. The settlement process is carried out by the clearing corporation with the help of clearing banks and depositories.
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The clearing corporation provides a major link between the clearing banks and the depositories and the actual movement of funds as well as securities on the prescribed pay-in and pay-out day. d) Pay-in of Funds and Securities: This requires the members to bring in their funds/securities to the clearing corporation. The CMs make the securities available in the designated accounts with the two depositories (the CM pool account in the case of the NSDL, and the designated settlement accounts in the case of CDSL). The depositories move the securities available in the pool accounts to the pool account of the clearing corporation. Likewise, the CMs with funds obligations make the funds available in the designated accounts with the clearing banks. The clearing corporation sends electronic instructions to the clearing banks to debit the designated CMs accounts to the extent of the payment obligations. The banks process these instructions, debit the accounts of the CMs, and credit the accounts of the clearing corporation. This constitutes the pay-in of funds and securities. e) Pay-out of Funds and Securities: After processing for shortages of funds/securities and arranging for the movement of funds from surplus banks to deficit banks through RBI clearing, the clearing corporation sends electronic instructions to the depositories/clearing banks to release the pay-out of securities/funds. The depositories and clearing banks debit the accounts of the clearing corporation and credit the accounts of CMs. This constitutes the pay-out of funds and securities.

Settlement Cycle The NSCCL clears and settles trades as per the well-defined settlement cycles All the securities are traded and settled under the T+2 rolling settlement. The NSCCL notifies the relevant trade details to the clearing members/custodians on the trade day (T), which are confirmed on T+1 to the NSCCL. Based on this, the NSCCL nets the positions of the counterparties to determine their obligations. A clearing member has to pay-in/pay-out funds and/or securities. The obligations are netted for a member across all the securities to determine his fund obligations and he has to either pay or receive funds. The members pay-in/pay-out obligations are determined by T+1 at the latest, and are forwarded to them on the same day, so that they can settle their obligations on T+2. The securities/funds are paid-in/paid-out on T+2 day to the members clients and the settlement is completed within 2 days from the end of the trading day.

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The important settlement types are: Normal Segment (N), Trade for Trade Surveillance (W), Retail Debt Market (D), Limited Physical Market (O), Non-cleared TT Deals (Z), and Auction Normal (A). Trades in the settlement type N, W, D, and A are settled in the dematerialized mode. Trades under the settlement type O are settled in the physical form. Trades under the settlement type Z are settled directly between the members, and may be settled in either the physical or the dematerialized mode.

Dematerialized Settlement For all trades executed on the T day, the NSCCL determines the cumulative obligations of each member on the T+1 day, and electronically transfers the data to the clearing members (CMs). All trades concluded during a particular trading date are settled on a designated settlement day, i.e., T+2 day. In the case of short deliveries on the T+2 day in the normal segment, the NSCCL conducts a buyin auction on the T+2 day, and the settlement for the same is completed on the T+3 day, whereas in the case of the W segment, there is a direct close out. For arriving at the settlement day, all intervening holidays, including bank holidays, NSE holidays, Saturdays, and Sundays are excluded. The settlement schedule for all the settlement types in the manner explained above is communicated to the market participants vide a circular issued during the previous month.

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CONCLUSION & RECOMMENDATION

My internship with company was a great learning experience. At beginning I was nervous about working in the company as it was my first step in corporate world. But the informal working environment of the company made to work efficiently and effectively. The people there were very supportive and helpful in nature. They gave me responsibilities considering me capable to complete it. I got an opportunity to attend brokers conference regarding release of FPO of Power Finance Corporation. I have learnt online trading; Even I did a great job in tele-calling. They told me I have great convincing power and suggested me to use in my working carrer. I have practically experienced the working culture what I have read in book. Overall I enjoyed working as an intern with the company. According to me the company should improve its marketing strategies and team. The organization should come up with new ideas in the field of marketing. The company is very good in providing services to its customers.

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References

www.skicapital.net www.ncfm.com www.nseindia.com www.scribd.com www.bseindia.com www.moneycontrol.com

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