A SUMMER TRAINING REPORT ON

Mechanism of Indian Stock Market & Consumer eha!ior on commodities "

#or

Anand Rathi Share & Stock $rokers %td&

$'

Maha!eer (rasad

In partial fulfillment for the award of the degree Mana)ement of usiness administration *Ar'a institute of en))& And techno+o)', -./0

Su mitted $'1 2 Maha!eer Prasad *AIET 4ai(ur ,

Su mitted To12 3amni )u(ta *Asst& Mana)er25R,

ACKNOWLEDGEMENT
A Pro4ect usua++' fa++s short of its e6(ectation un+ess )uided ' the ri)ht (erson at the ri)ht time& Success of a (ro4ect is an outcome of sincere efforts7 channe+ed in the ri)ht direction7 efficient su(er!ision and the most !a+ua +e (rofessiona+ )uidance& This (ro4ect 8ou+d not ha!e een com(+eted 8ithout the direct and

indirect he+( and )uidance of such +uminaries& The' (ro!ide me 8ith the necessar' recourses and atmos(here conducti!e for hea+th' +earnin) and trainin)& I e6(ress m' sincere thanks to m' (ro4ect )uide7 Mrs& 3amni )u(ta 9esi)nation 5R for )uidin) me ri)ht form the ince(tion ti++ the successfu+ com(+etion of the (ro4ect& I sincere+' ackno8+ed)e him:her:them for e6tendin) their !a+ua +e )uidance7 su((ort for +iterature7 critica+ re!ie8s of (ro4ect and the re(ort and a o!e a++ the mora+ su((ort he:she:the' had (ro!ided to me 8ith a++ sta)es of this (ro4ect& I 8ou+d a+so +ike to thank& Mr. prakash kodwani *Sr& officer2

de(ositor', and a++ the mem ers of Anand Rathi Share & Stock $rokers %td&7 and m' co++ea)ues 8ho )a!e me fruitfu+ information to finish m' (ro4ect&

Mahaveer prasad

DECLARATION

I *Maha!eer (rasad, student of Ne8 9e+hi Institution of Mana)ement *-./0, dec+are that e!er' (art of the Pro4ect Re(ort *Mechanism of Indian Stock

Market & Consumer eha!ior on commodit'", that I ha!e su mitted is

ori)ina+& I 8as in re)u+ar contact 8ith the nominated )uide and contacted man' times for discussin) the (ro4ect&

9ate of (ro4ect su mission1;;;;;;;;;;;;;;

#acu+t'<s Comments1

*Maha!eer (rasad,

EXECUTI E !UMMAR"
Theories are ein) de!e+o(ed7 desi)ned and stated on the )round8ork of their (ractica+ im(+ementation and usa)e& =ork e6(erience seems to e more effecti!e and indis(ensa +e factor of makin) an indi!idua+ an ade(t& This is ecause one cannot do 8ithout ein) e6(osed to !ar'in) circumstances and (ossi +e conse>uences& Trainin) not on+' de!e+o(s indi!idua+ ski++s and a i+ities ut a+so (ro!ides (roficienc' in 8ork (erformance& The researcher has done research in a ranch office of Anand Rathi Share & Stock $rokers %td7 ?ai(ur7 8hich constitute an essentia+ (art of t8o 'ear M$A (ro)ram& The research (eriod consists of @ 8eeks& The researcher se+ected the (ro4ect stud' on the to(ic Mechanism of Indian Stock Market and consumer eha!ior on commodit'"& It 8as rea++' a )reat o((ortunit' )ettin) (ractica+ insi)ht of the market& I ha!e studied and e6(+ored 9emat a:c and in!estment (rocess of the Share Market7 its market share in the ?ai(ur market and 8a's of increasin) its market share& I sincere+' e+ie!e that there is no etter (+ace to +earn the (ractica+ side of mana)ement studies than the industr' itse+f&

TA#LE O$ CONTENT!
C%A&TER Ackno8+ed)ement 9ec+aration E6ecuti!e Summar' '. INTRODUCTION O$ ORGANI(ATION '.' Com(an' Profi+e '.) Product & Ser!ices '.+ Mana)ement Team ). INTRODUCTION O$ TO&IC ).' Indian Share Market ).) Indian Stock E6chan)es ).+ 9e(ositor' ).. Commodit' +. .. O#0ECTI E O$ !TUD" RE!EARC% MET%ADOLOG" ..' Ana+'sis & Inter(retation ..) S=OT Ana+'sis /. *. -. 1. 4. CONCLU!ION! RECOMMENDATION 2 !UGGE!TION! GLO!!AR"3TERMINOLOG" #I#LIOGRA&%" 5UE!TIONNAIRE '+ '.+ /*. */ *1 -. -* --4 14 4, ) * ', DE!CRI&TION &AGE

To be a shining example as a leader in innovation and the first choice for clients and employees

$ehind e!er' successfu+ in!estor

C%A&TER 6 '

INTRODUCTIO N O$ ORGANI(ATIO N

'.' COM&AN" &RO$ILE

Anand Rathi *AR, set u( in /AAB7is one of India<s fastest )ro8in) fu++2ser!ice securities firm 8ith a (resence in more than C. +ocations across India and has offices in 9u ai & $ankok&AR (ro!ides 8ea+th mana)ement ser!ices7 in!estment ankin)7 rokera)e & distri ution ser!ices in the areas of e>uities7 commodities7 mutua+ fund and insurance& The )rou( caters to the financia+ needs of di!ersified )rou( of c+ients7 8hich inc+ude the 8e++ re(uted cor(orate )rou(s7 institutions7 forei)n in!estors7 indi!idua+s as 8e++ as 8ea+th' fami+ies and 8as recent+' ranked ' an Asia Mone' -..@ (o++ amon)st south Asia<s to( C mana)ers for the u+tra2rich& Anand Rathi is a +eadin) fu++ ser!ice in!estment ank (ro!idin) a 8ide ran)e of financia+ ser!ices& The firm7 founded in /AAB ' Mr& Anand Rathi7 toda' has a (an India (resence as 8e++ as internationa+ (resence throu)h offices in 9u ai and $an)kok&AR (ro!ides a readth of financia+ and ad!isor' ser!ices inc+udin) 8ea+th mana)ement ser!ices7 in!estment ankin)7 rokera)e & distri ution of e>uities7 commodities7 mutua+ funds and insurance7 structured (roducts2a++ of 8hich are su((orted ' (o8erfu+ research teams& The firm<s (hi+oso(h' is entire+' c+ients centric 78ith a c+ear focus on (ro!idin) +on) term !a+ue addition to c+ients7 8hi+e7 maintainin) the hi)hest of e6ce++ence7 ethics and (rofessiona+ism& The entire firm acti!ities are di!ide across distinct c+ient )rou(s indi!idua+s7 Pri!ate c+ients7 cor(orate and Institutions and 8as recent+' ranked ' Asia mone' -..@ (o++ amon)st South Asia<s to( C 8ea+th mana)ers for the u+tra rich& In 'ear -..D Citi)rou( Eenture Ca(ita+ Internationa+ 4oined the )rou( as a financia+ (artner&

Anand Rathi (ro!ides man' of financia+ and ad!isor' ser!ices inc+udin) fo++o8in) (roducts1 E>uit' & 9eri!ati!es $rokera)e Mutua+ #unds 9e(ositor' Ser!ices Commodities Insurance $rokin) IPO<s Portfo+io Mana)ement Ser!ices *PMS, %oan A)ainst Shares A++ these are mana)ed ' (o8erfu+ research teams& There are some mi+estones for the )rou(7 8hich ha!e the )reat ro+e in the (osition of the com(an'7 these mi+estones ha!e drastica++' chan)ed the (osition of the com(an' and mo!e it ahead from 8hat it 8as (re!ious+'& These mi+estones chan)ed the fate of the )rou(& The )rou( ecame a +e to ha!e these mi+estones ecause of its continuous and dedicated (erformance& These mi+estones are1 2 '44.7 Started acti!ities in consu+tin) and Institutiona+ e>uit' sa+es 8ith staff of /C '44/7 Set u( a research desk and em(ane++ed 8ith ma4or institutiona+ in!estors '44-1 Introduced in!estment ankin) usinesses Retai+ rokera)e ser!ices +aunched

'4447 %ead mana)ed first IPO and e6ecuted first M & A dea+ ),,'7 Initiated =ea+th Mana)ement Ser!ices ),,)7 Retai+ usiness e6(ansion recommences 8ith o8nershi( mode+ ),,+7 =ea+th Mana)ement assets cross Rs/C.. crores& Insurance rokin) +aunched& %aunch of =ea+th Mana)ement ser!ices in 9u ai Retai+ $ranch net8ork e6ceeds C. ),,.7 Commodities rokera)e and rea+ estate ser!ices introduced & =ea+th Mana)ement assets cross Rs0...crores &

Institutiona+ e>uities usiness re+aunched and senior research team (ut in (+ace& Retai+ $ranch net8ork e6(ands across /.. +ocations 8ithin India ),,/7 Rea+ Estate Pri!ate E>uit' #und %aunched & Retai+ $ranch net8ork e6(ands across -.. +ocations 8ithin India ),,*7 AR Midd+e East7 =OS ac>uires mem ershi( of 9u ai Go+d & Commodit' E6chan)e *9GCF, Ranked amon)st South AsiaGs to( C 8ea+th mana)ers for the u+tra2 rich ' Asia Mone' -..@ (o++

 Ranked @th in #3-..@ for A++ India $roker Performance in e>uit' distri ution in the 5i)h Net 8orth Indi!idua+s *5NI, Cate)or' Ranked Ath in the Retai+ Cate)or' ha!in) more than CH market share Com(+etes its (resence in a++ States across the countr' 8ith offices at 0..I +ocations 8ithin India& ),,-7 Cit' Grou( Eenture Ca(ita+ Internationa+ (icks u( /A&AH e>uit' stake Retai+ customer ase crosses -.. thousand These 8ere the mi+estones7 8hich chan)e the Anand Rathi )rou( com(+ete+' and +aunch it on the (ath of success& This )rou( c+aims that man' more these t'(e of mi+estone are a out to come 8hich 8i++ take the com(an' at hei)ht of success +ike it is (+annin) to +aunch its o8n share in the market 8hich 8i++ a)ain chan)e the future and ima)e of the com(an'&

'.) &RODUCT AND !ER ICE!

E89i:; 2 deriva:ives <rokera=es Anand Rathi (ro!ides end to end e>uit' so+utions to institutiona+ and indi!idua+ in!estors& consistent de+i!er' of hi)h >ua+it' ad!ice on indi!idua+ stocks7 sector trends and in!estment strate)' has esta +ished us a com(etent and re+ia +e research unit across the countr'& C+ients can trade throu)h AR on+ine on $SE & NSE for oth e>uities and deri!ati!es& The' are su((orted ' dedicated sa+es & tradin) desks across the e accessed ' c+ients either countr'& Research and in!estment ideas can

throu)h their desi)nated dea+ers7 emai+7 8e or SMS& M9:9a> $9nds AR is one of the India<s to( Mutua+ fund distri ution houses&AR success +ies inn it<s (hi+oso(h' of (ro!idin) consistent+' su(erior7 inde(endent and un iased ad!ice to AR<s c+ients the c+ient<s risk (rofi+e& AR ha!e a dedicated mutua+ fund research ce++ for mutua+ funds that consistent+' churns out su(erior in!estment ideas7 (ickin) funds& Deposi:or; !ervi?es AR 9e(ositor' Ser!ices (ro!ides 8ith a secure and con!enient 8a' for ho+din) 'our securities on oth C9S% & NS9%& AR 9e(ositor' ser!ices est (erformin) funds across asset c+asses and (ro!idin) insi)ht into (erformance of se+ect acked ' in2de(th research&AR fami+' e+ie!es in the im(ortance of se+ectin) a((ro(riate asset a++ocations ased on

inc+ude sett+ement7 c+earin) and custod' of securities7 re)istration of shares and demateria+iJation& AR offer dai+' u(dated internet access to ho+din) statement and transaction summar'& Co@@odi:ies Commodities rokin)2a 8ho+e ne8 o((ortunities to hed)e usiness risk and an attracti!e in!estment o((ortunit' to de+i!er su(erior returns for in!estors &AR<s commodities rokin) ser!ices inc+ude on+ine futures tradin) throu)h NC9CF & MCF and de(ositor' ser!ices throu)h C9S% &Commodities rokin) is su((orted ' a dedicated research ce++ that (ro!ides ase meta+s7 oi+ and oth technica+ as 8e++ as fundamenta+ research& AR<s research co!ers a road ran)e of traded commodities inc+udin) (recious and oi+seeds7 a)ri 2commodities such as 8heat7 chana7 )uar7 )um and s(ices& Ins9ran?e #rokin= As an insurance roker7 AR (ro!ides to it<s c+ient com(rehensi!e risk mana)ement techni>ues7 oth 8ithin the usiness as 8e++ as on the (ersona+ front &risk mana)ement inc+udes identification7 measurement and assessment of the risk and hand+in) of the risk7 of 8hich insurance is an inte)ra+ (art& The firm dea+s 8ith oth +ife insurance and )enera+ insurance (roducts across a++ insurance com(anies& I&O Mana=e@en: Anand Rathi is a +eadin) (rimar' market distri utor across the countr'& AR<s stron) (erformance in IPOs has een a resu+t of its !ast e6(erience in the market7 a 8ide net8ork of ranches across India7 stron) distri ution ca(a i+ities and a dedicated research team& Anand Rathi has een consistent+' ranked amon) the to( /. distri utors of IPOs on a++ ma4or offerin)s &AR<s IPOs research team (ro!ides c+ients 8ith

in

de(th

o!er!ie8

of

forthcomin)

IPOs

as

8e++

as

in!estment

recommendations& On+ine fi++in) of form is a+so a!ai+a +e& Loan A=ains: !hares Re=is:ra:ion oA C>ien: K Minimum Rs&- +acs (ortfo+io of a((ro!ed shares& K Rs /&.. +acs Mar)in either in Cash or E+i)i +e Securities K To E6ecute Master %oan A)reement K To E6ecute )enera+ (o8er of attorne' K To si)n %oan documents K O(enin) of 59#C $ank A:c to e o(erated ' RG#%& Re89ire@en:7 K C+ient shou+d a+read' ha!e a Tradin) and 9P Account 8ith Anand Rathi #inancia+ Ser!ices %td : Anand Rathi Shares & Stock $rokers %td 8ith Auto2Pa'2in #aci+it'&

K E6ecution of Master %oan A)reement&& $ank Account O(enin) #orm &resen: $9ndin= 2 !89are Up &o>i?;7 Ca:e=or; oA !hares %air6?9: Ra:e H A +/H # .,H C /,B

A((ro!ed %ist are re!ie8ed on the time to time asis& An' de!iation from the a o!e re>uires S(ecia+ A((ro!a+ from the Mana)ement& Mar)in Ca++s on shortfa++s on dai+' asis& S>uare u( action if tota+ co!era)e fa++s e+o8 -CHafter (re2intimation&

&or:Ao>io Mana=e@en: Portfo+io Mana)ement is an im(ortant foundation of shares and mutua+ fund usiness& #rom the in!estors (ers(ecti!e& Acti!e Portfo+io Mana)ement function is o !ious+' im(ortant& Acti!e (ortfo+io mana)ement re>uires detai+ed research of stock traded in the market& =hi+e the o 4ecti!e of research is to esta +ish a !ie8 on the future stock (rices& it usua++' takes an' of the fo++o8in) three a+ternate forms& $9nda@en:a> Ana>;sis 76This ana+'sis in!o+!es research into the o(erations and finances of the com(an' 8ith the o 4ecti!e of estimatin) its future earnin)s and risk (rofi+e& The researchers considers man' factors such as com(an'<s (osition re+ati!e to other industr' (+a'ers7 im(act of the re)u+ator' en!ironment and >ua+it' of mana)ement& Te?hni?a> Ana>;sis76. Technica+ ana+'sis is second ana+'sis too+ for short term or for da' tradin)& As fundamenta+ ana+'sis is used for +on) term in!estments ana+'sis +ike8ise technica+ ana+'sis is made for da' tradin) or short term tradin)& Technica+ ana+'sis a+so make use of !o+umes7 su((ort and resistance +e!e+s7 technica+ indicators and other (arameters 8hich are usefu+ to ana+'Je the share (rice mo!ements in short term or in da' tradin) 59an:i:a:ive Ana>;sis76 This ana+'sis uses mathematica+ mode+s for e>uit' !a+uation and ma' a+so use fundamenta+ and technica+ information& In toda'<s en!ironment com(uters ased mode+s form the asis for such ana+'sis& This ana+'sis is more +ike+' to e done to e!a+uate the market as 8ho+e or (articu+ar sector:industr'&

'.+ MANAGEMENT TEAM

Our senior mana)ement com(rises a di!erse ta+ent (oo+ that rin)s to)ether rich e6(erience from across industr' as 8e++ as financia+ ser!ices& Mr. Anand Ra:hi C Gro9p Chair@an Charted Accountant Past President7 $SE

Mr. &radeep G9p:a C i?e Chair@an P+us /D 3ears of e6(erience in #inancia+ Ser!ices

Mr. A@i: Ra:hi C Mana=in= Dire?:or Charted Accountant & M$A P+us // 'ears of e6(erience in #inancia+ Ser!ices

#oard oA Dire?:ors

Ra:nesh K9@arD %ead C Ins:i:9:iona> E89i:ies Pre!ious+' M9 & E>uti' Strate)ist & 5ead of India Research 8ith citi)rou( *L 'ears, and C%sA *B 'ears,& 5as /C 'ears India research e6(erience& %ed India research teams to M/ rankin)s in Institutiona+ In!estor (o++s in C out of +ast A 'ears& Rakesh Rawa>D %ead6Wea>:h Mana=e@en: Pre!ious+' Eice President7 Pri!ate =ea+th Mana)ement7 9eutsche $ank& =ith o!er -C 'ears career in =ea+th Mana)ement7 he has he+d ke' +eadershi( ro+es in i++ustrious or)aniJations +ike 5industan %e!er and Ran a6' %a oratories& $ Tech *IIT2Nan(ur, and M$A *#inance, from ?$IMS Ro; Rodri=9esD %ead6Inves:@en: #ankin= Pre!ious+' 5ead O In!estment $ankin) for India at $ear Stearns *Ne8 3ork,& 5e a+so 8as G+o a+ 5ead of IT Ser!ices and $PO in!estment ankin) co!era)e& 5e has a+so s(ent four 'ears 8ith Arthur Anderson in $om a' *India,& An M$A *#inance and Internationa+ $usiness, from Stern Schoo+ of $usiness7 Ne8 3ork Uni!ersit'& 5e is a+so a >ua+ified Chartered Accountant and Cost Accountant& A@andeep ! Chaha> %ead C Re:ai> An M$A from S'm iosis7 in his /B 'ears of 8ork e6(erience Aman has 8orked 8ith Standard Chartered $ank Nationa+ Sa+es Mana)er Ca(ita+ Markets Retai+ and Re)iona+ 5ead Priorit' $ankin)& 5e has 8orked 8ith i++ustrious or)aniJations as Citi ank and 3es $ank amon)st others& Prior to 4oinin) AR#S% in Ma' -..@7 he 8as the head of 3es $ank<s o(erations in the North&

C%A&TER C )

INTRODUCTIO N O$ TO&IC

).' INDIAN !%ARE MARKET

In:rod9?:ion There is a market ca++ed ca(ita+ market7 8hich is a !er' im(ortant (art of Indian financia+ s'stem& This market faci+itates com(anies ' meetin) their re>uirements of the +on)2term funds& It means 8hene!er the com(anies re>uire funds for its usiness o(erations7 it can raise mone' ' issuin) e>uit' shares7 de entures and etc to the (u +ic& These shares & de entures raise the need for such or)aniJations 8hich 8i++ faci+itate the u'in) & se++in) of these shares & de entures& Then stock e6chan)e came into e6istence& In this securities market7 there are three cate)ories of (artici(ants first cate)or' contain issuer of securities7 second t'(e of (artici(ants are the in!estors in the securities and +ast cate)or' contain intermediaries& The issuers are the orro8ers7 8ho issue securities to raise funds& The in!estors7 8ho ha!e mone' in sur(+us to in!est in securities and the intermediaries7 are the a)ents 8ho match the needs of users and su((+iers of funds ' char)in) commission for that& These intermediaries (erform their function to he+( oth the issuers and in!estors to achie!e their res(ecti!e )oa+s& There are +ar)e !ariet' and num er of intermediaries (ro!idin) !arious ser!ices in the Indian securities market& Meanin= oA s:o?k eE?han=e The stock e6chan)e in India has 8itnessed a s(ectacu+ar )ro8th durin) the +ast decade& The de!e+o(ment of the ca(ita+ market is ' and +ar)e +inked 8ith the de!e+o(ment of (u +ic +imited com(anies& The stock e6chan)e is an im(ortant se)ment of ca(ita+ market7 8hich7 not on+' (ro!ides ca(ita+ ut a+so he+(s in!estors to trade in the securities& The Stock E6chan)e is asica++' a market (+ace 8here securities are (urchased and so+d for a consideration throu)h its

mem ers actin) as rokers& The Stock E6chan)es are !er' im(ortant in the economic +ife of the countr'& Stock market he+(s in the )ro8th of industr' and trade& Accordin) to sec& -*4, of the securities contracts *Re)u+ation, act& /AC@7 Stock E6chan)e means an' od' to indi!idua+s 8hether incor(orated or not constituted for the (ur(ose of assistin)7 re+atin) or contro++in)7 the usiness of u'in)7 se++in) or dea+in) in securities&" I@por:an?e oA !:o?k EE?han=e The Stock E6chan)e are the im(ortant se)ments of their ca(ita+ market7 if the Stock E6chan)e are 8e++ re)u+ated and 8ork smooth+' then it is an indicator of hea+th' ca(ita+ market& If the state of the Stock E6chan)e is )ood and o!era++ ca(ita+ market 8i++ )ro8 and other8ise it can suffer a )reat set ack 8hich is not )ood for the countr'& Go!ernment at !arious sta)es contro+s the stock market and ca(ita+ market& The im(ortance of Stock E6chan)e is as fo++o8s1 2 Pro!idin) re)u+ar market to the securities& Encoura)in) in!estment ha its in )enera+ (u +ic& Pro!idin) +i>uidit' to the securities& Pro!idin) a mechanism for continuous e!a+uation of the securities& Encoura)in) ca(ita+ formation& Actin) as an intermediar' et8een u'ers and se++ers& Pro!idin) sta i+it' in the (rices of securities& Pu +ishin) re)u+ar+' stock (rice >uotation& Pro!idin) faci+it' of a tradin) ha++ for the mem ers transact usiness& Protectin) the interest of the in!estors& Pro!idin) a etter (+atform for in!estors to in!est their !a+ua +e mone'& Makin) the transaction more con!enient for oth7 the u'ers and se++ers&

Ori=in and Deve>op@en: oA !:o?k EE?han=e The first Stock E6chan)e 8as esta +ished in %ondon in /DD07 and then the trend of Stock E6chan)e )oes on& %ater on man' other countries +ike #rance7 German'7 USA and India etc fo++o8ed the cu+ture of stock e6chan)e& In India the first stock e6chan)e 8as esta +ished in $om a' in/LDC& After the esta +ishment of first stock e6chan)e man' more stock e6chan)e came into e6istence& So far )o!ernment of India has reco)niJed -0 Stock E6chan)es in the countr'& After the esta +ishment of !arious Stock E6chan)es in India7 there 8as a need for such or)aniJation7 8hich can contro+ the o(erations of the stock e6chan)es& Then )o!ernment of India introduced SE$I Act7 /AA-7 under this act SE$I *Securities and E6chan)e $oard of India, came into e6istence& No8 SE$I is there7 to (rotect the interest of in!estors in securities market7 to monitor and re)u+ate the 8orkin) of the Stock E6chan)es& SE$I took care of the de!e+o(ment of these Stock E6chan)es a+so& !e?9ri:ies @arke: Securities market is the market7 8here acti!ities re+ated to shares7 de entures& Preference shares7 onds7 etc& are dea+t& These (ro!ide the market (+ace 8here u'in) and se++in) of securities and shares are done& There are t8o t'(e of securities market7 these are1 2 &ri@ar; @arke: Primar' market dea+s 8ith ne8 securities that are securities7 8hich 8ere not (re!ious+' a!ai+a +e and are offered for in!estin) to the (u +ic& It is the market for raisin) fresh ca(ita+ in the form of shares and de entures& It (ro!ides the issuin) com(an' 8ith additiona+ funds for startin) a ne8 enter(rise or for

either e6(ansion or di!ersification of an e6istin) one7 and thus its contri ution to com(an' financin) is direct& The ne8 offerin)s ' the com(anies are made either as an initia+ (u +ic offerin) *IPO, or ri)ht issue& !e?ondar; @arke: Secondar' market is the market for u'in) and se++in) securities of the e6istin) com(anies& Under7 these securities are traded after ein) initia++' offered to the (u +ic in the (rimar' market and +isted on the stock e6chan)e& The stock e6chan)es are the e6c+usi!e centers for tradin) of securities& It is a sensiti!e arometer that ref+ects the trends in the econom' throu)h f+uctuation in the (rices of !arious securities& It can e define as7 a od' of indi!idua+s7 8hether incor(orated or not7 constituted for the (ur(ose of assistin)7 re)u+atin) and contro++in) the usiness of u'in)7 se++in) and dea+in) in securities&" SE$I has issued !arious )uide+ines for the o(erations of secondar' market& The secondar' market o(erates throu)h t8o mediums7 name+'7 the o!er2the2 counter *OTC, market and the e6chan)e2traded market& OTC markets are informa+ markets 8here trades are ne)otiated& Most of the trades in the )o!ernment securities are in the OTC market& A++ the s(ot trades 8here securities are traded for immediate de+i!er' and (a'ment take (+ace in the OTC market& The e6chan)es in India fo++o8 a s'stematic sett+ement (eriod& A++ the trades takin) (+ace o!er a tradin) c'c+e *da'PT, are sett+ed to)ether after a certain time *TI- da',& The trades e6ecuted on e6chan)es are c+eared and sett+ed ' a c+earin) cor(oration& The c+earin) cor(oration acts as a counter (art' and )uarantees sett+ement& A !ariant of the secondar' market is the for8ard market7 8here securities are traded for future de+i!er' and (a'ment& A !ariant of the for8ard market is #utures and O(tions market& Present+' on+' t8o e6chan)es !iJ&7 Nationa+ Stock E6chan)e of India %td& *NSE, and $om a' Stock E6chan)e *$SE, (ro!ide tradin) in the #utures & O(tions&

).) INDIAN !TOCK EXC%ANGE!

In a++ there are -0 stock e6chan)es in India7 ut the t8o most (o(u+ar amon)st a++ of them are12 / Nationa+ Stock E6chan)e*NSE, - $om a' stock e6chan)e*$SE, No87 +et<s discuss the histor'7 functiona+it' and other im(ortant detai+s a out these t8o im(ortant stock e6chan)es of India&
1.

Na:iona> !:o?k EE?han=e

*NSE<s $ui+din), $ased on Pher8ani Committees re(ort su mitted in ?une7 /AA/7 the Nationa+ Stock E6chan)e of India %imited *NSEI%,& =as esta +ished to (ro!ide an efficient s'stem e+iminatin) a++ the deficiencies of stock e6chan)e and is )eared to meet the re>uirements of the +ar)e in!estor (o(u+ation& It is a sin)+e stock e6chan)e and a++ other centers are e+ectronica++' +inked to this e6chan)e&

NSEI% 8as (romoted ' +eadin) #Is at the ehest of Go!ernment of India and 8as incor(orated in No!em er /AA- as a ta62.(a'in) com(an' un+ike other stock e6chan)es in the countr'& On its reco)nition as a stock e6chan)e under the Securities Contracts *Re)u+ation, Act7 /AC@ in A(ri+ /AA0 NSEI% commenced o(erations in the =ho+esa+e 9e t Market *=9M, se)ment in ?une7 /AAB7 o(erations in the Ca(ita+ Market *CM, in No!em er /AAB7 and o(erations in deri!ati!es se)ment in ?une -...& 9urin) /AAA2-...7 NSEI% accounted for B/H of tota+ turno!er in e>uities and CCH of turno!er of )o!ernment securities in the countr'& Capi:a> Marke: !e=@en:12 The Ca(ita+ Market *CM, se)ment of NSEI% (ro!ides a fu++' automated screen ased tradin) s'stem for tradin) of e>uit' and (reference shares7 de entures7 8arrants and cou(ons& The tradin) s'stem7 kno8n as the Nationa+ E6chan)e for Automated Tradin) *NEAT, s'stem7 is an anon'mous order2dri!en s'stem and o(erates on a strict (rice:time (riorit'& It ena +es mem ers from across the countr' to trade simu+taneous+' 8ith enormous ease and efficienc'& Who>esa>e De<: Marke: !e=@en: FWDMG76 The =9M se)ment (ro!ides the on+' forma+ tradin) (+atform for tradin) of a 8ide ran)e of de t securities& Initia++'7 )o!ernment securities7 treasur' i++s and onds issued ' (u +ic sector undertakin)s *PSUs, 8ere made a!ai+a +e for tradin)& This ran)e has een 8idened to inc+ude non2traditiona+ instruments +ike f+oatin) rate onds7 Jero cou(on onds7 inde6 onds7 commercia+ (a(ers7 certificates of de(osit7 cor(orate de entures7 state )o!ernment +oans7 S%R and non2S%R onds issued ' financia+ institutions7 units of mutua+ funds and securities de t& Deriva:ives !e=@en:76 In the 9eri!ati!es se)ment7 NSCC% has admitted c+earin) Mem ers *CMs, distinct from Tradin) Mem er *TMs, in +ine 8ith the -2tier mem ershi( structure sti(u+ated ' SE$I to ena +e 8ider (artici(ation in

the 9eri!ati!es Se)ment& A++ trades on the 9eri!ati!es se)ment are c+eared throu)h a CM of NSCC%& Nift' Inde6 futures contracts are case sett+ed7 i&e& throu)h e6chan)e of case differences in !a+ue& Sett+ement is done on a dai+' asis ' markin) to market a++ o(en (ositions on the asis of the dai+' sett+ement (rice& The contracts are fina++' sett+ed on e6(ir' of the Nift' inde6 futures contract 8hen NSCC% marks the o(en (ositions of a CM to the c+osin) (rice of the under+'in) inde6 and resu+tin) (rofit:+oss is sett+ed in cash& Tradin= and !e::>e@en: a: N!E76 NSE introduced for the first time in India7 fu++' automated screen ased tradin)& It uses a modem7 fu++' com(uteriJed tradin) s'stem desi)ned to offer in!estors across the +en)th and readth of the countr' a safe and eas' 8a' to in!est& The NSE tradin) s'stem ca++ed QNationa+ E6chan)e for Automated Tradin)< *NEAT,< is a fu++' automated screen ased tradin) s'stem7 8hich ado(ts the (rinci(+e of a order dri!en market&
2.

#o@<a; !:o?k EE?han=e

*$SE<s $ui+din), The stock e6chan)e7 $om a'7 (o(u+ar+' kno8n as $SE" 8as esta +ished in /LDC as The Nati!e Share and Stock $rokers Association"& It is the o+dest one in Asia7 e!en o+der than the Tok'o Stock E6chan)e7 8hich 8as esta +ished in /LDL& it is a !o+untar' non2(rofit makin) Association of Persons *AOP, and is current+' en)a)ed in the (rocess of con!ertin) itse+f into demutua+ised and cor(orate entit'& It has e!o+!ed o!er the 'ears into its (resent status as the (remier Stock e6chan)e in the countr'& It is the first stock e6chan)e in the countr' to ha!e o tained (ermanent reco)nition in /AC@ from the Go!t& of the India under the Securities Contracts *Re)u+ation, Act7 /AC@& The $SE (ro!ides market for tradin) in securities7 de t and deri!ati!es u(ho+ds the interests of the in!estors and ensures redress of their )rie!ances 8hether a)ainst the com(anies or its o8n mem er2 rokers& It a+so stri!es to educate and en+i)hten the in!estors ' conductin) in!estor education (ro)rams and makin) a!ai+a +e to them necessar' informati!e in(uts& Tradin= a: #!E The $SE had an o(en outcr' tradin) s'stem ti++ March /AAC 8here mem er2 rokers used to assem +e in a tradin) rin) for doin) transactions in securities& It had s8itched o!er to a fu++' automated com(uteriJed made of tradin) kno8n as $O%T *$SE on %ine Tradin), s'stem 8&e&f& March /B7 /AAC& Throu)h the $O%T s'stem7 the mem er2 rokers no8 enter orders for (urchase or se++ of securities from Trade =ork Stations *T=Ss, insta++ed in their offices instead of assem +in) in the tradin) rin)& This s'stem7 8hich 8as initia++' oth order and >uote dri!en is current+' on+' order dri!en& The faci+it' of (+acin) of >uotes has een discontinued 8&e&f&7 Au)ust /07 -../ in !ie8 of +ack of market interest and to im(ro!e s'stem2 matchin) efficienc'& The s'stem7 8hich is no8

on+' order dri!en7 faci+itates more efficient2in2(uttin)7 (rocessin)7 automatic matchin) and faster e6ecution of orders in a trans(arent manner& The tradin) in securities at the e6chan)e is conducted in an anon'mous en!ironment and the counter(art' identit' is not re!ea+ed& The u'ers and se++ers of securities do not kno8 the names of each other& The scri(s traded on the $SE ha!e een c+assified into QA<7 Q$/<7 Q$-<7 Q#<7 QG< and QJ< )rou(s& The e6chan)e has for the )uidance and enefit of in!estors c+assified the scri(s in the E>uit' Se)ment in QA<7<$/< &<$-< ased on certain >ua+itati!e and >uantitati!e (arameters 8hich inc+ude num er of trades7 !a+ue traded7 etc& for the )uidance and enefit of in!estors& The Q#< )rou( re(resents the fi6ed income securities 8herein D0. securities 8ere +isted as on ?une 0.7 -..0& The e6chan)e commenced tradin) in Go!t& securities for retai+ in!estors under QG< )rou( 8&e&f& ?anuar' /@7 -..0 and LC Go!t& securities are traded on the e6chan)e under this )rou( as on ?une 0.7 -..0& The QR< )rou( 8as introduced ' the e6chan)e in ?u+' /AAA and inc+udes the com(anies 8hich ha!e fai+ed to com(+' 8ith the +istin) re>uirements of the e6chan)e and:or ha!e fai+ed to reso+!e in!estor com(+aints or ha!e not made the re>uired arran)ements 8ith oth the 9e(ositories7 !iJ&7 Centra+ 9e(ositor' Ser!ices *I, %td& *C9S%, and Nationa+ Securities 9e(ositor' %td& *NS9%, for demateria+iJation of their securities& Once the com(anies fina+iJe the arran)ements for demateria+iJation of their securities7 tradin) and sett+ement in their scri(s 8ou+d e shifted to their res(ecti!e erst8hi+e )rou(s&

The e6chan)e a+so (ro!ides a faci+it' to the market (artici(ants for on2 +ine tradin) in C" )rou( 8hich co!ers the odd +ot securities in (h'sica+ form in QA<& Q$/<7<$-< and QR< )rou(s and Ri)hts renunciations in a++ the )rou(s of scri(s in the E>uit' Se)ment& The QC< )rou( faci+it' can a+so e used ' sma++ in!estors for se++in) u(on C.. shares in (h'sica+ form in res(ect of scri(s of com(anies 8here trades are re>uired to e com(u+sori+' sett+ed ' a++ in!estors in demat mode& This faci+it' of se++in) (h'sica+ shares in com(u+sor' demat scri(s is ca++ed in E6it Route Scheme& NI$T" NI#T3 is the sensiti!it' inde6 NSE *NATIONA% STOCN EFC5ANGE, The NSEGs ke' inde6 is the S&P CNF Nift'7 kno8n as the Nift'7 an inde6 of fift' ma4or stocks 8ei)hted ' market ca(ita+isation& NI#T3 is a asket of C. constituent stocks& It consists of the C. +ar)est and most acti!e+' traded stocks7 re(resentati!e of !arious sectors7 on the Nationa+ Stock E6chan)e& !EN!EX SENSEF is the sensiti!e inde6 of $SE *$OM$A3 STOCN EFC5ANGE, SENSEF is a asket of 0. stocks& It consists of the 0. +ar)est and most acti!e+' traded stocks7 re(resentati!e of !arious sectors7 on the $om a' Stock E6chan)e& Re=iona> !:o?k EE?han=es76

Ahmeda ad Stock E6chan)e $an)a+ore Stock E6chan)e $hu anesh8ar Stock E6chan)e

Ca+cutta Stock E6chan)e Cochin Stock E6chan)e Coim atore Stock E6chan)e 9e+hi Stock E6chan)e Gu8ahati Stock E6chan)e 5'dera ad Stock E6chan)e ?ai(ur Stock E6chan)e %udhiana Stock E6chan)e Madh'a Pradesh Stock E6chan)e Madras Stock E6chan)e Ma)adh Stock E6chan)e Man)a+ore Stock E6chan)e Meerut Stock E6chan)e OTC E6chan)e Of India Pune Stock E6chan)e Saurashtra Nutch Stock E6chan)e Uttar Pradesh Stock E6chan)e Eadodara Stock E6chan)e

$9n?:ions oA s:o?k eE?han=e

There -0 stock e6chan)es in India inc+udin) O!er The Counter E6chan)e of India *OTCEI,7 Nation Stock E6chan)e *NSE, and inter2 Connected Stock E6chan)e *ICSE,& A++ of them are re)u+ated in terms of Securities Contract *Re)u+ation, Act7 /AC@ and SE$I Act7 /AA- and the ru+es and re)u+ations made there under& Some of the e6chan)es started of as !o+untar' non2 (rofit associations such as $om a' Stock E6chan)e *$SE,& And Indore Stock E6chan)e& The stock e6chan)e at Chennai7 ?ai(ur7 5'dera ad and Pune 8ere incor(orated as com(anies +imited ' )uarantee& The other stock e6chan)es are com(anies +imited ' shares and incor(orated under the Com(anies Act7 /AC@ or ear+ier acts& The stock e6chan)es are mana)ed ' $oard of 9irectors or Counci+ or Mana)ement consistin) of e+ected rokers and re(resentati!es of Go!ernment and Pu +ic a((ointed ' SE$I& The $oards of stock e6chan)e are em(o8ered to make and enforce ru+es7 'e2+a8s and re)u+ations 8ith 4urisdiction o!er a++ its mem ers& Mem ershi( of stock e6chan)e is )enera++' )i!en to (erson financia++' sound and 8ith ade>uate e6(erience: trainin) in stock market& Their enro+ment as mem er is re)u+ated and contro++ed ' SE$I to 8hom the' ha!e to (a' an annua+ char)e& A mem er of the stock e6chan)e is ca++ed Q roker< 8ho can transact on eha+f of his c+ients as 8e++ as on his o8n eha+f& A non2mem er can dea+ in securities on+' throu)h mem ers& A mem er can Act as a $ad+a #inancier7 Commission $roker7 9ea+er in Odd +ots7 Go!ernment Securities7 ?o er7 Market Maker or Under 8riter& 5e can a+so take the assistance of su 2 roker 8hom he can a((oint under the (rocedure of re)istration& =e can rief+' understand the fo++o8in) functions of stock e6chan)e /& The or)aniJed and re)u+ated ca(ita+ market moti!ates indi!idua+ to sa!e and in!est funds& The a!ai+a i+it' of safe and (rofita +e source of

in!estment is an essentia+ criteria to create (ro(ensit' to sa!e and in!est on the (art of the earnin) (u +ic& -& It (ro!ides for the in!estors a safe and (roducti!e channe+ for in!estment of sa!in)s and secures the recurrin) enefit of return thereon7 as +on) as the sa!in)s are retained& 0& It (ro!ides +i>uidit' to the sa!in)s of the in!estors7 ' de!e+o(in) a secondar' ca(ita+ market7 and thus makes e!en short term sa!in)s7 consistent+' a!ai+a +e for +on)2term users B& It thus mo i+iJes sa!in)s of +ar)e num er of indi!idua+s7 fami+ies and associations and make the same a!ai+a +e for meetin) the +ar)e ca(ita+ needs of or)aniJed industr'7 trade and usiness and for (ro)ress and de!e+o(ment of the countr' as a 8ho+e and its econom'& To dischar)e these functions7 the or)aniJed ca(ita+ market acce(ts a dua+ res(onsi i+it'

To de!e+o( the market and to (romote sa!in)s & In!estmentS To re)u+ate the (+a'ers in the market !is2T2!is the in!estor and to enforce market disci(+ine7 throu)h market re)u+ators and re)istered intermediaries& Such that the unor)aniJed sma++ man is a +e to dea+ throu)h these re)u+ator' odies and the intermediaries7 and need not necessari+' has to come into direct contact 8ith the u+timate seekers of his sa!in)s&

!:o?k EE?han=e Tradin= Me?hanis@ The stock e6chan)e is a ke' institution the issue and sa+e of !arious t'(es of securities& It is a (i!ot around 8hich e!er' acti!it' of the ca(ita+ market re!o+!es& In the a sence of the stock e6chan)e7 the (eo(+e 8ith sa!in) 8ou+d hard+' in!est in cor(orate securities for 8hich there 8ou+d e no

+i>uidit' * u'in) and se++in) faci+it',& Cor(orate in!estments from the )enera+ (u +ic 8ou+d ha!e een thus +o8er& Stock e6chan)e thus re(resents the market (+ace for u'in) and se++in) of stock e6chan)e and ensurin) +i>uidit' to them in the interest of the in!estors& The stock e6chan)e are !irtua++' the ner!e centre of the ca(ita+ market and ref+ect the hea+th of the countr'< econom' as a 8ho+e& Securities are traded in three different 8a's in stock e6chan)es rin)7 name+'2 sett+ement asis7 s(ot asis and cash asis& Shares of com(anies 8hich are not in the s(ot +ist are kno8n as Qcash< shares or Q$< Cate)or' shares& The' are traded on cash asis or de+i!er' asis and cannot e traded on sett+ement asis& The actua+ de+i!er' of securities and (a'ment has to e made on or efore the sett+ement date fi6ed in the case of cash asis tradin)& As far as s(ot tradin) is concerned the actua+ de+i!er' of securities must e made to the u'in) roker 8ithin BL hours of the contract& It is e6(ected that the se++er 8ou+d e (aid ' the u'er immediate+' on de+i!er' of securities& The securities 8hether the s(ecified +ist or cash +ist can e traded on s(ot asis or cash asis& T;pes oA se?9ri:ies76 Securities traded in the stock e6chan)e can e c+assified as under1 /& %isted c+eared securities1 the securities admitted for dea+in) on stock e6chan)e after com(+'in) 8ith a++ the +istin) re>uirements and (+a'ed ' the $oard on the +ist of c+eared securities are ca++ed ' this name&

-& Permitted securities1 the securities +isted on some of the reco)nised stock e6chan)e7 8hen (ermitted to e traded ' those stock e6chan)es 8here the' are not +isted are ca++ed (ermitted securities& Such (ermission is )i!en if suita +e (ro!isions e6ist in the re)u+ations of the concerned stock e6chan)es& Mar=ins An ad!ance (a'ment of a (ortion of the !a+ue of a stock transaction& The amount of credit a roker or +ender e6tends to a customer for stock (urchase& Mar=in Tradin= Mar)in tradin) 8as introduced ' SE$I to cur s(ecu+ati!e dea+in)s in shares +eadin) to !o+ati+it' in the (rices of stock e6chan)es& Initia+ mar)in" means the minimum amount7 ca+cu+ated as a (ercenta)e of market !a+ue of the securities7 ca+cu+ated 8ith res(ect to +ast tradin) da'<s c+osin) (rice7 to e maintained ' c+ient 8ith the roker& =hen the a+ance de(osit in the c+ient<s mar)in account fa++s e+o8 the re>uired maintenance mar)in7 the roker sha++ (rom(t+' make mar)in ca++s& 5o8e!er7 no further e6(osure can e )ranted to the c+ient on the asis of an' increase in the market !a+ue of the securities& The roker ma' a+so +i>uidate the securities if the c+ient fa++s to meet the mar)in ca++s made ' the roker or fai+s to de(osit the che>ue on the da' fo++o8in) the da' on 8hich the mar)in ca++ has een made or the che>ue has een dishonored& The roker ma' a+so +i>uidate the securities in case the c+ient<s de(osit in the mar)in account *after ad4ustment for mark to market +osses, fa++s to 0.H or +ess of the +atest market !a+ue of the securities7 in the interre)num et8een makin) of the mar)in ca++ and recei(t of (a'ment from the c+ient&

The roker must disc+ose to the stock e6chan)e detai+s on )ross e6(osure inc+udin) the name of the c+ient7 uni>ue identification num er7 name of the scri( and if the roker has orro8ed funds for the (ur(ose of (ro!idin) mar)in tradin) faci+ities7 name of the +ender and amount orro8ed7 on or efore /Noon on the fo++o8in) da'& Stock e6chan)e disc+oses scri( 8ise )ross outstandin) in mar)in accounts 8ith a++ rokers to the market& Such disc+osures re)ardin) mar)in tradin) done on an' da' sha++ e made a!ai+a +e after the tradin) hours on the fo++o8in) da' throu)h the 8e site& Thus7 mar)in tradin) acts as a check on the tendenc' of c+ients to mani(u+ate markets ' (+acin) orders on rokers 8ithout ha!in) ade>uate mone' or securities to acku( the transaction& Mar)in tradin) 8i++ a+so acts as cur on short se++in) and short u'in)& The reduction in a o!e tendencies on the (art of c+ients reduces !o+ati+it' of (rices on the stock e6chan)e and (ro!ides sta i+it' to the common in!estors& Mar)in tradin) mechanism a+so ensures trans(arenc' in dea+in)s in securities and (u +ic e6(osure of the information re)ardin) the ackin) ehind a++ ma4or securities transactions& In the Indian ca(ita+ markets (articu+ar+' e6cessi!e short se++in) and market (ositionin) ha!e sta i+iJin) force& #ook C>os9re and Re?ord Da:e $ook c+osure is the (eriodic c+osure of the Re)ister of Mem ers and Transfer $ooks of the com(an'7 to take a record of shareho+ders to determine their entit+ement to di!idends or to onus or ri)ht shares or an' other ri)hts een ram(ant& Mar)in tradin) has acted as a

(ertainin) to shares& Record date is the date on 8hich the records of a com(an' are c+osed for the (ur(ose of determinin) the stock ho+ders to 8hom di!idends7 (ro6'<s ri)hts etc& are to e sent& In accordance 8ith Section /CB of the Com(anies Act7 /AC@ a com(an' ma' c+ose the re)ister of mem ers for a ma6imum of BC da's in a 'ear and for not more than 0. da's at an' one time& $ook c+osure ecomes necessar' for (ur(ose of (a'in) di!idend7 makin) ri)hts issue or onus issue& The +isted com(an' is re>uired to )i!e notice of ook c+osure in a ne8s (a(er at +east D da's efore the commencement of the ook c+osure& The mem ers 8hose name a((ears in the re)ister of mem ers on the +ast date of ook c+osure are entit+ed to recei!e the enefits of di!idend7 ri)ht shares or onus shares as the case ma' e& Tradin= oA &ar:>; &aid !hares and De<en:9res Com(anies fi6 the +ast date for (a'ment of a++otment or ca++ mone' in case of (art+' (aid shares or de entures and intimate this to a++ the stock e6chan)e 8herein such shares or de entures are +isted& $ased on the date fi6ed ' com(an'7 the stock e6chan)es determine the sett+ement date u(to 8hich transactions in the scri( 8i++ e deemed to e )ood for de+i!er'& After the said date7 transactions in the securities take (+ace on+' if the' are (aid u( to the e6tent mone' has een ca++ed u(& Trend Line =hen the (rice of shares mo!es in a (articu+ar direction 8hich (ersists for a (eriod of time7 a (rice +ine is re)arded as esta +ished& =hen the mo!ement is u(8ard7 the trend is ca++ed Q$U%%IS5< and 8hen the mo!ement is do8n8ard it is ca++ed Q$EARIS5<& $ear market is a 8eak or fa++in) market characteriJed ' the dominance of se++ers& =hereas $u++ (hase there 8i++ e a

shar( rise in the dai+' turno!er of ke' scri( and in a $EAR (hase the re!erse 8i++ e the case& T9rnover and O9:s:andin= &osi:ion The net turno!er and outstandin) (ositions in !arious scri(s sho8 the e6tent of $U%%IS5 interest in them and are used a+on) 8ith tradin) !o+ume to 4ud)e the intensit' of the (hase 8hether $U%%IS5 or $EARIS5& In a $U%% (hase there 8i++ e a share rise in the dai+' turno!er of ke' scri( and in a $EAR (hase the re!erse 8i++ e the case& Marke: Makin= Thou)h there are L7C.. com(anies +isted on the stock e6chan)e in India on+' a fe8 of them are ein) acti!e+' traded in the market& Thus the market sentiment 8as not re(resentati!e of a 8ide ran)e of industries or com(anies7 ecause most+' concentrated on a fe8 scri(s& This +eads one to conc+ude that mere +istin) of securities does not (ro!ide +i>uidit' to scri(s& A (rocess kno8n as market makin) 8as c+ear+' needed to ui+d u( +i>uidit'& The market maker ' offerin) a t8o 8a' >uote not on+' increases the su((+' of scri(s ut a+so tri))ers of demand in the scri(s& SE$I has taken the !ie8 that market makin) 8i++ )o a +on) 8a' in reducin) the ane of concentration an thus e+iminatin) the inf+uence of the un a+anced Sensiti!e Inde6& In the case of OTCEI e!er' com(an' seekin) +istin) shou+d a((oint t8o market makers& The s(onsor has to e com(u+sori+' a market maker for 0 'ears and arran)ed for at +east one more market maker for one 'ear& Market makers are merchant $ankers 8i++in) to make a secondar' market in securities throu)h se+ection and s(ecia+iJation& The' Act as dea+er cum stockiest and dis(+a' id and other (rice 8ithout char)in) an' commission or rokera)e& Their (rofit mar)in is s(read et8een id and offer (rices& A !o+untar' market maker can e a((ointed for a (eriod of @ months& The minimum market

de(th for market makers is 0 market +ots of /.. shares each& After the initia+ (eriod the 4o of market markin) can e assi)ned to another mem er or dea+er& In A(ri+ /AA07 SE$I issued )uide+ines for market makin) to e introduced in the B Metro(o+itan E6chan)es of Mum ai7 No+kata7 Chennai and 9e+hi& !e::>e@en: !;s:e@ Sett+ement is the (rocess of nettin) of transactions and actua+ de+i!er':recei(t of securities and transfer deeds a)ainst recei(ts: (a'ment of a)reed amount& It is necessar' to make a sett+ement to kno8 the net effect of a series of transaction durin) a )i!en (eriod& Sett+ement date is the date s(ecified for de+i!er' of securities et8een securities firms& #or administrati!e con!enience7 a stock e6chan)e di!ides the 'ear into a num er of sett+ement (eriods so as to ena +e mem ers to sett+e their trades& A++ transactions e6ecuted durin) the sett+ement (eriod are sett+ed at the end of the sett+ement (eriod& Sett+ement risk or (rinci(a+ risk is the risk that the se++er of a securit' or funds de+i!ers its o +i)ation ut does not recei!e (a'ment or that the u'er of a securit' or funds makes (a'ment ut does not rece0i!e de+i!er'& In this e!ent7 the fu++ (rinci(a+ !a+ue of the securities or funds transferred is at risk&

!ECUTITIE! AND EXC%ANGE #OARD O$ INDIA F!E#IG

$efore /AA-7 the three (rinci(a+ Acts7 )o!ernin) the securities market 8ere *a, the ca(ita+ issues *Contro+, Act7 /ABD7 8hich restricted issuer<s access to the securities market and contro++ed the (ricin) of issuesS * , the Com(anies Act7 /AC@7 8hich sets out the code of conduct for the cor(orate sector in re+ation to issue7 a++otment and transfer of securities7 and disc+osures to e made in (u +ic issuesS and *c, the Securities Contracts *Re)u+ation, Act7 /AC@7 8hich (ro!ides for re)u+ation of transactions in securities throu)h contro+ o!er stock e6chan)es& The ca(ita+ issues *Contro+, Act7 /ABD had its ori)in durin) the 8ar in /AB0 8hen the o 4ecti!e 8as to channe+ resources to su((ort the 8ar effort& The Act 8as retained 8ith some modifications as a means of contro++in) the raisin) of ca(ita+ ' com(anies and to ensure that nationa+ resources 8ere channe+ed into (ro(er +ines7 i&e&7 for desira +e (ur(oses to ser!e )oa+s and (riorities of the )o!ernment7 and to (rotect the interests of in!estors& Under the Act7 an' firm 8ishin) to issue securities had to o tain a((ro!a+ from Centra+ Go!ernment7 8hich a+so determined the amount7 t'(e and (rice of the issue& Ma4or (art of the +i era+iJation (rocess 8as the re(ea+ of the Ca(ita+ Issues *Contro+, Act7 /ABD in Ma' /AA-& =ith this7 Go!ernment<s contro+ o!er issue of ca(ita+7 (ricin) of the issues7 fi6in) of (remium and rates of interest on de entures etc& ceased& The office 8hich administered the Act 8as a o+ished

and the market 8as a++o8ed to a++ocate resources to com(etin) uses& The Go!ernment has set u( the Securities and E6chan)e $oard of India *SE$I, in A(ri+7 /ALL& 5o8e!er to ensure effecti!e re)u+ation of the market7 SE$I Act7 /AA- 8as enacted to em(o8er SE$I 8ith statutor' (o8ers&

*SE$I<s $ui+din),

$9n?:ions oA !E#I SE$I has een o +i)ated to (rotect the interest of the in!estors in securities and to (romote and de!e+o(ment of7 and to re)u+ate the securities market ' such measures as it thinks fit& The measures referred to therein ma' (ro!ide forS FaG Re)u+atin) the usiness in stock e6chan)es and an' other securities marketsS F<G Re)isterin) and re)u+atin) and 8orkin) of stock rokers7 su 2 rokers7 share transfer a)ents7 ankers to an issue7 trustees of trust deeds7 re)istrars to an issue7 merchant ankers7 under8riters7 (ortfo+io

mana)ers7 in!estment ad!isers and such other intermediaries 8ho ma' e associated 8ith securities markets in an' mannerS F?G Re)isterin) and re)u+atin) the 8orkin) of the de(ositories7 (artici(ants7 custodians of securities7 forei)n institutiona+ in!estors7 credit ratin) a)encies and such other intermediaries as SE$I ma'7 e notification7 s(ecif' in this eha+fS FdG Re)isterin) and re)u+atin) the 8orkin) of !enture ca(ita+ funds and co++ecti!e in!estment schemes inc+udin) mutua+ fundsS FeG Promotin) and re)u+atin) se+f2re)u+ator' or)aniJationsS FAG Prohi itin) fraudu+ent and unfair trade re+atin) to securities marketsS F=G Promotin) in!estor< education and trainin) of intermediaries of securities marketsS FhG Prohi itin) insider tradin) in securitiesS FiG Re)u+atin) su stantia+ ac>uisition of shares and take2o!er of com(aniesS FHG Ca++in) for information from7 undertakin) ins(ection7 conductin) in>uiries and audits of the stock e6chan)es7 mutua+ funds7 other (ersons associated 8ith the securities market7 intermediaries and se+f2 re)u+ator' or)aniJations in the securities marketS FkG Ca++in) for information and record from an' ank or an' other authorit' or oard or cor(oration esta +ished or constituted ' or under an' Centra+7 State or Pro!incia+ Act in res(ect of an' transaction in securities 8hich is under in!esti)ation or in>uir' ' the oardS F>G Performin) such functions and e6ercisin) accordin) to Securities Contracts *Re)u+ation, Act7 /AC@7 as ma' e de+e)ated to it ' the Centra+ Go!ernmentS F@G %e!'in) fees or other char)es for carr'in) out the (ur(ose of this sectionS

FnG Conductin) research for the a o!e (ur(osesS FoG Ca++in) from or furnishin) to an' Ssuch a)encies7 as ma' e s(ecified ' SE$I7 such information as ma' e considered necessar' ' it for the efficient dischar)e of its functionsS FpG Performin) such other functions as m' e (rescri ed

!o@e O:her Ter@s re>a:ed :o !hare Marke: #9>> A (articu+ar kind of in!estor 8ho (urchases shares in the e6(ectation that the market (rice of that com(an'<s share 8i++ increase& S:he se++s her:his stock at a hi)her (rice and (ockets the (rofit& Sim(+' (ut 7the u++s u' at a +o8er (rice and se++ at a hi)her (rice& #or instance7 if a u++ u's com(an'<s share at Rs /..7 s:he 8ou+d (refer se++in) the same stock at Rs /-. or an' (rice hi)her than Rs /.. to make a (rofit& Usua++' 7 a u++s u's first at a +o8er (rice and se++s +ater at a (rice hi)her than her:his cost of (urchase& $u++s are ha((' 8hen the markets *the Sense6 and Nift' , mo!e u(8ard& A fa++in) market u++s into hi ernation& #ear $u++<s counter(art is the ear& A ear se++s stocks first that s:he o8ns or orro8s from7 sa' a friend7 and then (urchase the same >uantit' of shares at a +o8er (rice&

If a ear se++s first7 sa' /.. shares of Ran a6' at Rs B..7 and +ater (urchases the same num er of shares at Rs 0DC7then her:his (rofit is Rs -C (er share& This 8a' s:he has )ot ack the /.. shares of Ran a6' and simu+taneous+' made a (rofit of rs -C..&The shares can +ater e returned to the ear<s friend if s:he had orro8ed the same from a friend& $ears are ha((' in the fa++in) market& Ra>>; The 8ord su))est the )ain made ' the Sense6 or Nift' durin) the course of the da'&If such )ains are made on a re)u+ar asis then market (artici(ants +ike in!estors etc ca++ it as a market ra++'& If the Sense6 mo!es from /B7... (oints /C7... (oints in a s(an of sa' /B or for that matter -. tradin) sessions *the stock markets remain c+osed on Saturda's7 Sunda' and other ank ho+ida's, then the (henomenon is referred to as a ra++'& $u++s are a+8a's said to e acti!e durin) a market ra++'& Crash As the 8ord su))ests7 crash refers to a fa++ in the !a+ue of Sense6 and Nift'& In the first three tradin) da's of this 8eek a+one the Sense6 had crashed ' more than D.. (oints& The Sense6 then had (+ummeted from around /B7D.. +e!e+s to around /B7... (oints& this sudden and !io+ent D.. (oint fa++ is referred to as the crash or market crash& $ears are said to e acti!e and ha((' durin) the market crash as their st'+e of tradin) *se++ first and u' +ater, he+(s them make )ood mone' durin) a crash& Corre?:ion

A correction *or a measured fa++, in the Sense6 and Nift' takes (+ace 8hen these indices rise for a fe8 da's and then retrace or sha!e off some of these )ains& Sa' if the market ra++' from /07... to /B7... (oints in /. da's And the a)ain fa++ to /07D.. (oints in the ne6t fi!e si6 da's then this action is termed as a market correction& Market e6(erts consider such corrections hea+th' ecause durin) this (eriod the o8nershi( of shares mo!es from 8eak hand *short term in!estors, to stron) hands *+on) term in!estors,&Corrections are )enera++' considered as si)ns of stren)th after 8hich the markets*the Sense6 and Nift', )et once a)ain (oised for a further ra++'& Dividend It is a 8a' of re8ardin) a com(an'<s shareho+der &A di!idend is )enera++' issued as a (ercenta)e of the face !a+ue of a share& #ace !a+ue is the nomina+ (rice of a com(an'<s share& A share can ha!e a different face !a+ue +ike Rs /7 Rs -7 Rs C7Rs /.7 or Rs /..&An L.H di!idend On a share of face !a+ue Rs - 8i++ !a+ue Rs /.& %ike onus share7 di!idend amount a+so comes from a com(an'<s free cash reser!es& Op:ion $or Inves:@en: in !:o?k Marke: I&OIs FIni:ia> &9<>i? OAAerG7 An initia+ (u +ic offerin) occurs 8hen a com(an' se++s first se++s common shares to in!estors in the (u +ic& Genera++'7 the (u +ic offers (rimar' shares this 8a'7 a+thou)h sometimes secondar' shares are a+so so+d as IPO<s& #or a com(an' to offer IPO<s7 the' need to hire a cor(orate +a8'er as 8e++ as an

in!estment anker to under8rite the offer& The actua+ sa+es of the shares is )enera++' offered ' Stock e6chan)e and re)u+ators& =hen the com(an' starts to offer IPO<s7 the' are usua++' re>uired to re!ea+ financia+ information a out the com(an' so that in!estors kno8 8hether the com(anies a )ood in!estment or not& $ein) a +e to ans8er the >uestion 8hat is an IPOU And kno8in) 8hat IPO stands for is im(ortant if 'ou are )oin) to e in!estin) in stocks or com(anies& once 'ou understand the definition of IPO and stock market IPO7 'ou can ein) +earnin) ho8 to use this in!estment o((ortunit' to make a (rofit ecause the' are ine6(ensi!e& In fact7 man' of the dot com mi++ionaires of the /AA.s made their mone' sim(+' throu)h IPO<s& Wh; Do Co@panies OAAer I&OIsJ In )enera+7 com(anies offer IPO<s in order to raise mone' that the' need for usiness e6(ansion and ne8 usiness o((ortunities& $' offerin) shares to in!estors7 a com(an' stands to rin) in a +ot of mone'& The' can then use this mone' to )ro8 their usiness& the more their usiness )ro8s7 in turn7 the hi)her the share (rices )ro8 and the more mone' is )enerated ' in!estors (urchasin) shares& Un+ike usiness +oans7 8hich need to e re(aid 8ith interest7 IPO<s do not ha!e this disad!anta)e& It is in!estors 8ho take the risk2 a+thou)h a+so a (otentia+ )ain2 u'in) shares& If the com(an' +osses mone' and the' 8i++ not ha!e to re(a' their in!estors7 a+thou)h in!estors in )enera+ demand hi)h accounta i+it' from a com(an' the' are u'in) stocks from& Man' com(anies sim(+' see offerin) IPO<s as the ne6t sta)e in usiness

)ro8th& Since (u +ic com(anies often en4o' +ar)er (rofits and can dra8 on a +ar)er ca(ita+ ase than (ri!ate usinesses7 IPO<s seem +ike the +o)ica+ 8a' to )ro8 a com(an' for man' CEO<s&

!hare Tradin= Tradin) means u' and se++in) and share tradin) means u'in) and se++in) of shares in share market& I@por:an: :er@s in share @arke: and in share :radin= Open 2 The first (rice at 8hich the stock o(ens 8hen market o(ens in the mornin)& %i=h 2 The stock (rice reached at the hi)hest +e!e+ in a da'& Low 2 The stock (rice reached the +o8est +e!e+ in a da'& C>ose 2 The stock (rice at 8hich it remains after the end of market timin)s or the fina+ (rice of the stock 8hen the market c+oses for a da'& o>9@e 2 Eo+ume is nothin) ut >uantit'& #id 2 The $u'in) (rice is ca++ed as $id (rice& OAAer 2 The se++in) (rice is ca++ed offer (rice& #id 59an:i:; 2 The tota+ num er of shares a!ai+a +e for u'in) is ca++ed $id Vuantit'& OAAer 59an:i:; 2 The tota+ num er of shares a!ai+a +e for se++in) is ca++ed Offer Vuantit'& #9;in= and se>>in= oA shares 2 $u'in) is a+so ca++ed as demand or id and

se++in) is a+so ca++ed as su((+' or offer& #irst se++in) and then u'in) *this on+' ha((ens in da' tradin), is ca++ed as shortin) of shares or short se++& !hare Tradin= 2 $u'in) and se++in) of shares is ca++ed share tradin)& Transa?:ion 2 One com(+ete c'c+e of u'in) and se++in) of shares is ca++ed One Transaction&

!89arin= oAA 2 This term is used to com(+ete one transaction& Means if 'ou u' then ha!e to se++ *means s>uare off, and if 'ou se++ then 'ou ha!e to u'*means s>uare off,& T;pes oA !hare Tradin= Main+' there are t8o 8a's of share tradin)& /, Off+ine Share Tradin)& -, On+ine Share Tradin) OAA>ine !hare Tradin= 9oin) share tradin) 8ith the he+( of roker or throu)h te+e(hone is ca++ed off+ine share tradin)& In other 8ords tradin) 8i++ e done ' another (erson on 'our eha+f ased on the instructions )i!en ' 'ou& The other (erson 8ou+d e a roker& The roker 8i++ do u'in) and se++in) of shares on 'our eha+f de(endin) on the instructions )i!en ' 'ou& So in off+ine share tradin) 'ou don<t need to ha!e com(uter7 internet connection ut 'ou need to ha!e the off+ine demat account& On>ine share :radin= 9oin) share tradin) 8ith he+( of com(uter7 internet connection and 8ith tradin) and demat account is ca++ed On+ine Share Tradin)& If 'ou 8ou+d +ike to do on+ine share tradin) then 'ou need to ha!e a com(uter7 internet connection and on+ine tradin) account& If 'ou are (+annin) to do tradin) 'ourse+f then o(enin) on+ine share tradin) account is ad!isa +e& $asica++' (eo(+e use on+ine share tradin) 8ho 8ant to trade themse+!es& DiAAeren: @e:hods oA <9;in= and se>>in= oA shares #o++o8in) are the t8o methods of u'in) and se++in) of shares in Indian share

market& /, Market Order -, %imit Order 0, Sto( %oss Order Marke: Order =hen 'ou (ut u' or se++ (rice of a stock at market rate or se+ect market order o(tion in tradin) termina+ then the (rice )et e6ecutes at the current rate of market& The market order )ets e6ecuted immediate+' at the current a!ai+a +e (rice& In market order the shares 8i++ )et e6ecuted at the est current a!ai+a +e (rice& Market order is used if 'ou 8ant to e6ecute 'our order !er' fast and at a!ai+a +e (rice& If 'ou 8ish to u' or se++ shares at an' s(ecific (rice then market orders is not suita +e for 'ou then ha!e to )o for +imit order& Market order is for those 8ho 8ant to u' or se++ immediate+' at the current a!ai+a +e (rice & Li@i: Order It<s tota++' different from market order& In +imit order the u'in) or se++in) (rice has to e mentioned and 8hen the share (rice comes to that (rice then the order 8i++ )et e6ecuted& $ut here it<s not sure that the (rice 8i++ come to 'our +imit order and the order )et e6ecutes& In other 8ords in +imit order the s(ecific (rice is mentioned and trader or in!estor 8ait ti++ the stock (rice reaches that (rice and once the stock (rice reaches that (rice then the order 8i++ )et e6ecute& 9a' traders has to take !er' (recaution 8hi+e usin) +imit order7 es(ecia++' 8ho make use of mar)in amount In da' tradin)7 ecause 'ou ha!e to c+ose a++ 'our transactions efore 010. PM and if in case the (rice doesn<t reach to 'our +imit

order then 'our order 8i++ e o(en minimiJe the risk& !:op Loss Order

*(endin), and then 'ou ha!e to )o throu)h

the (ena+ties& Im(ortant+' +imit order and sto( +oss order are used to)ether to

Sto( +oss orders are used to reduce or to minimiJe the +osses& This is !er' im(ortant term es(ecia++' if 'ou are doin) da' tradin) *intrada' tradin),& Sto( %oss order as the name indicates this is used to reduce the +osses& In Sto( +oss order the tri))er (rice has to e mentioned7 ' the trader7 and once the (rice reaches the tri))er (rice the order )et e6ecuted 8ith the est (rice a!ai+a +e et8een the tri))er (rice and the +imit (rice& DiAAeren: T;pes OA !hare Tradin= /, 9a' tradin) *Intra da', and -, 9e+i!er' tradin) *it is a+so ca++ed as in!estin), Da; Tradin= $u'in) and se++in) of shares on dai+' asis is ca++ed da' tradin)S this is a+so ca++ed as In:rada; :radin=& =hate!er 'ou u' toda' 'ou ha!e to se++ it toda' OR 8hate!er 'ou se++ toda' 'ou ha!e to u' it toda' and !er' im(ortant+' durin) market hours that is et8een A&.. am to 0&0. (m *Indian time,& In da' tradin)7 rokers (ro!ide mar)in to do tradin)& Means 'ou )et e6tra amount for da' tradin)& &>ease no:e 6 If 'ou don<t use mar)in amount and trade on+' 8ith 'our a!ai+a +e amount then no need to s>uare off 'our (ositions& I@por:an: no:e 6 Ne8 comers shou+d not start ' da' tradin) as it is !er' risk'&

9a' tradin) re>uires +ots of kno8+ed)e inc+udin) share7 entire share market7 )+o a+ markets7 ne8s and man' more (arameters& De>iver; Tradin= In 9e+i!er' Tradin)7 as the name sa'7 'ou ha!e to take the de+i!er' of shares and after )ettin) these shares in 'our 9emat account 'ou can se++ them at an'time *or 'ou can ho+d them ti++ 'ou 8ant7 there is no restriction,& &>ease No:e 6 #irst 'ou ha!e to u' and se++& 3ou can<t se++ efore u'in) in de+i!er' tradin) 8hi+e it<s (ossi +e in da' tradin) 8hich is ca++ed as short se++in)&

).+ DE&O!ITORA"
At the start of se++in) and u'in) of the securities7 there 8ere +imited

transactions& The num ers of transaction 8as so sma++ that it 8as easi+' hand+ed in the (h'sica+ form& $ut as this securities market )et (o(u+ariJe7 the num ers of transactions increased7 there 8as ra(id )ro8th in the securities market7 it ecame >uite hard to hand+e a++ the transactions in (h'sica+: (a(er mode& There 8ere +ots of (ro +ems 8ith (h'sica+ form of shares for e6am(+e these (ro +ems 8ere1 2 ad de+i!eries7 de+a's in transfer and irre)u+ar sett+ement& Then ecause of these man' (ro +ems the e+ectronic mode of securities came into e6istence& There 8ere t8o 8a's to i)nore a++ the (ro +ems re+ated to (h'sica+ form of shares7 these 8ere1 2 '. I@@o<i>iKa:ion In this securities are he+d in the (h'sica+ form ut transfer is done e+ectronica++' or 8e can sa' throu)h ook entries on+'& ). De@a:eria>iKa:ion In this share certificates are destro'ed once and then the' are admitted to the de(ositor' and the credit a)ainst this is credited in the account7 8hich is maintained e+ectronica++'& India has o(ted for the demateria+iJation route 8hich is etter o(tion )i!en the +ar)e amount of (a(er 8ork in!o+!ed& This e+ectronic medium of tradin) 8as first+' introduced ' nationa+ stock e6chan)e *NSE, fo++o8ed ' the Stock E6chan)e7 Mum ai *$SE, in /AAC inducted efficienc' in tradin) s'stem ut (h'sica+ mode of de+i!er' continued to e a dra)& 9e(ositor' s'stem (ro!ided for demateria+iJation of securities7 custod' and tradin) in e+ectronic ook entr' form ecame the una!oida +e

ans8er to the ca(ita+ market (+a)ued ' the 9e(ositor' Act7 /AA@& The deposi:or; a?:

' i++s& The )o!ernment of India

(romu+)ated 9e(ositories Ordinance in Se(tem er /AAC7 8hich 8as re(+aced

The de(ositories act7 /AA@ chan)ed the ca(ita+ market entire+'& It makes the ca(ita+ market more efficient ' (ro!idin) it a im(ro!ed infrastructure7 im(ro!ed in!estor (rotection in the securities market& =ith the introduction of this de(ositor' act not on+' in!estors are enefited ut a++ the issuer com(anies are a+so enefited7 +ike the' en4o' +ess cost in issuin) e+ectronic shares than issuin) (h'sica+ shares and it is eas' for them to mana)e a++ its shareho+ders if the' ha!e securities in e+ectronic form& So this de(ositor' act is eneficia+ for a++ for issuer7 in!estor and intermediar'& This de(ositor' act he+(s in remo!in) irre)u+arities7 ad de+i!eries7 odd +ots etc&7 no8 the trada +e +ot is reduced to one unit of share& It a+so (rotects the interest of the in!estors& This he+(s financia+ market a+so ' makin) a++ the thin)s in a (articu+ar order& No8 ecause of de(ositor' act7 there is free transfera i+it' of securities 8ith s(eed7 accurac'7 trans(arenc' etc& Deposi:or; A de(ositor' is an or)aniJation 8here the securities of a shareho+der are he+d in e+ectronic form at the re>uest of the shareho+der throu)h a medium& This medium is ca++ed de(ositor' (artici(ant *9P,& Present+' in India7 there are t8o de(ositories7 these are1 2 /& Nationa+ Securities 9e(ositor' %imited7 *NS9%, -& Centra+ 9e(ositor' Ser!ices *India, %imited *C9S%, These t8o t'(es of 9e(ositories 8ork under 9e(ositories Act7 /AA@& The' ho+d the securities of in!estors in the e+ectronic mode&

9e(ositor' has man' sa+ient features& These features are1 2 Inves:ors has op:ion :o Hoin :he deposi:or;

In this act it is not a com(u+sion that e!er' in!estor ha!e to retain a++ securities on+' in demateria+iJed form& This a++ de(end on the 8ish of in!estor that 8eather he 8ant to kee( his securities in demateria+iJed form or in (h'sica+ form& 5e ha!e the o(tion that he can some (art of shares in demateria+iJed form and rest in (h'sica+ form& De@a:eria>iKed ho>din=s are A9n=i<>e Accordin) to this if once securities are demateria+iJed7 the' 8i++ not ha!e an' uni>ue characteristics such as distincti!e num ers7 fo+io num ers7 etc& These ho+din)s of a (articu+ar securit' 8i++ interchan)ea +e& No s:a@p d9:; It is mentioned that if the securities 8i++ e in demateria+iJed form then it 8i++ e e6em(ted from stam( dut' that is .&CH for (h'sica+ shares& C9s:o@ers ?an in:era?: :hro9=h par:i?ipan:s Accordin) to this feature7 the de(ositor' 8i++ not direct+' communicate to shareho+ders7 there 8i++ e an intermediar' et8een them& =ith the he+( of this intermediar' on+' the in!estor 8i++ e a +e to take the enefit from de(ositor'& These intermediaries are de(ositor' (artici(ants *9P,& There are t8o t'(es of de(ositoriesS customer can choose an' of them on the asis of the ser!ices offered ' these de(ositories& De@a:eria>iKa:ion as :he on>; wa; Aor deposi:ories in India e identica+ to each other and

There are t8o 8a's for in!estors to e attached 8ith de(ositories& $ut India had chosen the 8a' of demateria+iJation& In India if in!estors 8ants to take the faci+ities of de(ositories then the' ha!e to demateria+iJe their securities&

Need oA deposi:or; Need of de(ositor' can e understood ' +ookin) at the scenario of securities market efore and after de(ositor' act7 /AA@& Tradi:iona> s;s:e@ oA ph;si?a> share ?er:iAi?a:es The Indian ca(ita+ market has seen an un(recedented oom in its acti!it' in the +ast decade& =e can no8 oast of a !er' +ar)e in!estor (o(u+ation and su stantia+ !o+umes of trade& 5o8e!er7 this sur)e in acti!it' has rou)ht 8ith it7 numerous (ro +ems that threaten the sur!i!a+ of the ca(ita+ market in the +on) run& A c+oser ins(ection of the (ro +ems 8ou+d re!ea+ that most of them arise due to the intrinsic nature of (a(er ased tradin) and sett+ement& This centur'2o+d s'stem of tradin) and sett+ement re>uires hand+in) of hu)e !o+umes of (a(er +eadin) to increased costs and inefficiencies& Simu+taneous+'7 the' e6(ort the in!estors to )reater risks& Some of these are1 Un8anted de+a' in transfer of shares& It takes 0.2@. da's for the in!estors to )et the shares +od)ed in their name&

Theft of shares +eadin) to defecti!e tit+e in shares (urchased and su se>uent +iti)ation& Possi i+it' of for)er' on !arious documents +eadin) to ad de+i!eries7 +e)a+ dis(utes etc& Pre!a+ence of fake certificates in the marketS This has made the in!estors7 oth retai+ and institutiona+7 distur ed of enterin) the Indian Ca(ita+ Market& In this scenario7 it 8as fe+t that the settin) u( of a de(ositor' and the introduction of scri(2+ess tradin) and sett+ement is im(erati!e for the efficient functionin) of the market&

#eneAi:s oA s?rip6>ess :radin= and se::>e@en:7 In the de(ositor' s'stem7 the o8nershi( and transfer of securities takes (+ace ' means of e+ectronic ook entries& At the outset7 this s'stem rids the Ca(ita+ Market of the dan)ers re+ated to hand+in) of (a(er& That is not a++S the de(ositor' (ro!ides numerous other direct and indirect enefits +ike1 2 E+imination of ad de+i!eries and a++ risks associated 8ith (h'sica+ certificates7 such as +oss7 theft7 muti+ation7 etc& Reduction in hand+in) of hu)e !o+umes of (a(er& No stam( dut' for transfer of e>uit' instruments and units of mutua+ funds in the de(ositor' *in case of (h'sica+ shares7 stam( dut' of .&CH is (a'a +e on transfer of shares,& Immediate transfer and re)istration of securities7 increasin) +i>uidit' of stocks 8ith the in!estor& Pa' in and (a' out of securities and funds is on the same da' for scri(2+ess trades& #aster sett+ement c'c+e& #aster dis ursement of Cor(orate $enefits +ike ri)hts7 onus7 etc& Reduction in rate of interest on +oans )ranted a)ainst (+ed)e of demateria+iJed securities ' man' anks& Reduction in rokera)e ' man' rokers for tradin) in demateria+iJed securities& Periodic status re(orts to in!estors on their ho+din) and transactions7 +eadin) to etter contro+&

 Su stantia+ reduction in transaction cost in demateria+iJed securities as com(ared to (h'sica+ securities& This makes (+ed)in) of securities :shares more easier than (h'sica+ form of shares& It ena +es >uick o8nershi( of securities on sett+ement resu+tin) in increased +i>uidit'& It a!oids confusion in the o8nershi( tit+e of securities & (ro!ides eas' recei(t of (u +ic issue a++otment& It a!oids risk associated 8ith for)er'7 counterfeitin)7 and +oss due to fire and +oss ecause of theft& It a!oids incon!enience re+ated to fi++in) the transfer deeds a)ain and a)ain& It makes the faster (a'ment on sa+e of shares& There is no risk of u'in) fraudu+ent share certificates&

&ar:i?ipan:s in deposi:or; s;s:e@ This de(ositor' s'stem does not 8ork a+oneS there are man' (artici(ants of this de(ositor' s'stem& These (artici(ants ma' (ro!ide 8ork to de(ositor' or ma' (erform 8ork on are1 2 Iss9er or ?o@pan; Issuer is a com(an'7 8hich issues share: securities for raisin) fund from market& =hene!er a com(an' re>uires funds for its o(eration7 it has o(tion to ask funds from (u +ic ' issuin) shares7 de entures7 onds7 (referentia+ shares7 etc& eha+f of de(ositor' or ma' (erform task7 8hich 8i++ faci+itate the Indian de(ositor' s'stem& These (artici(ants of de(ositor' s'stem

 Iss9er re=is:rar Man' times com(an' a((oint re)istrar to hand+e a++ the dis(utes re+ated to issue of shares or IPOs& These re)istrar 8ork on eha+f of the com(an' and mana)e a++ the thin)s re+ated to shares: securities of the com(an'&

Deposi:or; par:i?ipan: FD&G A 9P is a market intermediar'7 8hich interacts 8ith customers on eha+f of de(ositor'& #or o tainin) the ser!ices (ro!ided ' 9P customers first+' are re>uired to o(en a demat account 8ith it7 then on+' the' can a!ai+ the ser!ices of a 9P& Inves:or In!estors are the (eo(+e 8ho in!est in securities or 8ho u's shares from securities market& These in!estor (urchases the securities for makin) (rofit out of it& !:o?k <rokers Stock rokers are the market intermediaries 8ho intermediate the transaction of u'in) and se++in) amon) different (eo(+e& =ith the he+( of these (eo(+es t8o (eo(+e 8ho don<t kno8 each other can se++ and (urchase securities& The' 8ork for rokera)e& C>earin= @e@<ers C+earin) mem ers *CMs, are the mem ers of the c+earin)house or c+earin) cor(oration 8ho faci+itates sett+ement of trades done on stock e6chan)es& The' cou+d e a roker or custodian re)istered 8ith SE$I as such is an im(ortant intermediar' in the ca(ita+ market and an essentia+ +ink in the de(ositor' s'stem& The !arious cate)ories of CMs are1 2

/& -& 0&

Tradin) mem er Custodian Su sidiar' com(anies ' re)iona+ stock e6chan)es to faci+itate their mem ers to trade on $SE:NSE&

C>earin= ?orpora:ion C+earin) cor(oration are ca++ed c+earin) house a+so& These are the or)aniJation7 8hich faci+itate the sett+ement of trades& These are !er' im(ortant (art of tradin) s'stem& The re+ationshi(s amon) a++ these (artici(ants of the de(ositor' s'stem can e understand ' +ookin) at this chart&

9EPOSITOR3

ISSUER: R&T AGENT

C%EARING CORPS&

C%EARING MEM$ERS

9EPOSITOR3 PARTICIPANT

STOCN EFC5ANGE

TRA9ING MEM$ERS

INEESTOR

N!DL The first de(ositar' in India esta +ished in Au) /AA@ and (romoted ' Institutions of Nationa+ Stature Res(onsi +e for Economic 9e!e+o(ment of the

countr' has since esta +ished a nationa+ infrastructure of internationa+ standard that hand+es most of the sett+ement of securities in demateria+iJed from in Indian ca(ita+ market& Usin) inno!ati!e and f+e6i +e techno+o)' s'stems7 NSDL 8ork to su((ort the in!estors and rokers in the ca(ita+ market of the countr'& NSDL aims at ensurin) the safet' and soundness of Indian market (+aces ' de!e+o(in) sett+ement so+ution that increase efficienc' minimiJe risk and reduce costs& At NSDLD 8e (+a' a >uiet ut centra+ ro+e in de!e+o(in) (roducts and ser!ices that 8i++ continue to nature the )ro8in) needs of the financia+ industries& C!DL CSDL 8as set u( 8ith the o 4ecti!e of (ro!idin) con!enient7 de(enda +e and secure de(ositor' ser!ices at afforda +e cost to a++ market (artici(ants& CSDL recei!ed the certificate of commencement of usiness from SE$I in #e ruar'7 /AAA& 5onora +e Union #inance Minister7 Shri 3ash8ant Sinha f+a))ed off the o(erations of CSDL on ?u+' /C7 /AAA& Sett+ement of trades in the demat mode throu)h $OI shareho+din) %imited7 the c+earin) house of $SE7 standard in ?u+' /AAA&&A++ +eadin) stock e6chan)es +ike the Nationa+ Stock E6chan)e7 Ca+cutta Stock E6chan)e7 9e+hi Stock E6chan)e7 the Stock E6chan)e7 Ahmeda ad etc& ha!e esta +ished connecti!it' 8ith CSDL. At the end of 9ec -..C7 o!er C... issuers ha!e admitted their securities units of mutua+ funds7 certificate of de(osits etc& into the CSDL s'stem& !ervi?es provided <; D& 9P is there to ser!e its c+ients in man' 8a's& 9P is res(onsi +e to hand+e the securities in the e+ectronic form in the accounts of $O<s and a(art of that it

(ro!ide man' other ser!ices or faci+itate its c+ients in man' 8a's& 5ere are the ser!ices (ro!ided ' 9P to its c+ients1 2 De@a: a??o9n: openin= and @ain:enan?e An indi!idua+ 8ho 8ant to kee( his :her cash safe in a ank has to o(en an account 8ith the ank as a first ste( and maintain cash in ook entr' form& Simi+ar+'7 an in!estor has to o(en an demat account 8ith an' 9P of C9S% as a first ste( to ho+d securities in 9emat form in the 9e(ositor' s'stem &The in!estor can o(en an account 8ith na' 9P of C9S%& C9S% s'stem faci+ities o(enin) of 9emat accounts for different cate)ories of in!estors& 9emat accounts o(ened 8ith C9S% are referred as Q$eneficia+ O8ner Accounts< or Q$O< account<& 8hen securities are he+d in (h'sica+ form name of the in!estor is recorded in the ooks of the com(an' as QRe)istered o8ner<& =hen the same securities are con!erted into e+ectronic form and he+d in a demat account7 the de(ositor' ecomes re)istered o8ner of the securities& Since de(ositor' is actin) as a custodian of the securities7 ori)ina+ in!estor is +e)a++' entit+ed for a++ ri)hts :+ia i+ities attached 8ith securities and hence are ca++ed a Q$eneficia+ O8ner<& A++ accounts o(ened on C9S% s'stem are eneficia+ accounts irres(ecti!e of the t'(e of account& A 9emat account ma' e o(ened and maintained in the name of one (erson or more then one (ersons *4oint ho+ders,& A++ the 4oint ho+ders ha!e to si)n the a((+ication form and the a)reement &The su((ortin) documents and (hoto)ra(hs shou+d a+so e (ro!ided for a++ 4oint ho+ders& Thou)h the eneficia+ o8nershi( of the 4oint+' he+d securities Rests e>ua++' in a++ 4oint ho+ders7 communication a out the 4oint de(ositor' account are (ro!ided on+' to the first ho+der& The di!idend and interest 8arrants7 annua+ re(orts and notice for meetin)s are a+so issued to the first named 4oint ho+der on+'&

A++ $O accounts are o(erated at 9P +e!e+S ho8e!er7 data is maintained at C9S% +e!e+& A $O does not ha!e direct access to C9S% s'stem and must act throu)h 5is:her 9P& =hi+e o(enin) an account7 the $O can )i!e a standin) instruction *confirmation 8ai!er of (urchase 8ai!er, to a++o8 credits automatica++' to the account 8ithout se(arate instructions& A??o9n: openin= pro?ed9re There is a (re2decided account o(enin) (rocedure7 this (rocedure is (resented e+o81 2 /& The (erson 8ho 8ants to o(en a demat account is re>uired to su mit du+' fi++ed account o(enin) form a+on) 8ith necessar' documents& -& 9P 8i++ !erif' si)natures and a++ the documents (resented& 3. The 9P 8i++ ca(ture detai+s from the account o(enin) form fi++ed ' the $O in the front2end s'stem (ro!ided ' C9S%& =hi+e (uttin) the detai+s into the s'stem it is re>uired to e !er' carefu+ at +east at the time of enterin) name of $O ecause a++ other detai+s can e modif' further ut the $O name 8i++ enter once7 8i++ remain fore!er ti++ the account is o(eratin)& The 9P 8i++ scan the si)natures of the $O as 8e++ as the (o8er of attorne' si)natures7 if a((+ica +e& Once7 the 9P commits the transaction7 the data is ca(tured and stored at C9S%& 4. A uni>ue $O account num er is )enerated ' the s'stem and this can e seen at the 9P front2end s'stem& This 8i++ e done on2+ine and the information )ets transmitted to C9S% instantaneous+' &The 9P 8i++ record the $O I9 on the ori)ina+ a((+ication form and on the 9P2$O a)reement for cross2reference& 5. On committin) the $O detai+s in the front2end7 s'stem 8i++ )enerate a confirmation +etter7 8hich inc+udes a++ the necessar' information re)ardin) $O& This +etter is ca++ed c+ient master"& 6. Then 9P 8i++ send this +etter to the concerned c+ient&

7. 9P 8i++ issue a de+i!er' instruction ook for account ho+der& Do?9@en:s re89ired There are the documents7 8hich are re>uired to su mit 8ith the account o(enin) form. Individ9a> inves:or 1. PAN card as identit' (roof& 2. Address (roof *Ration card7 $ank (ass ook7 e+ectricit' i++s7 +and+ine i++s +atest of - months7 !oter I&9 card7 dri!in) +icense7 etc&, 3. $ank (roof 8ith a++ the re>uired ank detai+s +ike name of ank7 MICR code7 account num er7 account t'(e and ranch name&* (ass ook7 cance+ed che>ue 8ith (rinted name7 ank statement of +atest @ months7 etc, 4. Stam( (a(er 5. One (ass(ort siJe (hoto)ra(h7 it shou+d e si)ned& Addi:iona> do?9@en:s Aor %U$ 1. 5U# dec+aration certificate7 2. PAN card of 5U#& Addi:iona> do?9@en:s Aor MINOR 1. Certificate of )uardian dec+aration if the )uardian is not one from the natura+ )uardian&

Do?9@en:s Aor ?orpora:e inves:ors /& Certified true co(' of oard reso+ution for (ersons authoriJed ' the oard to act as authoriJed si)natories& -& Name of the authoriJed si)natories7 desi)nation7 and their s(ecimen si)natures&

0& POA )i!en to the authoriJed si)natories& B& Memorandum and artic+e of association& C& One (ass(ort siJe (hoto)ra(h of each authoriJed si)natories 8ith their si)natures across the face of the (hoto)ra(h& Addi:iona> inAor@a:ion 1 At most three ho+ders can o(en a 4oint account& 2 One time standin) instruction for credits to 9P& 3 5U# account ho+der cannot nominate an' od'& 4 On+' indi!idua+ can a((oint nominee and nominee can e an indi!idua+ on+'& 5 Account cannot e o(en in the name of (artnershi( firm&

#eneAi:s oA havin= a de@a: a??o9n: #or ho+din) securities in demateria+iJed form it is mandator' to ha!e a demat account 8ith an' 9P of an' 9e(ositor'& 5a!in) a demat account is eneficia+ in man' terms& 5ere are some of the enefits or ad!anta)es of demat account (resented e+o81 2 6 SE$I had made it com(u+sor' for most of the scri( to e traded on+' in demat se)ment& There are man' com(anies7 8hose scri(s can e traded on+' in demat se)ment7 so to trade in those securities it is re>uired to ha!e demat account& 7 9emat account ho+der ma' en4o' reduced cost in term of transaction as transaction in demat mode of securities is e6em(ted from the stam( dut' that is .&CH in case of transaction in (h'sica+ mode of shares& 8 A demat account ho+der 8i++ e free from a++ the risks associated 8ith (h'sica+ form of securities +ike de+a's7 theft7 muti+ation7 ad de+i!eries etc& 9 A demat account ha!e an o(tion a+so to ha!e its securities in froJen mode

his demat account& 10 A demat account ho+der is free from the (ro +em of odd +ot of securities7 that e6ist in (h'sica+ mode of securities7 in demat mode of securities7 market +ot is reduced to one& 11 It is eneficia+ to ha!e demat account ecause demateria+iJed securities are most (referred ' anks and other financiers for (ro!idin) credit faci+it' a)ainst securities& Genera++'7 demat securities attract +o8er mar)in and +o8er rates of interest com(ared to (h'sica+ securities& 12 After the sett+ement7 (a' in and (a' out are there on the same da' for scri(s +ess tradin) 8hich means c+ients )et their securities as 8e++ as cash immediate+'& 13 Shares ou)ht or so+d are transferred in the name of c+ient on the !er' ne6t da' of (a' out& In case of (h'sica+ shares7 transfer of o8nershi( takes 0. da's or sometimes e!en more than that& 14 There is no courier and (osta+ char)es for sendin) share certificates and transfer deed& 15 There is faci+it' for freeJin) or +ockin) of in!estor<s account7 8hich ena +es the c+ient to make its account non2o(erationa+& 16 There is the faci+it' of (+ed)e and h'(othecate a++ the securities of the c+ients on their 8ish if the' ha!e a demat account& 17 It is for sure that as the de(ositor' s'stem ecomes (o(u+ar7 rokers 8i++ e increasin)+' re+uctant to dea+ 8ith (h'sica+ shares so it<s etter to ha!e a++ the securities in demat mode on+' from no8 itse+f& And for that it is re>uired to ha!e a demat account& /L In!estors (refer to u' shares7 8hich are a+read' in demateria+iJed form&

).. Co@@odi:;
%is:or; oA Co@@odi:; Deriva:ives Marke:s Ear+' for8ard contracts in the US addressed merchantsG concerns a out ensurin) that there8ere u'ers and se++ers for commodities& 5o8e!er7 Gcredit riskG remained a serious (ro +em&To dea+ 8ith this (ro +em7 a )rou( of Chica)o usinessmen formed the Chica)o $oard ofTrade *C$OT, in /LBL& The (rimar' intention of the C$OT 8as to (ro!ide a centra+iJed+ocation kno8n in ad!ance for u'ers and se++ers to ne)otiate for8ard contracts& In /L@C7 the C$OT 8ent one ste( further and +isted the first Ge6chan)e tradedG deri!ati!es contract in the US7 these contracts 8ere ca++ed Gfutures contractsG& In /A/A7 Chica)o $utter and E)) $oard7 a s(in2off of C$OT7 8as reor)aniJed to a++o8 futures tradin)& Its name 8as chan)ed to Chica)o Mercanti+e E6chan)e *CME,& The C$OT and CME remain the t8o +ar)est or)aniJed futures e6chan)es7 indeed the t8o +ar)est Gfinancia+G e6chan)es of an' kind in the 8or+d toda'& The first stock inde6 futures contract 8as traded at Nansas Cit' $oard of Trade& Current+'7 the most (o(u+ar stock inde6 futures in the 8or+d is ased on S&P C.. inde67 traded on Chica)o Mercanti+e E6chan)e& 9urin) the mid ei)htees7 financia+ futures ecame the most acti!e deri!ati!e instruments )eneratin) !o+umes man' times more than the commodit' futures& Inde6 futures7 futures on T2 i++s and Euro29o++ar futures are the three most (o(u+ar futures contracts traded toda'& Other (o(u+ar internationa+ e6chan)es that trade deri!ati!es are %I##E in Euro(e7 9T$ in German'7 SGF in Sin)a(ore7 TI##E in ?a(an7 MATI# in #rance7 Eure6 etc& %is:or; oA Co@@odi:; Deriva:ives Marke:s Ear+' for8ard contracts in the US addressed merchantsG concerns a out ensurin) that there 8ere u'ers and se++ers for commodities& 5o8e!er7 Gcredit riskG remained a serious (ro +em& To dea+ 8ith this (ro +em7 a )rou( of Chica)o usinessmen formed the Chica)o $oard of Trade *C$OT, in /LBL&

The (rimar' intention of the C$OT 8as to (ro!ide a centra+iJed +ocation kno8n in ad!ance for u'ers and se++ers to ne)otiate for8ard contracts& In /L@C7 the C$OT 8ent one ste( further and +isted the first Ge6chan)e tradedG deri!ati!es contract in the US7 these contracts 8ere ca++ed Gfutures contractsG& In /A/A7 Chica)o $utter and E)) $oard7 a s(in2off of C$OT7 8as reor)aniJed to a++o8 futures tradin)& Its name 8as chan)edto Chica)o Mercanti+e E6chan)e *CME,& The C$OT and CME remain the t8o +ar)est or)aniJed futures e6chan)es7 indeed the t8o +ar)est Gfinancia+G e6chan)es of an' kind in the 8or+d toda'& The first stock inde6 futures contract 8as traded at Nansas Cit' $oard of Trade& Current+'7 the most (o(u+ar stock inde6 futures in the 8or+d is ased on S&P C.. inde67 traded on Chica)o Mercanti+e E6chan)e& 9urin) the mid ei)htees7 financia+ futures ecame the most acti!e deri!ati!e instruments )eneratin) !o+umes man' times more than the commodit' futures& Inde6 futures7 futures on T2 i++s and Euro29o++ar futures are the three most (o(u+ar futures contracts traded toda'& Other (o(u+ar internationa+ e6chan)es that trade deri!ati!es are %I##E in Euro(e7 9T$ in German'7 SGF in Sin)a(ore7 TI##E in ?a(an7 MATI# in #rance7 Eure6 etc& Co@@odi:; Deriva:ives 9eri!ati!es as a too+ for mana)in) risk first ori)inated in the commodities markets& The' 8ere then found usefu+ as a hed)in) too+ in financia+ markets as 8e++& In India7 tradin) in commodit' futures has een in e6istence from the nineteenth centur' 8ith or)anised tradin) in cotton throu)h the esta +ishment of Cotton Trade Association in /LDC& O!er a (eriod of time7 other commodities 8ere (ermitted to e traded in futures e6chan)es& Re)u+ator' constraints in /A@.s resu+ted in !irtua+ dismant+in) of the commodit' futures market& It is on+' in the +ast decade that commodit' futures e6chan)es ha!e een acti!e+' encoura)ed& In the commodit' futures market7 the >uin>uennium after the set u( of nationa+ +e!e+ e6chan)es 8itnessed e6(onentia+ )ro8th in tradin) 8ith

the turno!er increasin) from C&D/ +akh crores in -..B2.C to C-&BL +akh crores in -..L2.A& 5o8e!er7 the markets ha!e not )ro8n to si)nificant +e!e+s as com(ared to de!e+o(ed countries& In this cha(ter7 8e take a rief +ook at the )+o a+ commodit' markets and the commodit' markets that e6ist in India& Evo>9:ion OA Co@@odi:; EE?han=es Most of the commodit' e6chan)es7 8hich e6ist toda'7 ha!e their ori)in in the +ate /Ath and ear+ier -.th centur'& The first centra+ e6chan)e 8as esta +ished in /LBL in Chica)o under the name Chica)o $oard of Trade& The emer)ence of the deri!ati!es markets as the effecti!e risk mana)ement too+s in /AD.s and /AL.s has resu+ted in the ra(id creation of ne8 commodit' e6chan)es and e6(ansion of the e6istin) ones& At (resent7 there are ma4or commodit' e6chan)es a++ o!er the 8or+d dea+in) in different t'(es of commodities& Co@@odi:; EE?han=e Commodit' e6chan)es are defined as centers 8here futures trade is or)aniJed in a 8ider senseS it is taken to inc+ude an' or)aniJed market (+ace 8here trade is routed throu)h one mechanism7 a++o8in) effecti!e com(etition amon) u'ers and amon) se++ers& This 8ou+d inc+ude auction2t'(e e6chan)es7 ut not 8ho+esa+e markets7 8here trade is +oca+iJed7 ut effecti!e+' takes (+ace throu)h man' non2re+ated indi!idua+ transactions u'ers and se++ers& Ro>e oA Co@@odi:; EE?han=es Commodit' e6chan)es (ro!ide (+atforms to suit the !aried re>uirements of customers& #irst+'7 the' he+( in (rice disco!er' as (+a'ers )et to set future (rices 8hich are a+so made a!ai+a +e to a++ (artici(ants& 5ence7 a farmer in the southern (art of India 8ou+d e a +e to kno8 the est (rice (re!ai+in) in the countr' 8hich 8ou+d ena +e him to take informed decisions& #or this to ha((en7 the conce(t of commodit' e6chan)es must (erco+ate do8n to the !i++a)es& Toda' the farmers ase their choice for ne6t 'earGs cro( on current et8een different (ermutations of

'earGs (rice& Idea++' this decision ou)ht to e ased on ne6t 'earGs e6(ected (rice& #utures (rices on the (+atforms of commodit' e6chan)es 8i++ ho(efu++' mo!e farmers of our countr' from the current Gco 8e G effect 8here additiona+ acrea)e comes under cu+ti!ation in the 'ear su se>uent to one 8hen a commodit' had )ood (ricesS conse>uent+' the ne6t 'ear the commodit' (rice actua++' fa++s due to o!ersu((+'& Second+'7 these e6chan)es ena +e actua+ users *farmers7 a)ro (rocessors7 industr' 8here the (redominant cost is commodit' in(ut:out(ut cost, to hed)e their (rice risk )i!en the uncertaint' of the future 2 es(ecia++' in a)ricu+ture 8here there is uncertaint' re)ardin) the monsoon and hence (rices& This ho+ds )ood a+so for non2a)ro (roducts +ike meta+s or ener)' (roducts as 8e++ 8here )+o a+ forces cou+d e6ert considera +e inf+uence& Purchasers are a+so assured of a fi6ed (rice 8hich is determined in ad!ance7 there ' a!oidin) sur(rises to them& It must e orne in mind that commodit' (rices in India ha!e a+8a's een 8o!en firm+' into the internationa+ fa ric& Toda'7 (rice f+uctuations in a++ ma4or commodities in the countr' mirror oth nationa+ and internationa+ factors and not mere+' nationa+ factors& Third+'7 ' in!o+!in) the )rou( of in!estors and s(ecu+ators7 commodit' e6chan)es (ro!ide +i>uidit' and uo'anc' to the s'stem& %ast+'7 the ar itra)eurs (+a' an im(ortant ro+e in a+ancin) the market as ar itra)e conditions7 8here the' e6ist7 are ironed out as ar itra)eurs trade 8ith o((osite (ositions on different (+atforms and hence )enerate o((osin) demand and su((+' forces 8hich u+timate+' narro8s do8n the )a(s in (rices& It must e (ointed out that 8hi+e the monsoon conditions affect the (rices of a)ro2 ased commodities7 the (henomenon of )+o a+iJation has made (rices of other (roducts such as meta+s7 ener)' (roducts7 etc&7 !u+nera +e to chan)es in )+o a+ (o+itics7 (o+icies7 )ro8th (aradi)ms7 etc& This 8ou+d e stren)thened as the 8or+d mo!es c+oser to the reso+ution of the =TO im(asse7 8hich 8ou+d ecome a rea+it' short+'&

Commodit' e6chan)es 8ou+d (ro!ide a !a+ua +e hed)e throu)h the (rice disco!er' (rocess 8hi+e caterin) to the different kind of players in the market. Co@@odi:; Deriva:ive Marke:s in India Commodit' futures markets ha!e a +on) histor' in India& Cotton 8as the first commodit' toattract futures tradin) in the countr' +eadin) to the settin) u( of the $om a' Cotton Trade Association %td in /LDC& The $om a' Cotton E6chan)e %td& 8as esta +ished in /LA0 fo++o8in) the 8ides(read discontent amon)st +eadin) cotton mi++ o8ners and merchants o!er the functionin) of $om a' Cotton Trade Association& Su se>uent+'7 man' e6chan)es came u( in different (arts of the countr' for futures tradin) in !arious commodities& #utures tradin) in oi+seeds started in /A.. 8ith the esta +ishment of the Gu4arati E'a(ari Manda+i7 8hich carried on futures trade in )roundnut7 castor seed and cotton& $efore the Second =or+d =ar roke out in /A0A7 se!era+ futures markets in oi+seeds 8ere functionin) in Gu4arat and Pun4a & #utures tradin) in 8heat e6isted at se!era+ (+aces in Pun4a and Uttar Pradesh7 the most nota +e of 8hich 8as the Cham er of Commerce at 5a(ur7 8hich e)an futures tradin) in 8heat in /A/0 and ser!ed as the (rice setter in that commodit' ti++ the out reak of the Second =or+d =ar in /A0A& #utures tradin) in u++ion e)an in Mum ai in /A-. and su se>uent+' markets came u( in other centres +ike Ra4kot7 ?ai(ur7 ?amna)ar7 Nan(ur7 9e+hi and No+kata& Ca+cutta 5essian E6chan)e %td& 8as esta +ished in /A/A for futures tradin) in ra8 4ute and 4ute )oods& &h;si?a> !e::>e@en: Ph'sica+ sett+ement in!o+!es the (h'sica+ de+i!er' of the under+'in) commodit'7 t'(ica++' at an accredited 8arehouse& The se++er intendin) to make de+i!er' 8ou+d ha!e to take the commodities to the desi)nated 8arehouse and the u'er intendin) to take de+i!er' 8ou+d ha!e to )o to the desi)nated ut the 8arehouse and (ick u( the commodit'& This ma' sound sim(+e7

(h'sica+ sett+ement of commodities is a com(+e6 (rocess& The issues faced in

(h'sica+ sett+ement are enormous& There are +imits on stora)e faci+ities in different states& There are restrictions on interstate mo!ement of commodities& $esides state +e!e+ octroi and duties ha!e an im(act on the cost of mo!ement of )oods across +ocations& The (rocess of takin) (h'sica+ de+i!er' in commodities is >uite different from the (rocess of takin) (h'sica+ de+i!er' in financia+ assets& =e take a )enera+ o!er!ie8 at the (rocess f+o8 of (h'sica+ sett+ement of commodities& %ater 8e 8i++ +ook into the detai+s of (h'sica+ sett+ement throu)h the E6chan)e (ro!idin) (+atform for commodit' deri!ati!es tradin)7 Nationa+ Commodit' and 9eri!ati!es E6chan)e %imited *NC9EF,& De>iver; no:i?e period Un+ike in the case of e>uit' futures7 t'(ica++' a se++er of commodit' futures has the o(tion to )i!e notice of de+i!er'& This o(tion is )i!en durin) a (eriod identified as Wde+i!er' notice (eriodG& Assi)nment =hene!er de+i!er' notices are )i!en ' the se++er7 the c+earin) house of the E6chan)e identifies the u'er to 8hom this notice ma' e assi)ned& E6chan)es fo++o8 different (ractices for the assi)nment (rocess& De>iver; The (rocedure for u'er and se++er re)ardin) the (h'sica+ sett+ement for different t'(es of contracts is c+ear+' s(ecified ' the E6chan)e& The (eriod a!ai+a +e for the u'er to take (h'sica+ de+i!er' is sti(u+ated ' the E6chan)e& $u'er or his authorised re(resentati!e in the (resence of se++er or his re(resentati!e takes the (h'sica+ stocks a)ainst the de+i!er' order& Proof of (h'sica+ de+i!er' ha!in) een effected is for8arded ' the se++er to the c+earin) house and the in!oice amount is credited to the se++erGs account& The c+earin) house decides on the de+i!er' order rate at 8hich de+i!er' 8i++ e sett+ed& 9e+i!er' rate de(ends on the s(ot rate of the under+'in) ad4usted for discount: (remium for >ua+it' and frei)ht costs& The discount: (remium for >ua+it' and frei)ht costs are (u +ished ' the c+earin)

house efore introduction of the contract& The most acti!e s(ot market is norma++' taken as the enchmark for decidin) s(ot (rices&

Wareho9sin= One of the main differences et8een financia+ and commodit' deri!ati!e is the need for 8arehousin)& In case of most e6chan)e2traded financia+ deri!ati!es7 a++ the (ositions are cash sett+ed& Cash sett+ement in!o+!es (a'in) u( the difference in (rices et8een the time the contract 8as entered into and the time the contract 8as c+osed& #or instance7 if a trader u's futures on a stock at Rs&/.. and on the da' of e6(iration7 the futures on that stock c+ose at Rs&/-.7 he does not rea++' ha!e to u' the under+'in) stock& A++ he does is take the difference of Rs&-. in cash& Simi+ar+'7 the (erson 8ho so+d this futures contract at Rs&/.. does not ha!e to de+i!er the under+'in) stock& A++ he has to do is (a' u( the +oss of Rs&-. in cash& In case of commodit' deri!ati!es ho8e!er7 there is a (ossi i+it' of (h'sica+ sett+ement& It means that if the se++er chooses to hand o!er the commodit' instead of the difference in cash7 the u'er must take (h'sica+ de+i!er' of the under+'in) asset& This re>uires the E6chan)e to make an arran)ement 8ith 8arehouses to hand+e the sett+ements& The efficac' of the commodities sett+ements de(ends on the 8arehousin) s'stem a!ai+a +e& Such 8arehouses ha!e to (erform the fo++o8in) functions1 K Earmark se(arate stora)e areas as s(ecified ' the E6chan)e for storin) commoditiesS K Ensure (ro(er )radin) of commodities efore the' are storedS K Store commodities accordin) to their )rade s(ecifications and !a+idit' (eriodS and

K Ensure that necessar' ste(s and (recautions are taken to ensure that the >uantit' and )rade of commodit'7 as certified in the 8arehouse recei(t7 are maintained durin) the stora)e (eriod& This recei(t can a+so e used as co++atera+ for financin)& In India7 NC9EF has accredited o!er DDC de+i!er' centres 8hich meet the re>uirements for the (h'sica+ ho+din) of )oods that are to e de+i!ered on the (+atform& As future tradin) is de+i!er' ased7 it is necessar' to create the +o)istics su((ort for the same& 59a>i:; oA Under>;in= Asse:s A deri!ati!es contract is 8ritten on a )i!en under+'in)& Eariance in >ua+it' is not an issue in case of financia+ deri!ati!es as the (h'sica+ attri ute is missin)& =hen the under+'in) asset is a commodit'7 the >ua+it' of the under+'in) asset is of (rime im(ortance& There ma' e >uite some !ariation in the >ua+it' of 8hat is a!ai+a +e in the market(+ace& =hen the asset is s(ecified7 it is therefore im(ortant that the E6chan)e sti(u+ate the )rade or )rades of the commodit' that are acce(ta +e& Commodit' deri!ati!es demand )ood standards and >ua+it' assurance: certification (rocedures& A )ood )radin) s'stem a++o8s commodities to e traded ' s(ecification& Tradin) in commodit' deri!ati!es a+so re>uires >ua+it' assurance and certifications from s(ecia+iJed a)encies& In India7 for e6am(+e7 the $ureau of Indian Standards *$IS, under the 9e(artment of Consumer Affairs s(ecifies standards for (rocessed a)ricu+tura+ commodities& AGMARN7 another certif'in) od' under the 9e(artment of A)ricu+ture and Coo(eration7 s(ecifies standards for asic a)ricu+tura+ commodities&

C%A&TER 6 + O#0ECTI E! O$ !TUD"

In (resent era the stock market is one of the (o(u+ar markets in India7 the econom' of an' countr' affects !er' much ' the u++ and ear condition of the stock market& Pre!ious+' a++ trade in the stock e6chan)es 8ere done in the (h'sica+ form of the share certificates ut (resent+' ecause of the incon!enience of that (h'sica+ mode a++ the trades in stock e6chan)es are done in 9emat mode& And m' main o 4ecti!es to ha!e m' trainin) in Anand Rathi Share & Stock $rokers %td& are1 2 To understand the commodit' market & To kno8 the (rocedure7 ho8 one can in!est in commodit' throu)h Anand Rathi Share & Stock $rokers %td& To understand cash market and deri!ati!e market as an in!estment o(tion for an in!estor& To )et the re!ie8 of Retai+ in!estor to8ards o(tion in!estin)&

C%A&TER 6 . RE!EARC% MET%ADOLOG"

Resear?h Desi=n Research desi)n is the o!era++ descri(tion of a++ the ste(s thou)h 8hich the (ro4ects ha!e (receded from the settin) of o 4ecti!es to the 8ritin) of the (ro4ect re(ort& The success of the (ro4ect de(ends on the soundness of the research desi)n7 8hich inc+udes (ro +em definition7 s(ecific method of data co++ection and ana+'sis and time re>uired for the (ro4ect& The research took 8as 9escri(ti!e Research" in nature as it dea+t descri in) the in!estment eha!ior of in!estor& The research 8as desi)n to kno8 a out the (erce(tion of the in!estor to8ards !arious in!estment o(tion a!ai+a +e es(ecia++' in share market 7 the (s'cho+o)ica+ factor associated 8ith the (roduct7 the enefit the' are +ookin) forth from the (roduct and ho8 do the' rank it on terms of risk and return associated 8ith it& !o9r?e oA da:a ?o>>e?:ion There are t8o t'(es of data secondar' and (rimar' data& The secondar' data refers to those data7 8hich 8ere )athered for some other (ur(ose and a+read' a!ai+a +e in the firm<s interna+ records and commercia+s (a(ers7 ma)aJines7 and 8e sites& 8ith

On the other hand7 (rimar' data do not e6ists a+read' in records and (u +ication& One has to )ather to (rimar' data a fresh from the s(ecific stud' undertaken ' him& Main source of the data 8as (rimar' source of data co++ection for determinin) the a8areness +e!e+ amon) the (eo(+e and to stud' the terms and the factor re+ated to the share market secondar' source of data 8ere used& &ri@ar; so9r?es #irst hand co++ection of data 8ith the he+( of sur!e's7 >uestionnaires7 inter!ie8s& !e?ondar; so9r?es oA da:a The main of the secondar' data 8as ne8s(a(er +ike in!estor )uide& The economics times7 usiness times and e+ectronic media i&e& internet *sites re+ated to the share market i&e& mone'contro+&com7 mundra&com etc&, Me:hod oA Da:a Co>>e?:ion6 As our research 8as descri(ti!e and data re>uired 8as (rimar'& Primar' data can e co++ected ' three methods& a O<serva:ion < EEperi@en:a:ion ? !9rve; The sur!e' method 8as found to e the most a((ro(riate for the (ur(ose of data co++ection& as sur!e' research is s'stematic )atherin) of data from res(onded throu)h >uestionnaires& the sur!e' is faci+itatin)7 understandin) or ena +in) (rediction of some as(ect of eha!ior of the Po(u+ation ein) sur!e'ed& Thus it 8as the est a!ai+a +e too+7 8as con!enient to use as it ena +e

to co++ect data in short time from the sam(+e se+ected and it 8as the most a((roacha +e& !a@p>in= pro?ed9re 9efinin) the (o(u+ation E+ement2(eo(+e from the midd+e c+ass and hi)h income )rou( of ?ai(ur cit'& !a@p>in= @e:hod A mi6ture of random sam(+in) and the stratified random sam(+in) 8as chosen7 the 8ho+e +ist of the (otentia+ in!estor and the (art in!estor 8as di!ided into strata ased on their income ca(a i+ities and the occu(ation in 8hich the' 8ere in!o+!ed& !a@p>e !iKe #or the (ur(ose of com(rehensi!e stud' of share market 8e ha!e taken a sam(+e of /.. (eo(+e from the ?ai(ur cit' to kno8 their in!estment (attern&

..' ANAL"!I! AND INTER&RETATION

5'6%ow @9?h do ;o9 inves: in propor:ion oA ;o9r in?o@eJ

14 30 18 less than 5% 5-10% 10-20% above 20%

38

$indin= and In:erpre:a:ion6#rom the a o!e ana+'sis it is found that 0LH in!estor in!est in shares and 0.H in!estor interested in future and o(tion and other /LH in!estor in!estment in commodit' and /BH in!estor in!estment in different market +ike currenc' and mutua+ fund commodit' is !er' +ess com(are to other market +ike share or future and o(tion and securities etc it<s a main re)ion is commodit' market is risk' t'(es that<s re)ion ehind in!estor not interested in commodit' as com(are to other market &

5)6Ti@e span oA inves:@en:J

12

20

short term m edi mterm long term intra day

30 38

$indin=s2A o!e chart sho8s that 0LH (eo(+e in!est for medium term&0.H (eo(+e in!est for +on) term&/-H (eo(+e in!est for intrada' and -.H (eo(+e in!est for short term& It sho8s that most of the (eo(+e are interest to in!est for a +on) term& 5+6Wha: do ;o9 preAerJ Co@@odi:; or e89i:; shares

investme nt, 24 trading investment trading , 76

$indin=s and In:erpre:a:ion2 D@H (refer e>uit' 8hi+e -BH (refer in!estment& In commodit' Ma4or (ortion of in!estors +ike to in!est in e>uit' its main re)ion is commodit' is hi)h+' !o+ati+e so the' in!estor in not interested in commodit' as com(are to e>uit'

5.6%ow do ;o9 inves: in ?o@@odi:;J

3$

!" 1#

on the basis of research on spec lation

$indin=s and in:erpre:a:ion2 It 8as found BCH (eo(+e in!est on the asis of their fundamenta+ and technica+ research&0AH in!est on the asis of the ad!ice of their friends and roker&/@H (eo(+e in!est on the asis of their s(ecu+ation& It sho8s that most of the in!estor has ecome !er' smart and tr' to ana+'se market themse+!es& 5/6Do ;o9 :hink Indian ?o@@odi:; @arke: @os:>; aAAe?:ed <; :he Aorei=n inves:orsJ

33 #%

ye s no

$indin=s and in:erpre:a:ion 2 BDH in!estor are not a)ree that Indian market is affected ' forei)n in!estment&C0H in!estor are a)ree that Indian market is affected ' forei)n in!estment ecause forei)n in!estor has )reat in!o+!e in u'in) or se++in) of mett+e +ike )o+d and si+i!er 5*6whi?h T;pe oA Ainan?ia> ins:r9@en: do ;o9 >ike @os: in @arke:J

#& 12& 'ash segment ( t re )egm ent *ption )egm ent

82&

$indin=s and in:erpre:a:ion 2 /-H in!estor (refer future market &@H in!estor (refer o(tion se)ment 8hi+e L-H (refer cash market& Most of the in!estor are interested to in!est in cash market ecause it is +ess risk' as com(ared to other t8o&

5-6%ow @9?h =row:h do ;o9 eEpe?: in ?o@@odi:; se=@en:J

slo,+ 1# fast+ 33

fast

m oderate

m oderate+ !!

slo,

$indin=s and in:erpre:a:ion2 /@H in!estor said the' there is s+o8 )ro8th of deri!ati!e se)ment7 00H said there are chances of hi)h )ro8th in this se)ment 8hi+e BBH said there are chances of moderate )ro8th& It sho8s that in!estors are o(timistic for the )ro8th in this sector&

516whi?h :;pe oA op:ion do ;o9 preAerJ *i,commodit' *ii, Stock O(tion *iii,$oth

.oth+ 1% )tock option+ 11 -ifty index+ %2 -ifty index )tock option .oth

$indin=s and in:erpre:a:ion2 D-H in!estor (refer nift' inde6 & //H (refer stock o(tion and /DH (refer oth the o(tions& It sho8s (eo(+e +ike to in!est in Nift' inde6 rather than commodit'

546 wo9>d ;o9 :hink :ha: &9:6Ca>> Ra:io is :he @aHor indi?a:or Aor :he @arke: dire?:ionJ

/ don0t kno,+ 23 yes yes+ "3 no+ 2! no / don0t kno,

$indin=s and in:erpre:a:ion2 C0H in!estor are a)ree that that Put2Ca++ Ratio is the ma4or indicator for the market direction -BH are not a)ree 8ith this 8hi+e -0H don<t kno8&

5',6Wh; do ;o9 no: preAer :radin= in ?o@@odi:; se=@en: J

lessvol m e+ 11 fear of loss+ " 1ack of kno,ledge fear of loss 1ack of kno,ledge+ 8! lessvol me

$indin=s and in:erpre:a:ion2 //H (eo(+e said that there is +ess !o+ume in o(tion tradin)7 CH don<t in!est in o(tions ecause of fear 8hi+e LBH in!estor ha!e not (ro(er kno8+ed)e &

5''6Does s:o?k @arke: is <aro@e:er oA so9ndness oA e?ono@; oA :he ?o9n:r;J

no, 32 es no es, 68

$indin=s and in:erpre:a:ion6 @LH in!estor said 'es that stock market sho8s the soundness of econom' 8hi+e 0-H said no that stock does not sho8s soundness of econom'&

..) !WOT ANAL"!I!

!:ren=:h 1. %o8 cost of in!estin)& 2. Minimum in!estment ma6imum (rofit& 3. 9efine 'our +oss throu)h on+' risk of (remium +osin)& !. Good hed)in) instrument& ". 9ifferent O(tion strate)ies make (rofit in ran) ound market& #. 5u)e o(tion cate)or' to choose&

Weakness 1. %o8 !o+ume in stock o(tion& 2. 5i)h !o+ati+it' in (rice chan)e& 3. $eha!ior of o(tion to minimiJe the time !a+ue accordin) nearness of e6(ir' date& !. Time !a+ue makes hu)e difference in in!estin) mone'& ". 9ifficu+t to understand ' norma+ in!estor&

Oppor:9ni:; 1. O((ortunit' of makin) mone' 8ith +ess mone' throu)h (urchase the ca++ and (ut& 2. 5ed)in) o((ortunit' throu)h 8hich +oss can e minimiJed 3. Use strike (rice as 'our ase (rice and use the mo!ement of stock and inde6 throu)h o(tion in!estin)& !. There are trend of u++ness ". Sectors are )ro8in) those are ase for economic )ro8th& #. There is sta i+it' in the )o!ernment at center& %. #orei)n institutiona+ in!estment is +ike+' to e (ositi!e&

Threa:s 1. Cash market in!estment is safer than to come in o(tion in!estin)& 2. Com(+icated strate)ies of O(tion make re+uctant to in!estor&

C%A&TER 6 / CONCLU!ION

9emateria+iJation of securities is one of the ma4or ste(s aimed at im(ro!in) and moderniJin) the ca(ita+ market and enhancin) the +e!e+s of in!estor<s (rotection measures 8hich aims at e+iminatin) the ad de+i!eries and for)er' of shares and acce+erate the transfer of shares Accordin) to m' stud' commodit' is not (o(u+ar as com(are to shares ut its hu)e o((ortunities in this sector in!estor is not take risk ecause the' ha!e not sufficient kno8+ed)e of the commodit' market & A+on) 8ith it (ro!ide man' strate)ies for in!estin) mone' 8ith suret' of earnin) mone'&commodit' market is the est (+ace for in!estin) mone' ut due to +ack of kno8+ed)e7 in!estor cou+d not e6(+ore the 8ho+e market o((ortunities& In!estin) in future market is +itt+e it risk' due to fu+fi++ the a++ o +i)ation of mar)in ca++s& So O(tion in!estin) )i!es rid off that entire (ro +ems and (ro!ide a risk free in!estin)& 9e(endin) u(on m' >uestionnaire I )ot that man' of in!estor donWt kno8 a out s(rade or hed)in) and its use& Accordin) to m' Stud' I find out that s(rade or hed)in) 8ou+d e the est strate)' in !o+ati+e market and some strate)ies are !er' usefu+& %ess in!estment and un+imited return& Minimum risk of +osin) mone' and ma6imum return& O(tion is the est 5ed)in) instrument so usefu+ for minimiJe +oss due to sudden mo!ement of the market& O(tion strate)ies (ro!ide im(ressi!e return in ran)e ound market&

&

C%A&TER 6 * RECOMMENDATION 2 !UGGE!TION!

Re?o@@enda:ion Aor Anand Ra:hi !hare 2 !:o?k #rokers L:d.L:d. 1. A++ $rokers shou+d (ro!ide some trainin) to the in!estor for O(tion in!estin)& 2. Good ti(s shou+d dis(erse to the in!estor from an e6(ert& 3. Time to time u(datin) shou+d e (ro!ided ' the roker& 4. $roker shou+d te++ the in!estor to hed)e their in!estment 8ith o(tion& 5. Com(an' shou+d (ro!ide (ro(er SMS faci+it' re)ardin) e!er' de it and credit in the 9emat account& A+thou)h it is (ro!idin) this faci+it' no8 a+so ut it can (ro!ide it in more efficient manner& 6. Com(an' shou+d make it sure that ho+din)s and i++s reach to the c+ients time+'7 there shou+d e no de+a' in this ecause affect the )ood8i++ of com(an' in market& 7. Com(an' shou+d make c+ients a8are re)ardin) o!erdue and fai+ed transaction (ro(er+'& 8. As SS? securities is ha!in) trust of c+ients and !er' efficient 8orkin) staff so it shou+d market itse+f in more attracti!e manner to )ain more and more c+ients as ase& 9. 9urin) the (eriod of research I )ot to kno8 that faci+ities )i!en to the tradin) account ho+ders indirect+' affects the num er of 9emat accounts a+so7 so the com(an' shou+d think to (ro!ide fundin) faci+it' to its c+ients for de+i!er' a+so& 10. Com(an' shou+d a((oint re+ationshi( mana)ers to increase the

num er of c+ients&

Re?o@@enda:ions Aor inves:ors Some of the most common mistakes that in!estors shou+d a!oid are as fo++o8s1 #9;in= :ips7 An in!estor shou+d not u' an'thin) that he does not understand& 5e shou+d do his o8n research& Do no: :radin= :oo @9?h7 The tradin) u) is infectious and hard to )et rid of& Tradin) reduces returns& The most common mistake that in!estors shou+d rea+iJe is that com(anies are meant as Qin!estments< and not as tradin) o((ortunities& 3ou start makin) more mistakes 8ith more num er of tradin) decisions& #9;in= a??ordin= :o @arke: :rends7 The most common mistake is that (eo(+e u' accordin) to market trends instead of u'in) usinesses& A u++ run does not mean that a com(an' 8ith a ad usiness 8i++ do 8e++& 3our stock 8i++ on+' mo!e u( if (rofits sur(ass e6(ectations&

C%A&TER 6 GLO!!AR"3TERMINOLOG"

Ar<i:ra=e6 Profitin) from differences in (rice of the same share traded on t8o or more stock e6chan)es& A9:o@a:ed !?reen Tradin=6 E+ectronic tradin) in stocks throu)h Eisua+ 9is(+a' Units *E9U,& The associated com(uter enters7 matches7 and e6ecutes the dea+& It makes (ossi +e a f+oor+ess e6chan)e and rin)s trans(arenc' to dea+s& #ears2 Those 8ho se++ shares antici(atin) a fa++ in (rices& #ear %a@@erin=6 Persistent se++in) (ressure ' ears7 rin)in) the (rices do8n& #e:a !hares6 %isted7 ut infre>uent+' traded7 shares of com(anies 8ith a

)enera++' +o8 e>uit' ca(ita+& #>ank !a>es6 Sa+e of securities ' BEARS 8ho do not (ossess the securities at the moment of se++in)7 ut ho(e to u' them at a +o8er (rice 8hen the market has fa++en&

#ook C>os9re6$efore a com(an' dec+ares a di!idend or issues onus or ri)hts shares7 it c+oses its re)ister of mem ers for a certain (eriod7 from one 8eek to a month7 durin) 8hich no transfer of shares is re)istered& #rokers6 are intermediaries 8ho com(ete for the ri)ht to he+( (eo(+e u' or se++ somethin) of !a+ue on his c+ient<s eha+f& #9>>s6 Those 8ho u' shares in antici(ation of increase in (rice& Ca>> Op:ion6 Ri)ht to u' at fi6ed (rice& Capi:a> Marke:6inc+udes (rimar' market7 securities market term +endin) institutions7 anks7 in!estors en)a)ed in (ro!idin) +on)2term ca(ita+ *8hether e>uit' ca(ita+ or de t ca(ita+, to the Industria+ Sector& Co@@odi:ies Marke:6Market for tradin) u+k & asic )oods +ike )rain7 edi +e oi+s7 ru er7 cotton7 meta+s7 etc& Certain s(ecia+ items +ike tea & coffee are traded in auctions 8ith ins(ection faci+ities for the )oods& Da; Tradin=6 $u'in) and se++in) the same share durin) a sin)+e da'7 ho(in) to make a (rofit from (rice f+uctuations& Dep:h @arke:2 refers to the num er of (artici(ants in the market read' to transact at a )i!en (rice to ensure sufficient +i>uidit'& Deriva:ives6 is a (roduct 8hose !a+ue is deri!ed from the !a+ue of under+'in) asset7 inde6 etc& The under+'in) assets can e e>uit'7 fore6 commodit'7 or an' other asset& Govern@en: !e?9ri:ies6 means a securit' created & issued ' the Centra+ Go!ernment or State Go!ernment for the (ur(ose of raisin) a (u +ic +oan& Gre; Marke:6 Unofficia+ (remium market in 8hich ne87 not2'et2+isted shares re ou)ht and so+d&

E89i:; Marke:2 O8nershi( of tan)i +e assets are ou)ht & so+d in E>uit' Market& EE6Dividend Da:e6A (u +ic+' announced date on or after 8hich a u'er 8i++ not e entit+ed to the di!idend dec+ared on a share& The share (rice is usua++' shade +o8er on the e62di!idend date& EEer?ise6To (ut into effect7 the ri)ht to u' or se++& $inan?ia> Marke:2 Pro!ide the channe+ for a++ocation of sa!in)s to in!estment & (ro!ide a !ariet' of assets to sa!ers as 8e++ as !arious forms in 8hich the in!estors can raise funds $I6 #inancia+ Institution $II6#inancia+ Institutiona+ In!estor $>oor #roker6 A (erson 8ho actua++' does the u'in) & se++in) of shares on eha+f of a mem er of the stock e6chan)e for a sma++ share of the commission char)ed ' a roker& $orward Dea>in=LTradin=2 Contracts to u' or se++ s(ecific >uantities of

)oods7 currenc'7 or frei)ht at a stated (rice and a stated time in the future& #or8ard contracts are ou)ht & so+d in the #UTURES MARNET. $9:9res6 Shares or commodities ou)ht or so+d for de+i!er' at a future date& These can e so+d at a (rofit efore de+i!er' if (rices in the market ha!e chan)ed& %o>din= :he Marke:6 Market inter!ention ' (u +ic cor(orations +ike the UTI or %IC 8ith +ar)e u' orders of shares to sta i+iJe a fa++in) market& It is a (art of their )o!ernment mandate& %o: !hares6 /& Shares in )reat demand&

-& Sto+en shares& In6and6O9: Trader6 One 8ho u's and se++s the same share in the course of the tradin) da'7 ho(in) to (rofit from shar( (rice mo!ements & kee(s no o!er2 ni)ht (osition& I&O6 Initia+ Pu +ic Offerin)& Ne8 shares offered to (u +ic in the Primar' Market& 0o<<ers6 $roker<s roker& One 8ho s(ecia+iJes in s(ecific securities caterin) to the needs of other rokers& Li89id Marke:2 One 8here the siJe of an order creates minima+ affects on the transactions (rice& Lo:6A fi6ed num er in 8hich shares are ou)ht & so+d& Low6The +o8est (rice (aid for a share in the +ast t8e+!e months& Mark Down6 =hen a roker is u'in) shares on his o8n account from a customer he takes the est Bid Price and deducts a commission7 8hich is the mark do8n& Mark Up6 =hen a roker is se++in) from his o8n account to a customer7 he char)es the est Ask Price and adds a commission7 8hich is the mark u(& Marke: a: Res:6 The da'<s c+osin) (rices that are taken into account 8hi+e (re(arin) share (rice mo!ements charts& Marke: Capi:a>iKa:ion6 The tota+ market !a+ue7 at the current stock e6chan)e +ist (rice7 of the tota+ num er of e>uit' shares issued ' a com(an'& Marke: Order6 Order to the stock roker to u' or se++ a share at the est a!ai+a +e (rice&

Marke: &ri?e6 The +ast re(orted (rice of a share at 8hich it 8as so+d on the stock e6chan)e& Marke: Lo:6 Each Com(an' s(ecifies the minimum num er of securities7 8hich makes an e!en or market +ot& Mar=in6 The difference in (rices at 8hich a Jobber 8i++ u' and se++& A+so ca++ed a 5aircut& Mar=in A??o9n:6An account 8ith a rokera)e firm7 8hich 8i++ a++o8 the c+ient to u' shares 8ith mone' orro8ed from the roker& Mar)in re>uirements can e met 8ith a de(osit in cash or shares& Ma:9ri:;6 9a' on 8hich o(tion is e6ercised& Me>:down6 The (henomenon of fast7 uncontro++ed fa++ in share (rices& Me@<er Code6 A uni>ue code )i!en to each mem er of the stock e6chan)e to ena +e the c+earin)house to check his (a'ment or de+i!er' (osition& Me@<er $ir@6 A rokera)e firm 8hich has at +east one mem ershi( on a ma4or stock e6chan)e& MIT6 Market If Touched& A +imit order 8hich automatica++' ecomes a market order 8hen the (rice is reached& NaMve #9;6and6%o>d !:ra:e=;6 Se+ectin) shares random+'7 u'in) them7 and ho+din) them re)ard+ess of an' information a!ai+a +e in the market& Naked Ca>> Wri:in=6 Se++in) a ca++ o(tion on shares the 8riter does not o8n& Naked Op:ion6 A Call option for 8hich the se++er does not o8n the su((ortin) shares& One Wa; Marke:6 A market dominated ' on+' u'ers or se++ers&

O9: oA :he @one;6O(tion e6ercised (rice is a o!e *in case of ca++, or e+o8 *in case of (ut, (re!ai+in) (rice of under+'in) asset& Over :he Co9n:er Marke: or OTC Marke:6 A market 8here shares 8hich are not +isted on the stock e6chan)e are traded& &ani? !e>>in=6 A condition of the stock market in 8hich not on+' ine6(erienced in!estors7 ut a+so sturd' u++s7 take fri)ht and start se++in)& &or:Ao>io6 Com ined ho+din) of man' kinds of financia+ securities2 shares7 de entures7 )o!ernment (rimar' o 4ects& &or:Ao>io Mana=er6 A (rofessiona+ 8ho mana)es other (eo(+es< or institution<s in!estment (ortfo+ios 8ith the o 4ecti!es of (rofita i+it'7 )ro8th and risk minimiJation& &re@i9@6 /& A (rice a o!e the face !a+ue of a share or an' other financia+ securit'& -& Price (aid for u'in) an ption. &ri?e Gap6 A share<s hi)h and +o8 durin) a da' does not o!er+a( the (rices on the (re!ious& &roAi: #ookin=6 Se++in) shares 8hen their (rices ha!e risen a o!e their (urchase (rice& &roAi: Takin=6 Se++in) a share7 ou)ht 8hen its (rice 8as re+ati!e+' +o87 8hen the market (rice has risen& &9n:er6 Sma++ s(ecu+ator 8ho ho(es to make a >uick uck ' u'in) shares7 ho+din) them for short (eriod7 and se++in) them to make a >uick (rofit& onds7 Unit Trust certificates7 and other financia+ assets& Reducin) risk ' di!ersification and ma6imiJation of )ains are the

&9r?hase Order6 =ritten instruction to a share roker to u' or se++ (articu+ar shares in a (articu+ar 8a'&

&9: Op:ion6Ri)ht to se++ at fi6ed (rice& 59o:a:ion6 5i)hest id and +o8est offers for a share& 59o:ed &ri?e6 The (rice at 8hich a share 8as +ast ou)ht and so+d on the stock e6chan)e& 59o:ed !hares6 The shares of a com(an' 8hich are officia++' re)istered on a stock e6chan)e7 and 8hose (rices are >uoted on the fficial !ist. Ra>>;6 Noticea +e rise in the (rice of a share7 or a noticea +e rise in the share market inde67 after a (eriod of sta)nanc' or a dec+inin) trend& Ra@pin=6 %ar)e2sca+e u'in) of a stock from the market 8ith the o 4ect of oostin) the ima)e of the stock and the com(an' ehind it to increase its demand and conse>uent+' its (rice& Ra:e oA T9rnover6 Tota+ annua+ sa+es di!ided ' the a!era)e in!entor' sho8s the s(eed 8ith 8hich stock has een turned o!er& Re?ord Da:e6 #or the (ur(ose of di!idend distri ution and entit+ements to Bonus or Rights Issues" a com(an' fi6es a date on 8hich a shareho+der must officia++' o8n shares to >ua+if'& Resis:an?e Leve>6 A +e!e+ at 8hich the rise in (rice of a share has re(eated ha+ted7 as there are more se++ers at that (rice than u'ers& Re:ai> Inves:or6 5e is the indi!idua+ u'in) shares for himse+f7 as o((osed to the institutiona+ in!estor 8ho u's for others&

Ri==in=6 Mani(u+ation of share (rices so as to attract naX!e in!estors to u' or se++ shares& Ri=h:s Iss9e6 Issue of shares at (ar or at a (remium ' an e6istin) com(an' to its shareho+ders in a certain (ro(ortion to their ho+din)s7 as a matter of their ri)ht to recei!e (referentia+ treatment& Ro>> Over6 Transfer of funds from one in!estment to another& Ro9nd Lo:6 The minimum num er of shares in a tradin) +otS /. or C. in the case of Rs&/. shares7 and /. or C for Rs&/.. shares& R9nnin= Ahead6 A roker u'in) or se++in) a share on his o8n account efore his c+ient<s order for the same share& !a9da #ook6 A ook used ' mem ers of a stock e6chan)e or their authoriJed assistants to record sa+es and (urchase transactions& !?reenin= !:o?ks6 A (rocess of +ookin) for shares7 8hich meet (redetermined7 financia+ and in!estment criteria& =ith com(uteriJed share scan the (rocess has no8 ecome much sim(+er& !?rip6 Share Certificate& !e>>erIs Marke:6 CharacteriJed $AR%E&. !e>> O9:6 =hen a c+ient fai+s to (a' and take de+i!er' of the shares ou)ht on eha+f of him ' the roker7 the roker se++s off the shares at the est market (rice and the c+ient is res(onsi +e for an' financia+ +oss to the roker& !e>>in= !hor:6 Sa+e of shares7 8hich he doesn<t (ossess7 ' a s(ecu+ator& !ensi:ive Marke:6 Market easi+' inf+uenced ' )ood or ad ne8s& ' a shorta)e of shares in the market in

re+ation to their demand and conse>uent hi)h (rices7 indicatin) a B#!!

!hare Cer:iAi?a:e6 9ocumentar' e!idence of the o8nershi( of a +ock of shares& !hareho>der6 A (erson or a +e)a+ entit' 8ho o8ns e>uit' or (reference shares of a com(an'& !hare &re@i9@6 An amount in e6cess of the face !a+ue of a share char)ed ' a com(an' on its share issue& !%CIL6 Stock 5o+din) Cor(oration of India %td& Set u( in /ALL to (ro!ide (ost2trade ser!ices +ike ho+din) stocks on eha+f of in!estors& !pe?iAied !hares6 The most 8ide+' traded shares7 a+so kno8n as 'R #P A SEC#RI&IES" C!EARE( SEC#RI&IES" transactions in 8hich are made throu)h the c+earin)house of the stock e6chan)e& !po: De>iver;6 9e+i!er' of shares and (a'ment for the same on the date of (urchase or 8ithin BL hours& !po: Marke:6 Commodities market in 8hich )oods are so+d a)ainst cash and de+i!ered immediate+'& !89arin= Up6 Sett+in) of accounts on ACC #)&S (A*7 ' actua+ de+i!er' of shares or carr'in) for8ard one<s transactions to the ne6t account da'7 (a'in) BAC%+AR(A&I ). !89arin= oAA 6 This term is used to com(+ete one transaction& Means if 'ou u' then ha!e to se++ *means s>uare off, and if 'ou se++ then 'ou ha!e to u'*means s>uare off,& !:o?k EE?han=e6 A market(+ace 8here shares chan)e hands for consideration& An association of indi!idua+ mem ers ca++ed mem er rokers: mem ers: '

rokers formed for the (ur(ose of re)u+atin) & faci+itatin) the u'in) & se++in) securities ' the (u +ic & institutions at +ar)e& Stock E6chan)e o(erates 8ith due reco)nition from the Go!ernment under the Securities & Contracts *Re)u+ations, Act7 /AC@& $SE contro+s L.H of tota+ !o+ume of transactions& !:o?k Op:ion6 In share tradin)7 it is the ri)ht to u' or se++ a hare at a (articu+ar (rice 8ithin a (articu+ar (eriod7 in order to hed)e the in!estment& !:rikin= or EEer?ise &ri?e7 #i6ed (rice at 8hich the o(tion ma' e e6ercised and the under+'in) asset ou)ht or so+d& Take a &osi:ion6 To u' a share for the +on)2term& Take De>iver;6 Ph'sica+ acce(tance of shares7 8hich ha!e een ou)ht on his account7 ' a c+ient& Tradin= $>oor6 The area in a stock e6chan)e in 8hich dea+ers trade throu)h (ersona+ contact7 as a)ainst im(ersona+ screen tradin)& Tradin= %a>:6 Sus(ension of tradin) in a share for a time 8hi+e im(ortant ne8s from the issuin) com(an' is ein) e!a+uated& Un>oadin=6 Se++in) shares off 8hen (rices are fa++in) to a!oid further +oss& Wash !a>e6 $u'in) & se++in) of a share simu+taneous+' or 8ithin a short (eriod of time ' an indi!idua+ or a )rou( to )enerate artificia+ market acti!it' and a rise in the share<s (rice 8hich the mani(u+ator<s can then cash in on&

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888&)oo)+e&com 888&mone'contro+&com 888&anandrathi&com 888&mudra&com

C%A&TER64 5UE!TIONNAIRE
Name YYYYYYYYYYYYYYYYYYYYYYYYYYYYYYY Occu(ation YYYYYYYYYYYYYYYYYYYYYYYYYYYYYYY Y A)e YYYYYYYYYYYYYYYYYYYYYYYYYYYYYYY Y Marita+ status YYYYYYYYYYYYYYYYYYYYYYYYYYYYYYY Add YYYYYYYYYYYYYYYYYYYYYYYYYYYYYYY Y

V/6 5o8 much do 'ou in!est in (ro(ortion of 'our income& *i, +ess than CH *ii, C2/.H *iii, /.2-.H *i!, a o!e -.H

V-2Time s(an of in!estmentU *i, Short term *ii, medium *iii, +on) term *i!, Intrada'

V02 8hat do 'ou (refer commodit' or shares U a&, commodit' &, shares

VB25o8 do 'ou in!est in commodit' U *i, On the asis of o8n research*ii, on o8n s(ecu+ation ad!ice of friends and roker& *iii, On the asis of

VC29o 'ou think Indian commodit' market most+' affected ' the forei)n in!estorsU *i, 'es *ii,no

V@28hich T'(e of financia+ instrument do 'ou +ike most in market& *i, Cash Se)ment *ii, #uture Se)ment *iii,O(tion Se)ment

VD25o8 much )ro8th do 'ou e6(ect in commodit' se)ment& *i,fast *ii,moderate *iii, s+o8

VL28hich t'(e of o(tion do 'ou (referU *i,commodit' *ii, Stock O(tion *iii,$oth

VA2 8ou+d 'ou think that Put2Ca++ Ratio is the ma4or indicator for the market direction& *i,3es *ii, no

V/.28h' do 'ou not (refer o(tion tradin)U *i,9ue to +ack of kno8+ed)e *ii,9ue to fear of the +oss of mar)in&

*iii,9ue to +ess !o+ume in O(tions&

V//29oes stock market is arometer of soundness of econom' of the countr'U *i,'es *ii,No