Introduction of Stock

Stock is a security issued in the form of shares that represent

ownership interests in a company. There is both common stock
(often simply called "stock," "shares," or "equity") and preferred
stock. Common stock holders elect the company's board of
directors and actively participate in the company's success (or
failure) through a rising (or falling) stock price. Common stock
holders may also receive dividends, provided the company is
profitable, obligations to commercial creditors and bondholders
have been met, and the board sees fit to declare them. In the event
of liquidation, however, common stock holders have no right to
assets until all other obligations of the firm have been met.
Common stock holders may have "pre-emptive" rights to maintain
their percentage ownership of the firm. For example, a common
stock holder with 100 of the 1,000 outstanding shares of the
company, or 10%, may (or may not) have the right to buy 10
shares of a new issue of 100 shares. Preferred stock holders, in
turn, are generally guaranteed dividends at a fixed rate, but they
have limited voting rights.

The stock or capital stock of a business entity represents the

original capital paid into or invested in the business by its
founders. It serves as a security for the creditors of a business since
it cannot be withdrawn to the detriment of the creditors. Stock is
distinct from the property and the assets of a business which may
fluctuate in quantity and value.
 HISTORY OF THE STOCK
One of the ealiest stock by VOC

During Roman times, the empire contracted out many of its

services to private groups called publicani. Shares in publicani
were called "socii" (for large cooperatives) and "particulae" which
were analogous to today's Over-The-Counter shares of small
companies. Though the records available for this time are
incomplete, Edward Chancellor states in his book Devil Take the
Hindmost that there is some evidence that a speculation in these
shares became increasingly widespread and that perhaps the first
ever speculative bubble in "stocks" occurred.

The first company to issue shares of stock after the Middle Ages
was the Dutch East India Company in 1606. The innovation of
joint ownership made a great deal of Europe's economic growth
possible following the Middle Ages. The technique of pooling
capital to finance the building of ships, for example, made the
Netherlands a maritime superpower. Before adoption of the joint-
stock corporation, an expensive venture such as the building of a
merchant ship could be undertaken only by governments or by
very wealthy individuals or families.

Economic historians find the Dutch stock market of the 17th

century particularly interesting: there is clear documentation of the
use of stock futures, stock options, short selling, the use of credit to
purchase shares, a speculative bubble that crashed in 1695, and a
change in fashion that unfolded and reverted in time with the
market (in this case it was headdresses instead of hemlines). Dr.
Edward Stringham also noted that the uses of practices such as
short selling continued to occur during this time despite the
government passing laws against it. This is unusual because it
shows individual parties fulfilling contracts that were not legally
enforceable and where the parties involved could incur a loss.
Stringham argues that this shows that contracts can be created and
enforced without state sanction or, in this case, in spite of laws to
the contrary.
 Types of stock
Stock typically takes the form of shares of either common stock or
preferred stock. As a unit of ownership, common stock typically
carries voting rights that can be exercised in corporate decisions.
Preferred stock differs from common stock in that it typically does
not carry voting rights but is legally entitled to receive a certain
level of dividend payments before any dividends can be issued to
other shareholders.[3][4] Convertible preferred stock is preferred
stock that includes an option for the holder to convert the preferred
shares into a fixed number of common shares, usually anytime
after a predetermined date. Shares of such stock are called
"convertible preferred shares" (or "convertible preference shares"
in the UK)

New equity issues may have specific legal clauses attached that
differentiate them from previous issues of the issuer. Some shares
of common stock may be issued without the typical voting rights,
for instance, or some shares may have special rights unique to
them and issued only to certain parties. Often, new issues that have
not been registered with a securities governing body may be
restricted from resale for certain periods of time.

Preferred stock may be hybrid by having the qualities of bonds of

fixed returns and common stock voting rights. They also have
preference in the payment of dividends over common stock and
also have been given preference at the time of liquidation over
common stock. They have other features of accumulation in
dividend.
 Common Stock
Common stock is, well, common. When people talk about stocks
they are usually referring to this type. In fact, the majority of stock
is issued is in this form. We basically went over features of
common stock in the last section. Common shares represent
ownership in a company and a claim (dividends) on a portion of
profits. Investors get one vote per share to elect the board
members, who oversee the major decisions made by management.

Over the long term, common stock, by means of capital growth,

yields higher returns than almost every other investment. This
higher return comes at a cost since common stocks entail the most
risk. If a company goes bankrupt and liquidates, the common
shareholders will not receive money until the creditors,
bondholders and preferred shareholders are paid.

Preferred Stock
Preferred stock represents some degree of ownership in a company
but usually doesn't come with the same voting rights. (This may
vary depending on the company.) With preferred shares, investors
are usually guaranteed a fixed dividend forever. This is different
than common stock, which has variable dividends that are never
guaranteed. Another advantage is that in the event of liquidation,
preferred shareholders are paid off before the common shareholder
(but still after debt holders). Preferred stock may also be callable,
meaning that the company has the option to purchase the shares
from shareholders at anytime for any reason (usually for a
premium).

Some people consider preferred stock to be more like debt than

equity. A good way to think of these kinds of shares is to see them
as being in between bonds and common shares.
 Different Classes of Stock
Common and preferred are the two main forms of stock; however,
it's also possible for companies to customize different classes of
stock in any way they want. The most common reason for this is
the company wanting the voting power to remain with a certain
group; therefore, different classes of shares are given different
voting rights. For example, one class of shares would be held by a
select group who are given ten votes per share while a second class
would be issued to the majority of investors who are given one
vote per share.

When there is more than one class of stock, the classes are
traditionally designated as Class A and Class B. Berkshire
Hathaway (ticker: BRK), has two classes of stock. The different
forms are represented by placing the letter behind the ticker
symbol in a form like this: "BRKa, BRKb" or "BRK.A, BRK.B".
 History of Stock market
The Phiroze Jeejeebhoy Towers house the Bombay Stock
Exchange since 1980.

The Bombay Stock Exchange is the oldest exchange in Asia. It

traces its history to the 1850s, when 4 Gujarati and 1 Parsi
stockbroker would gather under banyan trees in front of Mumbai's
Town Hall. The location of these meetings changed many times, as
the number of brokers constantly increased. The group eventually
moved to Dalal Street in 1874 and in 1875 became an official
organization known as 'The Native Share & Stock Brokers
Association'. In 1956, the BSE became the first stock exchange to
be recognized by the Indian Government under the Securities
Contracts Regulation Act. The Bombay Stock Exchange developed
the BSE Sensex in 1986, giving the BSE a means to measure
overall performance of the exchange. In 2000 the BSE used this
index to open its derivatives market, trading Sensex futures
contracts. The development of Sensex options along with equity
derivatives followed in 2001 and 2002, expanding the BSE's
trading platform. Historically an open outcry floor trading
exchange, the Bombay Stock Exchange switched to an electronic
trading system in 1995. It took the exchange only fifty days to
make this transition. This automated, screen-based trading
platform called BSE On-line trading (BOLT) currently has a
capacity of 80 lakh orders per day. The BSE has also introduced
the world's first centralized exchange-based internet trading
system, BSEWEBx.co.in to enable investors anywhere in the
world to trade on the BSE platform. The BSE is currently housed
in Phiroze Jeejeebhoy Towers at Dalal Street, Fort area.
 History Of BSE
The Phiroze Jeejeebhoy Towers house the Bombay Stock
Exchange since 1980.
The Bombay Stock Exchange is the oldest exchange in Asia. It
traces its history to the 1850s, when 4 Gujarati and 1 Parsi
stockbroker would gather under banyan trees in front of Mumbai's
Town Hall. The location of these meetings changed many times, as
the number of brokers constantly increased. The group eventually
moved to Dalal Street in 1874 and in 1875 became an official
organization known as 'The Native Share & Stock Brokers
Association'. In 1956, the BSE became the first stock exchange to
be recognized by the Indian Government under the Securities
Contracts Regulation Act. The Bombay Stock Exchange developed
the BSE Sensex in 1986, giving the BSE a means to measure
overall performance of the exchange. In 2000 the BSE used this
index to open its derivatives market, trading Sensex futures
contracts. The development of Sensex options along with equity
derivatives followed in 2001 and 2002, expanding the BSE's
trading platform. Historically an open outcry floor trading
exchange, the Bombay Stock Exchange switched to an electronic
trading system in 1995. It took the exchange only fifty days to
make this transition. This automated, screen-based trading
platform called BSE On-line trading (BOLT) currently has a
capacity of 8 million orders per day. The BSE has also introduced
the world's first centralized exchange-based internet trading
system, BSEWEBx.co.in to enable investors anywhere in the
world to trade on the BSE platform. The BSE is currently housed
in Phiroze Jeejeebhoy Towers at Dalal Street, Fort area.

Bombay Stock Exchange is the oldest stock exchange in Asia

with a rich heritage of over 133 years of existence. What
is now popularly known as BSE was established as "The
Native Share & Stock Brokers' Association" in 1875.
 BSE is the first stock exchange in the country which
obtained permanent recognition (in 1956) from the
Government of India under the Securities Contracts
(Regulation) Act (SCRA) 1956. BSE's pivotal and pre-eminent
role in the development of the Indian capital market is
widely recognised. It migrated from the open out-cry system
to an online screen-based order driven trading system in
1995. Earlier an Association Of Persons (AOP), BSE is now a
corporatised and demutualised entity incorporated under the
provisions of the Companies Act, 1956, pursuant to the BSE
(Corporatisation and Demutualisation) Scheme, 2005 notified
by the Securities and Exchange Board of India (SEBI). With
demutualisation, BSE has two of world's prominent
exchanges, Deutsche Börse and Singapore Exchange, as its
strategic partners.

Today, BSE is the world's number 1 exchange in terms of the

number of listed companies and the world's 5th in handling
of transactions through its electronic trading system. The
companies listed on BSE command a total market
capitalization of USD Trillion 1.06 as of July, 2009. BSE
reaches to over 400 cities and town nation-wide and has
around 4,937 listed companies, with over 7745 scrips being
traded as on 31st July 09.
 BSE indices
Bombay Stock Exchange
For the premier stock exchange that pioneered the securities
transaction business in India, over a century of experience is a
proud achievement. A lot has changed since 1875 when 318
persons by paying a then princely amount of Re. 1, became
members of what today is called Bombay Stock Exchange Limited
(BSE).
Over the decades, the stock market in the country has passed
through good and bad periods. The journey in the 20th century has
not been an easy one. Till the decade of eighties, there was no
measure or scale that could precisely measure the various ups and
downs in the Indian stock market. BSE, in 1986, came out with a
Stock Index-SENSEX- that subsequently became the barometer of
the Indian stock market.
The launch of SENSEX in 1986 was later followed up in January
1989 by introduction of BSE National Index (Base: 1983-84 =
100). It comprised 100 stocks listed at five major stock exchanges
in India - Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The
BSE National Index was renamed BSE-100 Index from October
14, 1996 and since then, it is being calculated taking into
consideration only the prices of stocks listed at BSE. BSE
launched the dollar-linked version of BSE-100 index on May 22,
2006.
With a view to provide a better representation of the increasing
number of listed companies, larger market capitalization and the
new industry sectors, BSE launched on 27 May, 1994 two new
index series viz., the 'BSE-200' and the 'DOLLEX-200'. Since
then, BSE has come a long way in attuning itself to the varied
needs of investors and market participants. In order to fulfill the
need for still broader, segment-specific and sector-specific indices,
BSE has continuously been increasing the range of its indices.
BSE-500 Index and 5 sectoral indices were launched in 1999. In
2001, BSE launched BSE-PSU Index, DOLLEX-30 and the
 country's first free-float based index - the BSE TECk Index. Over
the years, BSE shifted all its indices to the free-float methodology
(except BSE-PSU index).
BSE disseminates information on the Price-Earnings Ratio, the
Price to Book Value Ratio and the Dividend Yield Percentage on
day-to-day basis of all its major indices.
The values of all BSE indices are updated on real time basis during
market hours and displayed through the BOLT system, BSE
website and news wire agencies.
All BSE Indices are reviewed periodically by the BSE Index
Committee. This Committee which comprises eminent
independent finance professionals frames the broad policy
guidelines for the development and maintenance of all BSE
indices. The BSE Index Cell carries out the day-to-day
maintenance of all indices and conducts research on development
of new indices.

BSE
For the premier stock exchange that pioneered the securities
transaction business in India, over a century of experience is a
proud achievement. A lot has changed since 1875 when 318
persons by paying a then princely amount of Re. 1, became
members of what today is called Bombay Stock Exchange Limited
(BSE).

Over the decades, the stock market in the country has passed
through good and bad periods. The journey in the 20th century has
not been an easy one. Till the decade of eighties, there was no
measure or scale that could precisely measure the various ups and
downs in the Indian stock market. BSE, in 1986, came out with a
Stock Index-SENSEX- that subsequently became the barometer of
the Indian stock market.

The launch of SENSEX in 1986 was later followed up in January

1989 by introduction of BSE National Index (Base: 1983-84 =
100). It comprised 100 stocks listed at five major stock exchanges
in India - Mumbai, Calcutta, Delhi, Ahmedabad and Madras. The
 BSE National Index was renamed BSE-100 Index from October
14, 1996 and since then, it is being calculated taking into
consideration only the prices of stocks listed at BSE.

BSE launched the dollar-linked version of BSE-100 index on May

22, 2006.

With a view to provide a better representation of the increasing

number of listed companies, larger market capitalization and the
new industry sectors, BSE launched on 27th May, 1994 two new
index series viz., the 'BSE-200' and the 'DOLLEX-200'. Since
then, BSE has come a long way in attuning itself to the varied
needs of investors and market participants. In order to fulfill the
need for still broader, segment-specific and sector-specific indices,
BSE has continuously been increasing the range of its indices.
BSE-500 Index and 5 sectoral indices were launched in 1999. In
2001, BSE launched BSE-PSU Index, DOLLEX-30 and the
country's first free-float based index - the BSE TECk Index. Over
the years, BSE shifted all its indices to the free-float methodology
(except BSE-PSU index).

BSE disseminates information on the Price-Earnings Ratio, the

Price to Book Value Ratio and the Dividend Yield Percentage on
day-to-day basis of all its major indices.

The values of all BSE indices are updated on real time basis during
market hours and displayed through the BOLT system, BSE
website and news wire agencies.

All BSE Indices are reviewed periodically by the BSE Index

Committee. This Committee which comprises eminent
independent finance professionals frames the broad policy
guidelines for the development and maintenance of all BSE
indices. The BSE Index Cell carries out the day-to-day
maintenance of all indices and conducts research on development
of new indices
 NSE
The National Stock Exchange (NSE) is a stock exchange located at
Mumbai, India. It is the largest stock exchange in India in terms of
daily turnover and number of trades, for both equities and
derivative trading. NSE has a market capitalization of around
7,262,507 crore (US$ 1,648.59 billion) (October 2010) and was
expected to become the biggest stock exchange in India in terms of
market capitalization by 2009 end, although this has not yet
occurred. Though a number of other exchanges exist, NSE and the
Bombay Stock Exchange are the two most significant stock
exchanges in India, and between them are responsible for the vast
majority of share transactions. The NSE's key index is the S&P
CNX Nifty, known as the NSE NIFTY (National Stock Exchange
Fifty), an index of fifty major stocks weighted by market
capitalisation.
NSE is mutually-owned by a set of leading financial institutions,
banks, insurance companies and other financial intermediaries in
India but its ownership and management operate as separate
entities. There are at least 2 foreign investors NYSE Euronext and
Goldman Sachs who have taken a stake in the NSE. As of 2006,
the NSE VSAT terminals, 2799 in total, cover more than 1500
cities across India. In October 2007, the equity market
capitalization of the companies listed on the NSE was US$ 1.46
trillion, making it the second largest stock exchange in South Asia.
NSE is the third largest Stock Exchange in the world in terms of
the number of trades in equities. It is the second fastest growing
stock exchange in the world with a recorded growth of 16.6%.
 National Stock Exchange
A+ A-

National Stock Exchange of India (NSE) is India's largest Stock

Exchange & World's third largest Stock Exchange in terms of
transactions. Located in Mumbai, NSE was promoted by leading
Financial Institutions at the behest of the Government of India, and
was incorporated in November 1992 as a tax-paying company. In
April 1993, NSE was recognized as a Stock exchange under the
Securities Contracts (Regulation) Act-1956. NSE commenced
operations in the Wholesale Debt Market (WDM) segment in June
1994. Capital Market (Equities) segment of the NSE commenced
operations in November 1994, while operations in the Derivatives
segment commenced in June 2000. NSE has played a catalytic role
in reforming Indian securities market in terms of microstructure,
market practices and trading volumes. NSE has set up its trading
system as a nation-wide, fully automated screen based trading
system. It has written for itself the mandate to create World-class
Stock Exchange and use it as an instrument of change for the
industry as a whole through competitive pressure. NSE is set up on
a demutualised model wherein the ownership, management and
trading rights are in the hands of three different sets of people. This
has completely eliminated any conflict of interest.

NSE was set up with the objectives of:

 Establishing nationwide trading facility for all types of securities
Ensuring equal access to investors all over the country through an
appropriate telecommunication network
Providing fair, efficient & transparent securities market using
electronic trading system
Enabling shorter settlement cycles and book entry settlements
Meeting International benchmarks and standards
Within a very short span of time, NSE has been able to achieve its
objectives for which it was set up. Indian Capital Markets are a far
cry from what they were 12 years back in terms of market
practices, infrastructure, technology, risk management, clearing
and settlement and investor service. To ensure continuity of
business, NSE has built a full fledged BCP site operational for last
7 years.

NSE's markets

NSE provides a fully automated screen-based trading system with

national reach in the following major market segments:-

Equity OR Capital Markets {NSE's market share is over 65%}

Futures & Options OR Derivatives Market {NSE's market share
over 99.5%}
Wholesale Debt Market (WDM)
Mutual Funds (MF)
Initial Public Offerings (IPO)
What are the IT initiatives of NSE in the last one year?
NSE believes that technology shall continue to provide necessary
impetus for any organisation to retain its competitive edge, ensure
timeliness & satisfaction in customer service. Being fully
dependant on Information Technology, NSE has stressed on
innovation and sustained investment in technology on a continual
basis to ensure customer satisfaction, improvement in services
which automatically helps in sustaining business and remain ahead
of competition. As a policy, NSE looks to improve the quality of
Services to its customers. Projects are not initiated based on a
business model to reap profits but from a strategic perspective of
better productivity, Value-adds & features, improving efficiency,
reducing operational costs, compliance, operational transparency
etc for the customers, investors and to the entire Indian Securities
Industry. Some of the projects taken by NSE last year are as
follows:-

Trading System Capacity enhancement

Re-engineering of Online Position Monitoring (OPMS)
Augmentation of Data Warehouse (DWH)
STP Central Hub
What was the objective, business benefits that the company
derived and beneficiaries of the implementation of Trading System
Capacity enhancement?

Project Objective
NSE's Capital Market Trading system was operational on two
machine split architecture using Fault Tolerant mainframes and
geared to handle 3 million trades. However, the CM segment had
started to experience trades nearing 3 Million trades which form a
threshold. Based on the trends & expected volumes, growth in the
medium term is more than thrice the current trading volume, i.e.
about 10 Million transactions per day. However with the then
existing 2-machine split architecture, it was required to improve
the trading system transaction handling capacity. The 3-machine
split architecture project was thus taken up to enhance the load
handling capacity of the system by introducing a 3-way split
Hardware, Application optimisation and improving the processes
for achieving market volume of around 6 million transactions per
day.

Project was completed as per schedule & is currently operational

since last 1 year.

Business Benefits

System scaled on 3 machines with distribution of users and

 securities with complete transparency to market participants.
System witnessed 3 million trades with faster response time to
members at significantly lower system resource utilisation level.
Scalability to handle higher volumes (3 million to 6 million
transactions per day).
Beneficiaries
Trading Members have experienced a faster response time. The
trading system is able to handle higher volume of transactions
which translates into higher turnover. It therefore directly
translates into more opportunities and growth for the Entire Indian
Securities market.

What was the objective, business benefits that the company

derived and beneficiaries of the implementation of re-engineering
of Online Position Monitoring (OPMS)?

Project Objective
OPMS is On-line Position Monitoring and Risk Management
system for the Capital Market segment of the National Stock
Exchange of India Limited. It tracks positions of trading members
from Turnover and Exposure limits with a view of identifying and
preventing potential settlement related issues. The positions are
monitored on an on-line basis and the system provides for auto
disablement of the violating member on the trading system. Based
on the volumes, it is expected that the current trading levels of
about 3 million trades per day may rise to the new heights of 10
million trades per day in the near future. It was therefore necessary
to initiate was to reengineer OPMS system without imposing any
major cost associated with architectural overhauling. Another key
objective was to scale the violation detection mechanism by a
mammoth factor from around 300 violation checks per second to
handle more than 4000 violations per second.

Other major objectives and the goals include:

Real-time position computation and violation detection

 Ability to handle high load of over one million client positions
Management of information for positions & risk values about each
trading member
Information structure based on a tree of security, settlement,
trading member
Handle on-line collateral and securities early pay-in
Total fault tolerance with minimum downtime
Achieve 4000 violation checks per second
Business Benefits

Effective and efficient Risk Management- Violation turnover

reduced from few seconds to few milliseconds & 99.96% trades
processed for Risk Management within a second of occurrence.
Better utilisation of Resources- Peak capacity of trades handling
capacity enhanced to 10 million trades & Average CPU utilisation
reduced from 70% to 20%.
Linearly scalable
Beneficiaries
Trading Members risk management has significantly improved.
Trading members have benefited due to this initiative.

What was the objective, business benefits that the company

derived and beneficiaries of the implementation Augmentation of
Data Warehouse (DWH)?

Project Objective
NSE has a matured data warehouse application extensively used
for analysis, reporting and investigative purposes. The project was
to enhance and upgrade existing data warehouse infrastructure in
terms of:-

Migrating to a higher capacity server and storage hardware

Migrating database from Oracle 8 to Oracle 9i
Upgrade existing ETL solution consisting of a separate extraction
solution and transformation cum loading solution into a complete
and unified ETL tool
Business Benefits
 Response time & query performance improved dramatically by
about 100%.
Extraction and loading time has reduced by almost 8-9 times.
Timely, efficient reporting. Reduced lead time in providing data to
Regulator.
New features of Oracle 9i like Ranking, enhanced analytic
functions have contributed enormously to efficiency aspect of the
data warehouse usage.
Beneficiaries
Benefit accrued to NSE as an organisation due to the extensive
usage of DWH.

What was the objective, business benefits that the company

derived and beneficiaries of the implementation STP Central Hub?

Project Objective
During a typical day at an institutional fund house, details of trade
confirmations executed in the day are sent out to the Custodian for
effecting trade settlements. The Custodian also receives details of
the executed trade from the broker of the fund house, for cross-
verification of the trade data. Upon verification, if it is found that
the trade details do not match the instruction documents sent across
by the fund house and the broker there is a delay in effecting such
settlements. This is a global phenomenon that is a concern for all
the major financial institutions. Studies have shown that around
15% of global trade failures result from unmatched trade data,
which in monetary terms is upwards of Billions of Dollars, a steep
price pay for the lack of an efficient processing framework.
Straight Through Processing (STP) framework seeks to provide
seamless data flow both within the enterprise as well as across the
market without any manual intervention using ISO 15022
messaging standards.

In India, inspite of SEBI making STP mandatory, market

participants were not able to fully adapt the STP framework into
their operations as the STP services provided by various providers
were not interoperable. This meant that messages destined for
market participants registered across the service providers could
not be achieved. One of the options was to ensure that each of the
STP provider "talked" to other STP providers, but this meant a
mathematical explosion in terms of number of interconnects in
case of increasing number of service providers.

Recognising that the success of the STP is crucial to make a move

towards T+1 settlement cycle, NSE took up the challenge of
setting up a Central Hub to resolve inter-operability amongst
various STP Service Providers. After developing the application
software, the STP Central Hub was put for operational testing from
end of March 2004 to route the messages between Service
Providers. STP Central Hub has ensured seamless operations of
message processing. After the initial testing and stabilization
period, SEBI has mandated use of STP system for all institutional
trades. SEBI endeavoured to shorten the settlement cycle and has
been successful in reducing the same from T+5 to T+2. It has now
set a target for achieving T+1 settlement in Indian Securities
Market. T+1 settlement cycle has not been achieved anywhere in
the world and India is the first country to successfully implement
STP effectively for all the market intermediaries.

NSE through its strength in technology innovations has made it

possible for the integration of all STP service providers using
heterogeneous protocols within their own system so as to provide
the necessary impetus to the process

Business Benefits

Improved efficiency, reduction of manual activities leading to

higher accuracy of trade execution and settlement.
Reduced operational risk by automating the process from
execution through to settlement.
Reduction in operational cost by sending data electronically.
Transparency & improved customer service with detailed reports
about delivery and failure of messages are available
instantaneously, on an on-line basis.
Reduced settlement cycle to facilitate T+1 settlement.
Beneficiaries
 Entire Indian Securities Industry has been the beneficiary of the
STP Central Hub initiative. It is the only STP Central Hub
operational since the last few years. This move has helped for
faster clearing and settlement in Indian Securities Industry and
help achieve 'T+1' environment in India. India's profile in
International markets was enhanced which will help in attracting
further foreign investments.

National Stock Exchange of India (NSE)

NSE about | NSE profile | NSE history
About the National Stock Exchange of India :

In the fast growing Indian financial market, there are 23 stock

exchanges trading securities. The National Stock Exchange of
India (NSE) situated in Mumbai - is the largest and most advanced
exchange with 1016 companies listed and 726 trading members.

The NSE is owned by the group of leading financial institutions

such as Indian Bank or Life Insurance Corporation of India.
However, in the totally de-mutualised Exchange, the ownership as
well as the management does not have a right to trade on the
Exchange. Only qualified traders can be involved in the securities
trading.

The NSE is one of the few exchanges in the world trading all types
of securities on a single platform, which is divided into three
segments: Wholesale Debt Market (WDM), Capital Market (CM),
and Futures & Options (F&O) Market. Each segment has
experienced a significant growth throughout a few years of their
launch. While the WDM segment has accumulated the annual
growth of over 36% since its opening in 1994, the CM segment has
increased by even 61% during the same period.

The National Stock Exchange of India has stringent requirements

and criteria for the companies listed on the Exchange. Minimum
capital requirements, project appraisal, and company's track record
 are just a few of the criteria. In addition, listed companies pay
variable listing fees based on their corporate capital size.

The National Stock Exchange of India Ltd. provides its clients

with a single, fully electronic trading platform that is operated
through a VSAT network. Unlike most world exchanges, the NSE
uses the satellite communication system that connects traders from
345 Indian cities. The advanced technologies enable up to 6
million trades to be operated daily on the NSE trading platform.

WHAT IS THE NATIONAL STOCK EXCHANGE (NSE) OF

INDIA
The National Stock Exchange of India (NSE) is the largest
financial market in India in terms of daily turnover and number of
trades for equities and derivative trading. There are thousands of
securities listed on the NSE, with a market capitalization of over
$1.46 trillion dollars. The NSE is owned jointly by a number of
banking institutions and insurance companies with the mission of
providing a fast, electronic routing of orders throughout India.
Lastly, the NSE was the first financial system in India providing
electronic limit orders for securities.

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HISTORY OF THE NATIONAL STOCK EXCHANGE OF
INDIA
The NSE was incorporated in 1992 as a tax-paying entity.
However, the origins of the NSE can be traced back to the
Securities Contracts Regulation Act of 1956. In this act, the Indian
government sought to create a financial market where investors
can invest safely and securely in order to build wealth.

MARKETS TRADING ON THE NSE

The NSE is responsible for a number of trading markets. Below is
a list of these markets

Equity Markets
Futures and Options Markets
Wholesale Debt Market
Mutual Funds

NSE
The National Stock Exchange (NSE) is a stock exchange located
at Mumbai, India. It is the largest stock exchange in India in terms
of daily turnover and number of trades, for both equities and
derivative trading. NSE has a market capitalization of around Rs
47,01,923 crore (7 August 2009) and is expected to become the
biggest stock exchange in India in terms of market capitalization
by 2009 end. Though a number of other exchanges exist, NSE and
the Bombay Stock Exchange are the two most significant stock
exchanges in India, and between them are responsible for the vast
majority of share transactions. The NSE's key index is the S&P
CNX Nifty, known as the NSE NIFTY (National Stock Exchange
Fifty), an index of fifty major stocks weighted by market
capitalisation.

NSE is mutually-owned by a set of leading financial institutions,

banks, insurance companies and other financial intermediaries in
India but its ownership and management operate as separate
entities. There are at least 2 foreign investors NYSE Euronext and
Goldman Sachs who have taken a stake in the NSE. As of 2006,
the NSE VSAT terminals, 2799 in total, cover more than 1500
cities across India. In October 2007, the equity market
capitalization of the companies listed on the NSE was US $ 1.46
trillion, making it the second largest stock exchange in South Asia.
 NSE is the third largest Stock Exchange in the world in terms of
the number of trades in equities. It is the second fastest growing
stock exchange in the world with a recorded growth of 16.6%.

SEBI
Securities and Exchange Board of India

In 1988 the Securities and Exchange Board of India (SEBI) was

established by the Government of India through an executive
resolution, and was subsequently upgraded as a fully autonomous
body (a statutory Board) in the year 1992 with the passing of the
Securities and Exchange Board of India Act (SEBI Act) on 30th
January 1992. In place of Government Control, a statutory and
autonomous regulatory board with defined responsibilities, to
cover both development & regulation of the market, and
independent powers have been set up. Paradoxically this is a
positive outcome of the Securities Scam of 1990-91.

The basic objectives of the Board were identified as:

• to protect the interests of investors in securities;

• to promote the development of Securities Market;
• to regulate the securities market and
• for matters connected therewith or incidental thereto.

Since its inception SEBI has been working targetting the securities
and is attending to the fulfillment of its objectives with
commendable zeal and dexterity. The improvements in the
securities markets like capitalization requirements, margining,
 establishment of clearing corporations etc. reduced the risk of
credit and also reduced the market.

SEBI has introduced the comprehensive regulatory measures,

prescribed registration norms, the eligibility criteria, the code of
obligations and the code of conduct for different intermediaries
like, bankers to issue, merchant bankers, brokers and sub-brokers,
registrars, portfolio managers, credit rating agencies, underwriters
and others. It has framed bye-laws, risk identification and risk
management systems for Clearing houses of stock exchanges,
surveillance system etc. which has made dealing in securities both
safe and transparent to the end investor.

Another significant event is the approval of trading in stock indices

(like S&P CNX Nifty & Sensex) in 2000. A market Index is a
convenient and effective product because of the following reasons:

• It acts as a barometer for market behavior;

• It is used to benchmark portfolio performance;
• It is used in derivative instruments like index futures and
index options;
• It can be used for passive fund management as in case of
Index Funds.

Two broad approaches of SEBI is to integrate the securities market

at the national level, and also to diversify the trading products, so
that there is an increase in number of traders including banks,
financial institutions, insurance companies, mutual funds, primary
dealers etc. to transact through the Exchanges. In this context the
introduction of derivatives trading through Indian Stock Exchanges
permitted by SEBI in 2000 AD is a real landmark.

SEBI appointed the L. C. Gupta Committee in 1998 to

recommend the regulatory framework for derivatives trading and
suggest bye-laws for Regulation and Control of Trading and
Settlement of Derivatives Contracts. The Board of SEBI in its
meeting held on May 11, 1998 accepted the recommendations of
the committee and approved the phased introduction of derivatives
 trading in India beginning with Stock Index Futures. The Board
also approved the "Suggestive Bye-laws" as recommended by the
Dr LC Gupta Committee for Regulation and Control of Trading
and Settlement of Derivatives Contracts.

SEBI then appointed the J. R. Verma Committee to recommend

Risk Containment Measures (RCM) in the Indian Stock Index
Futures Market. The report was submitted in november 1998.

However the Securities Contracts (Regulation) Act, 1956 (SCRA)

required amendment to include "derivatives" in the definition of
securities to enable SEBI to introduce trading in derivatives. The
necessary amendment was then carried out by the Government in
1999. The Securities Laws (Amendment) Bill, 1999 was
introduced. In December 1999 the new framework was approved.
Derivatives have been accorded the status of `Securities'. The ban
imposed on trading in derivatives in 1969 under a notification
issued by the Central Government was revoked. Thereafter SEBI
formulated the necessary regulations/bye-laws and intimated the
Stock Exchanges in the year 2000. The derivative trading started in
India at NSE in 2000 and BSE started trading in the year 2001.

Introduction and Objectives of Sebi

In 1988 the Securities and Exchange Board of India (SEBI) was
established by the Government of India through an executive
resolution, and was subsequently upgraded as a fully autonomous
body (a statutory Board) in the year 1992 with the passing of the
Securities and Exchange Board of India Act (SEBI Act) on 30th
January 1992. In place of Government Control, a statutory and
autonomous regulatory board with defined responsibilities, to
cover both development & regulation of the market, and
independent powers have been set up. Paradoxically this is a
positive outcome of the Securities Scam of 1990-91.
 The basic objectives of the Board were identified as:

* to protect the interests of investors in securities;

* to promote the development of Securities Market;
* to regulate the securities market and
* for matters connected therewith or incidental thereto.

SEBI
Securities and Exchange Board of India (SEBI), Functions of

Securities and Exchange Board of India (SEBI) was first

established in the year 1988 as a non-statutory body for regulating
the securities market. It became an autonomous body in 1992 and
more powers were given through an ordinance. Since then it
regulates the market through its independent powers.

Objectives of SEBI:

As an important entity in the market it works with following

objectives:

1. It tries to develop the securities market.

2. Promotes Investors Interest.
3. Makes rules and regulations for the securities market.

Functions Of SEBI:

Find below SEBI's important functions:

1. Regulates Capital Market

2. Checks Trading of securities.
3. Checks the malpractices in securities market.
 4. It enhances investor's knowledge on market by providing
education.
5. It regulates the stockbrokers and sub-brokers.

STOCK BROKER
A stock broker is a regulated professional broker
who buys and sells shares and other securities
through market makers or agency only firms on
behalf of investors. A broker may be employed by a
brokerage firm.

Stockbroker
An execution only stockbroker offers a 'dealing only' service where
no advice is given. This means that the investor bears all
responsibility regarding investment decisions. The instructions to
deal are usually made online or by telephone. The service is
commission based and usually very low cost to the investor. This is
now the mainstay of most stockbroking firms.

Not offering advice means that you, the investor, need to know in
advance, what company stock is to be purchased (or sold), in what
amount and any and all analysis will have been completed without
the broker being involved.

This change in responsibility is very important. In the age of

internet stockbrokers , investors are much more responsible for
their financial actions than has ever been the case previously. This
shift in responsibility may be beneficial for some investors, but for
 those that do not fully understand the markets, this may be a
problem.

However, it should be noted that both advisory and discretionary

management stockbrokers are unlikely to be willing to advise
smaller scale investors. In other words, they are in the 'relationship'
business and the relationships that they encourage and build are
with wealthier investors with money, assets or a portfolio to
manage.

However, online brokerages have enabled many millions of

smaller investors to be able to participate more easily. This
additional number of investors and their money provides extra
upward price pressure (more demand for shares creates reduced
supply and rising prices). This may be one of many reasons for the
incredible increase in global stock market prices in the early years
of this century.

How much?

Commission rates vary (as noted above) depending upon what sort
of security is being bought or sold. The largest fees generally relate
to foreign stocks and convertibles. Government securities (gilts, T-
Bills etc), loan stocks (a type of bond or debt instrument) are
usually the cheapest.

Generally, dealing in shares online is likely to be the lowest cost

option. Traditionally, stockbroking was a relationship business in
which a client would deal with a company based locally (to the
client, not to the market). This meant that many large brokerages
would have hundreds of offices located across the company.

Needless to say, this would create large overheads. There would be

lots of offices to rent, staff to pay, bills and marketing expenses.
These have all been slashed by online services. They need only a
few offices, one marketing team, far less staff and very few
expense account lunches! By reducing the operating costs so
 significantly, the cost of the service to the client can be reduced
markedly as well.

It is these changes that has made 'day trading' possible. Without

low cost dealing (mainly online), and vastly increased information
sources (also online) day traders could not buy and sell quickly to
take advantage of very low margin opportunities. In the past, under
the old - pre-internet - system of buying and selling, this would
have been impossible. (By the way - all day traders use execution
only terms).

For obvious reasons, it is difficult to give an exact guide as to the

execution only stockbroker charges likely to be paid, as each
transaction on any stock exchange is different, but I hope that this
information will at least offer useful guidance as to what they are
and how they work.

If this type of service is not for you, perhaps you might like to read
about:

Role of a stock broker

Stock broker knows how to the trends of the Indian stock market.
He keeps up to date knowledge of the stock market. He also keeps
information on all the financial developments made by the
brokerage firm. So, it is very important that you always seek the
advice of a good professional stock broker so that you can keep
yourself safe.
 Stock broker and stock analyst

Stock analyst can give you good share tips which would help you
in your investment process. You will find most of the brokers who
have got a background in finance or business with either a
Bachelors degree or more than that. Often people confuse between
a stock broker and a stock market analyst. You should keep in
mind that stock brokers only sell or buys stocks but they never
analyze stocks. On the other hand, stock analyst analyzes the stock
markets and he might predict what the market will look like in the
coming days. Also he predicts how specific stocks might perform
in the near future or in a day trade. So, you have come to know the
difference between them.

You will find many brokers who earn their income from
commissions on sales of the stocks. They charge a certain
percentage of the transaction when you tell your broker to buy or
sell your stocks. There are two types of brokers – Discount brokers
and Full service brokers. Discount service does not make any
research neither they also offer any advice. On the other hand, full
service brokers actually help you in providing you advice and they
charge commissions. So, it is up to you whether to choose a
discount broker or full service broker and so you need to know
what is the role of a stock broker in order to get the required
information of the stock broker and their responsibilities.

What is the Role of Stock Brokers?

A stock broker is a professional who buys and sells stocks and

other securities in the stock market through the book makers from
the stock investors. As per the law in United States one needs to
 pass the General Securities Representative Examination or the
Series 7 exam for working as a stock broker. Brokers provide
different types of services to their clients.

Execution only - In this service the broker only carries out the
trading according to the direction of the investor. This is the basic
and the most commonly used service of the brokers.

Advisory dealing - In this service the broker not only performs the
buying and selling instructions of the client but also advises the
investor about which stock to buy and which stock to sell.

Discretionary dealing - This is the most comprehensive service that

a broker provides. In this case the broker has the discretionary
power to take the investment decisions on behalf of the investor.

These are the basic services provided by the stock market brokers
and it completely depends on you which service you will subscribe
to. For example, if you are quite apt at stock market analysis and
can regularly watch on the happenings of stock market and the
stocks in which you invest, it is better to have a stockbroker to
execute your buying and selling instructions. It will not only save
the service charges but also give you full confidence in stock
market trading.

If you are relatively new to stock investment or if you do not have

adequate knowledge of stock analysis or if you do not have the
time or resource to do thorough research on the stock market the
advisory service is effective for you. It will not only execute your
trading directions but also provide you with effective tips and
guidance for stock market investment. Though it will be a bit more
expensive but then you can significantly gain from the technical
knowledge and experience of the broker and its research and
analysis team.

The full service broker is the preferred solution for those who do
not have the time or knowledge to maintain their portfolio. In this
case the broker takes all the decisions for investing in the stock
market. This is the most costly broking service but then it will not
require you to spend any time for your stock market investment.
 Just like the different types of stock broking services there are
different categories of brokers as well. While choosing your stock
exchange broker, it is wise to select from the reputed stock trading
companies as that will make sure you gain from their robust
infrastructure from analysis and experience in stock market. That
also applies to selecting your online trading company who will
carry out the online trading on your behalf

You have always heard about stock brokers, right? What is the role
of stock broker? Well, they are professionals who buy and sell
stocks as well as other securities in the stock market. If you wish to
be a stock broker then you need to pass the General Securities
Representative Examination which is rather a very difficult test.
Stock brokers offer different types of services to different clients.

Stockbroker
A Day in the life of a Stockbroker

A stockbroker invests in the stock market for individuals or

corporations. Only members of the stock exchange can conduct
transactions, so whenever individuals or corporations want to buy
or sell stocks they must go through a brokerage house.
Stockbrokers often advise and counsel their clients on appropriate
investments. Brokers explain the workings of the stock exchange
to their clients and gather information from them about their needs
and financial ability, and then determine the best investments for
them. The broker then sends the order out to the floor of the
securities exchange by computer or by phone. When the
transaction has been made, the broker supplies the client with the
price. The buyer pays for the stock and the broker transfers the title
of the stock to the client and performs clearing and settlement
procedures. The beginning stockbroker’s first priority is learning
the market. One broker said, “First you have to decide whether you
have an interest in the stock market. This will determine how well
you’ll do. If you’re just interested in making money you won’t get
very far.” Stockbrokers spend their time in a fast-paced office,
usually working from nine to five, unless they are just starting out
or have to meet with clients. The new broker spends many hours
on the phone building up a client base. Sometimes brokers teach
financial education classes to expose themselves to potential
investors who may then become their clients.

What Does Stockbroker Mean?

1. An agent that charges a fee or commission for executing buy
and sell orders submitted by an investor.

2. The firm that acts as an agent for a customer, charging the

customer a commission for its services.

Investopedia explains Stockbroker

It used to be that only the wealthy could afford a broker and have
access to the stock market. With the internet came the explosion of
discount brokers that let you trade at a smaller fee, but don't
provide personalized advice. Because of discount brokers, nearly
anybody can afford to invest in the market now.

Definition of “Stock Broker”:

A stock broker is a qualified, registered and regulated professional
who buys and sells stocks and derivatives in the secondary market
on behalf of their clients (investors, institutions etc.). All
transactions carried out in the stock exchanges are done through
brokers only. They maintain the basic information about their
clients like names, contact information, PAN number, demat and
bank account details etc. A broker may allow a client to place
orders depending upon the funds which are available in the clients
trading account. The brokers issue contract notes when trades are
done. They also send periodical reports about the transaction
 history to their clients. The online brokers may also have these
details on their web site which can be accessible only by the client.

SERVICES PROVIDED
A transaction on a stock exchange must be made between two
members of the exchange—an ordinary person may not walk into
the New York Stock Exchange (for example), and ask to trade
stock. Such an exchange must be done through a broker.

There are three types of stockbroking service.

• Execution-only, which means that the broker will only carry

out the client's instructions to buy or sell.
• Advisory dealing, where the broker advises the client on
which shares to buy and sell, but leaves the final decision to
the investor.
• Discretionary dealing, where the stockbroker ascertains the
client's investment objectives and then makes all dealing
decisions on the client's behalf.

Acting as a principal
Stockbrokers also sometimes or exclusively trade on their own
behalf, as a principal, speculating that a share or other financial
instrument will increase or decline in price. In such cases the term
broker makes little sense and the individuals or firms trading in
principal capacity sometimes call themselves dealers, stock traders
or simply traders. There are of many other types of traders within
capital markets, for example trading within the Foreign exchange
market.
 Responsibility of brokers:
Brokers are expected to act based on the best interests of their
clients. They may inform the clients promptly about margin calls,
additional documentation if required etc. They are also required to
send the contract notes as and when trades are carried out by/on
behalf of the clients.

Brokerage
This is the commission charged by the broker for the transaction. It
could be a percentage of the trade value or flat amount per trade
depending upon the agreement between the client and the broker.
In India, brokers need to pay a service tax of 12.36% for the
brokerage collected from their clients. This is passed on to the
investors ultimately.
 Who can become a broker in India?
• An individual, a firm or a corporate can become a trading
member(broker) of a stock exchange
• Minimum age shall be 21 for individuals and
partners/directors of firms/corporates
• Individual/Partners/Directors must be at least graduates

Should have a minimum of 2 years experience in an activity

related to dealing in securities or as portfolio manager or as
investment consultant or as a merchant banker or in financial
services

• treasury, broker, sub broker, dealer, authorised agent or

authorised clerk or authorised representative of a recognised
stock exchange
• For membership at the National Stock Exchange, a minimum
paid up equity capital of Rs.30 lakhs is required for
corporates.

Application form for membership at NSE is available from this

link. Instructions for filling are also available at the web site.

It is to be noted here that those who want to become brokers

• Should not have defaulted in a stock exchange

• Should not have become bankrupt
• Should not have been involved in fraud, dishonesty, etc.

The applicant shall also pay an interest free security deposit for
cash, futures & options and wholesale debt market segments
separately. For Cash/F & O segment trading the deposit is Rs.125
lakhs. Visit this link for other segments.
Functions of Stockbrokers and Financial Advisors
An investor who loses his money due to careless mistakes or on
porpoise fraud of his stockers or financial advisors can recover his
money through an arbitration; that is a process in which a
disagreement between two or more parties is resolved by impartial
individuals (arbitrators) to avoid expensive lawsuits.

Stockbrokers are in charge of providing correct and complete

information to investors; this kind of fraud occurs when an advisor,
stockbroker or brokerage firm provides incorrect, incomplete or
partial information in an endeavor to have power over the market
or draw business. The Securities Exchange Commission (SEC) has
determined

procedures for stockbrokers and financial advisors; they guarantee

that the investor is being reasonable and constant.

Stockbrokers frauds include unfair investment advice which is

when an agent has predilection toward or beside a special company
for reasons like: high lucrative investment banking fees form
certain issuers and suggests customers according to that bias
instead of current results; contradictory investment advice is when
a broker gives contradicting advice to different customers
and acquires or sells securities in his/her account before
completing the same deals for clients; among others.

Many companies have been punished for stockbroker fraud

(Merrill Lynch, for example); and others like: Bear Stearns, Credit
Suisse Group, Goldman Sachs, Lehman Brothers, Deutsche Bank,
UBS Warburg and others are

under investigation by the New York Attorney General, Securities

Exchange Commission, NASD, New York Stock Exchange and
the North American Securities Administrators Association.
Once the application is received by the exchange, the membership
is granted after due scrutiny and the process is given below.

1. Interactive session with Membership Recommendation

Committee
2. Approval by Membership Approval Committee / Board
3. Offer letter of provisional membership of Exchange
4. Submission of documents for SEBI registration by applicant
5. Receipt of SEBI certificate
6. Enablement on the Exchange

Please note that this is the procedure for NSE. For other
exchanges, respective web sites may be visited.

Once the membership is given, the broker must comply with the
rules and regulations of the exchange by providing documents like
audited accounts, insurance policies, networth certificates,
shareholding pattern details etc.

The membership could be transferred to another person or a firm

subject to the rules of the exchange. Members could be
suspended/penalized/warned/expelled for misconduct,
unprofessionalism, failure to pay margin money, etc.

The following institutes in India offer educational programmes on

capital markets:

• Bombay Stock Exchange Training Institute, Mumbai

• National Stock Exchange of India, Mumbai
• Institute of Financial and Investment Planning, Mumbai
• All India Centre for Capital Market Studies, Nasik
• Institute of Chartered Financial Analysts of India, Hyderabad
• Institute of Cpital Market Development, New Delhi
• Institute of Company Secretaries of India, New Delhi
 Conclusion
It requires a lot of understanding about companies, managements,
businesses, fundamentals, technicals, procedures etc. to be familiar
with activities of stock market. Those who are ambitious of
becoming brokers need to have plenty of investment and trading
experience.

Sundaramurthy Vadivelu

a)What are the functions of a stock broker?

A stock broker is an individual or an organization, who is licensed

by the government to trade in stocks/shares and has the right to
access the share market. On payment of a small fee, he acts on
your behalf in the stock market and carries out your transactions of
buying and selling of shares. Besides these, he also provides
professional advice in debentures sale/purchase of government
bonds, and listed property trusts etc.

b)Full Service Broker (Advisory):

Stock brokers are generally divided in two categories:

• Full Service Brokers

• Discount Brokers

As the name would indicate comprehensive services from trading

to financial planning of the clients are provided by a full service
broker. Based on your financial aims and objectives, he provides
advice on the client's investment portfolio and additions/alterations
required in the some from time to time. Since he provides
comprehensive services, his charges are a little higher than
discount brokers.

c)Selection of a full service broker:

As full service broker will be your vital link for making financial
deals, the selection of the same has to be undertaken with great
caution and circumspection. You need to assess some of his
capabilities in the following fields:

• How much he charges for the services he provides and how

they compare with others in the market?
• Is his advice and data backed by adequate equity research?
• Does he have access to floats?
• What is the style and pattern of his investment?
• Is his communication system reliable? Does he communicate
with his clients on a monthly, weekly or daily basis? Is he
printing any newsletter etc?
• What is the frequency of review of your investment
portfolio? Will he review it often though, to increase your
returns?

d)Discount brokers (Non Advisory):

Discount brokers generally provide limited services of buying and

selling your stocks/shares; based on the orders given by you, via
telephone and/or internet. Since their services are of a non-
advisory nature, their fee is also less vis-à-vis full service brokers.

e)Selecting a good discount broker:

You need to review the following guidelines before selecting a

good discount broker.

• Is he offering any value added services?

• What is the mode of contacting him - phone or net?
 • Is he charging any amount towards monthly subscription
fees?
• Is he offering any discounts for regular traders?
• Is he asking for a special cash management account for
trading?
• What does he charge for buying/selling?
• What is his market reputation?

If you are trying your hand at the share market for the first time,
you should avail the services of a full service broker, to avoid
getting your fingers burnt. For regular traders, discount brokers
will surf.

How Does An Advisory Management

Stockbroker And Client
Relationship Work?
An advisory management stockbroker offers a service where an
adviser discusses or reviews the investments of a client on a
regular basis or as required. This could relate to formal portfolio
management or trading in individual shares.

The client will make the final decision to buy or sell. The adviser
will normally supply research materials relating to markets, sectors
and individual firms. The stockbroker will also make a specific
recommendation for action.

As might be imagined, if the client makes the final decision and

the portfolio is invested directly in the market (as opposed to via
collective investment funds), many problems can occur. If the
situation changes suddenly against a company being held, and the
adviser cannot sell without agreement from the client, any delay
can prove very costly.

Click here to see some of the best online stockbrokers

Equally, good opportunities can be missed because a client has not

been able to fully appraise him or herself of the facts quickly
enough.

The broker / client relationship will grow close over time. It is vital
that both sides have clear guidelines as to how to work, and laying
these principles down should be the role of the advisory
management stockbroker. The client will almost certainly need a
reasonable understanding of strategic asset allocation and portfolio
management techniques. Therefore, this is a service which requires
skills and cooperation from both parties.

From the perspective of a finance professional, services such as

these can be highly frustrating to work in. As investment research
services have advanced with the use of powerful computer analysis
software, the level of knowledge required to understand the results
has increased massively.

It is also worth mentioning that if an advisory management

stockbroker or investment manager makes a recommendation, it is
up to the client to say yes on the majority of occassions! Clearly,
any client paying for advice but always refusing it is going to be
very difficult to deal with and as such will not be able to retain
good help for long...

Such services used to be the norm but now are, happily, rare. As a
method for direct money management, this needs a relatively
active investor as the client. And yet, the client will still need to
pay fees that are in line with a full management service. This has
made the service less popular in recent years.

One problem is that very few investors have the time or relevant
expertise to appraise investment decisions and even less are willing
to pay the required amount for the service!

If this type of service is not for you, perhaps you might like to read
about:

A Discretionary Management Stockbroker

A discretionary management stockbroker is the name given for to
an advisor who manages a clients money under pre-arranged
criteria. These criteria would include the clients thoughts and
requirements relating to risk levels, tax position and income or
growth requirements.
In terms of service levels for private investors, this is the top of the
pile - direct management of an individual portfolio by a
professional. In theory, such a service should be tailored to the
client and priced as such.

Clients will not be involved in the day to day running of their

investments but will be kept informed with regular portfolio
valuations.

As one might imagine, this style of service is reserved for those

clients with significant assets to manage. Depending upon your
location and the company involved, these services can be aimed at
clients with a minimum to invest of anywhere from 50,000 to
250,000.

Essentially, this would mean that if you had a 'liquid' lump sum to
invest of perhaps, 80,000, many firms would not offer such a
service to you.

Of course, in such circumstances it might be advisable that a client

uses a traditional wealth manager who will invest in collective
funds rather than increasing risks with direct investments into the
market.

Services like those of a discretionary management stockbroker can

be fee or commission based. It is quite common for the manager to
charge a fee based on the value of funds being managed. This fee
will often be a percentage (eg. 1% pa). Commissions may also then
be charged on each transaction.

Such a 'full' service does still require some efforts from a client if it
is to be successful. Some understanding of strategic asset
allocation , the nature of markets and the business cycle is
necessary. This willen able broker and client to construct a
meaningful long-term plan for investment. This may or may not
lead to better annual returns, but it should lead to greater client
satisfaction and a much clearer working relationship.
As you may imagine, clear guidance from a client to an investment
manager or discretionary management stockbroker is invaluable to
the manager. Without clear, well thought out and logical guidance
to investment policy, it will be almost impossible to provide the
level of service expected. The client will be taking more or less
risk than they really want and therefore will probably receive more
or less of an annual return than they would like (though has there
ever been a client that wants a lower return?).

For an indepth discussion of this subject, we recommend reading

the excellent investment book, Winning The Loser's Game by
Charles D. Ellis. The role of the investor in investment
management is the main subject of the book and it will help almost
every investor significantly.

If this does not look like the right level of service for you, perhaps
you might like to read these:

Low Cost Stock Trades Are Thanks To

Internet Stock Broker Companies
The investment world has been turned on it's head by the internet.

The emergence of internet stock broker companies has transformed

 the services, charges and profits of the stockbroking industry.

Essentially, stockbrokers used to have a position of privilege with

regards to the flow of information. In truth, they still do have this,
but the information gap between amateur and professional has
been narrowed significantly. This information advantage enabled
stockbrokers to make substantial incomes for many decades.
Indeed, in England a stockbroker was one of 'the professions' with
a similar status to solicitors and accountants.

At the turn of the century, investment information firms used to

enable investors to track their portfolios online, for free. The
availability of this technology meant that many of the high priced
tracking and monitoring software systems started to become
obsolete.

Why pay twenty or thirty dollars each month to track your

holdings when a website will let you do it for free? Even worse,
the free website might use technology that does a better job!

As time passed, these sites started offering what they called 'Level
2' information. This, they charged for. However, the difference in
information quality is astounding.

The private investor now can have real time access to the market
and watch trades, including their own be actioned. Not only do
they have this access, but costs are so low that it is available to the
private investor for almost every major world stock exchange for
one monthly payment. There is even price competition in this area
now.

The advances of both computer memory and internet capabilities

means that this information can be distributed at very low cost. It
also means that huge quantities of information can be stored and
therefore available to all. Simply, the emergence of the internet
stock broker has turned what was once a profitable and elite trade
into a low cost commodity.

This trend will almost certainly continue.

This process is also making it far easier for an investor to buy and
sell in different world markets and assets. This by very definition is
lowering the costs of international trades and forcing local
stockbrokers to compete with internet stock broker firms that span
the globe virtually. Almost anything that was once considered to
be an 'exotic' investment is now purchasable at very low cost
online.

Once upon a time, being a stockbroker was one of the most highly
paid professions available. The emergence of the internet stock
broker means that this will never be the same again. Who knows,
in twenty or thirty years time, stockbrokers may not even exist!

An 'Execution Only' Service

A feature of online share dealing is that a customer selects the

investment to be made himself or herself. No advice is offered or
given by the company. This means that the individual is fully
responsible for the outcome of the trade, good or bad. The massive
rise in the numbers of investors and selecting 'no advice' suggests
that this is a popular move.

It is easy to see why. In the past, a client would pay for advice in
the form of a fixed percentage fee of the sum under management
and then pay an additional fee per deal (buying and selling). But
incidents of stockbroker fraud , churning and dirty tricks get
enough publicity to make most investors frightened of handing
 over complete control of their portfolio - whether this fear is
justified rationally or not.

Under such circumstances, the client takes the risk for any
problems - deliberate or not - with a large portion of their net
worth. Many are now simply unwilling to provide such a level of
trust.

With such a backdrop, carrying out a stock purchase online with no

requirement to deal with - or abdicate responsibility to - a
stockbroker is the preference of many millions of investors.

How High Is A Normal Stockbroker

Commission?
Most stockbroker commission is made by being in the middle of a
trade. They charge a 'bid offer spread' which is a technical way of
saying that they make their money in the middle.

'The spread' can vary in size. Generally speaking, the more shares
traded every day in a company, the more brokers there will be that
deal in them. As more stockbrokers deal in an issue, competition is
raised and therefore prices fall.

The firms with the highest liquidity are those at the top of an index.
In the UK for example, firms like BP, Vodafone, Lloyds TSB,
Barclays Bank and Shell will have many brokers dealing in their
stock and literally milions of shares will change ownership on
every trading day.

For an individual to deal in these companies, the costs, the bid

offer spread, will be very low and generally in the region of only
perhaps two percent.

At the other end of the scale, there are very small companies which
have a listing, but have a small market capitalisation. These
companies may not necessarily trade on the main exchange and as
such, there is very little action and few trades. Therefore, not many
stockbrokers will be dealing in their shares.

Reduced liquidity and minimal competition from other brokers

means that the spread in these smaller firms will be much higher. It
is usually advised that spreads can be up to seven percent, but I
have heard of one unlucky friend who once traded with a spread of
nine percentage points. This is an expensive way to do business!
Most stockbrokers cannot reasonably expect their commission to
be this high.

The 'offer price' is quoted to people who wish to purchase whilst

the 'bid price' is quoted to those planning to sell. I have always
remembered which is which by using the little rhyme: bid to get
rid. In other words, the bid price to sell.
 Whilst most investors do all they can to reduce the level of
stockbroker commission that they pay, it is worth remembering
that without stockbrokers, we simply could not trade the major (or
minor) markets of the world.

It is also worth noting that the role just described may partly be
carried out by 'market makers', though this depends on the
particular stock exchange.

Stockbroker Fraud?
In the USA, the SEC has laid down guidelines to define what is
and what is not stockbroker fraud. These rules also offer guidelines
for investment advisers to follow that ensure investment advice is
 being given fairly and consistently and stockbrokers are not
engaging in securities fraud.

Investment advisors and stockbrokers are responsible for providing

information that is accurate and complete to investors. Stockbroker
fraud occurs when an advisor, stockbroker, or brokerage firm
offers inaccurate, incomplete, or biased information in an effort to
control a market.

There are several types of these crimes and they include:

Biased investment advice: brokers or brokerages may have a bias

for or against investments for reasons that are not disclosed

Unfounded advice: advice may be provided based on unqualified

or unfounded opinions of the broker made without the benefit of
due diligence

Contradictory investment advice: a stockbroker may be giving

contradictory advice to different clients

Continuing a risk: stockbrokers may not advise clients to hold

securities based on speculation when the risk is apparent and the
potential for gains is unlikely

Conflict of interest: brokerage firms that have outside ties to a

business may not sell that stock

A recent reading of The Wolf Of Wall Street by Jordan Belfort,

suggests that much of this legislation has been written over
relatively recent years. Much of the finer detail - it appears - was to
actually combat him and the actions of his firm.

In his book, Belfort describes how he and his staff agressively sold
stock to the public in new IPOs to the NASDAQ in which they
held undisclosed interests! He describes the silent third-parties
through which he held his interests as 'ratholes'.
 Much of the book describes the working environment at his
brokerage as a little like a zoo - where only the lions get to survive!
The film Boiler Room shows quite graphically just what this
environment was like for the brokers and how they treated clients -
which is ultimately their profession and responsibility.

He also goes on to describe other issues such as trying to hide

deals profits and money from regulators by using accounts located
in Switzerland, using transfer pricing techniques to repatriate his
funds tax free and the life of mass excess that huge (ultimately
illegal) profits can produce. This lifestyle included drugs,
supercars, travel by private jet, prostitutes and eventually rehab
and prison.

Needless to say, it is an eye opening read for anyone wondering

what might be possible for a stochbroker to 'get away with'. The
majority of his actions were illegal - or are now - but it still took
many years forthe FBI to finally gather enough evidence to shut
down his operations - something that he had largely done himself
by then anyway.

Could A Discount Stockbroker Be

Good For You?
 Could you save money on your trades by using a discount
stockbroker?

The idea of a discount stockbroker is now very much a reality. To

survive, most brokerages have to as a minimum have a low cost,
execution only arm. Without this part of the business, they are
missing out on a large number of trades and commissions.

Of course, to be able to offer very low prices, they have to make

economies wherever possible. This means that they offer no advice
at all (advice needs to be researched first and research costs
money), no face to face service (telephone or internet only) and
work from a call centre type of operation (less buildings to rent and
heat).

As discussed on the internet stockbroker page, the flow of

information has levelled the playing field to a great extent. This
means that many more investors than ever before are able to make
informed decisions to buy or sell stocks.
As the information now costs so much less than in the past, even
an investor with a reatively small portfolio can justify the expense.
Just one winning trade can pay for the annual subscription!

This means that the brokerage world is now dominated by clients

looking for a discount stockbroker. Investors can compare costs
very clearly and move from one firm to another for what would
have seemed a few years ago as a minor saving on each trade.

As if all this news was not bad enough for brokers, they are
expected to maintain high standards of service and ethics. The
regulatory climate has, if anything, become firmer and more costly
at the sametime as commission levels have been falling. In short,
the glory days have long passed. But, from the perspective of a
client, a private investor, there has never been such a good time to
be involved. Information is more widely and freely available than
ever before and the cost per transaction has never been under so
much competition.
For the investor with skills, these are great times! If you enjoy the
research and analysis of the stock market, then you really should
find a discount stockbroker if you have not done this already.

And if you are a stock market beginner then being able to find the
right information with ease (and at low cost) has never been easier.
It has also never been cheaper to buy and sell which means that
investors can get started with ever lower amounts of money.

What Is Stockbroker Misconduct?

Summary: There are many ways in which clients can believe that
they have suffered stockbroker misconduct. However, the majority
relate more to old fashioned poor practice rather than deliberate
malice. We look at some problems here.

Firstly, it is worth pointing out that stockbroker misconduct is

generally considered to be different to fraud. Fraud usually
signifies an intent to harm or profit, whereas misconduct could
often be better described as incompetence.

Towards the end of the last century, many investors suffered at the
hands of poor quality investment advice. Their stockbrokers over
invested their portfolio into high-tech and internet stocks. As we
all know, these stocks were trading at very high market valuations
and when the market crashed, huge amounts were lost.

We have personally met individuals who in 2001/2 had portfolios

which were down by 80% or more from the time of their
investment in 1998/9. Of course, no person can tell the future, but
any rational observer could have seen that this was a very high risk
part of the market.

Another way that stockbroker misconduct can harm clients relates

to the investment and construction of portfolios for those on a
limited or fixed income. Every so often, stories reach the daily
papers of clients, often retired, who have had their life savings
invested into a very high risk venture which they did not
understand.

For almost everyone, the correct approach is that of a portfolio

containing a number of different asset classes. This might involve
corporate and government bonds, property, cash, commodities and
stocks. Such a portfolio will usually contain far less risk than one
that simply contains stocks (or equities).
 A problem however, is that stockbrokers are not usually paid or
targetted to sell assets other than stocks and shares. This means
that the hard work of portfolio construction is left to the client.

In the modern world of the internet and rapid exchange of

information, many investors choose to use the services of an
execution only stockbroker. This means that the client is
completely responsible for the outcome of his or her investment.
Under such circumstances, the stockbroker holds no responsibility.

It is worth pointing out that stockbrokers now are required to sit

entry level exams that cover regulation and good practice. In the
United States, these exams are called 'Series Seven'. They are also
monitored and checked as individuals to ensure that they are and
remain 'fit and proper' persons to manage other people's money. In
reality, these factors mean that stockbroker misconduct is
becoming ever more rare.

An example of stockbrokers not acting in the best interests of their

client is amply described in The Wolf Of Wall Street by Jordan
Belfort. In the early 90s, his brokerage was probably the most
aggressive on earth and his staff were the hardest of hard-sell
brokers. The book goes into some detail to explain their insider
trading, money laundering, behind the scenes deals and general
manipulation of small stocks and IPOs. It isn’t pretty and will
leave the reader wondering why stockbrokers ever had a good
reputation!
 What Is The Best Question To Ask A
Stockbroker?
Is there one question to ask a stockbroker that is more important
than any other?

In truth, this is a hard question to answer. Without doubt, there are

some important things that a client should know and understand
before making an investment.

For example, it is very important that an investor understands the

mechanisms of the trade. This will include knowing on what day
money will be used or deposited in his or her bank account. If the
correct funds are not available, the trade will be unlikely to be
completed and the investor will pay a penalty or fine.

If there is paperwork to be completed, or more usually signed, by

the client, it is important that he or she knows how quickly it must
be returned to the brokerage. Again, late documents from a client
can delay or cancel a trade and this can result in a fine being
charged to the client.

A vital question to ask a stockbroker is that fees and charges are

explained. These charges may include taxes. In many countries,
Stamp Duty is charged on purchase of assets. Generally, no tax is
levied at disposal, though depending upon the financial situation of
the investor, Capital Gains Tax is a possibility.

Should the investor be trading in assets located in another

jurisdiction, it is highly likely that fees will be higher than a trade
'at home' and that an additional Withholding Tax wil be charged.
Again, this will depend upon many factors, but is certainly worth
investigating.

It is also worth investigating in advance of a purchase about the

type of shares available. It is often the case that a quoted company
will have more than one class of holding.
 There will generally be 'common' or 'ordinary' shares/Stock, but
there may also be 'preferred' or 'zero dividend' and more. Each of
these types of holding represents different rights and benefits. You
should know what you want before you call and ask.

It is worth adding, that many people avoid internet stockbrokers

for the simple reason that they have no-one to ask a question of
and confirm or reassure them that the transaction is proceeding
smoothly. Some of us like a voice on the end of a phone! If you
have a question to ask a stockbroker, it is good to have someone to
answer for you.

After all of this though, it is worth remembering that investing via

a stockbroker is a matter of trust - the more the brokerage provides
you, the more trust you need to have. So we feel that the best
question is not one that you ask a stockbroker, but rather one that
you ask of yourself about the stockbroker...

Do you feel able to trust them? Without trust, the relationship - and
probably your investments - will be unlikely to flourish.
 How To Choose A Stockbroker

How To Choose A Stockbroker?

The decision of how to choose a stockbroker is a vital decision to

any private investor.

Experience shows that human nature wants the 'cheapest' or 'best

value', but these are not always appropriate. As an investment
professional, I can confirm that most members of the public have
roughly zero investment skill. This is not meant to be derogatory,
just realistic.

However, most members of the public also seem to think that

investment is or should be 'easy' and as a skill has very little value
added. If only it were so.

The reality is that most people have limited financial skills because
these things take effort, study and thought. In our time away from
an occupation, we want to relax, not analyse annual reports. But to
be successful, we need to see a lot of annual reports before we find
the one we really like. This is a real chore.

Therefore, the 'cheapest' stockbroker, by very definition, is the one

who provides the lowest level of service. The cheapest brokerage
is probably an online only firm or subsidiary and provides no
advice or research. In life, you get what you pay for. This low price
may be very tempting, but if it means that we all need to carry out
every piece of research and make every decision unaided, is it
really good value?

If an investment is made that proves to be shockingly poor, and

loses eighty or ninety percent of the money invested, was it a good
deal to only pay a few dollars or pounds for the transaction? If a
stockbroker had pointed out just how risky the deal was, might the
investment funds have been saved? Would that have been money
better spent than saved? If an extra thirty or fifty dollars spent on
advice from a stockbroker could have saved one thousand, might
that not be an acceptable price to pay?
 The advent of the internet has had the impact of making
information flow very freely and at very low cost around the
world. In information terms, the difference between the 'haves' and
'have nots' has diminished drastically. In many cases, the
difference lies simply between those who bothered to look and find
the facts and those who did not. Yet understanding and interpreting
the information is still a vital skill.

A different question, to which your author does not know the

answer, is this: Has the ability to trade stocks online for under ten
dollars or pounds per trade made us any better as investors? If the
answer is no, and that as an individual a private investor does not
have the required skills to flourish, might a higher price brokerage
that offers research and guidance be more appropriate?

Whilst it is true that low cost dealing and lower minimum

transactions have made equity markets more available to private
investors with a limited budget, this may not be appropriate.
Clearly it has expanded the number of trades being made, which
stock exchanges and around the world must be grateful for. But,
should an investor with very limited funds be investing in the
markets?

Such questions clearly bring into focus the different potential level
of services from a stockbroker and which might be appropriate for
you. Most brokers offer more than one level of service and can
often tailor their offerings to the needs of an investor. In the future,
it might pay to ask how else a stockbroker can help you.
What Is The Impact Of A Stockbroker
Churning An Account?
A stockbroker churning an account is one of the most potentially
damaging things that can happen to an investors portfolio.

Churning is a term given to excessive trading. The trading is a way

to generate commissions for the broker and his firm. As you may
imagine, trading an account on a very frequest basis makes it
almost impossible for any investment to show a profit and as such,
the fees and charges will quickly reduce an account to almost zero.

In fact, there have been a number of court cases in past years

(when the legislation was a little less severe than it is now) where
clients accounts were reduced from hundreds of thousands to zero -
through a combination of poor investment choice and daily trading.

Since most members of the stockbroking world earn a basic salary

and a bonus which is directly linked to the trade commissions
earned, temptation has never been far away.

A stockbroker churning an account is not viewed well by

regulatory authorities. Depending upon the jurisdiction, it is either
frowned upon or actually illegal. As legislation is implemented and
enforced, convictions always follow.

Obviously, there is a point until which a stockbroker is making

justifiable trades and is genuinely attempting to maximise
performance.

As a rule, the bad brokers that make these excessive trades are very
noticable. The account will be traded not a few, but dozens (or
hundreds) of times during the course of a year. Very few technical
analysts and even less stockbrokers have the time and skill to do
this successfully.

Being able to draw a line between incompetence and fraud is not

always easy. After all, some people really are truly incompetent!
But either way, the reputation of the brokerage would often be
damaged enough that many potential new investors were scared
 away.

For a time, the actions of a few gave the entire stockbroking

industry a bad name and reputation. To limit this damage and try to
prevent further abuses, most major locations now require brokers
to undergo several examinations to ensure that they have at least a
basic investment and ethical understanding of their role.

Legislation has also been enacted to make it possibe to punish

offenders appropriately
 How Much Should You Be Paying In
Stock Market Fees?
Summary: There are a number of stock market fees that any
investor - big or small - needs to take into consideration when
buying and selling listed securities. This page discusses the full
range of stock market transaction costs.

It is worth noting that fees are different in amount and sometimes

form from country to country, but dealing on the stock market
without paying some form of transaction fee is not currently
possible. To be sure of your own situation, it is worth investigating
dealing fees in your own country.

Firstly, let us look at the types of assets. The costs detailed on this
page will relate to direct ownership in stocks (shares in the UK),
collective investment schemes (mutual funds or unit trusts) and
hedge funds (just because they are different and slightly
alarming!). The costs are different for each type of asset, but there
are also some common fees to all. So we shall look at those as
well.

Fees Common To All Assets

Capital Gains Tax is your governments portion of any profit that is

made on the sale of assets. This profit is calculated after deducting
the purchase price of the asset, any costs associated with buying
and selling and - sometimes - other professional fees involved with
the transaction.

Most types of assets can be taxed on a capital gain - property and

land, antiques, coins, company shares, stamps and many other
things besides. Taxation is paid by the individual as part of an
annual return.

Most nations have some form of zero rate band or capital gains tax
free allowance - usually annually. There are reasons for this, and
an important one is the complexity of calculating small gains is
 often not worth the effort of checking and collecting the tax
money!

This means that for many - if not most investors - their likely rate
of CGT is zero. However, depending upon the location of the
residence of the reader, this may range as high as fifty percent.

There are some nations that do not charge capital gains tax on the
sale of assets. These countries often become semi-tax havens for
wealthy individuals from neighbouring countries that need to sell
major assets - perhaps the sale of a personally owned business for
example. An example of such a country is Belgium.

Other countries, such as the more well known ' tax havens ' charge
zero rates of capital gains tax to make them an 'asset haven'. The
names of these countries are much more familiar and are mostly
small island nations in sunny locations such as the Caribbean.

The rates applicable to an investor depend upon many factors, but

personal situation is the major influence. It is therefore important
that every reader obtains personal advice from a locally qualified
professional. Tax evasion - even if accidental - is not usually
something a government is inclined to take lightly.

In many nations, capital gains tax is either waived or deferred in

certain collective investment funds. These funds are usually
targeted at retirement planning and the special low tax enviroment
is designed to act as a carrot to encourage people to plan and save
for their retirement. This will hopefully reduce the overall
responsibility on the state.

Stamp duty is another government charged fee that is usually

applied to all transactions. When in the transaction it is applied
may change from nation to nation, but usually stamp duty is
applied at purchase. Normally, the professional involved in the
transaction (lawyer or stockbroker) will collect the correct fee on
behalf of the government.
There are many nations that do not charge any form of stamp duty,
but most countries that have had some previous relationship with
the United Kingdom (normally Commonwealth nations) do impose
such a tax.

The history of stamp duty relates to the use of a wax stamp or seal
to provide authenticity for a document. The stamp from a local
lawyer or representative of the King was enough to prove a
document was real. Of course, the official charged for the service
and so the custom continues to this day...

Withholding Tax is a fee levied on asset ownership and

transactions - again charged by government - that relates to foreign
asset holdings. Most countries charge some form of withholding
tax on their residents. This is a relatively complex area of finance
and we recommend research into the specific situation of the
reader if any substantial assets are held in other countries. This
potentially includes residential property and businesses as well as
stock market listed assets.

Dividend income from holdings abroad that has had the

withholding tax waived or pre-paid is often known as franked
income. The wide range of tax treaties between major nations
means that this is another potential tax nightmare! Be sure to seek
individual advice relating to your situation.

Fees Charged On Direct Stock Market Holdings

Dealing Fees are generally otherwise known as stockbroker

commission. This is split into two parts. Firstly, there is a 'bid/offer
spread' which provides some profit on the transaction. The size of
the'spread' relates to the liquidity of the company in question. In
other words, bigger firms have more buyers and sellers, which
attracts more competition from other brokerages. That competition
helps to drive down margins.
This spread is usually in the region of 1%, but in small companies
with limited supply and demand for holdings, it can be as high as
5%.

In the United States, this used to be conducted in eigths and

sixteenths, but since turning decimal, brokerage margins have been
slashed.

Stockbrokerages also charge a fee to deal in the stocks. This may

be either a set fee, for example $10 or £10, or it may be a
percentage of the overall value of the purchase. Usually, a
brokerage will charge a low set fee to attract the mass-buying
public, but then charge a percentage on the bigger purchases over a
pre-set limit.

These percentage fees depend in part on competition in the market.

In the golden days of stockbroking, they were perhaps as high as
1% of the transaction, but 0.4 - 0.6% is more normal now. Of
course, this - again - depends upon where you are and the local
market.

If a brokerage is offering a 'higher' level of service, either advisory

management or discretionary management there will also be an
annual management fee. This fee is deductable against any capital
gains that are made and is normally charged on the amount
(monetary value) of the portfolio. A figure in the region of 1% to
1.5% to possibly even 2% each year is to be expected. It goes
without saying that a higher fee should be represented by a higher
level of service.

In the modern world, such fees are now mainly used by wealth
managers and private client services firms. The most famous of
these could be Swiss banks and their fund management arms, but
there are so many wealthy individuals that most major banks and
financial services companies will have some sort of wealth
management division.
 Hedge Funds

At the top of this page, it was mentioned that we would explain

some of the fees in a hedge fund. This section is not to help the
averagehedge fund managers and promoters over the years and the
main thing learnt from these meetings is that a hedge fund is not
for average investors!private investor. Your author has been able to
meet a number ofIn fact, your author likes to think of himself as
reasonably 'savvy' when it comes to the ways of the stock markets,
but hedge funds are another step beyond. Many have proprietary
trading strategies - meaning they won't tell you what they do.
Others will tell you, but it is so complex you will understand
barely a word. Others still will tell you, you will understand some
of it - enough to realise that it is so high-risk that the strategy
terrifies you!

To quote a well known market phrase, hedge funds are not for
'widows and orphans'...

The fee structure of a hedge fund is usually similar to that of any

other collective investment fund (an annual management charge
for example). Fees are usually higher and an annual management
charge (AMC) will be around 2% or possibly even 2.5% per year.

However, there will be some form of 'performance fee'. This fee is

to reward the fund manager for his (or her) excellent results. This
fee will usually be paid for outperformance (a return over and
above a pre-set number) and will be between 20% and 25% of the
outperformance. Yes! 20% of the gain will go to the managers.
These will be the highest stock market fees that an investor will
pay.

This can, and often has, reached tens of millions of dollars per year
for each individual in the fund management team! This is the
'market rate' for their talent.
 Wha t is NSDL ?
Although India had a vibrant capital market which is more than a
century old, the paper-based settlement of trades caused substantial
problems like bad delivery and delayed transfer of title till
recently. The enactment of Depositories Act in August 1996 paved
the way for establishment of NSDL, the first depository in India.
This depository promoted by institutions of national stature
responsible for economic development of the country has since
established a national infrastructure of international standards that
handles most of the securities held and settled in dematerialised
form in the Indian capital market.

Using innovative and flexible technology systems, NSDL works to

support the investors and brokers in the capital market of the
country. NSDL aims at ensuring the safety and soundness of
Indian marketplaces by developing settlement solutions that
increase efficiency, minimise risk and reduce costs. At NSDL, we
play a quiet but central role in developing products and services
that will continue to nurture the growing needs of the financial
services industry.

In the depository system, securities are held in depository

accounts, which is more or less similar to holding funds in bank
accounts. Transfer of ownership of securities is done through
simple account transfers. This method does away with all the risks
and hassles normally associated with paperwork. Consequently,
the cost of transacting in a depository environment is considerably
lower as compared to transacting in certificates.

Promoters / Shareholders

NSDL is promoted by Industrial Development Bank of India

Limited (IDBI) - the largest development bank of India, Unit Trust
of India (UTI) - the largest mutual fund in India and National
Stock Exchange of India Limited (NSE) - the largest stock
exchange in India. Some of the prominent banks in the country
 have taken a stake in NSDL.

Promoters

• Industrial Development Bank of India Limited (Now, IDBI

Bank Limited)
• Unit Trust of India (Now, Adminstrator of the Specified
Undertaking of the Unit Trust of India)
• National Stock Exchange of India Limited

Other Shareholders

•State Bank of India

• HDFC Bank Limited
• Deutsche Bank A.G.
• Axis Bank Limited
• Citibank N.A.
• Standard Chartered Bank
• The Hongkong and Shanghai Banking Corporation Limited
• Oriental Bank of Commerce
• Union Bank of India
• Dena Bank
• Canara Bank

Market Transfers

Trading in dematerialised securities is quite similar to trading in

physical securities. The major difference is that at the time of
settlement, instead of delivery/receipt of securities in the physical
form, the same is affected through account transfers.

Basic Services
 Under the provisions of the Depositories Act, NSDL provides
various services to investors and other participants in the capital
market like, clearing members, stock exchanges, banks and issuers
of securities. These include basic facilities like account
maintenance, dematerialisation, rematerialisation, settlement of
trades through market transfers, off market transfers & inter-
depository transfers, distribution of non-cash corporate actions and
nomination/ transmission

The depository system, which links the issuers, depository

participants (DPs), NSDL and clearing corporation/ clearing house
of stock exchanges, facilitates holding of securities in
dematerialised form and effects transfers by means of account
transfers. This system which facilitates scripless trading offers
various direct and indirect services to the market participants.
 What is CDSL ?
A Depository facilitates holding of securities in the electronic form
and enables securities transactions to be processed by book entry
by a Depository Participant (DP), who as an agent of the
depository, offers depository services to investors. According to
SEBI guidelines, financial institutions, banks, custodians,
stockbrokers, etc. are eligible to act as DPs. The investor who is
known as beneficial owner (BO) has to open a demat account
through any DP for dematerialisation of his holdings and
transferring securities.

The balances in the investors account recorded and maintained

with CDSL can be obtained through the DP. The DP is required to
provide the investor, at regular intervals, a statement of account
which gives the details of the securities holdings and transactions.
The depository system has effectively eliminated paper-based
certificates which were prone to be fake, forged, counterfeit
resulting in bad deliveries. CDSL offers an efficient and
instantaneous transfer of securities.
CDSL was promoted by Bombay Stock Exchange Limited (BSE)
jointly with leading banks such as State Bank of India, Bank of
India, Bank of Baroda, HDFC Bank, Standard Chartered Bank,
Union Bank of India and Centurion Bank.

CDSL was promoted by Bombay Stock Exchange Limited (BSE)

in association with Bank of India, Bank of Baroda, State Bank of
India and HDFC Bank. BSE has been involved with this venture
right from the inception and has contributed overwhelmingly to the
fruition of the project. The initial capital of the company is
Rs.104.50 crores. The list of shareholders with effect from 5th
July, 2010 is as under.
Sr. Name of shareholders Value of %
No. holding terms
(in to total
Rupees equity
Lacs)
1 Bombay Stock Exchange 5,663.46 54.20
Limited
2 Bank of India 582.00 5.57
3 Bank of Baroda 530.00 5.07
4 State Bank of India 1,000.00 9.57
5 HDFC Bank Limited 750.00 7.18
6 Standard Chartered Bank 750.00 7.18
7 Canara Bank 674.46 6.45
8 Union Bank of India 200.00 1.91
9 Bank of Maharashtra 200.00 1.91
10 The Calcutta Stock 100.00 0.96
Exchange Limited
11 Others 0.08 0.00
TOTAL 10,450.00 100.00