Analysis Of Demet Acc.& Online Trading.docx

Introduction of the industry

FINANCIAL MARKET

In economics, typically, the term market means the aggregate of possible buyers and sellers of a certain good or service and the transactions between them. The term "market" is sometimes used for what are more strictly exchanges, organizations that facilitate the trade in financial securities, e.g., a stock exchange or commodity exchange. This may be a physical location (like the NYSE, BSE, NSE ) or an electronic system (like NASDAQ). Much trading of stocks takes place on an exchange; still, corporate actions (merger, spinoff) are outside an exchange, while any two companies or people, for whatever reason, may agree to sell stock from the one to the other without using an exchange.Trading of currencies and bonds is largely on a bilateral basis, although some bonds 1

trade on a stock exchange, and people are building electronic systems for these as well, similar to stock exchanges. Financial markets can be domestic or they can be international.

Types Of Financial Markets

The financial markets can be divided into different subtypes: 1.

Capital markets- which consist of:I.

Stock markets- which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof.

II.

Bond markets-which provide financing through the issuance of bonds, and enable the subsequent trading thereof.

2.

Commodity markets- which facilitate the trading of commodities.

3.

Money markets- which provide short term debt financing and investment.

4.

Derivatives markets- which provide instruments for the management of financial risk.

5.

Futures markets- which provide standardized forward contracts for trading products at some future date; see also forward market.

6.

Insurance markets- which facilitate the redistribution of various risks.

7.

Foreign exchange markets-which facilitate the trading of foreign exchange.

The capital markets may also be divided into primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets, such as during initial public offerings. Secondary markets allow investors to buy and sell existing securities. The transactions in primary markets exist between issuers and investors, while in secondary market transactions exist among investors. Liquidity is a crucial aspect of securities that are traded in secondary markets. Liquidity refers to the ease with which a security can be sold without a loss of value. Securities with an active 2

secondary market mean that there are many buyers and sellers at a given point in time. Investors benefit from liquid securities because they can sell their assets whenever they want; an illiquid security may force the seller to get rid of their asset at a large discount. The financial market is broadly divided into 2 types:1.

Capital Market and 2) Money market.

The Capital market is subdivided into:1.

primary market and 2) Secondary market.

Raising Capital Financial markets attract funds from investors and channel them to corporations—they thus allow corporations to finance their operations and achieve growth. Money markets allow firms to borrow funds on a short term basis, while capital markets allow corporations to gain longterm funding to support expansion. Without financial markets, borrowers would have difficulty finding lenders themselves. Intermediaries such as banks help in this process. Banks take deposits from those who have money to save. They can then lend money from this pool of deposited money to those who seek to borrow. Banks popularly lend money in the form of loans and mortgages. More complex transactions than a simple bank deposit require markets where lenders and their agents can meet borrowers and their agents, and where existing borrowing or lending commitments can be sold on to other parties. A good example of a financial market is a stock exchange. A company can raise money by selling shares to investors and its existing shares can be bought or sold.

The following table illustrates where financial markets fit in the relationship between lenders and borrowers: 3

Relationship between lenders and borrowers Lenders

Financial Intermediaries Financial Markets

Banks Individuals

Insurance Companies

Companies

Pension Funds Mutual Funds

Borrowers

Interbank

Individuals

Stock Exchange

Companies

Money Market

Central Government

Bond Market

Municipalities

Foreign Exchange

Public Corporations

Lenders Who have enough money to lend or to give someone money from own pocket at the condition of getting back the principal amount or with some interest or charge, is the Lender .

Individuals & Doubles Many individuals are not aware that they are lenders, but almost everybody does lend money in many ways. A person lends money when he or she: 1.

puts money in a savings account at a bank;

2.

contributes to a pension plan;

3.

pays premiums to an insurance company;

4.

invests in government bonds; or

5.

Invests in company shares.

Companies Companies tend to be borrowers of capital. When companies have surplus cash that is not needed for a short period of time, they may seek to make money from their cash surplus by lending it via short term markets called money markets. There are a few companies that have very strong cash flows. These companies tend to be lenders rather than borrowers. Such companies may decide to return cash to lenders (e.g. via 4

a share buyback.) Alternatively, they may seek to make more money on their cash by lending it (e.g. investing in bonds and stocks.)

Borrowers Individuals borrow money via bankers' loans for short term needs or longer term mortgages to help finance a house purchase. Companies borrow money to aid short term or long term cash flows. They also borrow to fund modernization or future business expansion. Governments often find their spending requirements exceed their tax revenues. To make up this difference, they need to borrow. Governments also borrow on behalf of nationalised industries, municipalities, local authorities and other public sector bodies. In the UK, the total borrowing requirement is often referred to as the Public sector net cash requirement (PSNCR). Governments borrow by issuing bonds. In the UK, the government also borrows from individuals by offering bank accounts and Premium Bonds. Government debt seems to be permanent. Indeed the debt seemingly expands rather than being paid off. One strategy used by governments to reduce the value of the debt is to influence inflation. Municipalities and local authorities may borrow in their own name as well as receiving funding from national governments. In the UK, this would cover an authority like Hampshire County Council. Public Corporations typically include nationalized industries. These may include the postal services, railway companies and utility companies. Many borrowers have difficulty raising money locally. They need to borrow internationally with the aid of Foreign exchange markets. Borrowers having similar needs can form into a group of borrowers. They can also take an organizational form like Mutual Funds. They can provide mortgage on weight basis. The main advantage is that this lowers the cost of their borrowings.

Role (Financial system and the economy)5

One of the important requisite for the accelerated development of an economy is the existence of a dynamic financial market. A financial market helps the economy in the following manner. 1.

Saving mobilization:- Obtaining funds from the savers or surplus units such as household individuals, business firms, public sector units, central government, state governments etc. is an important role played by financial markets.

2.

Investment:- Financial markets play a crucial role in arranging to invest funds thus collected in those units which are in need of the same.

3.

National Growth:- An important role played by financial market is that, they contributed to a nations growth by ensuring unfettered flow of surplus funds to deficit units. Flow of funds for productive purposed is also made possible.

4.

Entrepreneurship growth:- Financial market contribute to the development of the entrepreneurial claw by making available the necessary financial resources.

5.

Industrial development:- The different components of financial markets help an accelerated growth of industrial and economic development of a country, thus contributing to raising the standard of living and the society of well being.

Functions of Financial Markets 1.

Intermediary Functions:- The intermediary functions of a financial markets include the following:

1.

Transfer of Resources - Financial market facilitate the transfer of real economic resources from lenders to ultimate borrowers.

2.

Enhancing income - Financial markets allow lenders to earn internet or dividend on their surplus invisible funds, thus contributing to the enhancement of the individual and the national income.

3.

Productive usage - Financial market allow for the productive use of the funds borrowed. The enhancing the income and the gross national production. 6

4.

Capital Formation - Financial market provide a channel through which new savings flow to aid capital formation of a country.

5.

Price determination - Financial markets allow for the determination of price of the traded financial assets through the interaction of buyers and sellers. They provide a sign for the allocation of funds in the economy based on the demand and supply through the mechanism called price discovery process.

6.

Sale Mechanism - Financial markers provide a mechanism for selling of a financial asset by an investor so as to offer the benefit of marketability and liquidity of such assets.

7.

'Price determinants - Financial market allow for determination of price of the traded financial asset through the interaction of buyers and sellers. They provide a signal for the allocation of funds in the economy, based on the demand and supply through the mechanism called price discovery process.

8.

Sale mechanism - Financial markets provide a mechanism for selling of a financial asset by an investor so as to offer the benefits of marketability and liquidity, of such assets.

9.

Information - The activities of the participants in the financial market result in the generation and the consequent dissemination of information to the various segments of the market. So as to reduce the cost of transaction of financial assets.

10.

Financial Functions:1.

Providing the borrower with funds so as to enable them to carry out their investment plans.

2.

Providing the lenders with earning assets so as to enable them to earn wealth by deploying the assets in production debentures.

3.

Providing liquidity in the market so as to facilitate trading of funds.

7

HISTORY OF FINANCIAL SYSTEM

India has a financial system that is regulated by independent regulators in the sectors of banking, insurance, capital markets, competition and various services sectors. In a number of sectors Government plays the role of regulator. Ministry of Finance, Government of India looks after financial sector in India. Finance Ministry every year presents annual budget on February 28 in the Parliament. The annual budget proposes changes in taxes, changes in government policy in almost all the sectors and budgetary and other allocations for all the Ministries of Government of India. The annual budget is passed by the Parliament after debate and takes the shape of the law.

Reserve bank of India (RBI) established in 1935 is the Central bank. RBI is regulator for financial and banking system, formulates monetary policy and prescribes exchange control norms. The Banking Regulation Act, 1949 and the Reserve Bank of India Act, 1934 authorize the

RBI

to

regulate

the

banking

sector

in

India.

India has commercial banks, co-operative banks and regional rural banks. The commercial banking sector comprises of public sector banks, private banks and foreign banks. The public sector banks comprise the ‘State Bank of India’ and its seven associate banks and nineteen other banks owned by the government and account for almost three fourth of the banking sector. The Government of India has majority shares in these public sector banks. India has a two-tier structure of financial institutions with thirteen all India financial institutions and forty-six institutions at the state level. All India financial institutions comprise term-lending institutions, specialized institutions and investment institutions, including in insurance. State level institutions comprise of State Financial Institutions and State Industrial Development Corporations providing project finance, equipment leasing, corporate loans, short-term loans and bill discounting facilities to corporate. 8

Government holds majority shares in these financial institutions. Non-banking Financial Institutions provide loans and hire-purchase finance, mostly for retail assets and are regulated by RBI. Insurance sector in India has been traditionally dominated by state owned Life Insurance Corporation and General Insurance Corporation and its four subsidiaries. Government of India has now allowed FDI in insurance sector up to 26%. Since then, a number of new joint venture private companies have entered into life and general insurance sectors and their share in the insurance market in rising. Insurance Development and Regulatory Authority (IRDA) is the regulatory authority in the insurance sector under the Insurance

Development

and

Regulatory

Authority

Act,

1999.

RBI also regulates foreign exchange under the Foreign Exchange Management Act (FERA). India has liberalized its foreign exchange controls. Rupee is freely convertible on current account. Rupee is also almost fully convertible on capital account for non-residents. Profits earned, dividends and proceeds out of the sale of investments are fully repatriable for FDI. There are restrictions on capital account for resident Indians for incomes earned in India. Securities and Exchange Board of India (SEBI) established under the Securities and Exchange aboard of India Act, 1992 is the regulatory authority for capital markets in India. India has 23 recognized stock exchanges that operate under government approved rules, bylaws and regulations. These exchanges constitute an organized market for securities issued by the central and state governments, public sector companies and public limited companies. The Stock Exchange, Mumbai and National Stock Exchange are the premier stock exchanges. Under the process of de-mutualization, these stock exchanges have been converted into companies now, in which brokers only hold minority share holding. In addition to the SEBI Act, the Securities Contracts (Regulation) Act, 1956 and the Companies Act, 1956 regulates the stock markets.

9

CONTRIBUTION OF GDP IN FINANCIAL SYSTEM India is home to 1.21 billion people, which is about 17.4 per cent of the global population. However, it accounts for only 2.4 per cent of world GDP in US dollar terms and 5.5 per cent in purchasing power parity (ppp) terms. Hence, there exists a huge potential for catch up. The global welfare too is linked to progress in India as reflected in the keen global interest in India. But, India seems to inspire and disappoint at the same time. This is reflected in various comments on the Indian economy.”. The July 23rd 2011 issue of The Economist observed; “Twenty years ago they said the yardstick against which India should be measured was its potential. On that measure, there is much to do.” As a fledgling democracy, India’s economic experiment of planned development was held out as an example to many aspiring low-income countries in the 1950s. While some countries raced ahead in the development process, India lagged behind. This is evident from the fact that it took 40 long years from 1950-51 for India’s real per capita GDP to double by 1990-91. But, 1991-92 was a defining moment in India’s modern economic history as a severe balance of payments (BoP) crisis prompted far reaching economic reforms, unlocking its growth potential. As a result, in only 15 years, India’s per capita income doubled again by 2006-07. If the current pace of growth is maintained, India’s per capita income could further double by 2017-18, in 10 years time. While acceleration in India’s recent economic growth is noteworthy, maintaining the pace, no doubt, will be challenging. Against this background, I propose to highlight the key policy reforms since 1991-92, review the economic progress made so far and then conclude with some reflections on policy challenges in the way forward. Policy Reforms Post-1991 Macroeconomic crisis of 1991 marked a turning point in India’s economic history for two reasons. First, fiscal deficit driven external payment crisis with a dip in foreign exchange reserves to below US$ 1 billion in July 1991 drew a crisis resolution strategy to restore macroeconomic stability. Sharp correction in fiscal deficit-GDP ratio and reduced monetization of deficits contributed towards restoring macroeconomic balance by the mid-1990s. The 10

reduced dependence of fiscal on monetization enabled the Reserve Bank of India to reduce its statutory pre-emption of funds from banks, thereby freeing resources for the private sector. Second, simultaneously efforts were made towards wide ranging structural reforms encompassing areas of trade, exchange rate management, industry, public finance and the financial sector. An abiding objective in respect of industrial policy measures since then has been to create a competitive environment to improve productivity and efficiency. New industrial policy fostered competition by abolishing monopoly restrictions, terminating the phased manufacturing programmes freeing foreign direct investment and import of foreign technology and dereservation of sectors hitherto reserved for the public sector. These measures created a favourable environment for industry to upgrade its technology and build-up its capacity through imports in order to cater to growing domestic and external demand. At present, only five industries are under licensing, mainly on account of environmental, health, safety and strategic considerations. Only two industries are reserved for the public sector, viz, atomic energy and railway transport. Reservation of industrial products for the small scale sector is still a lingering issue. However, the definition of small scale industry (SSI) has been changed to facilitate modernisation and now only 20 items are reserved for manufacturing in the small scale sector. Foreign Direct Investment (FDI) up to 100 per cent is allowed under the automatic route in most

PRIMARY MARKET The primary market is that part of the capital markets that deals with the issuance of new securities.

Companies,

governments

or

public

sector

institutions

can

obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be 11

found in the prospectus. Primary markets create long term instruments through which corporate entities borrow from capital market. Features of primary markets are: 1.

This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).

2.

In a primary issue, the securities are issued by the company directly to investors.

3.

The company receives the money and issues new security certificates to the investors.

4.

Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.

5.

The primary market performs the crucial function of facilitating capital formation in the economy.

6.

The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public."

7.

The financial assets sold can only be redeemed by the original holder.

Methods of issuing securities in the primary market are: 1.

Public issuance, including initial public offering;

2.

Rights issue (for existing companies);

3.

Preferential issue.

12

INITIAL PUBLIC OFFERING An initial public offering (IPO) or stock market launch is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange, for the first time. Through this process, a private company transforms into a public company. Initial public offerings are used by companies to raise expansion capital, to possibly monetize the investments of early private investors, and to become publicly traded enterprises. A company selling shares is never required to repay the capital to its public investors. After the IPO, when shares trade freely in the open market, money passes between public investors. Although an IPO offers many advantages, there are also significant disadvantages. Chief among these are the costs associated with the process, and the requirement to disclose certain information that could prove helpful to competitors, or create difficulties with vendors. Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a prospectus. Most companies undertaking an IPO do so with the assistance of an investment banking firm acting in the capacity of an underwriter. Underwriters provide a valuable service, which includes help with correctly assessing the value of shares (share price), and establishing a public market for shares (initial sale). Alternative methods, such as the dutch auction have also

been

explored.

The

most

notable

recent

example

of

this

method

is

the Google IPO.[1] China has recently emerged as a major IPO market, with several of the largest IPO offerings taking place in that country.

History The earliest form of a company which issued public shares was the publican during the Roman Republic. Like modern joint-stock companies, the publican were legal bodies independent of their members whose ownership was divided into shares, or prates. There is evidence that these shares were sold to public investors and traded in a type of over-the-counter market in the Forum, near the Temple of Castor and Pollux. The shares fluctuated in value, encouraging the activity of speculators, or quaestors. No evidence remains of the prices for

13

which parties were sold, the nature of initial public offerings, or a description of stock market behavior. Publicans lost favor with the fall of the Republic and the rise of the Empire. In March 1602 the “Vereinigde Oost-Indische Compagnie (VOC), or Dutch East India Company was formed. The VOC was the first modern company to issue public shares, and it is this issuance, at the beginning of the 16th century, that is considered the first modern IPO. The company had an original paid-up share capital of 6,424,588 guilders. The ability to raise this large sum is attributable to the decision taken by the owners to open up access to share ownership to a wide public. Everyone living in the United Provinces had an opportunity to participate in the Company. Each share was worth 3000 guilders (roughly equivalent to US$1,500). All the shares were tradable, and the shareholders received receipts for the purchase. A share certificate documenting payment and ownership such as we know today was not issued but ownership was instead entered in the company’s share register. In the United States, the first IPO was the public offering of Bank of North America.

Reasons for listing When a company lists its securities on a public exchange, the money paid by the investing public for the newly issued shares goes directly to the company (primary offering) as well as to any early private investors who opt to sell all or a portion of their holdings (secondary offering) as part of the larger IPO. An IPO, therefore, allows a company to tap into a wide pool of potential investors to provide itself with capital for future growth, repayment of debt, or working capital. A company selling common shares is never required to repay the capital to its public investors. Those investors must endure the unpredictable nature of the open market to price and trade their shares. After the IPO, when shares trade freely in the open market, money passes between public investors. For early private investors who choose to sell shares as part of the IPO process, the IPO represents an opportunity to monetize their investment. After the IPO, once shares trade in the open market, investors holding large blocks of shares can either sell those shares piecemeal in the open market, or sell a large block of shares directly to the public, at a fixed price, through a secondary market offering. This type of offering is not dilutive, since no new shares are being created. 14

Once a company is listed, it is able to issue additional common shares in a number of different ways, one of which is the follow-on offering. This method provides capital for various corporate purposes through the issuance of equity (see stock dilution) without incurring any debt. This ability to quickly raise potentially large amounts of capital from the marketplace is a key reason many companies seek to go public. An IPO accords several benefits to the previously private company: 1.

Enlarging and diversifying equity base

2.

Enabling cheaper access to capital

3.

Increasing exposure, prestige, and public image

4.

Attracting and retaining better management and employees through liquid equity participation

5.

Facilitating acquisitions (potentially in return for shares of stock)

6.

Creating multiple financing opportunities: equity, convertible debt, cheaper bank loans, etc.

Advance Planning Careful advance planning is crucial to a successful IPO. One book suggests the following 7 advance planning steps: (1) Develop an impressive management and professional team. (2) Grow the company's business with an eye to the public marketplace. (3)Obtain audited or auditable financial statements using IPO-accepted accounting principles. (4) Clean up the company's act. (5) Establish antitakeover defenses. (6) Develop good corporate governance. (7) Create insider bail-out opportunities and take advantage of IPO windows. 15

Disadvantages of an IPO There are several disadvantages to completing an initial public offering: 1.

Significant legal, accounting and marketing costs, many of which are ongoing.

2.

Requirement to disclose financial and business information.

3.

Meaningful time, effort and attention required of senior management.

4.

Risk that required funding will not be raised.

5.

Public dissemination of information which may be useful to competitors, suppliers and customers.

Procedure IPOs generally involve one or more investment banks known as "underwriters". The company offering its shares, called the "issuer", enters into a contract with a lead underwriter to sell its shares to the public. The underwriter then approaches investors with offers to sell those shares. The sale (allocation and pricing) of shares in an IPO may take several forms. Common methods include: 1.

Best efforts contract

2.

Firm commitment contract

3.

All-or-none contract

4.

Bought deal

A large IPO is usually underwritten by a "syndicate" of investment banks, the largest of which take the position of "lead underwriter". Upon selling the shares, the underwriters retain a portion of the proceeds as their fee. This fee is called an underwriting spread. The spread is calculated as a discount from the price of the shares sold (called the gross spread). Components of an underwriting spread in an initial public offering (IPO) typically include the following (on a per share basis): Manager's fee, Underwriting fee—earned by members of the syndicate, and the Concession—earned by the broker-dealer selling the shares. The Manager 16

would be entitled to the entire underwriting spread. A member of the syndicate is entitled to the underwriting fee and the concession. A broker dealer who is not a member of the syndicate but sells shares would receive only the concession, while the member of the syndicate who provided the shares to that broker dealer would retain the underwriting fee. Usually, the managing/lead underwriter, also known the bookrunner, typically the underwriter selling the largest proportions of the IPO, takes the highest portion of the gross spread, up to 8% in some cases. Multinational IPOs may have many syndicates to deal with differing legal requirements in both the issuer's domestic market and other regions. For example, an issuer based in the E.U. may be represented by the main selling syndicate in its domestic market, Europe, in addition to separate syndicates or selling groups for US/Canada and for Asia. Usually, the lead underwriter in the main selling group is also the lead bank in the other selling groups. Because of the wide array of legal requirements and because it is an expensive process, IPOs typically involve one or more law firms with major practices insecurities law, such as the Magic Circle firms of London and the white shoe firms of New York City. Public offerings are sold to both institutional investors and retail clients of the underwriters. A licensed securities salesperson (Registered Representative in the USA and Canada) selling shares of a public offering to his clients is paid a portion of the selling concession (the fee paid by the issuer to the underwriter) rather than by his client. In some situations, when the IPO is not a "hot" issue (undersubscribed), and where the salesperson is the client's advisor, it is possible that the financial incentives of the advisor and client may not be aligned. The issuer usually allows the underwriters an option to increase the size of the offering by up to 15% under certain circumstance known as the greenshoe or overallotment option. This option is always exercised when the offering is considered a "hot" issue, by virtue of being oversubscribed. In the USA, clients are given a preliminary prospectus, known as a red herring prospectus, during the initial quiet period. The red herring prospectus is so named because of a bold red warning statement printed on its front cover. The warning states that the offering information is incomplete, and may be changed. The actual wording can vary, although most roughly follow the format exhibited on the Facebook IPO red herring. During the quiet period, the shares 17

cannot be offered for sale. Brokers can, however, take indications of interest from their clients. At the time of the stock launch, after the Registration Statement has become effective, indications of interest can be converted to buy orders, at the discretion of the buyer. Sales can only be made through a final prospectus cleared by the Securities and Exchange Commission. Before legal actions initiated by New York Attorney General Eliot Spitzer, which later became known as the Global Settlement enforcement agreement, some large investment firms had initiated favorable research coverage of companies in an effort to aid Corporate Finance departments and retail divisions engaged in the marketing of new issues. The central issue in that enforcement agreement had been judged in court previously. It involved the conflict of interest between the investment banking and analysis departments of ten of the largest investment firms in the United States. The investment firms involved in the settlement had all engaged in actions and practices that had allowed the inappropriate influence of their research analysts by their investment bankers seeking lucrative fees. [9] A typical violation addressed by the settlement was the case of CSFB and Salomon Smith Barney, which were alleged to have engaged in inappropriate spinning of "hot" IPOs and issued fraudulent research reports in violation of various sections within the Securities Exchange Act of 1934.

Dutch Auction A Dutch Auction allows shares of an initial public offering to be allocated in an impartial way, with all successful bidders paying the same price per share. One version of the Dutch auction is Open IPO, which is based on an auction system designed by Nobel Prize-winning economist William Vickrey. This auction method uses a mathematical model to treat all qualifying bids in an impartial way. It is similar to the model used to auction Treasury bills, notes, and bonds. Like a typical auction, the highest bidders win in this type of auction, but there are important differences. In the Open IPO auction, the entire auction is private, and winning bidders all pay the same price per share—the public offering price. A variation of the Dutch Auction has been used to take a number of companies public including Morningstar, Interactive Brokers Group, Overstock.com, Ravenswood Winery, Clean Energy Fuels, and Boston Beer Company. In 2004, Google used the Dutch Auction system for its Initial Public Offering. Traditional investment banks have shown resistance to the idea of 18

using an auction process to engage in public securities offerings. The auction method allows for equal access to the allocation of shares and eliminates the favorable treatment accorded important clients by the underwriters in conventional IPOs. In the face of this resistance, the Dutch auction is still a little used method in public offerings. In determining the success or failure of a Dutch Auction, one must consider competing points of view. If the objective is to raise as much money as possible for the issuer, a traditional IPO offering, priced near the top end of the underwriter's range, would likely achieve that objective. From the viewpoint of the investor, however, the Dutch Auction would be more effective at price discovery, and potentially result in a lower offering price.

Direct Public Offering Financial historians Richard Sylla and Robert E. Wright have shown that before 1860 most early U.S. corporations sold shares in themselves directly to the public without the aid of intermediaries like investment banks. The direct public offering or DPO, as they term it, was not done by auction but rather at a share price set by the issuing corporation. The DPO eliminated the agency problem associated with offerings intermediated by investment banks but was not as effective at price discovery as the Dutch Auction.

Pricing of IPO A company planning an IPO typically appoints a lead manager, known as a book runner, to help it arrive at an appropriate price at which the shares should be issued. There are two primary ways in which the price of an IPO can be determined. Either the company, with the help of its lead managers, fixes a price (fixed price method) or the price can be determined through analysis of confidential investor demand data, compiled by the book runner. That process is known as book building. Historically, some IPOs both globally and in the United States have been underpriced. The effect of "initial under pricing" an IPO is to generate additional interest in the stock when it first becomes publicly traded. Flipping, or quickly selling shares for a profit, can lead to significant gains for investors who have been allocated shares of the IPO at the offering price. However, 19

under pricing an IPO results in lost potential capital for the issuer. One extreme example istheglobe.com IPO which helped fuel the IPO "mania" of the late 90's internet era. Underwritten by Bear Stearns on November 13, 1998, the IPO was priced at $9 per share. The share price quickly increased 1000% after the opening of trading, to a high of $97. Selling pressure from institutional flipping eventually drove the stock back down, and it closed the day at $63. Although the company did raise about $30 million from the offering it is estimated that with the level of demand for the offering and the volume of trading that took place the company might have left upwards of $200 million on the table. The danger of overpricing is also an important consideration. If a stock is offered to the public at a higher price than the market will pay, the underwriters may have trouble meeting their commitments to sell shares. Even if they sell all of the issued shares, may fall in value on the first day of trading. If so, the stock may lose its marketability and hence even more of its value. This could result in losses for investors, many of whom being the most favored clients of the underwriters. Underwriters, therefore, take many factors into consideration when pricing an IPO, and attempt to reach an offering price that is low enough to stimulate interest in the stock, but high enough to raise an adequate amount of capital for the company. The process of determining an optimal price usually involves the underwriters ("syndicate") arranging share purchase commitments from leading institutional investors. Some researchers (e.g. Geoffrey C., and C. Swift, 2009) believe that the under pricing of IPOs is less a deliberate act on the part of issuers and/or underwriters, than the result of an overreaction on the part of investors (Friesen & Swift, 2009). One potential method for determining under pricing is through the use of IPO Under pricing Algorithms.

Quiet period There are two time windows commonly referred to as "quiet periods" during an IPO's history. The first and the one linked above is the period of time following the filing of the company's S1 but before SEC staff declare the registration statement effective. During this time, issuers, 20

company insiders, analysts, and other parties are legally restricted in their ability to discuss or promote the upcoming IPO (U.S. Securities and Exchange Commission, 2005). The other "quiet period" refers to a period of 40 calendar days following an IPO's first day of public trading. During this time, insiders and any underwriters involved in the IPO are restricted from issuing any earnings forecasts or research reports for the company. Regulatory changes enacted by the SEC as part of the Global Settlement enlarged the "quiet period" from 25 days to 40 days on July 9, 2002. When the quiet period is over, generally the underwriters will initiate research coverage on the firm. Additionally, the NASDAQ and NYSE have approved a rule mandating a 10-day quiet period after a Secondary Offering and a 15-day quiet period both before and after expiration of a "lock-up agreement" for a securities offering.

Stag profit Stag profit is a stock market term used to describe a situation before and immediately after a company's Initial public offering (or any new issue of shares). A stag is a party or individual who subscribes to the new issue expecting the price of the stock to rise immediately upon the start of trading. Thus, stag profit is the financial gain accumulated by the party or individual resulting from the value of the shares rising.

Share Delivery Not all IPOs are eligible for delivery settlement through the DTC system, which would then either require the physical delivery of the stock certificates to the clearing agent bank's custodian, or a delivery versus payment (DVP) arrangement with the selling group brokerage firm.

Largest IPOs 1.

Agricultural Bank of China US$22.1 billion (2010)

2.

Industrial and Commercial Bank of China US$21.9 billion (2006) 21

3.

American International Assurance US$20.5 billion (2010)

4.

Visa Inc. US$19.7 billion (2008)

5.

General Motors US$18.15 billion (2010)

6.

Facebook, Inc. US$16 billion (2012)

Value of IPOs Prior to 2009, the United States was the leading issuer of IPOs in terms of total value. Since that time, however, China (Shanghai, Shenzhen and Hong Kong) has been the leading issuer, raising $73 billion (almost double the amount of money raised on the New York Stock Exchange and NASDAQ combined) up to the end of November 2011. The Hong Kong Stock Exchange raised 30.9 billion in 2011 as the top course for the third year in a row, while New York raised 30.7 billion.

SECONDARY MARKET The secondary market, also called aftermarket, is the financial market in which previously issued financial

instruments such

as stock, bonds, options,

and futures are

bought

and

sold.[1] Another frequent usage of "secondary market" is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac. The term "secondary market" is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a "second" or "third" market has developed for use in ethanol production). With primary issuances of securities or financial instruments, or the primary market, investors purchase

these

securities

directly

from issuers such

as corporations issuing shares in

an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market. The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies. 22

Exchanges such as the New York Stock Exchange, NASDAQ and the American Stock Exchange provide a centralized, liquid secondary market for the investors who own stocks that trade on those exchanges. Most bonds and structured products trade “over the counter,” or by phoning the bond desk of one’s broker-dealer. Loans sometimes trade online using a Loan Exchange.

Function In

the secondary

market,

securities

are

sold

by

and

transferred

from

one investor or speculator to another. It is therefore important that the secondary market be highly liquid (originally, the only way to create this liquidity was for investors and speculators to meet at a fixed place regularly; this is how stock exchanges originated, see History of the Stock Exchange). As a general rule, the greater the number of investors that participate in a given marketplace, and the greater the centralization of that marketplace, the more liquid the market. Fundamentally, secondary markets mesh the investor's preference for liquidity (i.e., the investor's desire not to tie up his or her money for a long period of time, in case the investor needs it to deal with unforeseen circumstances) with the capital user's preference to be able to use the capital for an extended period of time. Accurate share price allocates scarce capital more efficiently when new projects are financed through a new primary market offering, but accuracy may also matter in the secondary market because: 1) price accuracy can reduce the agency costs of management, and make hostile takeover a less risky proposition and thus move capital into the hands of better managers, and 2) Accurate share price aids the efficient allocation of debt finance whether debt offerings or institutional borrowing.

Related usage

23

The term may refer to markets in things of value other than securities. For example, the ability to buy and sell intellectual property such as patents, or rights to musical compositions, is considered a secondary market because it allows the owner to freely resell property entitlements issued by the government. Similarly, secondary markets can be said to exist in some real estate contexts as well (e.g. ownership shares of time-share vacation homes are bought and sold outside of the official exchange set up by the time-share issuers). These have very similar functions as secondary stock and bond markets in allowing for speculation, providing liquidity, and financing through securitization. 1) To facilitate liquidity marketability of long term instrument. 2) To provide instant valuation of securities caused by changes in the environment.

Private Secondary Markets Partially due to increased compliance and reporting obligations enacted in the Sarbanes-Oxley Act of 2002, private secondary markets began to emerge, like Second Market. These markets are generally only available to institutional or accredited investors and allow trading of unregistered and private company securities. In private

equity,

the secondary

market (also

often

called private

equity

secondaries or secondaries) refers to the buying and selling of pre-existing investor commitments to private equity funds. Sellers of private equity investments sell not only the investments in the fund but also their remaining unfunded commitments to the funds.

24

Introduction of the organization

Type

Public limited company

Founded

1969(London)

Head quarter

Mumbai

Key people

John W. Peace (chairman of the board) Peter A. Sands (Group CEO)

Industry

Banking, Financial services

Products

Equity, derivatives, Mutual funds, IPO & others

Employees

19000

Websites

www.standardcharted.com

25

Standard Charted Security

Standard Chartered securities (India) ltd is a leading broking company with a pan-India presence and provides a wide range of financial services, including investment banking, Institutional equity & derivative Broking, fixed income, research, retail equity & derivative broking (offline and online), portfolio management, distribution of financial products and depositary services.

On 11th January 2008 Standard Chartered Bank (Mauritius) Limited acquired 49% stake of erstwhile UTI Securities Limited from Securities Trading Corporation of India (STCI). Accordingly, the name of the Company was changed from ‘UTI Securities Limited’ to ‘Standard Chartered – STCI Capital Markets Limited’ with effect from January 17th, 2008. Subsequently, on December 12, 2008, SCBM acquired further 25.9 % stake in Standard Chartered – STCI Capital Markets Limited to increase its total stake in Standard Chartered – STCI Capital Markets Limited from 49.0 % to 74.9 %.

Standard Chartered Bank in India is the country’s largest international bank with 90 branches in 33 cities and India is one of the Group’s key markets worldwide. Employing about 19,000 people, Standard Chartered Bank has played a significant role in the history of the banking industry in India since opening its first branch in Kolkata, 150 years ago, on April 12, 1858.

Facts about the Company: 1.

It is a member of Depository Participants with CDSL & NSDL.

26

2.

Standard Chartered Securities is registered as a trading and clearing member with Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE) and MCX Stock Exchange Limited (MCX).

3.

Standard Chartered PLC, listed on the London, Hong Kong and Mumbai stock exchanges, ranks among the top 20 companies in the FTSE-100 by market capitalization.

4.

The London-headquartered Group has operated for over 150 years in some of the world's most dynamic markets, leading the way in Asia, Africa and the Middle East.

5.

Standard Chartered has a network of over 1,700 branches and outlets and 5,600 ATMs in more than 70 countries and territories across the globe, making us one of the world's most international bank.

BUSINESS VERTICAL:

1.

Institutional Business: Services such as Investment Banking, Equity and Derivative Broking and Fixed income Group.

2.

Retail Brand: “Standard Chartered Wealth Managers” caters to both online and offline customers and offers equity and derivative broking, IPO, Mutual Funds, Fixed Income Investments and company fixed Deposits.

VISION AND MISSION OF THE COMPANY

“Vision” ‘To emerge as one of the leading Wealth Manager in India giving personalized advice to individuals & corporate as per their financial goals.’

27

“Mission” "To emerge as one of the leading providers of stock brokerage, investment banking and related services, at par with the best in the world.”

Recent Milestones Achieved 1.

Awards in 2012

10 July 2012

Standard Chartered’s Young Innovators Awards 2012.

5 July 2012

Standard Chartered Thailand's CEO granted CEO of The Year Award.

13 March 2012

Standard Chartered Bank (Thai) has the best performance ever with 27%

up in profit.

2.

Awards in 2011

December 2, 2011 Fan

Standard Chartered Bank (Thai) teamed up with Liverpool Thailand

Club providing flood relief in Don Muang Community.

November 23, 2011

Standard Chartered Bank (Thai) presents 15% cash back every

restaurant, everyday worldwide. September 5, 2011

Standard Chartered Bank (Thai) Recognized for Supporting Women's

Role July 5, 2011

Standard Chartered Bank (Thai) wins Banking & Payments Asia

Trailblazer Awards 2011 from pre-screening process excellence for loan and credit card applications. 28

April 27, 2011

Standard Chartered Bank arranged and fully underwrite the USD 300

Million Syndicated Term Loan Facility for Siam Commercial Bank. April 18, 2011

The strategic partnership between Standard Chartered Bank Thailand

and MPay wins the ‘Best eBanking Project Award’ from Asian Banker Summit 2011. April 1, 2011

Standard Chartered Thailand named Dealer of the Year.

3.

Awards of 2010

1.

Bank of the Year Awards 2010 :

1.

Global Bank of the Year

2.

Bank of the Year in Asia, Hong Kong, Bangladesh, Afghanistan, Tanzania & Zambia

3.

The Best Private Bank in Asia

1.

Best Internet Bank Awards 2010

2.

Best Corporate/Institutional Internet Bank in China, India, Malaysia, Singapore, Ghana, Kenya, Nigeria, & the United Arab Emirates

1.

Triple A Asian Country Awards 2010

2.

Best Debt House in China, Singapore & Pakistan

3.

Best M&A House in India

1.

Finance Asia Country Awards 2010

2.

Best Bank in India & Bangladesh

3.

Risk Magazine Award 2010

4.

Best Structured Products in India and China

29

Board Of Directors

Name

Designation

Chairman

Sunil Kaushal

Managing Director

Ratnesh Kumar

Director

Pradeep Rana

Director

Tim Andrew

Director

Sanjeeb Chaudhuri

Additional Director

Ananth Narayan

Additional Director

Anurag Adlakha

Additional Director

Vishal Kapoor

30

Products of standard charted security Our online trading portal (www.standardcharteredtrade.co.in) is a single gateway for your multiple investment needs. Now you can trade in equities, apply for IPO; invest in mutual funds and GOI bonds just at the click of a mouse. We deliver state-of-the-art tools, efficient customer care, affordable pricing and innovative technology, so that you can follow your own path. Need a based solution that is what our product basket is all about.

Equity You can place trades online for most of the stocks listed on NSE and BSE. We offer various options to place stock orders. 1.

Delivery based Trading: Place delivery based orders for most of the stocks listed on NSE and BSE.

2.

Intra-day Trading Execute margin orders up to 3 to 4 times of your available funds. This facility is available for select group of stocks listed on NSE and BSE.

3.

Acquire Now Sell Tomorrow (ANST): Sell shares before you receive the same in your demat account. You can avail this facility on the first and second day after the buy order date.

Derivatives You can pursue a wide range of Futures and Options trading strategies with speed and ease. We deliver the support, information and structure that quickly let you spot potential opportunities and act on them fast.

Currency Derivatives A new investment opportunity from Standard Chartered Wealth Managers for all Resident Indians.Currency Derivatives are standardized foreign exchange contracts traded on an 31

exchange to buy or sell one currency against another on a specified future date. The contracts will be traded online through the order-driven market mechanism, quite similar to equity derivatives.

Mutual fund We offer access to more than 500 mutual fund schemes from leading fund houses. These funds provide broad diversification and cover a range of investment objectives, philosophies, asset classes and risk exposures. Trades may be placed via the Internet or the Interactive Voice Response (IVR) phone system.

IPOs Initial Public Offer presents exciting opportunities for gaining high returns on your investments. We have made investing in IPOs hassle free. All that is required is “Buying Power” and rest is at the click of a button. No paperwork. No queues. Get information on IPO news, forthcoming IPOs and a lot more onwww.standardcharteredtrade.co.in Offline customers can invest in IPOs through our branch net work.

GOI Bonds Fixed income securities can help reduce your risk within an investment portfolio while providing a steady stream of income over time. Currently you can choose to invest online in GOI bonds. If you are looking to diversify your portfolio, possibly improve your tax efficiency and/or reducing your risk exposure, you may want to consider making fixed income securities a part of your personal investment strategy.

Value Added Services 1.

Customer service and other value added services: Online Query Resolution - With our

"Quick

Mail"

tool

you

can send

in

your

queries

online.

Digital contract notes and summary of transaction: Upon logging-in your online trading account, view your digital contract note and summary of transactions. 32

2.

My inbox: Maintain records of all important notifications related to your account. Dedicated customer care centre and state-of-the-art Phone-2-Trade desk.

3.

Interactive demo: A step-by-step guide to help you navigate through the process of investing online through website www.standardcharteredtrade.co.in

Trading Platform Multiple trading platforms suiting the needs of different customer segments. Choose the platform which best suits you with the option of upgrading at any point in time. 4.

Easy Trade Easy to navigate with advanced stock trading features. Manage your account and trade on Exchanges.

5.

Advance Trade View live quotes on your monitor and create multiple streaming quotes.

6.

Super Trade

Use advance technical tools to view live quotes for you to trade on line.

33

Introduction Of The Topic

Opening Of a Dematerialized Account or Demat Accounts

Dematerialized account or Demat Account is a type of banking account which dematerializes paper-based physical stock shares. The dematerialized account is used to avoid holding physical shares: the shares are bought and sold through a stock broker. The Demat account is very popular in India. For trading above 500 shares on should have Demat account necessarily as by the Securities and Exchange Board of India (SEBI). A person holding a demat account should also be a PAN Card holder. I Query I Read Articles I Submit an Article The extent of documentation required to open a demat account may vary according to your relationship with the institution. If you plan to open a demat account with a bank, a savings, current and, or other account for which the holder have been issued a check book, such holder has an edge over the non-account holder. In fact, banks usually offer additional incentives to customers who open a demat account with them. When opening an account with a bank you need a minimum balance not so much with a demat account. A demat account can be opened with no balance of shares and here is no minimum balance to be maintained either. You can have a zero balance in your account. When you open an account the DP will allot a unique BO ID (Beneficial Owner Identification) number. Which you need to quote for all future transaction.

34

If you want to sell your shares. You need to place an order with your broker and give a delivery instruction to your DP. The DP will debit your account with the number of share sold. You will receive the payment from your broker. If you want to buy share, inform your broker about your depository account number. So that the shares bought are credited into your account.

Documents RequiredAlong with the application form your photographs (with co-applicants and proof of identify/residence/date of birth) have to be submitted. The DPs also ask for a DP client agreement to be executed on non-judicial stamp paper. Here is a broad list7.

A canceled check preferably MICR

8.

Proof of identification

9.

Proof of address

10.

Proof of PAN card

11.

Recent photographs one and or more

For proof of identification and or address self attested facsimile copies of PAN card, voter’s ID, passport, ration card, driver’s license, photo credit card, employee ID card, Bank attestation, latest IT returns and or latest electricity/ landline phone bill are sufficient. While they only ask for photocopies of the documents. They will need the originals for verifications.

Banks Offering Demat Account In India AreICICI Bank – www.icicibank.com Citibank Demat account - www.online.citibank.co.in HSBC Bank India – www.hsbc.co.in IDBI Demat account – www.idbi.com 35

HDFC Bank demat account – www.hdfcbank.com NriDemat.com – www.nridemat.com ING Demat account – www.ingvysyabank.com SBI Demat Online Trading – demat.sbi.co.in Demat account from standard charted – www.standardcharted.co.in Open a demat account – www.sharekhan.com

Process of purchasing demat account The processes for purchasing demat securities is also similar to the processes for buying physical securities. 1.

Investor instructs DP to receive credits into his account in the prescribed form. They may be one at a time or many.

2.

Investor purchases securities in any of the stock exchanges linked to depository through a broker.

3.

Broker receives payment from investors and arranges payment clearing corporations.

4.

Broker gives instruction of DP to debit clearing account and credit clients accounts. Investor receives shares into his account by way of book entry.

Process of selling demat account The process for selling dematerialized securities in stock exchanges is similar as selling physical securities to the broker, the investor instructs his DP to debit his DEMAT account 36

with the number of securities sold by him and credit the brokers clearing account. The process for selling dematerialized account given below1.

Investor sells securities in any of the stock exchanges links to depository through a broker.

2.

Investor instructs his DP to debit his demat account with the number of securities sold and credit the brokers clearing account.

3.

Before the pay in day, broker of the investor transfer the securities to clearing corporation.

4.

Brokers receive payment from the stock exchange.

5.

The investors receive payment from the payment for sell of securities in the same manner as received in case of sell of physical securities.

Benefits of demat account 1.

A Demat Account offers a secure and convenient way to keep track of shares .

2.

It provides the immediate transfer of securities.

3.

On transfer of security there is no stamp duty.

4.

Cost reduction on transaction.

5.

Nomination facility is available.

6.

Reduction in paperwork involved in transfer of securities.

7.

Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.

8.

Any change in address recorded with DP gets registered electronically with all companies in which investor holds securities eliminating the need to correspond with each of them separately.

9.

Transmission of securities is done by DP eliminating correspondence with companies

10.

Automatic

credit

into

demat

account

bonus/split/consolidation/merger etc. 37

of

shares,

arising

out

of

1.

Holding investments in equity and debt instruments in a single account.

2.

You will receive the statement of account of your transactions/holdings periodically.

3.

Benefit to the company The depository system helps in reducing the cost of new issues due to lower printing and distribution costs. It increases the efficiency of the registrars and transfer agents and the secretarial department of a company. It provides better facilities for communication and timely service to shareholders and investors.

4.

Benefit to the investor The depository system reduces risks involved in holding physical certificates, e.g., loss, theft, mutilation, forgery, etc. It ensures transfer settlements and reduces delay in registration of shares. It ensures faster communication to investors. It helps avoid bad delivery problems due to signature differences, etc. It ensures faster payment on sale of shares. No stamp duty is paid on transfer of shares. It provides more acceptability and liquidity of securities.

5.

Benefits to brokers It reduces risks of delayed settlement. It ensures greater profit due to increase in volume of trading. It eliminates chances of forgery or bad delivery. It increases overall trading and profitability. It increases confidence in their investors.

38

Introduction of online trading in India

Online trading introduced in india February 2000 when a couple of broker started offering an online trading platform for their customers. Historically, stock markets were physical locations where buyers and sellers met and negotiated. With the improvement in communications technology in the late 20th century, the need for a physical location became less important, as traders could transact from remote locations.[2] One of the earliest examples of widespread electronic trading was on Globex, the CME Group’s electronic trading platform that allows access to a variety of financial, foreign exchange and commodity markets. The Chicago Board Of Trade produced a rival system that was based on Oak Trading Systems’ Oak platform which facilitated ‘E Open Outcry,’ an electronic trading platform that allowed for electronic trading to take place alongside the trading that took place in the CBOT pits. Oak Trading Systems continues to offer access to global markets via various software applications, including demo packages, and products are available through reputable brokerage firms such as EHedger LLC. Electronic trading makes transactions easier to complete, monitor, clear, and settle. NASDAQ, set up in 1971, was the world's first electronic stock market, though it originally operated as an electronic bulletin board, rather than offering straight-through processing (STP). By early 2007, organizations like theChicago Mercantile Exchange were creating electronic trading platforms to support the emerging interest in trading within the foreign exchange market. Today many investment firms on both the buy side and sell side are increasing their spending on technology for electronic trading.[4] Many floor traders and brokers are being removed from the trading process. Traders are relying on algorithms to analyze market conditions and then 39

execute their orders. Trading by humans is largely reserved for block trades, which trades of an unusually large size, in order to limit the market impact of the trade. Increasingly, the trend is to remove human traders not only from the act of trading, but to move trading decisions to an automated basis using Complex Event Processing. Dates of introduction of electronic trading by the leading exchanges in 120 countries are provided in a Journal of Finance article published in 2005 "Financial market design and the equity premium: Electronic vs. floor trading". There are, broadly, two types of trading in the financial markets: 1.

Business-to-business (B2B)

trading,

often

conducted

on

exchanges,

where

large investment banks and brokers trade directly with one another, transacting large amounts of securities, and 2.

Business-to-consumer (B2C) trading, where retail (e.g. individuals buying and selling relatively small amounts of stocks and shares) and institutional clients (e.g. hedge funds, fund managers or insurance companies, trading far larger amounts of securities) buy and sell from brokers or "dealers", who act as middle-men between the clients and the B2B markets. While the majority of retail trading in the United States happens over the Internet, retail trading volumes are dwarfed by institutional, inter-dealer and exchange trading. In developing economies, especially in Asia, retail trading constitutes a significant portion of overall trading volume. Before the advent of electronic trading, exchange trading would typically happen on the floor of an exchange, where traders in brightly colored jackets (to identify which firm they worked for) would shout and gesticulate at one another – a process known as open outcry or "pit trading" (the exchange floors were often pit-shaped – circular, sloping downwards to the centre, so that the traders could see one another). For instruments which are not exchange-traded (e.g. U.S. treasury bonds), the inter-dealer market substitutes for the exchange. This is where dealers trade directly with one another or through inter-dealer brokers (i.e. companies like GFI Group, BGC Partners and Garban, who act as middle-men between dealers such as investment banks). This type of trading 40

traditionally took place over the phone but brokers are beginning to offer electronic trading services. Similarly, B2C trading traditionally happened over the phone and, while much of it still does, more brokers are allowing their clients to place orders using electronic systems. Many retail (or "discount") brokers (e.g. Charles Schwab, E-Trade) went online during the late 1990s and most retail stock-broking probably takes place over the web now. Online Trading Academy, a professional trader education company, recommends that traders place their own orders directly, via the web, to enjoy sharply reduced commissions with better and faster service by eliminating the middleman or stockbroker. Larger

institutional

clients,

however,

will

generally

place

electronic

orders

via

proprietary electronic trading platforms such as Bloomberg Terminal, Reuters 3000 Xtra, BondsPro, Thomson TradeWeb or CanDeal (which connect institutional clients to several dealers), or using their brokers' proprietary software. For stock trading, the process of connecting counterparties through electronic trading is supported by the Financial Information exchange (FIX) Protocol. Used by the vast majority of exchanges and traders, the FIX Protocol is the industry standard for pre-trade messaging and trade execution. While the FIX Protocol was developed for trading stocks, it has been further developed to accommodate commodities, foreign exchange, derivatives, and fixed income trading.

Objectives of present trading system 1.

Reduces and eliminates operational inefficiencies inherent in manual system.

2.

Increased trading capacity stock market, improves market transparency.

3.

Eliminates unmatched trades and delayed reporting.

4.

Set up various limits, rules and controls centrally.

5.

Consolidate the data on electronic media.

6.

Provide analytical data for use of stock market. 41

Mechanism of online trading

Client

Broker

Stock Exchange

Place and order the net of the brokers website through the distinctive ID code.

Accept the order, check the client’s. Identify and place the order.

Settlement of the deal (buy/ sell order) get reflected in his demat account.

Pays the exchange through his own and receive the payment from the client account.

The client is intimated about the execution of the deal by e-mail.

42

Accept the order after checking the script limit of the broker for the day.

Receive the money and completes the settlement.

Benefits of Online Trading

1.

You have the ability to manage your own stock portfolios.

2.

You will have more control and flexibility over the types of transaction you choose to conduct.

3.

The commission costs for trading are significantly less money than using the services of a professional broker.

4.

You can get access to lower fee mutual fund investments.

5.

Online brokerage firms tend to offer their clients a slew of tools included real-time Level 2 stock quotes, news, financial tools and graphs to help you do research.

6.

Some online brokerages will provide their clients to free access to high quality research reports created by Standard and Poor and other predominate financial players.

7.

Online account investors have access to their accounts 24/7 – although market hours (trading hours) are from 9:30am to 4pm.

8.

As long as you have access to a computer and the internet, you can take steps to manage your finances wherever you may be.

43

Research Methodology

Title of the project 1.

Project Report On “Analysis Of Demat Account And Online Trading.”

Duration of the project 1.

The duration of the project - 45 days

2.

Time period of project

- 1 May 2012 to 15 July 2012.

Objective of the project work Project reports will always certain objectives which need to be accomplished. Following are the objectives behind the preparation of the project at standard charted security 1.

To compare standard charted security online share trading account with the big player in the market i.e. Reliance securities, Rathi securities, angle broking and Indiabulls.

2.

Identify the areas where standard charted security score above its competitors and quarter its weak links.

3.

Know the market potential of Standard charted security considering the facts the where many competitors in this fields with some more firms expected to join Frey in the near future. This will be done with the help of a questioner.

4.

To understand the company, its achievement and task, products and services and also to collect information about its competitors its product and service and products.

44

Type of research Descriptive research - Descriptive research is also called Statistical Research. The main goal of this type of research is to describe the data and characteristics about what is being studied. The idea behind this type of research is to study frequencies, averages, and other statistical calculations. Although this research is highly accurate, it does not gather the causes behind a situation. Descriptive research is mainly done when a researcher wants to gain a better understanding of a topic for example. Descriptive research is the exploration of the existing certain phenomena. The details of the facts won’t be known. The existing phenomena facts are not known to the persons.

Data Collection

Secondary data - Already existing data is called secondary data & collected them by following method1.

Internet

2.

Book.

Scope of the study 

Future of financial markets is the annual summit conceptualized by the financial technologies group, which is devoted to generate the best of ideas and thinking on how to bring markets closer to the people and play a useful role in their progress.



“Taxable Service” means any service provided or to be provided to any person, by a recognized stock exchange in relation to assisting, regulating or

controlling the

business of buying, selling or dealing in securities and includes services provided in

45

relation to trading, processing, clearing and settlement of transactions in securities. So it should be reasonable. 

Works in corporate finance have strong linkages with security markets. For our purpose therefore, we considered works falling into any of the following categories as those belonging to the field of capital markets.



Valuation of stocks and functioning of the stock markets; valuation of bonds, convertible debentures and market for debt; new issues market and merchant banking; market efficiency ; dividends, bonus & rights issues and rates of return; and performance and regulations of mutual funds.

Limitations of the study 1. Every project has some limitations even the researcher came some limitations while working the project made the analysis a little inappropriate at times. 2. In the project report there was the time boundation of 45 days. 3. According to the project the time was very short. 4. The share market area of standard charted security so limited. 5. There was a bais on the part of respondent.

46

FACTS AND FINDINGS Comparative Analysis of various Stock Broking

Criteria

Account type

Easy Trade

3 in 1 Account

Classic

Power

Kotak Gateway

(1 secure

Account

Indiabulls

Fixed Brokerage

plan) Account

Rs. 600

Rs. 450

Rs.400

Rs. 450

Rs. 600

Cash Delivery

0.50%

0.55%

0.50%

0.40%

0.49%

Cash Intraday

0.05%

0.275%

0.10%

0.04%

0.049%

F&O

0.05%

0.05%

0.10%

0.04%

0.049%

Rs. 100

Rs. 95

Rs. 100

Rs. 100

Rs. 100

Rs. 25

Rs. 25

10 paisa per

4 paisa per

4 paisa for

share

share

delivery & 3

Opening Charges

SegmentFuture F&O SegmentOption Minimum Brokerage

paisa for intraday

47

Here we see that there are many brokerage companies in share market & they have their different brokerage. But in facts and findings I found that the charges & services of opening of a demat account and online trading in standard charted security are very suitable for any investor.

48

Data Interpretation and Analysis

Q.1. Do you want to invest in share market? (A) Yes (B) No Particular No.

Yes

No

Total

of 48

52

100

of 48

52

100

respondent % respondent

53 52 51 No. of respondent

50

% of respondent

49 48 47 46 Yes

No

Interpretation- From the above given chart we analysis that there are still 52 percent of people are still left in case of demat account.

49

Q.2. A type of trading you generally do? (A) Intraday (B) Delivery (C) Both Particular

Intraday

Delivery

Both

Total

No. of

46

25

29

100

46

25

29

100

respondent % of respondent

50 45 40 35 30 No. of respondent

25

% of respondent

20 15 10 5 0 Intraday

Delivery

Both

Interpretation- 46% people prefer intraday, 25% prefer delivery and 29% do both type of trading.

50

Q.3. In your opinion what is the biggest problem in india trading firm? (A) Lack of knowledge (B) Unsatisfactory services by broking firms (C) Market unsatisfactory (D) Charge by the broking firm Particular

Lack of

Unsatisfactory Market

knowledge

services by

Total

unsatisfactory the broking

broking firms No. of

Charge by

firm

18

25

28

29

100

18

25

28

29

100

respondent % of respondent

35 30 25 20 No. of respondent

15

% of respondent 10 5 0 Lack of knowledge

Unsatisfactory Market Charge by the services by unsatisfactory broking firm broking

51

Interpretation- Most of the people face big problems in trading lack of knowledge and belief that unsatisfactory services by their broking firms create problem in trading while 29% people consider charges of broking firm as a problem in trading.

52

Q.4. What is your opinion the problem of market uncertainty in trading? (A) It’s a big challenge (B) It’s manageable (C) It’s an opportunity It’s

Particular

a

big It’s

challenge No.

of 35

It’s

an Total

manageable

opportunity

25

40

100

25

40

100

respondent %

of 35

respondent

45 40

35 30 25 No. of respondent

20

% of respondent

15 10 5 0 It’s a big challenge

Its manageable

It’s an opportunity

Interpretation- 35% of people consider market uncertainty as big problem, around 40% people consider it is an opportunity and rest says it is unmanageable.

53

Q.5. Does unsatisfactory services provided by the broking firm create problem in trading? (A) Yes (B) A little (C) No Particular

Yes

No.

A little

No

Total

of 63

17

20

100

of 63

17

20

100

respondent % respondent

70 60 50 40

No. of respondent 30

% of respondent

20 10 0 Yes

A little

No

Interpretation- 63% consider the unsatisfactory services provided by the broking firm create problem in trading, 17% people consider it a little and 20% were not agree to that.

54

Q.6. Are you satisfied in trading with your broking firm? (A) Highly satisfied (B) Satisfied (C) Neutral (D) Dissatisfied (E) Highly dissatisfied Particular

Highly

Satisfied

Neutral

Dissatisfied Highly

satisfied No.

of 33

Total

dissatisfied 25

19

15

8

100

25

19

15

8

100

respondent %

of 33

respondent

35 30 25 20 No. of respondent

15

% of respondent

10 5 0 Highly satisfiedSatisfied

Neutral

Dissatisfied Highly dissatisfied

Interpretation- Most of the people are satisfied with their broking firm.

55

Q.7. Are you aware of products and services offered by standard charted security? (A) Yes (B) No Particular

Yes

No

Total

No. of respondent

75

25

100

% of respondent

75

25

100

80 70 60 50

No. of respondent

40

% of respondent

30 20 10 0 Yes

No

Interpretation- 75% of people are aware of products and services offered by standard charted security.

56

Q.8. Are you satisfied with the charges changed by standard charted security for opening DEMAT account? (A) Highly satisfied (B) Satisfied (C) Neither satisfied nor dissatisfied (D) Dissatisfied (E) Highly dissatisfied Particular

Highly

Satisfied Neither

satisfied

No. of

satisfied Dissatisfied Highly

nor dissatisfied

Total

dissatisfied

10

38

21

12

19

100

10

38

21

12

19

100

respondent % of respondent

40

35 30 25 20 15

No. of respondent

10

% of respondent

5 0

Highly satisfied

satisfied

Neither Dissatisfied Highly satisfied dissatisfied nor dissatisfied

57

Interpretation- Most of people is satisfied with the charges by standard charted security for openings demat account.

58

Q.9. what is your perception regarding standard charted security? (A) Best (B) Good (C) Average (D) Bad (E) Worst Particular

Best

Good

Average Bad

Worst

Total

No. of respondent

19

29

31

12

9

100

% of respondent

19

29

31

12

9

100

35 30 25 20 No. of respondent

% of respondent

15 10 5 0 Best

Good

Average

Bad

Worst

Interpretation- Expect few people maximum of the people perception about standard charted security is good.

59

SWOT ANALYSIS OF STANDARD CHARTED ON THE RESEARCH CONDUCTED

STRENGTH 1.

Good for new account holders as the securities has to be managed by specialized manager.

2.

Great brand image.

3.

Excellent customer satisfaction among employees.

WEAKNESS 1.

Insufficient branch coverage.

2.

Sometimes the age factor affects the investment preference of the investors.

Opportunities 1.

Creating positive image about the standard charted security and changing the nature of the market itself.

2.

Security Market is expanding as many foreign companies are coming in this.

3.

Great scope of new investment due to the budget announcement this year.

60

Threats 

Many new entrants to the market.



I nd ia mo st of the people lack of awareness about mutual fund. They don’t know anything about what is mutual fund, how it works. How fund managers invest people’s money in different portfolios and provide the better returns to the customers.



Lack of promotions, advertising by mutual fund industry.

61

CONCLUSION

1.

Most of the traders consider unsatisfactory services of broking firm as biggest problem in trading.

2.

Most of the traders perceive standard charted security as a good broking firm.

3.

In case of transparency and services standard charted security is considered good and average in case, of brokerage and relationship manager’s support.

4.

People aware about standard charted security are satisfied regarding product and service by standard charted security.

62

Recommendations and suggestions

1.

Broking charges should revise to make them more competitive.

2.

More relationship managers should by appointed.

3.

Relationship manager’s support to the client should be improved.

4.

Standard charted security should conduct some kind of mock classes for new investors who even don’t know about share market.

5.

There should by employee ID- Card for them so that when they go on it shows good impression and identity of employees.

6.

Standard charted security organize training programme for their existing clients once or twice in a year.

63

ANNEXURE Questionnaire-

Q.1. Do you want to invest in share market? (A) Yes (B) No Q.2. A type of trading you generally do? (A) Intraday (B) Delivery (C) Both Q.3. In your opinion what is the biggest problem in india trading firm? (A) Lack of knowledge (B) Unsatisfactory services by broking firms (C) Market unsatisfactory (D) Charge by the broking firm Q.4. What is your opinion the problem of market uncertainty in trading? (A) It’s a big challenge (B) Its manageable (C) It’s an opportunity

64

Q.5. Does unsatisfactory services provided by the broking firm create problem in trading? (A) Yes (B) A little (C) No Q.6. Are you satisfied in trading with your broking firm? (A) Highly satisfied (B) Satisfied (C) Neutral (D) Dissatisfied (E) Highly dissatisfied Q.7. Are you aware of products and services offered by standard charted security? (A) Yes (B) No Q.8. Are you satisfied with the charges changed by standard charted security for opening DEMAT account? (A) Highly satisfied (B) Satisfied (C) Neither satisfied nor dissatisfied (D) Dissatisfied (E) Highly dissatisfied 65

Q.9. what is your perception regarding standard charted security? (A) Best (B) Good (C) Average (D) Bad (E) Worst

66

Bibliography

 Kothari, C.R., Research methodology methods and techniques, New Delhi, New Age International (P) Ltd. Publisher.,1985.  Pandey, I.M., Financial Management, New Delhi, Vikas Publishing House PVT LTD.,1978  Panneerselvam, R., Reserch Methodology, New Delhi, Prentic Hall Of India Private Limited., 2008

Wibliography



http://standardcharteredsecurities.co.in/AboutUs/Overview/tabid/86/Default.aspx



http://www.charteredclub.com/demat-account-%E2%80%93-benefits-and-processof-dematerialisation/



http://en.wikipedia.org/wiki/online_trading



http://www.chittorgarh.com/stockbroker/icicidirect/1/



http://210.212.230.219/dde/downloads/finiii_ifs.pdf



http://en.wikipedia.org/wiki/Initial_public_offering

67