SYBFM Equity Market II Session IV Ver1.0

7/29/2019 SYBFM Equity Market II Session IV Ver1.0

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Session IV

SYBFM EQUITY MARKET-II


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UNIT IVDEALINGS IN STOCK EXCHANGES

Role of Brokers

Stock market quotations

Procedure for buying and selling On Line Trading

Clearing and Settlement


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Stock Brokers

A stock broker is an intermediary who arranges to buy

and sell securities on the behalf of clients (the buyer and

the seller). According to SEBI (Stock Brokers and Sub-

Brokers) Regulations, 1992, a stockbroker is member of a

stock exchange andrequires to hold a certificate of

registration from SEBI in order to buy, sell or deal in

securities. SEBI grants a certificate to a stock broker

subject to the conditions that the stock broker:

(a) holds the membership of any stock exchange;

(b) should abide by the rules, regulations and bye-laws ofthe stock

exchange or stock exchanges of which he is a member;


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(c) should obtain prior permission of SEBI to continue to

buy, sell or deal

in securities in any stock exchange in case of any changein the status

and constitution;

(d) should pay the amount of fees for registration in the

prescribedmanner; and

(e) should take adequate steps for redress of grievances of

the investors

within one month of the date of the receipt of the complaint

and keep

SEBI informed about the number, nature and other

particulars of thecom laints.


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Role of Broker

Investor risk profile, financial profile, investoridentification details, address details, income,

PAN number, employment, age, investments

experience, trading preference.

Margins from the Clients

Payments/Delivery of Securities to the Clients

Brokerage

The maximum brokerage chargeable by TM in respect of tradeseffected in the securities admitted to dealing on the CM segment of

the Exchange is fixed at 2.5% of the contract price, exclusive of

statutory levies.


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For example: If a client has sold 10000 sharesof a scrip @ Rs. 50, what is the

maximum brokerage that the client can be

charged?

In this case, the maximum brokerage = brokerage

rate*value of the transaction

=2.5 %*( 10000 shares*Rs. 50) = Rs. 12,500


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Segregation of Bank Accounts

Maintain separate bank accounts for clients funds and

own funds. It is compulsory for all TMs to keep themoney of the clients in a separate account and their own

money in a separate account.

Segregation of Demat (Beneficiary) Accounts

The trading members should keep the dematerialisedsecurities of constituents in a separate beneficiary

account distinct from the beneficiary account maintained

for holding their own dematerialised securities.

Contract notes

A stock broker should issue contract note as per the

format prescribed by the Exchange to client introduced

through a sub-broker


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Broker

Commodity Trading

Distribution of Financial

ProductsInvestment Banking

Portfolio Management

Institutional Business

Loan Syndication

Retail Broking

Insurance Broking

Online Trading


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Stock Trading


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Important terms in stock market and in stock trading

Bid Quantity - The total number of stocksavailable for buying is called Bid Quantity.

Offer Quantity - The total number of stocks

available for selling is called Offer Quantity.

Buying and selling of stocks - Buy is alsocalled as demand or bid and selling is also called

as supply or offer. First selling and then buying(this only happens in day trading) is called asshorting of stocks or short sell.


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Stock Trading - Buying and Selling of stocks iscalled stock trading.

Transaction - One complete cycle of buying and

selling of stocks is called One Transaction.

Squaring off- This term is used to complete onetransaction. Means if you buy then have to sell

(means square-off) and if you sell then you haveto buy (means square-off).


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Limit Order- In limit order the buying or sellingprice has to be mentioned and when the stockprice comes to that price then your order will getexecuted with the mentioned price by you

Market Order- When you put buy or sell price atmarket rate then the price get executes at thecurrent rate of market. The market order getimmediately executed at the current available

price


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Open - The first price at which the stock openswhen market opens in the morning.

High - The stock price reached at the highest

level in a day.

Low - The stock price reached the lowest level in

a day.


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Close - The stock price at which it remains afterthe end of market timings or the final price of the

stock when the market closes for a day.

Volume - Volume is nothing but quantity.

Bid - The Buying price is called as Bid price.

Offer- The selling price is called offer price.


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Different types of stock trading

Day trading and Delivery trading are the twomain types of stocks trading.

Day trading -

Buying and selling of stocks on daily basis is

called day trading this is also called as Intra day

trading. Whatever you buy today you have to sell

it today OR whatever you sell today you have to

buy it today and very importantly during markethours that is 9.00 am to 3.30 pm (Indian time).


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Different types of stock trading

Delivery Trading

In Delivery Trading, as the name say, you have to take the delivery of stocks andafter getting these stocks in your demat account you can sell them at anytime (oryou can hold them till you want, there is no restriction). In delivery trading you needto have the amount required to buy stock

For example, if you want to buy 100 stocks of Reliance at price 500 than you must

have (100*500) Rs. 5000 in your account; once you purchased these stocks will getdeposited in your demat account (say after basically, trading day and 2 additionaldays). Then you can sell these stocks when the price of these stocks goes up or elseyou can sell whenever you want.

Please Note - First you have to buy and sell. You cant sell before buying indelivery trading while its possible in day trading.


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Investment in Short term, Mid term and Long term trading

Short Term Trading -Stock trading done from one week to couple of

months is called short term.

Mid term Trading -

Stock trading done from one month to couple of

months, say six to eight months is called mid term

trading.


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Investment in Short term, Mid term and Long term trading

Long term trading -Stock trading done form couple of months to

couple of years is called long term trading.

Companies whose fundamentals are good and

have good future plans then the stocks of thesecompanies are used for long term trading.

Generally traders having good capital go for long

term trading.


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Getting started To start trading the following are required

Trading account

Member Client Agreement

Risk Disclosure Document

Demat account

Bank account

Permanent Account Number (PAN)

Unique Client Code


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What is Demat account and why it is

required?

Demat (Dematerialization) is the process bywhich an investor can get stocks converted into

electronic form maintained in an account with the

Depository Participant (DP).

Depository Participant (DP) could beorganizations involved in the business of

providing financial services like banks, brokers,

financial institutions etc. DPs are like agents of

Depository.


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Cont

Depository is an organization responsible tomaintain investor's securities in the electronic

form.

In India there are two such organizations called

NSDL (National Securities Depository Ltd.) and

CDSL (Central Depository Services India Ltd.)


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Where to trade The secondary market is divided into two

segments

Cash/ Equity segment

Derivative segment Equity Futures and Option (F & O)

Index / Single Stock

Currency Futures/ Option

Interest Rate Futures


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How to trade Trade through a SEBI registered Stock Broker, by

Placing margins as required with the broker

placing order over the phone

email etc.

Internet Trading

Wireless / Mobile Trading.


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Post Trade The stock broker is required to provide contract

notes confirming the trades done within 24 hrs ofexecuting the trade

The contract notes can either be in physical orelectronic form


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Charges by the Stock Broker Brokerage charged by member broker (maximum

2.5%)

Service tax as stipulated

Securities Transaction Tax

Penalties arising on specific default on behalf ofclient (investor)


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Types of Trading

Online Trading

Offline Trading


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Online Trading Online trading India is the internet based investment

activity that involves no direct involvement of the broker.

online trading platforms of the biggest stock houses like the

National stock exchange and the Bombay stock exchange.

Online trading allows you to buy and sell shares on theexchange through Internet.

The online stock trading is becoming the most popular way

to trade stocks because of computers. No longer do we

have to call a broker and pay high commissions to buy orsell a stock.


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History

The history of e trading began in 1983, when a doctor in Michiganplaced the first online trade using E*TRADE technology.

The concept was visualized by one Bill Porter, a physicist andinventor with more than a dozen patents to his credit.

In India Online trading started in February 2000 when a couple ofbrokers started offering an online trading platform for theircustomers.

E trading has become a way of investing in the developed world andis soon catching on in developing countries too.

Online trading means trading investing in equities, derivatives,commodities etc through the Internet.


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BENEFITS OF ONLINE TRADING

Fully Customizable display

Dynamic Charts with Indicators

Real-Time market data

Live order status Track orders real time

Real time position updates

Dynamic buying power


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DIFFERENCE BETWEEN ONLINE AND

OFFLINE

Online trading consumes less time as compare to manualtrading.

Online trading has very helpful to finding the records easily

but offline trading takes more time to finding the records.

In the help of online trading, there is no chance of anyerrors while doing the trading. In offline trading there are

some errors exist like barriers of communication.


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Name Of The

Trader

An Investment

Form through

Which Trading Can

Be Done


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Trader Name


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Commodities Index


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Types of Order

Market Order The market order is the simplest and quickest way

to get your order filled (or completed). A market

order instructs your broker to buy or sell the stock

immediately at the prevailing price, whatever thatmay be.

If you are following the market, you may or may not

get the last price listed. In a volatile market, you will

probably get a price close to that, but there is noguarantee of any specific price.

One final, but important note: Market orders will

likely be the most inexpensive of the orders you

place.


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Limit Orders

Limit orders instruct your broker to buy or sell a

stock at a particular price. The purchase or sale will

not happen unless you get your price. Limit orders

give you control over your entry or exit point by

fixing the price, which can be helpful.

However, you may want to do some math first.

Check with your broker to see how the commissionon limit orders compares with what you pay for

market orders.

If there is a significant difference, you may be better

off with a market order (assuming the price is at ornear your target) and saving on commissions.


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Stop Loss Orders

A stop loss order gives your broker a price trigger thatprotects you from a big drop in a stock. You enter a stop

loss order at a point below the current market price. If thestock falls to this price point, the stop loss order becomesa market order and your broker sells the stock. If the stockstays level or rises, the stop loss order does nothing.

Trailing Stops

The trailing stop order is similar to the stop loss order, butyou use it to protect a profit, as opposed to protect againsta loss. If you have a profit in a stock, you can use thetrailing stop order to follow it up. You enter the trailing stoporder as a percentage of the market price. If the marketprice declines by that percentage, the trailing stopbecomes a market order and your broker sells the stock.

If the stock continues to rise, the trailing stop follows it upsince it is a percentage of the market price. This protectsyour additional gains.


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National stock exchange And

Bombay stock exchange

In spite of many private stock houses at present involved inonline trading in India, the NSE and BSE are among the

largest exchanges.

They handle huge daily trading volumes, supporting large

amounts of data traffic, and possessing a countrywidenetwork.

The automated online systems used for trading NSE & BSE

NIBIS (Internet Based Information System ) & BOLT BSE

Online Trading system


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Processes

The transactions in secondary market pass through threedistinct phases, viz., trading, clearingand settlement.While the stock exchanges provide the platform for trading,the clearing corporation determines the funds andsecurities obligations of the trading members and ensures

that the trade is settled through exchange of obligations. The clearing banks and the depositories provide the

necessary interface between the custodians/clearingmembers for settlement of funds and securities obligationsof trading members. The clearing process involvesdetermination of what counter-parties owe, and whichcounter-parties are due to receive on the settlement date,thereafter the obligations are discharged by settlement.

The clearing and settlement process for transaction insecurities on NSE is presented in Chart 5-1.


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Key terminologies used in

Clearing and Settlement Process

Pay-in day is the day when the tradingmembers/brokers are required to make payment

of funds or delivery of securities to the clearing

corporation of the Exchange

for all transactions traded by or through them inthe respective settlement period.

(a) Securities Pay-in: The process of delivering

securities to the clearing corporation to effect

settlement of a sale transaction.

(b) Funds Pay-in: The process of transfer of funds

to the clearing corporation to pay for purchase

transactions.


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Pay-out day is the day when the clearing corporation of

the stock exchange transfers funds and securities to the

broker/trading member who have receivable

obligation.

(a) Securities Pay-out: The process of receiving securities

from the clearing corporation to complete the securities

settlement of apurchase transaction.

(b) Funds Pay-out: The process of transfers of funds from

the clearing corporation to complete the funds settlement

of a sale transaction.


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Steps in Transaction Cycle

(a) A person holding assets (securities/funds), either to meet hisliquidity

needs or to reshuffle his holdings in response to changes in his

perception about risk and return of the assets, decides to buy orsell

the securities.

(b) He selects a broker and instructs him to place buy/sell order onan

exchange.

(c) The order is converted to a trade as soon as it finds a matching

sell/buy order.

(d) At the end of the trade cycle, the trades are netted to determinethe

obligations of the trading members to deliver securities/funds asper

settlement schedule.

(e) Buyer (seller) delivers funds (securities) and receives securities

(funds) and acquires ownership of the securities. A securities


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Settlement Agencies

The roles of several entities involved in the process of clearing and settling thetrades executed on Exchanges are explained below:

(i) Clearing Corporation (NSCCL): The NSCCL is responsible for post-trade

activities of a stock exchange. Clearing and settlement of trades and risk

management are its central functions. It clears all trades, determines obligations of

members, arranges for pay-in of funds/securities, receives funds / securities,processes for shortages in funds/securities, arranges for pay-out of funds/securities

to members, guarantees settlement, and collects and maintains margins / collateral

base capital / other funds.

(ii) Clearing Members: They are responsible for settling their obligations asdetermined by the NSCCL. They have to make available funds and/or securities in

the designated accounts with clearing bank/depository participant, as the case may

be, to meet their obligations on the settlement day. In the capital market segment,

all trading members of the Exchange are required to become the Clearing Member of

the Clearing Corporation.


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(iii) Custodians: A custodian is an entity who is responsible for

safeguarding the documentary evidence of the title to property like share

certificates, etc. The title to the custodians property remains vested with the

original holder, or in their nominee(s), or custodian trustee, as the case may

be. In NSCCL, custodian is a clearing member but not a trading member. Thecustodian settles trades assigned by trading members. The custodian is

required to confirm whether it is going to settle a particular trade or not. If it is

confirmed, the NSCCL assigns that obligation to that custodian and the

custodian is required to settle it on the settlement day. If the custodian rejects

the trade, the obligation is assigned back to the trading / clearing member.

(iv) Clearing Banks: Clearing banks are a key link between the clearing

members and NSCCL for funds settlement. Every clearing member is

required to open a dedicated settlement account with one of the clearing

banks. Based on his obligation as determined through clearing, the clearingmember makes funds available in the clearing account for the pay-in and

receives funds in case of a pay-out. Multiple clearing banks provide

advantages of competitive forces, facilitate introduction of new products viz.

working capital funding, anywhere banking facilities, the option to members

to settle funds through a bank, which provides the maximum servicessuitable to the member.


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(v) Depositories: A depository is an entity where thesecurities of an investor are held in electronic form.The person who holds a demat account is abeneficiary owner. In case of a joint account, theaccount holders are beneficiary holders of that jointaccount. Depositories help in the settlement of thedematerialized securities. Each custodian/clearingmember is required to maintain a clearing poolaccount with the depositories. He is required to makeavailable the required securities in the designatedaccount on settlement day. The depository runs an

electronic file to transfer the securities from accountsof the custodians/clearing member to that of NSCCL.As per the schedule of allocation of securitiesdetermined by the NSCCL, the

depositories transfer the securities on the pay-out day

from the account of the NSCCL to those ofmembers/custodians.

Depositories Depositor h ld iti i d t i li d


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Depositories: Depository holds securities in dematerializedform for the investors in theirbeneficiary accounts. Each

clearing member is required to maintain a clearing pool

account with the depositories. He is required to makeavailable the required securities in the designated account on

settlement day. The depository runs an electronic file to

transfer the securities from accounts of the custodians/clearing

member to that of NSCCL and visa-versa as per the schedule

of allocation of securities.

Professional Clearing Member : NSCCL admits specialcategory of members known as professional clearing

members (PCMs). PCMs may clear and settle trades executedfor their clients (individuals, institutions etc.). In such cases,

the functions and responsibilities of the PCM are similar to that

of the custodians. PCMs also undertake clearing and

settlement responsibilities of the trading members. The PCM

S d M k t Cl i d


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Secondary Market - Clearing and

Settlement


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Documents

SYBFM Equity Market II Session IV Ver1.0