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2012

Kristu Jayanti College Elson Antony Paul C

[AWARENESS AMONG THE TRADERS ABOUT THE SETTLEMENT OF ONLINE TRADING]


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Introduction The act of placing buy/sell orders for financial securities and/or currencies with the use of a brokerage's internet-based proprietary trading platforms. The use of online trading increased dramatically in the mid- too late-'90s with the introduction of affordable high-speed computers and internet connections. Stocks, bonds, options, futures and currencies can all be traded online.
The use of online trades has increased the number of discount brokerages because internet trading allows many brokers to further cut costs and part of the savings can be passed on to customers in the form of lower commissions. Another benefit of online trading is the improvement in the speed of which transactions can be executed and settled, because there is no need for paper-based documents to be copied, filed and entered into an electronic format

There are many major benefits to online trading. You have the ability to expand your business for a relatively low cost. Online trading has become big business, and the Internet has helped many businesses achieve a great deal of success. Internet companies such as Amazon.com and EBay use online trading as a primary means of business and have had great success in doing so, but there have also been many businesses that have tried and failed with online trading. The first thing to consider is whether or not your business will benefit from online trading. In recent years, there has been a tremendous amount of hype surrounding ecommerce. The hype seems to have finally calmed down, and the speculation over whether the Internet is a viable way to do business finally seems to have been established. If your business takes orders over the phone, by email or by fax, then online trading may certainly be a viable option for you. If you have competitors who are trading online while you are still using more traditional methods, then you may certainly be losing business. Before you invest any money on online trading, ask yourself a few questions. Is the product you sell priced in a consistent manner? Do your products normally have a quick turnover, and do you already have a list of products in a sales list? If you can answer positively to these questions, then you may benefit from online trading.

Another aspect to consider is the volume of your business. You will need to consider whether your current sales will be enhanced by online trading. Look at competitors who currently trade online and see if there is scope to undercut them on products. If you intend to have larger volumes of sales, they will need to be offset against end solutions such as delivery costs. One aspect of online trading that needs to be put into place at the beginning is an online credit payment facility. Orders can be taken via the Internet and then processed offline, but it will speed up the process to have an automatic checking and clearing facility in place. This system will tell you immediately whether credit cards are valid and funds are available to pay for your product. Another system to consider is online stock management. This will tell you if you have enough stock in place to complete orders, or if more stock needs to be ordered. Both these systems incur costs, and they may not be viable if your margins are tight. Credit card orders also require security such as encryption. There are fairly cheap, reliable software packages that include all of these features on implementation. Online trading is not something you should enter into lightly. You should weigh whether it is a viable option and look at the long-term prospects. The initial costs of implementing an Internet shop may be offset by the fact that you may now have customers from all over the world who are able to trade with you.

History

Online trading began in the 1900s with the advent of the Internet. Where traders once had to physically call in their transactions, online trading opened a new window of opportunity. Traders were able to place their transactions independent of an external broker. Online brokerage firms became the new way to conduct business. CompuServe came on the scene in 1969 as the first major online service company. By the mid-1980s, it was considered a giant in its field.

Time Frame

By the end of the 1900s other brokerage firms began to establish themselves. First Omaha Securities, Inc. was one of the first. This company went through a period of transformation and eventually became TD Ameritrade in 2005. Another company, Trade Plus, made its first stock trade in 1983. It offered the public the opportunity to conduct business with America Online as well as CompuServe. Business grew rapidly and nine years later, Trade Plus became a reputable firm. Today, Trade Plus (now known as the E-Trade Group) remains a leader in the industry.

Types of Brokers

There are several types of online brokers and it is pertinent to choose a reputable company. Some things to consider when choosing an online broker include the minimum investment needed to begin trading; amount of inactivity fees; trading support; commissions and whether the broker is involved in other businesses. Carefully weigh the answers to these questions before settling on an online broker. As this broker has access to your financial information, you need to make sure that they have a secure system in place. Some well-known brokers are Fidelity, TDAmeritrade, E*Trade and Scot trade.

Considerations

By the 1900s online investing had exploded. Internet access became affordable, making the use of the Internet widespread. The idea of being self-sustained as a trader was appealing. There was no need to get a broker involved and business could be conducted around the clock. By January of 1996, the first e-broker was developed and hundreds opened accounts online brokers. If an individual was able to conduct appropriate preparatory research and had reasonable management skills, he was able to succeed online.

Benefits

The benefit of online trading outweighs offline by a great margin. Perhaps the greatest benefit is the ability to take control of your own future. Online trading eliminates the "middleman," those sales agents who don't really have your best interests at heart. Online stock trading allows you to call your own shots. It is you that places the trade. By trading online you can also save on

trading commissions. Online trading also makes good use of day trading. Day trading is not a viable option in offline trading because of the high costs of broker assisted trades. Trading Today

Online trading has developed tremendously since its inception in 1994. Today practically anyone with the means can invest with a reputable company, such as Forex. The Forex Company became a new major contender to the control of the trading market. The modern online Forex Company offers new investment options for online traders, such as the ability to use margin account as leverage to investments. This means a trader can purchase a large sum of foreign currency with paying the full price. Margin trading allows for greater buying power and larger profits.

The advantages of online trading:


You have the ability to manage your own stock portfolios You will have more control and flexibility over the types of transaction you choose to conduct The commission costs for trading are significantly less money than using the services of a professional broker You can get access to lower fee mutual fund investments Online brokerage firms tend to offer their clients a slew of tools included realtime Level 2 stock quotes, news, financial tools and graphs to help you do research 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 Online account investors have access to their accounts 24/7 although market hours (trading hours) are from 9:30am to 4pm As long as you have access to a computer and the internet, you can take steps to manage your finances wherever you may be

The disadvantages of online trading:

First time investors may get sucked into all the technology and may temporarily forget that they are actually using real money There is no mentoring relationship between a professional broker and an online trading account holder, leaving the investor out on his/her own to make choices

Novices not familiar with the ins and outs of the brokerage software can make costly mistakes

Like any financial strategy, committing yourself to online trading takes research and dedication to make sure everything is up to par. By taking the time to do your research you will be able to overcome a great learning curve and even possibly make some money from online trading

5 Facts You Have to Know on Online Trading Online currency trading comprises of the largest market in the world. The po pularity of this market with investors and traders rose sharply since the 1970's when it became more accessible to the retail trader in the Forex market. Forex market and online trading that go hand in hand. Even though 80% of the traders fail in garnering profits this remains the largest market due to several reasons. The 5 major factors that a trader who aspires to be a successful trader in the online trading Forex market should know are: Tracking major currencies : In the Forex market there are only around five to seven major currencies that a trader has to keep track of. This is entirely different to the scenario in the Stock market where there can be thousands of shares and companies that have to be tracked. Hence, the Forex market presents a much easier and simpler way to trade currencies for profit. Making profits : In the Forex market profits are made not only when currencies are appreciating but also when they are depreciating. In addition to this traders also have the ability to trade with leverage. The leverage in the Forex market is much higher than any other market and can be as much or more than 200:1 in most cases. This allows traders with even minimal funds to make handsome profits when they are right. One drawback here is that the losses are also escalated according to leverage. Trading hours : Ability to trade 24 hours a day from Monday morning to Saturday afternoon is certainly a boon to the trader. This is possible due to the fact that there are different time zones in the world opening and closing with overlapping time slots that allow traders to enter and exit the market at will. A trader is able to trade from anywhere in the world at the London, New York, Tokyo or Sydney sessions at any time. Filling orders : This can be done any time when a trader enters the market due to its high liquidity. There are traders willing to do business with you regardless of the time and thus orders can be filled with relative ease and no delay. This is mainly due to the sheer size of the market and the way it operates.

Help and support : This is available to all traders in the Forex market through their Forex brokers or other online sources. Traders can use demo accounts to practice with virtual currency and there are many tutorials that can be used to educate themselves on the art of trading currency online. Expert help is also provided by many Forex brokers.

Awareness about online trading and investments In a bid to create awareness about the online trading and investments among valleyites, M I Securities in collaboration with Sharekhan Limited today organized a seminar on current market conditions, options, trading and investment opportunities in commodity and current market. M I Securities hosted the seminar at Centaur Lake View Hotel, here, which coincided with 7year completion of its operations in the Valley. People from different walks of life participated in the seminar to gain knowledge about online trading. Speaking on the occasion, Mehul Dedhia, Associate Vice-President (Equity), Sharekhan Limited said: The US economy is losing its pace, Euro Zone crisis threatens to deepen further and in China recovery is at a slow pace. It has a direct or indirect effect on our economy and for any investment we need to be very cautious and careful and should take advice of financial advisors before making investments. He shed light on certain macro issues that have put pressure on Indian currency and moderated growth. To mention, Sharekhan Ltd is one of Indias leading online retail broking houses with its presence through more than 1700 Share Shops in 550 cities and serving more than 10,00,000 customers across India. It also has international presence through its branches in the UAE. Launched on February 2000 as an online trading portal, Sharekhan offers its services to all types of customers individual investors and traders, corporate, institutional and NRIs; trade execution facilities for cash as well as derivatives on BSE and NSE, depository services, mutual funds, initial public offerings (IPOs), commodities trading on MCX and NCDEX and currency trading facilities on NSE, USE & MCX-SX. Sharekhan also provides market related news, stock quotes fundamental and statistical information across equity, mutual funds, IPOs and much more. Pertinently, Sharekhan has set category leadership through pioneering initiatives like Trade Tiger, a net based executable application that emulates a broker terminal besides providing information relevant to Day traders. Their second initiative, First Step is targeted at empowering first time investors. Recently Sharekhan has ventured into trader education with US-based Online Training Academy - one of the leading organizations in trading and investment education globally. Sharekhan has also set their global footprints through the India First initiative, a series of seminars conducted by Sharekhan to help NRIs participate and benefit from the huge investment opportunities in India. Sharekhan has had its presence in Dubai via its representative office for the last three years & recently received a license to operate out of DIFC (Dubai International Financial centre).

Online settlements in terms of shares The, Mumbai Exchange has initiated a number of measures aimed at providing quality products and services and expanding its network using cutting edge information technology. Five years back, the BSE made its transition from an 'outcry' system of trading to a completely electronic trading system. BSE has introduced electronic trading system known as BOLT (BSE On Line Trading). With the following facility 1) This is an order driven facilitates efficient processing; automatic order matching and faster execution is enabled. 2) Trading system displays on a continuous basis scrip and market-related information required supporting traders. (Information includes best five bids and offers, last traded quantity and price, total buy and sell depth (irrespective of rates), open, high, low and close price, total number of trades, volume and value, and index movement. Other company-related information is also displayed) 3) As soon as an order is matched, the confirmation of the trade is generated on-line. 4) The order matching logic is based on best price and time priority. 5) The BSE On line Trading Platform has a capacity of conducting 2 million trades per day. 6) The latest state of the art technology infrastructure with Trader Work Stations located in more than 400 cities all over the country. 7) Trading on the BOLT system is conducted from Monday to Friday between 9: 30 a.m. and 3:30 p.m. 8) Trading can also be conducted through the BSE Internet Trading System www.bsewebx.com the first Exchange enabled Internet Trading System. 9) BSE aims to provide trading anywhere and at anytime. With this endeavour in mind, the exchange continuously upgrades the hardware, software and networking systems so as to enable it to enhance the quality and standards of service to its members and other market intermediaries. Clearing and settlement The settlement of transactions was earlier done in the weekly settlement environment, where the exchange had a carry forward facility. The exchange commenced exchange of trades on rolling basis where the trades are settled on T+ 2 basis. Undelivered quantities of securities in settlement is promptly auctioned or closed out as per the well-laid procedure.

Two depositories, namely the Central Depository Services (India) Ltd. and National Securities Depository of India Ltd. operate in the Indian Market place. The Clearing House of the exchange has well- structured linkages with both the depositories. Direct transfer of securities to and from the Beneficial Owner Accounts is facilitated at the Clearinghouse level only, making for the seamless movement of securities in the settlement system. The settlement of transactions in the depositories mode is based on the ISIN codes of the securities. The exchange Rules, Bylaws and regulations have clearly laid down the default handling procedure. Clearing and settlement is a post trade activity. Clearing Agencies ensure trading members meet their fund/security obligations. It acts as a legal counter party to all trades and guarantees settlement for all members. The original trade between the two parties is cancelled and clearing corporation acts as counter party to both the parties, thus manages risk and guarantees settlement to both the parties. This process is called novation. It determines fund/security obligations and arranges for pay-in of the same. It collects and maintains margins, processes for shortages in funds and securities. It takes help of clearing members, clearing banks, custodians and depositories to settle the trades. The settlement cycle in India is T+2 days i.e. Trade + 2 days. T+2 means the transactions done on the Trade day, will be settled by exchange of money and securities on the second business day (excluding Saturday, Sundays, Bank and Exchange Trading Holidays). Pay-in and Pay-out for securities settlement is done on a T+2 basis. The following is the summary of trading and settlement process in India.

Investors place orders from their trading terminals. Broker houses validate the orders and routes them to the exchange (BSE or NSE depending on the clients choice) Order matching at the exchange. Trade confirmation to the investors through the brokers. Trade details are sent to Clearing Corporation from the Exchange. Clearing Corporation notifies the trade details to clearing Members/Custodians who confirm back. Based on the confirmation, Clearing Corporation determines obligations. Download of obligation and pay-in advice of funds/securities by Clearing Corporation.

Clearing Corporation gives instructions to clearing banks to make funds available by pay-in time. Clearing Corporation gives instructions to depositories to make securities available by pay-in-time. Pay-in of securities: Clearing Corporation advises depository to debit pool account of custodians/Clearing members and credit its (Clearing Corporations) account and depository does the same. Pay-in of funds: Clearing Corporation advises Clearing Banks to debit account of Custodians/Clearing members and credit its account and clearing bank does the same. Payout of securities: Clearing Corporation advises depository to credit pool accounts of custodians/Clearing members and debit its account and depository does the same. Payout of funds: Clearing Corporation advises Clearing Banks to credit account of custodians/ Clearing members and debit its account and clearing bank does the same. Note: Clearing members for buy order and sell order are different and Clearing Corporation acts as a link here. Depository informs custodians/Clearing members through Depository Participants about pay-in and pay-out of securities. Clearing Banks inform custodians/Clearing members about pay-in and pay-out of funds. In case of buy order by normal investors Clearing members instruct his DP to credit the clients account and debit its account. The money will be debited (Total settled amount margins paid at the time of trade) from the clients account. In case of sell order by normal investors Clearing members instruct his DP to debit the clients account and credit its account. The money will be credited to the clients account.

In case of trades by mutual fund houses the custodians act as clearing members. Please note that a clearing member is the brokerage firm which acts as a trading member and clearing member of clearing agency where as custodians are only clearing members. Even if the clients dont meet their obligations clearing members are required to meet their obligations to the clearing corporations.

Settlement rule proposed by BES india Compulsory Rolling Settlement

All transactions in all groups of securities in the Equity segment and Fixed Income securities listed on required to be settled on T+2 basis (w.e.f. from April 1, 2003). The settlement calendar, which indica the various settlement related activities, is drawn by BSE in advance and is circulated among the mar participants.

Under rolling settlements, the trades done on a particular day are settled after a given number of busin T+2 settlement cycle means that the final settlement of transactions done on T, i.e., trade day by exch monies and securities between the buyers and sellers respectively takes place on second business day Saturdays, Sundays, bank and Exchange trading holidays) after the trade day.

The transactions in securities of companies which have made arrangements for dematerialization of th are settled only in demat mode on T+2 on net basis, i.e., buy and sell positions of a member-broker in scrip are netted and the net quantity and value is required to be settled. However, transactions in secu companies, which are in "Z" group or have been placed under "trade-to-trade" by BSE as a surveillan ("T" group) , are settled only on a gross basis and the facility of netting of buy and sell transactions in not available.

The transactions in 'F' group securities representing "Fixed Income Securities" and " G" group represe Government Securities for retail investors are also settled at BSE on T+2 basis.

In case of Rolling Settlements, pay-in and pay-out of both funds and securities is completed on the sa

Members are required to make payment for securities sold and/ or deliver securities purchased to thei within one working day (excluding Saturday, Sunday, bank & BSE trading holidays) after the pay-ou and securities for the concerned settlement is completed by BSE. This is the timeframe permitted to th settle their funds/ securities obligations with their clients as per the Byelaws of BSE. The following table summarizes the steps in the trading and settlement cycle for scrips under CRS :

DAY T

ACTIVITY
o

Trading on BOLT and daily downloading of statements showing details of transactions and margins at the end of each trading day. Downloading of provisional securities and funds obligation statements by member-brokers. 6A/7A* entry by the member-

brokers/ confirmation by the custodians. T+1


o

Confirmation of 6A/7A data by the Custodians upto 1:00 p.m. Downloading of final securities and funds obligation statements by members Pay-in of funds and securities by 11:00 a.m. and pay-out of funds and securities by 1:30 p.m. The member-brokers are required to submit the pay-in instructions for funds and securities to banks and depositories respectively by 10:40 a.m. Auction on BOLT at 2.00 p.m. Auction pay-in and pay-out of funds and securities by 09:30 a.m. and 10:15 a.m. respectively.

T+2

T+2 T+3

o o

The pay-in and payout of funds and securities takes places on the second business day (i.e., excluding Sundays and bank and BSE trading holidays) of the day of the execution of the trade.

The settlement of the trades (money and securities) done by a Member on his own account or on beha individual, corporate or institutional clients may be either through the Member himself or through a S custodian appointed by him/client. In case the delivery/payment in respect of a transaction executed b to be given or taken by a registered custodian, the latter has to confirm the trade done by a Member o System through 6A-7A entries. For this purpose, the custodians have been given connectivity to the B and have also been admitted as clearing member of the Clearing House. In case a registered custodian confirm a transaction done by a Member within the time permitted, the liability for pay-in of funds or respect of the same devolves on the concerned Member. The following statements can be downloaded by the Members in their back offices on a daily basis.

h. i.

Statements giving details of the daily transactions entered into by the Member. Statements giving details of margins payable by the Member in respect of the trades executed

j. k.

Statements of securities and fund obligation. Delivery/Receive orders for delivery /receipt of securities.

BSE generates Delivery and Receive Orders for transactions done by the Members in A, B, and F and scrips after netting purchase and sale transactions in each scrip whereas Delivery and Receive Orders & "Z" group scrips and scrips which are traded on BSE on "trade-to-trade" basis are generated on a g without netting of purchase and sell transactions in a scrip. However, the funds obligations for the Me netted for transactions across all groups of securities.

The Delivery Order/Receive Order provides information like the scrip and quantity of securities to be delivered/received by the Members through the Clearing House. The Money Statement provides scrip wise details of payments/receipts of monies by the Members in the settlement. The Delivery/Receive Money Statement can be downloaded by the Members in their back office Pay-in and Pay-out for 'A', 'B', 'T', 'C', "F", "G" & 'Z' Group of Securities

The trades done on BOLT by the Members in all securities in CRS are now settled on BSE by payme and delivery of securities on T+2 basis. All deliveries of securities are required to be routed through t House,

The Pay-in /Pay-out of funds based on the money statement and that of securities based on Delivery O Order issued by BSE are settled on T+2 day.

Conclusion The economy of India is the eleventh largest in the world by nominal GDP and the third largest by purchasing power parity (PPP). The country is one of the G-20 major economies and a member of BRICS. In 2011, the country's per capita income stood at $3,703 IMF, 129th in the world, thus making a lower-middle income economy. After the independence-era Indian economy (before and a little after 1947) was inspired by the Soviet model of economic development, with a large public sector, high import duties combined with interventionist policies, leading to massive inefficiencies and widespread corruption. However, later on India adopted free market principles and liberalized its economy to international trade under the guidance of Manmohan Singh, who then was the Finance Minister of India under the leadership of P.V.Narasimha Rao the then Prime Minister who eliminated License Raj a pre- and post-British Era mechanism of strict government control on setting up new industry. Following these strong economic reforms, and a strong focus on developing national infrastructure such as the Golden Quadrilateral project by Atal Bihari Vajpayee the then Prime Minister the country's economic growth progressed at a rapid pace with very high rates of growth and large increases in the incomes of people.

India recorded the highest growth rates in the mid-2000s, and is one of the fastest-growing economies in the world.India has recorded a growth of over 200 times in per capita in a period from 1947(Rs 249.6) to 2011. The growth was led primarily due to a huge increase in the size of the middle class consumer, a large labor force and considerable foreign investments. India is the nineteenth largest exporter and tenth largest importer in the world. Economic growth rate stood at around 6.5% for the 2011-12 fiscal year. The fall is mainly because of poor performance of Secondary sector which grew by a mere 2.8% in 2011-12. However Services sector grew by 9.4%, unaffected by global trend. India's GDP (at 2004-05 prices) stands at Rs.52.2 trillion as of 2011-12

Sources Reports Management of Operational Risk in Foreign Exchange MCX India: building awareness of the organized commodity market News Papers The economic time The Hindu Deccan Herald WEB