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A STUDY ON THE SHARE SETTLEMENT CYCLE INVOLVED IN SUGAL AND

DAMANI SHARE BROKERS PVT LTD

A PROJECT REPORT

Submitted by

B.DAMODHARAN

In partial fulfillment for the award of the degree

of

MASTER OF BUSINESS ADMINISTRATION

IN

RAJALAKSHMI ENGINEERING COLLEGE


THANDALAM

ANNA UNIVERSITY, JULY 2009


RAJALAKSHMI ENGINEERING COLLEGE

Rajalakshmi Nagar, Thandalam, Chennai- 602105


(Affiliated to ANNA UNIVERSITY)

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BONAFIDE CERTIFICATE

Certified that the project report “ A STUDY ON THE SHARE SETTLEMENT CYCLE
INVOLVED IN SUGAL AND DAMANI SHARE BROKERS PVT LTD ” is the bonafide
work of Mr. B.DAMODHARAN who carried out the project work under my supervision.
Certified further that to the best of my knowledge the reported herein does not from part of any
other project report or dissertation on the basis of which a degree or award was conferred on an
earlier occasion on this or any other candidate.

Mr.SHANKARARAMAN Prof. T.C. THOMAS, M.Com., M.B.A., M.Phil


MBA.,M.PHIL.,PHD HEAD OF THE DEPARTMENT
Dept. of Management Studies Dept. of Management Studies
Rajalakshmi Engineering College Rajalakshmi Engineering College
Thandalam Thandalam
Chennai- 602105 Chennai- 602105

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BONAFIDE CERTIFICATE

Certified that the project report titles “A STUDY ON THE SHARE SETTLEMENT CYCLE

INVOLVED IN SUGAL AND DAMANI SHARE BROKERS PVT LTD ” is a benefited


project work of
Mr. B.DAMODHARAN, (Reg. No. 21108631023) who carried out research under my
supervision certified further, that to the best of my knowledge the work reported herein does not
form part of any other project report or dissertation on the basis of which a degree or award was
conferred on an earlier occasion on this or any other candidate.

PRINCIPAL DEAN / HEAD OF THE DEPT

Mr. T.C. THOMAS

ASSESSED BY

Mr. SHANKARARAMAN

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DECLARATION

I B.DAMODHARAN, Reg.No: 21108631023, a bonafide student of DEPARTMENT OF


MANAGEMENT STUDIES, RAJALAKSHMI ENGINEERING COLLEGE, Thandalam
would like to declare that the project titled “A STUDY ON THE SHARE SETTLEMENT
CYCLE INVOLVED IN SUGAL AND DAMANI SHARE BROKERS PVT LTD ”, Chennai
in partial fulfillment of M.B.A course of ANNA UNIVERSITY is my original work.

Place:

Date: (B.DAMODHARAN)

ACKNOWLEDGEMENT

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My heart-felt gratitude to our beloved Director Mr. P. S. PANDIYAN B.Tech., MBA., B.L.,
IAS (Retd) and Dynamic Dean Prof. S. SANKAR B.E., M.Tech., MBA (IIM C) for giving me
this wonderful opportunity.

I extend my thanks to Mr. SHANKARARAMAN for his precious advice and guidelines
regarding the project.

I thank my external guide Mr. VIMAL KUMAR ( GENERAL MANAGER) who kept pace
and enlightened me with their suggestions during the whole period of project and gave me good
training on Share Market.

I convey my heartiest thanks to my beloved Parents who helped me to complete this


Herculean task assigned to us, without them this book couldn’t have seen the light of the day.
The light of Spirit will always burn in us, because they nourished so mercifully.

I finally thank my Friends and others who helped me to complete this project in one-way of
the other.

CONTENTS
Chapter No. Table of Contents Page No

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LIST OF TABLES
LIST OF FIGURES
Chapter – 1 INTRODUCTION 1-11

1.1 Industry Profile 12-13

1.2 Company Profile 14-15

1.3 Product Profile 16-17

Chapter – 2 REVIEW OF LITERATURE 18-21

2.1 Objective 22

2.2 Scope of the study 23

2.3 Limitations 24

Chapter – 3 RESEARCH METHODOLOGY


3.1 Definition 25

3.2 Research Design 26

Chapter – 4 ANALYSIS & INTERPRETATION 27-31

Chapter – 5 FINDINGS OF THE STUDY 32

Chapter – 6 SUGGESTIONS AND 33


RECOMMENDATIONS
Chapter – 7 CONCLUSION 34

ANNEXURE
Bibliography

INTRODUCTION

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The stock market, individual investors, and financial risk :

Riskier long-term saving requires that an individual possess the ability to manage the associated
increased risks. Stock prices fluctuate widely, in marked contrast to the stability of (government
insured) bank deposits or bonds. This is something that could affect not only the individual
investor or household, but also the economy on a large scale. The following deals with some of
the risks of the financial sector in general and the stock market in particular. This is certainly
more important now that so many newcomers have entered the stock market, or have acquired
other 'risky' investments (such as 'investment' property, i.e., real estate).

This is a quote from the preface to a published biography about the long-term value-oriented.
Buffett began his career with $100, and $105,000 from seven limited partners consisting of
Buffett's family and friends. Over the years he has built himself a multi-billion-dollar fortune.
The quote illustrates some of what has been happening in the stock market during the end of the
20th century and the beginning of the 21st century.

SETTLEMENT PROCESS

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While NSE provides a platform for trading to its trading members, the
National Securities Clearing Corporation Ltd. (NSCCL) determines the
funds/securities obligations of the trading members and ensures that trading
members meet their obligations. NSCCL becomes the legal counterparty to
the net settlement obligations of every member. This principle is called
`novation' and NSCCL is obligated to meet all settlement obligations,
regardless of member defaults, without any discretion. Once a member fails
on any obligations, NSCCL immediately cuts off trading and initiates recovery.
The clearing banks and depositories provide the necessary interface between
the custodians/clearing members (who clear for the trading members or their
own transactions) for settlement of funds/securities obligations of trading
members.
The core processes involved in the settlement process are:

(a) Determination of Obligation: NSCCL determines what counter-parties


owe, and what counter-parties are due to receive on the settlement date. The
NSCCL interposes itself as a central counterparty between the counterparties
to trades and nets the positions so that a member has security wise net
obligation to receive or deliver a security and has to either pay or receive
funds.

(b) Pay-in of Funds and Securities: The members bring in their


funds/securities to the NSCCL. They make available required securities in
designated accounts with the depositories by the prescribed pay-in time. The
depositories move the securities available in the accounts of members to the
account of the NSCCL. Likewise members with funds obligations make
available required funds in the designated accounts with clearing banks by the
prescribed pay-in time. The NSCCL sends electronic instructions to the
clearing banks to debit member’s accounts to the extent of payment

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obligations. The banks process these instructions, debit accounts of members
and credit accounts of the NSCCL.
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(c) Pay-out of Funds and Securities: After processing for shortages of


funds/securities and arranging for movement of funds from surplus banks to
deficit banks through RBI clearing, the NSCCL sends electronic instructions to
the depositories/clearing banks to release pay-out of securities/funds. The
depositories and clearing banks debit accounts of NSCCL and credit
settlement accounts of members. Settlement is complete upon release of payout
of funds and securities to custodians/members. The settlement process
for transactions in securities in the CM segment of NSE is presented in the
Figure 2.2.

(d) Risk Management: A sound risk management system is integral to an


efficient settlement system. NSCCL has put in place a comprehensive risk
management system, which is constantly monitored and upgraded to preempt
market failures. It monitors the track record and performance of
members and their net worth; undertakes on-line monitoring of members’
positions and exposure in the market, collects margins from members and
automatically disables members if the limits are breached.

Settlement Agencies
The NSCCL, with the help of clearing members, custodians, clearing banks
and depositories settles the trades executed on exchanges. The roles of each
of these entities are explained below:

(a) 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

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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.

(b) Clearing Members: They are responsible for settling their obligations
as determined 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.

(c) Custodians: A custodian is a person who holds for safekeeping the


documentary evidence of the title to property belonging like share
certificates, etc. The title to the custodian’s 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 70
a trading member. He settles trades assigned to him by trading
members. He is required to confirm whether he 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.

DOCUMENTARY DEPARTMENT

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Account Opening :

Demat Account Opening

A demat account are opened on the same lines as that of a Bank Account. Prescribed Account
opening forms are available with the DP, needs to be filled in. Standard Agreements are to be
signed by the Client and the DP, which details the rights and obligations of both parties. Along
with the form the client requires to attach Photographs of Account holder, Attested copies of
proof of residence and proof of identity needs to be submitted along with the account opening
form.

In case of Corporate clients, additional attachments required are - true copy of the resolution for
Demat a/c opening along with signatories to operate the account and true copy of the
Memorandum and Articles of Association is to be attached.

DEPOSITORY PARTICIPANT DEPARTMENT

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Dematerialisation

Dematerialisation is the process by which physical certificates of an investor are converted to an


equivalent number of securities in electronic form and credited into the BO’s account with his
DP.

Gone are the days when people kept share certificates under the pillow. Holding shares in
physical form is hell lot of an inconvenience, with all the chances of theft, misplacement,
mutilation, loss in transit and perils of bad delivery. E-holding of your securities with select DP
will solve all these in ‘ONE GO’.

A depository participant with CENTRAL DEPOSITORY SERVICES LTD (CDSL), select DP


offers the most professional depository participant at the most competitive price, which follows
strict regulatory compliance so the account opening procedures are streamlined. “As we value
your share”.

Rematerialisation

If one wishes to get back his securities in the physical form he has to fill in the RRF (Remat
Request Form) and request his DP for rematerialisation of the balances in his securities account.

Delivery instruction slip

If a client does not give the POA to the trading member, he should provide a delivery instruction
slip every time when he make a transaction of trading

Online Client Services

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* New users

* Client Level ASP

* Other Services

1. Unique Number to serve as a single window login to your BackOffice, depository account &
financial statement.

2. For easy access anywhere, anytime client are given individual user id and password.

3. View all your BackOffice Information on One screen

4. One solution for multiple investment platforms. (Membership of NSE & MCX Currency)

5. Instant and timely access to back office information.

Basics of Depository

Depository can in many ways be compared to a bank. Securities of the investors are held in
electronic / book entry form by the Depository. Apart from holding the securities, Depository
also provides services related to transactions in securities. Several consider the Depository to be
another custodian. But the depository has an advantage over the custodian- the Depository can
transfer the Beneficial Ownership of the Securities, legally, which a custodian cannot do.

Benefits of Depository

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* Bad delivery eliminated

* Immediate transfer of shares

* No stamp duty on such transfers

* Elimination of risks that are normally associated in dealing with Physical certificates

* Reduced transaction cost

How do Depository operate :

Depository interacts with its clients / investors through its agents, called Depository Participants
normally known as DPs.

For any investor / client, to avail the services provided by the Depository, has to open Depository
account, known as Demat A/c, with any of the DPs.

FUNDS DEPARTMENT

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Pay-in of Funds and Securities:

The members bring in their funds/securities to the NSCCL. They make available required
securities in designated accounts with the depositories by the prescribed pay-in time. The
depositories move the securities available in the accounts of members to the
account of the NSCCL. Likewise members with funds obligations make
available required funds in the designated accounts with clearing banks by the
prescribed pay-in time. The NSCCL sends electronic instructions to the
clearing banks to debit member’s accounts to the extent of payment
obligations. The banks process these instructions, debit accounts of members
and credit accounts of the NSCCL.

Pay-out of Funds and Securities:

After processing for shortages of funds/securities and arranging for movement of funds from
surplus banks to deficit banks through RBI clearing, the NSCCL sends electronic instructions to
the depositories/clearing banks to release pay-out of securities/funds. The depositories and
clearing banks debit accounts of NSCCL and credit settlement accounts of members. Settlement
is complete upon release of payout of funds and securities to custodians/members.

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TRADING DEPARTMENT

ONLINE TRADING

* Charges and procedures

* Disclaimer

* New User

* Existing User

From the trading floor of the stock exchange, the market walked a long distance to reach the
broker’s office and now its just a few steps away at your fingertips, introducing our SND
EASYTRADE…wherever you go it will follow you.

Net trading has never been so fascinating, supported by state of the art technology. Our SND
EASYTRADE has the unparalleled features of anywhere trading on the web with almost the
same facilities, speed and performance of a brokers terminal. It supports net trading in both
equities and derivatives segments. Rates are updated real time with absolutely no lag, along with
a competitive brokerage structure.

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ACCOUNTS DEPARTMENT

This department deals with internal accounts only (accounts related to the company).

It deals with BRS (Bank reconciliation statement) it is used to match the difference between
book balance and the bank balance.

BRS concept:

Balance as per our book

ADD: Payments not cleared

LESS: Receipts not cleared

ADD: Direct bank deposits

LESS: Bank receipts

Balance as per the bank.

INDUSTRY PROFILE

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Share Market India

Stock and Share Market India is a dedicated portal to serve our customer who want to gain from
booming Indian Economy. Our strong research and analysis can help each of our customers in
Equities, Mutual Fund, IPO, Investment, Finance, Forex, Bullion, Commodities, and Insurance
and off course without spending a penny.

The best way to learn how to invest in stock comes down to one basic idea and in the beginning,
the stock investor should ask themselves this one question. Is the company making enough right
now and are they going to learn in the future? Every good investor knows that earning are
profits.

Although these profits may be somewhat hard to calculate at times, that's what buying a
company really comes to. Increasing your earnings will simply lead to higher stock price and, in
the and, a successful investing career. In fact, the best investors look closer at these basic ideas of
stock investing to see how earnings affect the stock price. It is important to realize that when
earning fall short stock price and, in the end, a successful investing career.

Each quarter, these are earning reports that are presented to the public by each company.
Analysis who has become experts at understanding the financial status of different companies
will follow the companies closely and should a warning to the public if the earnings don't look
right. It is best if you can predict a companies earning before the quarterly reports come out.
Inorder to learn how to determine a company? Earnings one have to know the basic tools for
investing in stocks.

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The most popular tools of fundamental analysis will focus on earning, growth, and the value of a
stock in the overall market. For convenience, analysts will often break these elements down into
separate reports. Each report will then discuss related ratios for each fundamental analysis.

Typical analysis might include things like earnings per share or projected earning growth. Other
fundamentals include price to share and dividend rations.

Now has never been a better time to learn how to invest in stock and to take control of your
investment. By learning the basics of stock investing you can save money on broker commission
and mark a much higher profit in your life. Learning the best ways to invest in stock can enable
you to retire early and live a better lifestyle in the days to come.

When one is more comfortable with the ups and downs of the market then you can consider
increasing your investment and broadening their diversification, again consistent with your risk
tolerance.

The worst luck a beginner can have is making a lot of money right away. After that happens,
many decide that investments are guarantees and they invest all they have. Watch the ups and
downs of the market and become comfortable with the volatility while at the same time increase
your knowledge in available investment choices and risk.

Over time, one should have a diverse portfolio of mutual funds consistent with your goals,
objective, risk tolerance and tax situation. Investment holding Power is the key to Massive
Income from Stock market across the Globe.

COMPANY PROFILE

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SUGAL & DAMANI…powered by trust, driven by commitment

Sugal & Damani Share Brokers Ltd (SDSSBPL) is a decade old and leading firm providing the
entire gamut of financial services. The firm, founded in 1995 by Mr. SUGALCHAND JAIN,
today has a pan India presence as well as rich experience in different fields.

SDSSBPL provides a breadth of financial and advisory services, brokerage & distribution of
equities, commodities Etc... all of which are supported by powerful teams.

The firm's philosophy is entirely client centric, with a clear focus on providing long term value
addition to clients, while maintaining the highest standards of excellence, ethics and
professionalism.

Sugal & Damani Share Brokers Ltd. (SDSSBPL) was incorporated on 17th Oct 1995. The
registered office of the company is situated at No.7, Anna salai, city center plaza 1st floor,
chennai-600002. Main activity of our company is SHARE & COMMODITY BROKING.

SUGAL & DAMANI SHARE BROKERS PVT LTD

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MEMBERS :

NATIONAL STOCK EXCHANGE OF INDIA LTD (NSE)

THE STOCK EXCHANGE, MUMBAI (BSE)

CENTRAL DEPOSITORY SERVICE LIMITED (CDSL)

SUGAL COMMODITY BROKERS PVT LTD

MEMBERS :

NATIONAL COMMODITY & DERIVATIES EXCHANGE LIMITED (NCDEX)

MULTI COMMIDITIES EXCHANGE (MCX)

Area of Specialization

(i) Buying, Selling and dealing in shares and other Securities in Secondary Markets.

(ii) Identifying investment avenues and advising on portfolio management of cash and assets.

(iii) In the case of New Issues, we take up underwriting and broking.

PRODUCT PROFILE

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Equity & Derivatives :

A Pioneer in the Indian capital markets, Sugal & Damani Share Brokers Ltd launched its stock
broking operations as a member of NSE India in 1995, promoted by a group of professional and
experienced stockbrokers. Since then SUGAL & DAMANI has made tremendous strides,
making it one of the top trading and clearing members in NSE (both cash & derivatives) and
BSE.

Sugal & Damani Share Brokers Ltd played a path-breaking role in the implementation and
popularization of CTCL (computer to computer Link) trading technology. The facility currently
offers the end user, the privilege of trading across 5 different markets (NSE-Equity, NSE-
Derivatives, BSE-Equity, MCX & NCDEX) on a single screen.

* Membership of NSE & MCX Currency

* Trading on 5 different platforms (Equity and Commodity) through a single screen.

* Own private VSAT network for CTCL trading.

* Internet trading systems.

* Extremely competitive tariff structure.

COMMODITY TRADING THROUGH SUBSIDIARY

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Overview

Ever since the dawn of civilization commodities trading have become an integral part in the lives
of mankind. Over the years commodities markets have been experiencing tremendous progress,
which is evident from the fact that the trade in this segment is standing as the boon for the global
economy today. Earlier investors invested in those companies, which specialized in the
production of commodities. This accounted for the indirect investments in commodity assets.

Commodity markets have a huge potential in the Indian context particularly because of the agri-
based economy. To increase the efficiency of the markets the Forward Markets Commission
(FMC), the governing body of commodities trading in India has taken several initiatives for the
establishment of national level multi-commodity exchanges in India.

However the recent attempt by the Government to permit Multi-commodity National levels
exchanges has indeed given it, a shot in the arm. As a result two exchanges Multi Commodity
Exchange (MCX) and National Commodity and derivatives Exchange (NCDEX) have come into
being. These exchanges, by virtue of their high profile promoters and stakeholders, bundle in
themselves, online trading facilities, robust surveillance measures and a hassle-free settlement
system. The futures contracts available on a wide spectrum of commodities like Gold, Silver,
Cotton, Steel, Soya oil, Soya beans, Wheat, Sugar, Channa etc., provide excellent opportunities
for hedging the risks of the farmers, importers, exporters, traders and large scale consumers.

REVIEW OF LITERATURE

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The Share Settlement Cycle – A Literature Review

Mr.N.V.Ganesh has done study on “ The Effecient Share Market Hypothesis ”

From my experience I came to know that investors may 'temporarily' move financial prices away
from their long term aggregate price 'trends'. (Positive or up trends are referred to as bull
markets; negative or down trends are referred to as bear markets.) Over-reactions may occur—so
that excessive optimism (euphoria) may drive prices unduly high or excessive pessimism may
drive prices unduly low. New theoretical and empirical arguments have since been put forward
against the notion that financial markets are 'generally' efficient (i.e., in the sense that stock
prices in the aggregate tend to follow a Gaussian distribution).

According to the efficient market hypothesis (EMH), only changes in fundamental factors, such
as the outlook for margins, profits or dividends, ought to affect share prices beyond the short
term, where random 'noise' in the system may prevail. (But this largely theoretic academic
viewpoint—known as 'hard' EMH—also predicts that little or no trading should take place,
contrary to fact, since prices are already at or near equilibrium, having priced in all public
knowledge.) The 'hard' efficient-market hypothesis is sorely tested by such events as the stock
market crash in 1987, when the Dow Jones index plummeted 22.6 percent—the largest-ever one-
day fall in the United States. This event demonstrated that share prices can fall dramatically even
though, to this day, it is impossible to fix a generally agreed upon definite cause: a thorough
search failed to detect any 'reasonable' development that might have accounted for the crash.
(But note that such events are predicted to occur strictly by chance , although very rarely.) It
seems also to be the case more generally that many price movements (beyond that which are
predicted to occur 'randomly') are not occasioned by new information; a study of the fifty largest
one-day share price movements in the United States in the post-war period seems to confirm this.

However, a 'soft' EMH has emerged which does not require that prices remain at or near
equilibrium, but only that market participants not be able to systematically profit from any
momentary market 'inefficiencies'. Moreover, while EMH predicts that all price movement (in

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the absence of change in fundamental information) is random (i.e., non-trending), many studies
have shown a marked tendency for the stock market to trend over time periods of weeks or
longer. Various explanations for such large and apparently non-random price movements have
been promulgated. For instance, some research has shown that changes in estimated risk, and the
use of certain strategies, such as stop-loss limits and Value at Risk limits, theoretically could
cause financial markets to overreact. But the best explanation seems to be that the distribution of
stock market prices is non-Gaussian (in which case EMH, in any of its current forms, would not
be strictly applicable).

Other research has shown that psychological factors may result in exaggerated (statistically
anomalous) stock price movements (contrary to EMH which assumes such behaviors 'cancel
out'). Psychological research has demonstrated that people are predisposed to 'seeing' patterns,
and often will perceive a pattern in what is, in fact, just noise. (Something like seeing familiar
shapes in clouds or ink blots.) In the present context this means that a succession of good news
items about a company may lead investors to overreact positively (unjustifiably driving the price
up). A period of good returns also boosts the investor's self-confidence, reducing his
(psychological) risk threshold.

Another phenomenon—also from psychology—that works against an objective assessment is


group thinking. As social animals, it is not easy to stick to an opinion that differs markedly from
that of a majority of the group. An example with which one may be familiar is the reluctance to
enter a restaurant that is empty; people generally prefer to have their opinion validated by those
of others in the group.

In one paper the authors draw an analogy with gambling. In normal times the market behaves
like a game of roulette; the probabilities are known and largely independent of the investment
decisions of the different players. In times of market stress, however, the game becomes more
like poker (herding behavior takes over). The players now must give heavy weight to the
psychology of other investors and how they are likely to react psychologically.

The stock market, as any other business, is quite unforgiving of amateurs. Inexperienced
investors rarely get the assistance and support they need. In the period running up to the 1987

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crash, less than 1 percent of the analyst's recommendations had been to sell (and even during the
2000 - 2002 bear market, the average did not rise above 5%). In the run up to 2000, the media
amplified the general euphoria, with reports of rapidly rising share prices and the notion that
large sums of money could be quickly earned in the so-called new economy stock market. (And
later amplified the gloom which descended during the 2000 - 2002 bear market, so that by
summer of 2002, predictions of a DOW average below 5000 were quite common.)

Mr.O.Anand Sharma has done a study on “ The Importance of Stock


Market ”

The stock market is one of the most important sources for companies to raise money. This allows
businesses to be publicly traded, or raise additional capital for expansion by selling shares of
ownership of the company in a public market. The liquidity that an exchange provides affords
investors the ability to quickly and easily sell securities. This is an attractive feature of investing
in stocks, compared to other less liquid investments such as real estate.

History has shown that the price of shares and other assets is an important part of the dynamics
of economic activity, and can influence or be an indicator of social mood. An economy where
the stock market is on the rise is considered to be an up and coming economy. In fact, the stock
market is often considered the primary indicator of a country's economic strength and
development. Rising share prices, for instance, tend to be associated with increased business
investment and vice versa. Share prices also affect the wealth of households and their
consumption. Therefore, central banks tend to keep an eye on the control and behavior of the
stock market and, in general, on the smooth operation of financial system functions. Financial
stability is the raison of central banks.

Exchanges also act as the clearinghouse for each transaction, meaning that they collect and
deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an
individual buyer or seller that the counterparty could default on the transaction.

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The smooth functioning of all these activities facilitates economic growth in that lower costs and
enterprise risks promote the production of goods and services as well as employment. In this way
the financial system contributes to increased prosperity. An important aspect of modern financial
markets, however, including the stock markets, is absolute discretion. For example, in the USA
stock markets we see more unrestrained acceptance of any firm than in smaller markets. Such as,
Chinese firms with no significant value to American society to just name one segment. This
profits USA bankers on Wall Street, as they reap large commissions from the placement, and the
Chinese company which yields funds to invest in China. Yet accrues no intrinsic value to the
long-term stability of the American economy, rather just short-term profits to American business
men and the Chinese; although, when the foreign company has a presence in the new market,
there can be benefits to the market's citizens. Conversely, there are very few large foreign
corporations listed on the Toronto Stock Exchange TSX, Canada's largest stock exchange. This
discretion has insulated Canada to some degree to worldwide financial conditions. In order for
the stock markets to truly facilitate economic growth via lower costs and better employment,
great attention must be given to the foreign participants being allowed in.

Relation of the stock market to the modern financial system

The financial system in most western countries has undergone a remarkable transformation. One
feature of this development is disintermediation. A portion of the funds involved in saving and
financing flows directly to the financial markets instead of being routed via the traditional bank
lending and deposit operations. In the 1970s, in Sweden, deposit accounts and other very liquid
assets with little risk made up almost 60 percent of households' financial wealth, compared to
less than 20 percent in the 2000s. The major part of this adjustment in financial portfolios has
gone directly to shares but a good deal now takes the form of various kinds of institutional
investment for groups of individuals, e.g., pension funds, mutual funds, hedge funds, insurance
investment of premiums, etc. The trend towards forms of saving with a higher risk has been
accentuated by new rules for most funds and insurance, permitting a higher proportion of shares
to bonds. Similar tendencies are to be found in other industrialized countries. In all developed
economic systems, such as the European Union, the United States, Japan and other developed
nations, the trend has been the same: saving has moved away from traditional (government
insured) bank deposits to more risky securities of one sort or another.

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OBJECTIVE

PRIMARY OBJECTIVE :

To study about the various process involved in the share settlement cycle.

SECONDARY OBJECTIVE :

To study the risk management in share settlement cycle (both for the client and for the
company)

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SCOPE OF THE STUDY

The different strategies that are followed by the firm makes the client to stay over a long period.

Since more Share Broking firms are performing well to make their organization best in the field
they follow certain methods.

The study is useful inorder to know the various functions performed by different departments
without any hindrance.

To know the Integration of departments

( i )Documentary department & DP department

( ii ) DP department and Funds department

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LIMITATIONS

Due to time constraints a detailed study could not be made

The company had not disclosed some of the settlement details required for the study

Its been quite difficult to understand the functions performed by various departments involved in
share trading.

Students should procure the fundas of the share market to do the study.

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RESEARCH METHODOLOGY

INTRODUCTION

A research cannot be conducted abrupt. Researcher has to proceed systematically in an


already planned direction with the help of a number of steps in sequences. To make the research
systemized the researcher has to adopt certain methods. The method adopted by researcher for
completing the project is called Research Methodology.

In other word, Research Methodology is simply the plan of action for a research which
explains in detail how data is to be collected, analyzed and interpreted. Data become information
only when a proper methodology is adopted. Thus we can say Methodology is a tool which
processes the data to reliable information. This chapter attempt to highlight the research
methodology adopted in this project.

RESEARCH DESIGN

A research design is a arrangement of conduction’s for collection for analysis of data in a manner
that aims to combine relevance to the success of the research purpose with economy in
procedure. Fundamental to the success of any research project is the sound research design. A
research design is purely and simply the framework and for the study that guides the collection
and analysis of data. It is a blue print that is followed in completing a study.

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RESEARCH DESIGN

Observational Research Methodology

Observational research techniques solely involve the researcher or researchers making


observations. There are many positive aspects of the observational research approach. Namely,
observations are usually flexible and do not necessarily need to be structured around a hypothesis
(remember a hypothesis is a statement about what you expect to observe). For instance, before
undertaking more structured research a researcher may conduct observations in order to form a
research question. This is called descriptive research. In terms of validity, observational research
findings are considered to be strong. Trochim states that validity is the best available
approximation to the truth of a given proposition, inference, or conclusion. Observational
research findings are considered strong in validity because the researcher is able to collect a
depth of information about a particular behavior. However, there are negative aspects. There are
problems with reliability and generalizability. Reliability refers the extent that observations can
be replicated. Seeing behaviors occur over and over again may be a time consuming task.
Generalizability, or external validity, is described by Trochim as the extent that the study's
findings would also be true for other people, in other places, and at other times. In observational
research, findings may only reflect a unique population and therefore cannot be generalized to
others. There are also problems with researcher bias. Often it is assumed that the researcher may
"see what they want to see." Bias, however, can often be overcome with training or electronically
recording observations. Hence, overall, observations are a valuable tool for researchers.

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ANALYSIS AND INTERPRETATIONS

ANALYSIS OF SETTLEMENT PROCESS

While NSE provides a platform for trading to its trading members, the
National Securities Clearing Corporation Ltd. (NSCCL) determines the
funds/securities obligations of the trading members and ensures that trading
members meet their obligations. NSCCL becomes the legal counterparty to
the net settlement obligations of every member. This principle is called
`novation' and NSCCL is obligated to meet all settlement obligations,
regardless of member defaults, without any discretion. Once a member fails
on any obligations, NSCCL immediately cuts off trading and initiates recovery.
The clearing banks and depositories provide the necessary interface between
the custodians/clearing members (who clear for the trading members or their
own transactions) for settlement of funds/securities obligations of trading
members.
The core processes involved in the settlement process are:

(a) Determination of Obligation: NSCCL determines what counter-parties


owe, and what counter-parties are due to receive on the settlement date. The
NSCCL interposes itself as a central counterparty between the counterparties
to trades and nets the positions so that a member has security wise net
obligation to receive or deliver a security and has to either pay or receive
funds.

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(b) Pay-in of Funds and Securities: The members bring in their
funds/securities to the NSCCL. They make available required securities in
designated accounts with the depositories by the prescribed pay-in time. The
depositories move the securities available in the accounts of members to the
account of the NSCCL. Likewise members with funds obligations make
available required funds in the designated accounts with clearing banks by the
prescribed pay-in time. The NSCCL sends electronic instructions to the
clearing banks to debit member’s accounts to the extent of payment
obligations. The banks process these instructions, debit accounts of members
and credit accounts of the NSCCL.
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(c) Pay-out of Funds and Securities: After processing for shortages of


funds/securities and arranging for movement of funds from surplus banks to
deficit banks through RBI clearing, the NSCCL sends electronic instructions to
the depositories/clearing banks to release pay-out of securities/funds. The
depositories and clearing banks debit accounts of NSCCL and credit
settlement accounts of members. Settlement is complete upon release of payout
of funds and securities to custodians/members. The settlement process
for transactions in securities in the CM segment of NSE is presented in the
Figure 2.2.

(d) Risk Management: A sound risk management system is integral to an


efficient settlement system. NSCCL has put in place a comprehensive risk
management system, which is constantly monitored and upgraded to preempt
market failures. It monitors the track record and performance of
members and their net worth; undertakes on-line monitoring of members’
positions and exposure in the market, collects margins from members and
automatically disables members if the limits are breached.

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Settlement Agencies
The NSCCL, with the help of clearing members, custodians, clearing banks
and depositories settles the trades executed on exchanges. The roles of each
of these entities are explained below:

(a) 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.

(b) Clearing Members: They are responsible for settling their obligations
as determined 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.

(c) Custodians: A custodian is a person who holds for safekeeping the


documentary evidence of the title to property belonging like share
certificates, etc. The title to the custodian’s 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. He settles trades assigned to him by trading members. He is required to
confirm whether he 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.

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RISK MANAGEMENT

The risk department is considered to be the back bone of the organization.

This department takes into consideration of benefits both to the clients and to the company.

The risk department Flashes the information to the clients who are availing on line trading from
the information received from the research department.

This department has the right to square off the position of the clients in case of (M2M LOSS)
Mark to Market.

The risk department has the right to withhold the transaction made by the client ( buying
&selling) in case of any debit balance maintained by the client

A sound risk management system is integral to an efficient settlement system. NSCCL has put in
place a comprehensive risk management system, which is constantly monitored and upgraded to
preempt market failures. It monitors the track record and performance of members and their net
worth; undertakes on-line monitoring of members’ positions and exposure in the market, collects
margins from members and automatically disables members if the limits are breached.

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FINDINGS

Effective grievance redressal procedure is maintained within the stipulated time by the company.

The risk department has the right to square of the position automatically without any interaction
with the client (customer) in case of (M2M LOSSES) 90% of the margin in intra-day trading by
the client.

The trading member has the right to hold the shares of the client in the trading member
beneficiary account in case of any debit balance in the client account.

The risk department will provide the information to the client received from the research
department to safe guard interest of their clients.

The trading member has the right to with hold the transaction (buying &selling) made by the
client, in case of any debit balance in the client accounts.

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SUGGESTIONS

The brokerage firms should educate or create awareness among their clients about the process
and risks involved in trading.

Break the various barriers exist between the employees of different departments and enhance the
integration of departments to serve better service to their clients and to retain their clients for the
continuous business operation.

Even the expertise employee have to update their knowledge by clearing the various related
examinations

( eg: NCFM certification course in different segments like Cash, Currency Etc)

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CONCLUSION

UNITY IS STRENGTH

The employees in each department have to work together to provide better service to their clients
and to serve for the organization purpose and objectives ( PROFIT MAXIMISATION) and to
increase the goodwill to survive in the competitive market.

Settlement Risks can be avoided or minimized only by educating the clients.

Risk in the stock market cannot be eroded it can only be minimized.

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BIBLIOGRAPHY

www.nseindia.com

www.en.wikipedia.com

www.encyclopedia.com

www.sugalshare.com

www.equitymaster.com

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