Internal Project Amit 1

DECLARATION

I hereby declare that this project work entitled “Role of BhSE in Indian security market” is my work, carried out under the guidance of my faculty guides PROF.ABHAYA KUMAR MUDULI and my company guide Mr. BIPIN BIHARI DUTTA. This report neither full nor in part has ever been submitted for award of any other degree of either this management college or any other management college.

(AMIT KUMAR CHOUDHURY) Regn. No.110202mbr040, MBA, CSREM, PARALAKHEMUNDI

Amit kumar Choudhury, MBA, SOM

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CERTIFICATE

This is to certify that the Summer Internship Project titled “ROLE OF BhSE IN INDIAN SECURITY MARKET” a bona fide work of Mr. AMIT KUMAR CHOUDHURY is original and has been done under my supervision in partial fulfillment of the requirement for the award of MBA, for the period of two months from 12th April 2012 to 12th June 2012. This report neither full nor in part has ever before been submitted for awarding of any degree of either this college or any other college. I am pleased to say that his performance during the period was extremely satisfactory.

FACULTY GUIDE PROF. ABHAYA KUMAR MUDULI CSREM, PARALAKHEMUNDI

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LETTER OF APPRECIATION

This is to certify that Mr. AMIT KUMAR CHOUDHURY pursuing MBA (2011 – 2013) from CSREM, PARALAKHEMUNDI has successfully completed his project “A ROLE OF BhSE IN INDIAN SECURITY MARKET” from 12th April 2009 to 12th June 2009. We appreciate his commitment, determination and performance during the project and bound to be valuable asset for any organization.

I am pleased to say his performance and Sincerity at work during the period was good.

FACULTY GUIDE PROF. ABHAYA KUMAR MUDULI CSREM, PARALAKHEMUNDI

Amit kumar Choudhury, MBA, SOM

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ACKNOWLEDGEMENT

“To Have Knowledge is a Power; To Impart Knowledge is a Super-Power”

It gives me immense pleasure to express my deep sense of gratitude to Dr. (Prof) Anita patra, PGP coordinator, CSREM, Paralakhemundi, for his valuable guidance and consistent supervision throughout the course.

I am also thankful to Mr.Bipin bihari dutta, my Company Guide Bhubaneswar stock exchange limited, Bhubaneswar, for his valuable guidance for preparing the Final Report and also for providing the necessary facilities. I am extremely thankful to Prof. Abhaya Kumar Muduli Faculty Guide of CSREM, Paralakhemundi for their timely guidance and support throughout the project work. This study could not have been successful without the valuable input of the investor. Finally I am indebted to our other faculty members, my friends and my parents who gave their full-fledged co-operation for successful completion of my project. It was an indeed learning experience for me.

(AMIT KUMAR CHOUDHURY) Regn No.110202mbr040, MBA, CSREM, PARALAKHEMUNDI

Amit kumar Choudhury, MBA, SOM

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INDEX Contes

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1. Executive Summary -------------------------------------------------------------------- 6 2. Introduction ----------------------------------------------------------------------------- 8 3. Company profile ----------------------------------------------------------------------- 10 4. Literature review ------------------------------------------------------------------------13 5. Trading ---------------------------------------------------------------------------------- 28 6. Trading procedure --------------------------------------------------------------------- 30 7. Corporation broker & proprietor broker ------------------------------------------32 8. Government interference in operation of a stock exchange---------------------- 33 9.

Primary market & secondary market----------------------------------------------- 35

10. Derivative trading ----------------------------------------------------------------------37 11. Role of Regional Stock Exchange with special reference to BHSE -------------47 12. Conclusion ------------------------------------------------------------------------------50 13. findings & Recommendation ---------------------------------------------------------51 14. Books ------------------------------------------------------------------------------------ 52 15. Bibliography -----------------------------------------------------------------------------52 16. Semi- structured Questions ------------------------------------------------------------ 53

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EXCUTIVE SUMMARY This project is carried out in the partial fulfillment of the master degree course of business administration. This project is about the “Role of Bhubaneswar stock exchange in Indian security market” The process started from learning the industrial objective. A company likes Bhubaneswar stock exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds

The complete project is prepared on the basis of the companies past records i.e. the financial reports, company‟s website, and other sources.

The objective of this project is to find out role of Bhubaneswar stock exchange in the security market. These are the certain points are as follows: To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only.The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets are driven by various factors that, as in all free markets, affect the price of stocks (see stock valuation).There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities.

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CHAPTER- 1

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Introduction A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only.The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market. Supply and demand in stock markets are driven by various factors that, as in all free markets, affect the price of stocks (see stock valuation).There is usually no compulsion to issue stock via the stock exchange itself, nor must stock be subsequently traded on the exchange. Such trading is said to be off exchange or over-the-counter. This is the usual that derivatives and bonds are traded. Increasingly, stock exchanges are part of a global market for securities.

Functions of stock exchange

1. Provides ready and continuous market 2. Provides information about prices and sales 3. Provides safety to dealings and investment: 4. Helps in mobilization of savings and capital formation 5. Barometer of economic and business conditions

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6. Better Allocation of funds

OBJECTIVES OF THE STOCK EXCHANGE  To facilitate, assist, regulate or control the business of buying, selling or dealing in shares and securities within the meaning of Securities Contracts (Regulation) Act, 1956 (SCRA).  To spread equity culture among the investing public by a trading platform for dealing in stocks, shares and like securities through the SEBI registered stock-brokers.  To render assistance, support and services to the investing public in the interest of the securities market.  To make the investing public aware about the securities market through seminars, workshops and investors‟ education programmers.  To take all such promotional steps and actions for orderly development of and smooth functioning of the securities market activities.

Contribution made by Bhubaneswar stock exchange for growth of security market

At present there are 23 recognized stock exchanges functioning in the country. Till the introduction of on-line trading in the security market of the country Bhubaneswar stock exchange of India playing an important role with regard to provided platform to facility the business of

buying and selling of share and security through the SEBI registered stock-

exchange-broker under the framework of necessary control and regulations in the respective state of jurisdiction. Promotion and spreading of equity culture among the investing public through seminars/workshop/investors educations programs. Assisting entrepreneurs/corporate house to raise resources by issuing security market and facilitating dealings in those issued instruments in the secondary market. Amit kumar Choudhury, MBA, SOM

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Company profile Bhubaneswar stock exchange ltd. (BhSE) has been functioning as a recognized stock exchange in India spreading the culture of equity in state of odisha for about 20 year. It was initially incorporated on 17th of April 1989 as a public company limited by guarantee with an object to facilitated , assist , regulate, or control the business of buying and selling or dealing in stock and share like security within the meaning of security contract (regulation ) act 1956. Ministry of finance, Govt of India granted recognition to BhSE on the 5th of June 1956 for an initial period of 5 years. There after recognition of BhSE is being renewed from time by SEBI. Subsequently, pursuant to the amendment to the security contract (regulation) act 1956 during the year of 2004 by the Govt of India in order to provide for corporatization and demutualization of the stock exchange of the country , BhSE in compliance to the requirement of the corprisation first in order to get itself a corporised entity, was a company limited by guarantee to a company limited by share on 9th of December 2005 by way of fresh in corporation diluted its share capital to public in compliance with the requirement of demutualization in order to ensure at least 51% of paid up share capital are held by the person other than the stock broker share holder. A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds.

Management The affaire of the BhSE are controlled and supervised by the BODs under the provision of MOA and AOA, rules, regulation, and bye laws of stock exchange framed in line with Companies Act 1956 and security contract regulation act 1956 and SEBI Act 1992. The day affairs are managed by CEO of the stock exchange. The BODs of stock exchange comprises of 8 directors such as 2 Amit kumar Choudhury, MBA, SOM

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public interest director who appoint SEBI constituted panel, 3 share holder and 2 trading member directors who are appointed by the share holder and a whole time CFO who is the ex-officio of the board

Research objective o To know how security trading is done in the stock market. o To know the on line trading procedure of stock exchange o To know role of corporate brokers and how are they different from proprietor brokers. o To know the interference of government in operation of stock exchange o To know the role of stock exchange in primary market and secondary market o To know the role of stock exchange in Derivative Trading o To know the role of Regional Stock Exchange with special reference to BHSE for economic development of the country.

Scope of training:

Scope for equity investment is very high in view of high saving rate and this proportionately low investment in equity and develop economies with rising income in the hands of middle class the future scope is tremendous.

Method of Data collection Secondary sources;It is the data which has already been collected by someone or any organization for some other purpose or research study has been collected from various sources  Books  Journal  Magazine & Internet sources

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Location of training All the activity were carried out at Bhubaneswar stock exchange (BhSE) Time: 60 days

Limitation of study LIMTITED TIME;

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The time provided to conduct the study was 2 month, which is very less. LIMITED RESOURCES;

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Limited resources are available to collect the information regarding topic VOLATALITY

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Share market is so much volatile and it is difficult to forecast and thinking about whether you trade through online or offline. PRICEING

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While pricing the option, no of days considered by market for volatility calculation was not known.

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Literature review In general, the financial market divided into two parts, Money market and capital market. Securities market is an important, organized capital market where transaction of capital is facilitated by means of direct financing using securities as a commodity. Securities market can be divided into a primary market and secondary market. PRIMARY MARKET The primary market is an intermittent and discrete market where the initially listed shares are traded first time, changing hands from the listed company to the investors. It refers to the process through which the companies, the issuers of stocks, acquire capital by offering their stocks to investors who supply the capital. In other words primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is called an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus.

SECONDARY MARKET The secondary market is an on-going market, which is equipped and organized with a place, facilities and other resources required for trading securities after their initial offering. It refers to a specific place where securities transaction among many and unspecified persons is carried out through intermediation of the securities firms, i.e., a licensed broker, and the exchanges, a specialized trading organization, in accordance with the rules and regulations established by the exchanges.

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A bit about history of stock exchange they say it was under a tree that it all started in 1875.Bombay Stock Exchange (BSE) was the major exchange in India till 1994.National Stock Exchange (NSE) started operations in 1994. NSE was floated by major banks and financial institutions. It came as a result of Harshad Mehta scam of 1992. Contrary to popular belief the scam was more of a banking scam than a stock market scam. The old methods of trading in BSE were people assembling on what as called a ring in the BSE building. They had a unique sign language to communicate apart from all the shouting. Investors weren't allowed access and the system was opaque and misused by brokers. The shares were in physical form and prone to duplication and fraud. NSE was the first to introduce electronic screen based trading. BSE was forced to follow suit. The present day trading platform is transparent and gives investors prices on a real time basis. With the introduction of depository and mandatory dematerialization of shares chances of fraud reduced further. The trading screen gives you top 5 buy and sell quotes on every scrip. A typical trading day starts at 10 ending at 3.30. Monday to Friday. BSE has 30 stocks which make up the Sensex .NSE has 50 stocks in its index called Nifty. FII s Banks, financial institutions mutual funds are biggest players in the market. Then there are the retail investors and speculators. The last ones are the ones who follow the market morning to evening; Market can be very addictive like blogging though stakes are higher in the former. ORIGIN OF INDIAN STOCK MARKET The origin of the stock market in India goes back to the end of the eighteenth century when longterm negotiable securities were first issued. However, for all practical purposes, the real beginning occurred in the middle of the nineteenth century after the enactment of the companies Act in 1850, which introduced the features of limited liability and generated investor interest in corporate securities. An important early event in the development of the stock market in India was the formation of the native share and stock brokers 'Association at Bombay in 1875, the precursor of the present day Bombay Stock Exchange. This was followed by the formation of associations/exchanges in Amit kumar Choudhury, MBA, SOM

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Ahmadabad (1894), Calcutta (1908), and Madras (1937). In addition, a large number of ephemeral exchanges emerged mainly in buoyant periods to recede into oblivion during depressing times subsequently. Stock exchanges are intricacy inter-woven in the fabric of a nation's economic life. Without a stock exchange, the saving of the community- the sinews of economic progress and productive efficiency- would remain underutilized. The task of mobilization and allocation of savings could be attempted in the old days by a much less specialized institution than the stock exchanges. But as business and industry expanded and the economy assumed more complex nature, the need for 'permanent finance' arose. Entrepreneurs needed money for long term whereas investors demanded liquidity – the facility to convert their investment into cash at any given time. The answer was a ready market for investments and this was how the stock exchange came into being. Stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of regulating or controlling the business of buying, selling or dealing in securities. These securities include:

(i) Shares, scrip, stocks, bonds, debentures stock or other marketable securities of a like nature in or of any incorporated company or other body corporate.

(ii) Government securities.

(iii) Rights or interest in securities. The Bombay Stock Exchange (BSE) and the National Stock Exchange of India Ltd (NSE) are the two primary exchanges in India. In addition, there are 22 Regional Stock Exchanges. However, the BSE and NSE have established themselves as the two leading exchanges and account for about 80 per cent of the equity volume traded in India. The NSE and BSE are equal in size in terms of daily traded volume. The average daily turnover at the exchanges has increased from Rs 851 crore in 1997-98 to Rs 1,284 crore in 1998-99 and further to Rs 2,273

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crore in 1999-2000 (April - August 1999). NSE has around 1500 shares listed with a total market capitalization of around Rs 9, 21,500 crore. The BSE has over 6000 stocks listed and has a market capitalization of around Rs 9, 68,000 crore. Most key stocks are traded on both the exchanges and hence the investor could buy them on either exchange. Both exchanges have a different settlement cycle, which allows investors to shift their positions on the bourses. The primary index of BSE is BSE Sensex comprising 30 stocks. NSE has the S&P NSE 50 Index (Nifty) which consists of fifty stocks. The BSE Sensex is the older and more widely followed index. Both these indices are calculated on the basis of market capitalization and contain the heavily traded shares from key sectors. The markets are closed on Saturdays and Sundays. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) and NEAT (National Exchange Automated Trading) System. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency; the scrip's traded on the BSE have been classified into 'A', 'B1', 'B2', 'C', 'F' and 'Z' groups. The 'A' group shares represent those, which are in the carry forward system (Badla). The 'F' group represents the debt market (fixed income securities) segment. The 'Z' group scrip's are the blacklisted companies. The 'C' group covers the odd lot securities in 'A', 'B1' & 'B2' groups and Rights renunciations. The key regulator governing Stock Exchanges, Brokers, Depositories, Depository participants, Mutual Funds, FIIs and other participants in Indian secondary and primary market is the Securities and Exchange Board of India (SEBI) Ltd. Brief History of Stock Exchanges Do you know that the world's foremost marketplace New York Stock Exchange (NYSE), started its trading under a tree (now known as 68 Wall Street) over 200 years ago? Similarly, India's premier stock exchange Bombay Stock Exchange (BSE) can also trace back its origin to as far as 125 years when it started as a voluntary non-profit making association.

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News on the stock market appears in different media every day. You hear about it any time it reaches a new high or a new low, and you also hear about it daily in statements like 'The BSE Sensitive Index rose 5% today'. Obviously, stocks and stock markets are important. Stocks of public limited companies are bought and sold at a stock exchange. But what really are stock exchanges? Known also as the stock market or bourse, a stock exchange is an organized marketplace for securities (like stocks, bonds, options) featured by the centralization of supply and demand for the transaction of orders by member brokers, for institutional and individual investors.

The exchange makes buying and selling easy. For example, you don't have to actually go to a stock exchange, say, BSE - you can contact a broker, who does business with the BSE, and he or she will buy or sell your stock on your behalf.

Electronic trading Electronic trading eliminates the need for physical trading floors. Brokers can trade from their offices, using fully automated screen-based processes. Their workstations are connected to a Stock Exchange's central computer via satellite using Very Small Aperture Terminus (VSATs). The orders placed by brokers reach the Exchange's central computer and are matched electronically. Exchanges in India The Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) are the country's two leading Exchanges. There are 20 other regional Exchanges, connected via the InterConnected Stock Exchange (ICSE). The BSE and NSE allow nationwide trading via their VSAT systems. Index Amit kumar Choudhury, MBA, SOM

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An Index is a comprehensive measure of market trends, intended for investors who are concerned with general stock market price movements. An Index comprises stocks that have large liquidity and market capitalization. Each stock is given a weight age in the Index equivalent to its market capitalization. At the NSE, the capitalization of NIFTY (fifty selected stocks) is taken as a base capitalization, with the value set at 1000. Similarly, BSE Sensitive Index or Sensex comprises 30 selected stocks. The Index value compares the day's market capitalization vis-à-vis base capitalization and indicates how prices in general have moved over a period of time. Execute an order Select a broker of your choice and enter into a broker-client agreement and fill in the client registration form. Place your order with your broker preferably in writing. Get a trade confirmation slip on the day the trade is executed and ask for the contract note at the end of the trade date. Need a broker As per SEBI (Securities and Exchange Board of India.) regulations, only registered members can operate in the stock market. One can trade by executing a deal only through a registered broker of a recognized Stock Exchange or through a SEBI-registered sub-broker.

Contract note A contract note describes the rate, date, time at which the trade was transacted and the brokerage rate. A contract note issued in the prescribed format establishes a legally enforceable relationship between the client and the member in respect of trades stated in the contract note. These are made in duplicate and the member and the client both keep a copy each. A client should receive the contract note within 24 hours of the executed trade. Corporate Benefits/Action.

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Split A Split is book entry wherein the face value of the share is altered to create a greater number of shares outstanding without calling for fresh capital or altering the share capital account. For example, if a company announces a two-way split, it means that a share of the face value of Rs 10 is split into two shares of face value of Rs 5 each and a person holding one share now holds two shares. Buy Back As the name suggests, it is a process by which a company can buy back its shares from shareholders. A company may buy back its shares in various ways: from existing shareholders on a proportionate basis; through a tender offer from open market; through a book-building process; from the Stock Exchange; or from odd lot holders. A company cannot buy back through negotiated deals on or off the Stock Exchange, through spot transactions or through any private arrangement. Settlement cycle The accounting period for the securities traded on the Exchange. On the NSE, the cycle begins on Wednesday and ends on the following Tuesday, and on the BSE the cycle commences on Monday and ends on Friday. At the end of this period, the obligations of each broker are calculated and the brokers settle their respective obligations as per the rules, bye-laws and regulations of the Clearing Corporation. If a transaction is entered on the first day of the settlement, the same will be settled on the eighth working day excluding the day of transaction. However, if the same is done on the last day of the settlement, it will be settled on the fourth working day excluding the day of transaction. Rolling settlement The rolling settlement ensures that each day's trade is settled by keeping a fixed gap of a specified number of working days between a trade and its settlement. At present, this gap is five working days after the trading day. The waiting period is uniform for all trades. In a Rolling Amit kumar Choudhury, MBA, SOM

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Settlement, all trades outstanding at end of the day have to be settled, which means that the buyer has to make payments for securities purchased and seller has to deliver the securities sold. In India, we have adopted the T+5 settlement cycle, which means that a transaction entered into on Day 1 has to be settled on the Day 1 + 5 working days, when funds pay in or securities pay out takes place. What are the advantages of Rolling Settlements? As mentioned earlier, this is the system practiced in developed countries. Pay outs are quicker than in weekly settlements, and investors will benefit from increased liquidity. The other benefit of the modified system is that it keeps cash and forward markets separate. In the current system, the trader has five days to square off his transaction which leads to a high level of speculation as people even without funds tend to "play" the market. During volatile markets, especially in a bearish market, this often leads to a payment problem which has dogged the Indian stock exchanges for a long time. It provides for a higher degree of safety, and once mechanisms such as futures and stock-lending become popular, it would result in quality speculation and genuine investor interest. When does one deliver the shares and pay the money to broker As a seller, in order to ensure smooth settlement you should deliver the shares to your broker immediately after getting the contract note for sale but in any case before the pay-in day. Similarly, as a buyer, one should pay immediately on the receipt of the contract note for purchase but in any case before the pay-in day. Short selling Short selling is a legitimate trading strategy. It is a sale of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers take the risk that they will be able to buy the stock at a more favorable price than the price at which they "sold short."

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The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller, Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short.

Auction An auction is conducted for those securities that members fail to deliver/short deliver during payin. Three factors primarily give rise to an auction: short deliveries, un-rectified bad deliveries, and un-rectified company objections Separate market for auctions The buy/sell auction for a capital market security is managed through the auction market. As opposed to the normal market where trade matching is an on-going process, the trade matching process for auction starts after the auction period is over. If the shares are not bought in the auction If the shares are not bought at the auction i.e. if the shares are not offered for sale, the Exchange squares up the transaction as per SEBI guidelines. The transaction is squared up at the highest price from the relevant trading period till the auction day or at 20 per cent above the last available Closing price whichever is higher. The pay-in and pay-out of funds for auction square up is held along with the pay-out for the relevant auction. Bad Delivery SEBI has formulated uniform guidelines for good and bad delivery of documents. Bad delivery may pertain to a transfer deed being torn, mutilated, overwritten, defaced, or if there are spelling mistakes in the name of the company or the transfer. Bad delivery exists only when shares are transferred physically. In "Demat" bad delivery does not exist. Stock & Exchange Board of India Amit kumar Choudhury, MBA, SOM

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REGULATION OF BUSINESS IN THE STOCK EXCHANGES Under the SEBI Act, 1992, the SEBI has been empowered to conduct inspection of stock exchanges. The SEBI has been inspecting the stock exchanges once every year since 1995-96. During these inspections, a review of the market operations, organizational structure and administrative control of the exchange is made to ascertain whether: 

the exchange provides a fair, equitable and growing market to investors

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the exchange's organization, systems and practices are in accordance with the Securities Contracts (Regulation) Act (SC(R) Act), 1956 and rules framed there under

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the exchange has implemented the directions, guidelines and instructions issued by the SEBI from time to time



The exchange has complied with the conditions, if any, imposed on it at the time of renewal/ grant of its recognition under section 4 of the SC(R) Act, 1956.

During the year 1997-98, inspection of stock exchanges was carried out with a special focus on the measures taken by the stock exchanges for investor's protection. Stock exchanges were, through inspection reports, advised to effectively follow-up and redress the investors' complaints against members/listed companies. The stock exchanges were also advised to expedite the disposal of arbitration cases within four months from the date of filing. During the earlier years' inspections, common deficiencies observed in the functioning of the exchanges were delays in post trading settlement, frequent clubbing of settlements, delay in conducting auctions, inadequate monitoring of payment of margins by brokers, non-adherence to Capital Adequacy Norms etc. It was observed during the inspections conducted in 1997-98 that there has been considerable improvement in most of the areas, especially in trading, settlement, collection of margins etc. Dematerialization Dematerialization in short called as 'demat' is the process by which an investor can get physical certificates converted into electronic form maintained in an account with the Depository Participant. The investors can dematerialize only those share certificates that are already Amit kumar Choudhury, MBA, SOM

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registered in their name and belong to the list of securities admitted for dematerialization at the depositories. Depository: The organization responsible to maintain investor's securities in the electronic form is called the depository. In other words, a depository can therefore be conceived of as a "Bank" for securities. In India there are two such organizations viz. NSDL and CDSL. The depository concept is similar to the Banking system with the exception that banks handle funds whereas a depository handles securities of the investors. An investor wishing to utilize the services offered by a depository has to open an account with the depository through Depository Participant. Depository Participant: The market intermediary through whom the depository services can be availed by the investors is called a Depository Participant (DP). As per SEBI regulations, DP could be organizations involved in the business of providing financial services like banks, brokers, custodians and financial institutions. This system of using the existing distribution channel (mainly constituting DPs) helps the depository to reach a wide cross section of investors spread across a large geographical area at a minimum cost. The admission of the DPs involves a detailed evaluation by the depository of their capability to meet with the strict service standards and a further evaluation and approval from SEBI. Realizing the potential, all the custodians in India and a number of banks, financial institutions and major brokers have already joined as DPs to provide services in a number of cities . Advantages of a depository services: Trading in demat segment completely eliminates the risk of bad deliveries. In case of transfer of electronic shares, you save 0.5% in stamp duty. Avoids the cost of courier/ notarization/ the need for further follow-up with your broker for shares returned for company objection No loss of certificates in transit and saves substantial expenses involved in obtaining duplicate certificates, when the original share certificates become mutilated or misplaced. Lower interest charges for loans taken against demat shares as compared to the interest for loan against physical shares. RBI has increased the limit of loans availed against dematerialized securities as collateral to Rs 20 lakh per borrower as against Rs 10 lakh per borrower in case of loans against physical securities. RBI has also reduced the minimum margin to 25% for loans Amit kumar Choudhury, MBA, SOM

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against dematerialized securities, as against 50% for loans against physical securities. Fill up the account opening form, which is available with the DP. Sign the DP-client agreement, which defines the rights and duties of the DP and the person wishing to open the account. Receive your client account number (client ID). This client id along with your DP id gives you a unique identification in the depository system. Fill up a dematerialization request form, which is available with your DP, Submit your share certificates along with the form; write "surrendered for demat" on the face of the certificate before submitting it for demat) Receive credit for the dematerialized shares into your account within 15 days.

What is online trading? Buying and selling securities using the Internet or broker-provided proprietary software that works through the Internet. Online trading is distinguished from wireless trading, a nascent area of service where brokerage customers can trade via cell phones, pagers, and hand-held organizers. Definition of “online trading” The act of placing buy/sell orders for financial securities or currencies with the use of a brokerage's internet-based proprietary trading platforms. The use of online trading increased dramatically in the mid- to late-'90s with the introduction of affordable high-speed computers and internet connections. 1. Equity Trading The best way to amass wealth is by investing in the stock market. However, it can be a risky proposition considering the high risk-return trade off prevalent in the stock market. Therefore before investing, the clients should know how to go about it. By opening an account with Fair Wealth, an investor can avail additional benefits like access to various intraday and fundamental calls. Amit kumar Choudhury, MBA, SOM

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2. Commodity Broking Investment in commodities is advisable in the portfolio, as it is generally considered as defensive because stocks and bonds witnesses adverse performance during times of inflation. It offers advisory services with enhanced research and knowledge aims to capitalize the immense potential of the commodities market 3. Derivatives Trading Fair wealth Securities; have endeavored to make trading in derivatives simpler. It strives to educate new entrants in the derivatives trading market so that they are more equipped with knowledge and techniques. 4. Portfolio Management Services Its Portfolio Management Service is well suited for high-net worth customers who want to invest in Indian Equities and desire to create wealth over longer period After understanding varied risk appetites and financial goals of individuals Fair wealth has created an Investment Strategy called Wealth- MAX Strategy 5. Research Fair Wealth carries out extensive research in equity and commodity Equity Research It has a dedicated research team which is engaged in analyzing the Indian economy and corporate sectors to identify multi-bagger stocks. It provides Weekly Techno Funda Calls based on the weekly outlook. Their team also provides positional and medium term calls. Ita technical team provides various intraday, BTST and Weekly Calls based on their analysis. It also comes out with a report called „Market Pulse‟ on a daily basis. Daily Market Outlook which is a daily newsletter is well-known among the industry. Besides this, we are also into Derivative research which covers Call-Put Strategy and Covered Callstrategy. Commodity Research:

The commodity research team enables the investors to tapappropriate

opportunities in the commodity market. Amit kumar Choudhury, MBA, SOM

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6. Risk Management through Life and General Insurance It has a sizable presence in the distribution of 3rd party financial products like Life Insurance and General

Insurance Products.

It

provides expert Advisory on Life Insurance and

GeneralInsurance. The distribution network is backed by in-house back office support to provide prompt and efficient customer service Major Competitors of Fair Wealth Securities Ltd

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CHAPTER- 2

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WHAT IS TRADING? The act of buying and selling world currencies. Currency trading is most often engaged in by banks and

other institutions,

for

the

purposes

of international

trade. Individual

investors may engage in currency trading as well, attempting to benefit from variations in the exchange rates of the currencies. Different type of trading: The stock market serves as a reliable indicator the actual value of the companies that issue stocks. Stock values are based on verifiable financial data such as growth, assets, and sales figures. The stock market is considered to be a good choice for long term investments since this reliability that well-run companies should continue to grow and provide dividends for their stockholders. Short-term investors are also given opportunities in the stock market. Market skittishness, even without a financial basis, can cause the rapid fluctuation of prices. Investor psychology, on the other hand, can also cause the prices of the stocks to either fall or rise. The suspicions of investors about a company‟s value increase can be ignited by news reports, economic conditions, and rumors. When the price of a stock either rise or fall, some investors will quickly jump on the bandwagon to cause an even faster price acceleration. Eventually though, the market will correct itself. Savvy short-term investors who watch the market closely see these kinds of situations as great opportunities for profitable trading. Short-term trading is divided into 3 categories: 

Position Trading



Swing Trading



Day Trading

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Position Trading The longest term trading style among the three is position trading. Compared with the other styles, the stocks in position trading can be held for a relatively longer period of time. Position traders are expected to hold on to their stocks for anywhere from 5 days to 6 months because they watch out for the fundamental changes in the value of the stocks. Position trading doesn‟t require a great deal of time since the time needed to study the stock market can be as little as 30 minutes a day and it can be done after regular work hours. A quick examination of daily reports is enough to plan trading strategies. This type of trading is ideal for those who invest in the stock market for the purpose of supplementing their income.

Swing Trading Swing traders, when compared with position traders; hold their stocks for a shorter period of time that generally lasts only for about one to five days. In looking for stock market changes, the swing trader is more driven by the emotion rather than the fundamental value. This type of trading requires more time in researching stocks and conceptualizing strategies because the swing traders need to identify the trends in order to pick out the best trading opportunities. They tend to rely on daily and intra-day charts to plot the movements of the stocks. This type of trading usually generates a greater payback.

Day Traders Day trading is considered to be the riskiest way to play the stock market. This may be true for slightly uneducated traders but not for well experienced ones. Day trading involves the buying and selling of stocks in very short periods of time. It generally takes less than a day but it can be as short as a few minutes. Day traders need to stay rational and analytical to survive this type of trading. They create plots of when to get in and out of a position by relying mostly on the information that can influence the movement of the stock prices. Day trading has to be a fulltime profession since it requires paying a close attention to the different market conditions.

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TRADING PROCEDURE Stock exchanges like NSE and BSE are the places where the trading of shares takes place. Demat account is must be required to registered the security in stock market. The market regulator, the Securities and Exchange Board of India (SEBI), has made it compulsory to open the demat account if you want to buy and sell shares in Indian share market. So a demat account is a must for trading and investing in share market.

How to open a Demat account? You have to approach a Depository Participant (DP) to open a Demat account. Most banks are DP participants so you can approach them or else you can contact us. To have latest list of registered DP please visit websites www.nsdl.co.in and www.cdslindia.com A broker and a DP are two different people. A broker is a member of the stock exchange, who buys and sells shares on his behalf and also on behalf of his customers.A broker can also be a DP.

Following are the documents required to open Demat account When you approach any DP, you will be guided through the formalities for opening a demat account. The DP will ask to provide some documents as proof of your identity and address. Below is a list of documents out of which you have to submit one or two. PAN card, Voter‟s ID, Passport, Ration card, Driver‟s license, Photo credit card Employee ID card, IT returns, Electricity/ Landline phone bill etc. . How much it cost to open a Demat account? The charges for demat account opening varies from broker to broker of from DP to DP. Generally some broker charge one time account opening fees but currently due to high competition they are offering free account.. Finally After successfully opening the demat account you are ready to do buying and selling of shares in share market exchanges like BSE and NSE.

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Important points to remember while opening online demat account 1) Do multiple enquiries with various brokers or DP‟s and try getting low brokerage charges. 2) Also discuss about the margin they provide for day trading. 3) Discuss about fund transfer facility. The fund transfer should be reliable and easy. Fund transfer from your bank account to trading account and fund payout from your trading account back to your bank savings account. Some online share trading account has integrated savings account which makes easy for you to transfer funds from your saving account to trading account. 4) Very important is about service they provide, the research calls, intraday or daily trading tips. 5) Also enquire about their services charges and any other hidden fees if any. 6) Check how reliable and easy is to contact them in case of any emergency, like buying and selling of shares on immediate basis or in case of any technical or other problems at your side while trading yourself. 7) You can also request to broker for demonstration of the trading terminal software and check how comfortable it is for you.

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Corporation broker A business whose main responsibility is to be an intermediary that puts buyer and seller together in order to facilitate a transaction. Brokerage companies are compensated via commission after the transaction has been successfully completed. For example, when a trade order for a stock is carried out, an individual often pays a transaction fee for

the brokerage company's efforts to execute the trade. The real estate industry also operates in a brokerage-company format, as it is common for real estate brokers to work together, each representing one party of the transaction, in order to make a sale. In this case, the commission is split between both brokerage companies.

Corporate advisory Corporate advisory refers to the activity of advising organizations, including corporations, institutions and government bodies, on mergers and acquisitions and other transactions that involve a change in ownership of a company or business. In investment banking circles, this activity is commonly known by the general term M&A (Mergers and Acquisitions). Transaction types include mergers, acquisitions, disposals, defenses, spin-offs, demergers, joint ventures, privatizations, leveraged buyouts and many others. Transactions may be "public" transactions, where the target is a listed public company, or "private" transactions, where the target company is not listed. There will normally be a minimum of two parties to an M&A transaction, namely the bidder and the target. In a sale transaction, there will also be a vendor, i.e. the seller of the target business.

Proprietor broker Proprietor broker is a person, who carried out his operation himself, it also share responsibility is to be an intermediary that puts buyer and seller together in order to facilitate a transaction. Brokerage companies are compensated via commission after the transaction has been successfully completed.

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Government interference in stock exchange Recently India‟s economy has suffered as the result of ill-advised government meddling and blatant corruption reminiscent of its inept. Political interference in economic matters has resulted in consternation from both foreign investors and domestic entrepreneurs. Protectionist measures like the myopic exports irked domestic suppliers and foreign consumers alike. A decision to retroactively tax foreign purchases of Indian companies will only exacerbate foreign investor skepticism. While reforms of this nature might grant politicians temporary popularity with constituencies, they do nothing to reform India‟s looming inflation problems. Corruption remains pervasive in India‟s sprawling bureaucracy, spanning all levels of government. The recent election season demonstrated the propensity for candidates‟ political machines to give cash directly to voters and other overt attempts to curry favor (sorry). A week which exposed government officials who had been complicit in granting “undue benefits” worth billions to the coal industry. These incidents have had a marked effect on both the Indian economy and stock market. The Indian economy this year. While this may dwarf the growth rate of most developed countries, 6.1% is significantly lower than its growth of recent years. Further, anything lower than 6% growth could have serious ramifications on Indian financial and social stability. Indian markets have struggled for the past month, largely as a result of the aforementioned developments. The BSE Sensex is down roughly 5% from its highs last month. American investors with a long-term focus concerned about the Indian economy should pay careful attention to stocks that are particularly sensitive to government interference like Tata Communications (TCL, quote) and ICICI Bank (IBN, quote), as well as India-focused ETFs like the Wisdom Tree India Earnings Fund (EPI, quote)

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Primary market The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus. Primary markets create long term instruments through which corporate entities borrow from capital market. Features of primary markets are: 

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



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



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



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



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



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

Secondary market The secondary market, also called aftermarket, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold.[1] Another frequent usage of "secondary market" is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac.

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The term "secondary market" is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a "second" or "third" market has developed for use in ethanol production). With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market. The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, Nasdaq and the American Stock Exchange provide a centralized, liquid secondary market for the investors who own stocks that trade on those exchanges. Most bonds and structured products trade “over the counter,” or by phoning the bond desk of one‟s broker-dealer. Loans sometimes trade online using a Loan Exchange

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Derivative trading The term "Derivative" indicates that it has no independent value, i.e. its value is entirely "derived" from the value of the underlying asset. The underlying asset can be securities, commodities, bullion, currency, live stock or anything else. In other words, Derivative means a forward, future, option or any other hybrid contract of pre determined fixed duration, linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities. With Securities Laws (Second Amendment) Act,1999, Derivatives has been included in the definition of Securities. The term Derivative has been defined in Securities Contracts (Regulations) Act, as:A Derivative includes: 

A security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security;



A contract which derives its value from the prices, or index of prices, of underlying securities.

What is a Futures Contract? Futures Contract means a legally binding agreement to buy or sell the underlying security on a future date. Future contracts are the organized/standardized contracts in terms of quantity, quality (in case of commodities), delivery time and place for settlement on any date in future. The contract expires on a pre-specified date which is called the expiry date of the contract. On expiry, futures can be settled by delivery of the underlying asset or cash. Cash settlement enables the settlement of obligations arising out of the future/option contract in cash. What is an Options contract? Options Contract is a type of Derivatives Contract which gives the buyer/holder of the contract the right (but not the obligation) to buy/sell the underlying asset at a predetermined price within or at end of a specified period. The buyer / holder of the option purchases the right from the seller/writer for a consideration which is called the premium. The seller/writer of an option is Amit kumar Choudhury, MBA, SOM

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obligated to settle the option as per the terms of the contract when the buyer/holder exercises his right. The underlying asset could include securities, an index of prices of securities etc. Under Securities Contracts (Regulations) Act,1956 ,options on securities has been defined as "option in securities" meaning a contract for the purchase or sale of a right to buy or sell, or a right to buy and sell, securities in future, and includes a teji, a mandi, a teji mandi, a galli, a put, a call or a put and call in securities. An Option to buy is called Call option and option to sell is called Put option. Further, if an option that is exercisable on or before the expiry date is called American option and one that is exercisable only on expiry date, is called European option. The price at which the option is to be exercised is called Strike price or Exercise price. Therefore, in the case of American options the buyer has the right to exercise the option at anytime on or before the expiry date. This request for exercise is submitted to the Exchange, which randomly assigns the exercise request to the sellers of the options, who are obligated to settle the terms of the contract within a specified time frame. As in the case of futures contracts, option contracts can be also be settled by delivery of the underlying asset or cash. However, unlike futures cash settlement in option contract entails paying/receiving the difference between the strike price/exercise price and the price of the underlying asset either at the time of expiry of the contract or at the time of exercise / assignment of the option contract. What are Index Futures and Index Option Contracts? Futures contract based on an index i.e. the underlying asset is the index, are known as Index Futures Contracts. For example, futures contract on NIFTY Index and BSE-30 Index. These contracts derive their value from the value of the underlying index. Similarly, the options contracts, which are based on some index, are known as Index options contract. However, unlike Index Futures, the buyer of Index Option Contracts has only the right but not the obligation to buy / sell the underlying index on expiry. Index Option Contracts are generally European Style options i.e. they can be exercised / assigned only on the expiry date.

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An index, in turn derives its value from the prices of securities that constitute the index and is created to represent the sentiments of the market as a whole or of a particular sector of the economy. Indices that represent the whole market are broad based indices and those that represent a particular sector are sectoral indices. In the beginning futures and options were permitted only on S&P Nifty and BSE Sensex. Subsequently, sectoral indices were also permitted for derivatives trading subject to fulfilling the eligibility criteria. Derivative contracts may be permitted on an index if 80% of the index constituents are individually eligible for derivatives trading. However, no single ineligible stock in the index shall have a weight age of more than 5% in the index. The index is required to fulfill the eligibility criteria even after derivatives trading on the index have begun. If the index does not fulfill the criteria for 3 consecutive months, then derivative contracts on such index would be discontinued. By its very nature, index cannot be delivered on maturity of the Index futures or Index option contracts therefore, these contracts are essentially cash settled on Expiry. Why longer dated index options? Longer dated derivatives products are useful for those investors who want to have a long term hedge or long term exposure in derivative market. The premiums for longer term derivatives products are higher than for standard options in the same stock because the increased expiration date gives the underlying asset more time to make a substantial move and for the investor to make a healthy profit. What is Volatility Index? Volatility Index is a measure of expected stock market volatility, over a specified time period, conveyed by the prices of stock / index options. It depicts the collective sentiment of the market on the implied future volatility.

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What are the derivative contracts permitted by SEBI? Derivative products have been introduced in a phased manner starting with Index Futures Contracts in June 2000. Index Options and Stock Options were introduced in June 2001 and July 2001 followed by Stock Futures in November 2001. Sectoral indices were permitted for derivatives trading in December 2002. During December 2007 SEBI permitted mini derivative (F&O) contract on Index (Sensex and Nifty). Further, in January 2008, longer tenure Index options contracts and Volatility Index and in April 2008, Bond Index was introduced. In addition to the above, during August 2008, SEBI permitted Exchange traded Currency Derivatives. What is the lot size of contract in the equity derivatives market? Lot size refers to number of underlying securities in one contract. The lot size is determined keeping in mind the minimum contract size requirement at the time of introduction of derivative contracts on a particular underlying. For example, if shares of XYZ Ltd are quoted at Rs.1000 each and the minimum contract size is Rs.2 lacs, then the lot size for that particular scrips stands to be 200000/1000 = 200 shares i.e. one contract in XYZ Ltd. covers 200 shares.

What do you mean by Initial Margin and Mark To Market in derivatives market? Two type of margins have been specified 

Initial Margin - Based on 99% VAR and worst case loss over a specified horizon, which depends on the time in which Mark to Market margin is collected.



Mark to Market Margin (MTM) - collected in cash for all Futures contracts and adjusted against the available Liquid Net worth for option positions. In the case of Futures Contracts MTM may be considered as Mark to Market Settlement.

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Definition of “Derivative Trading” Derivatives are financial instruments, traded on or off an exchange, the price of which is based on or directly dependent upon i.e., “derived from” the value of one or more underlying asset, reference rate or index. The underlying asset can include securities, commodities, bullion, currency, livestock, etc., the reference rate includes interest rates, exchange rates and index consist of stock market index, consumer price index(CPI). This trading of rights or obligations based on the underlying product, for hedging, speculating or arbitraging purposes is termed Derivatives Trading, Financial Derivatives or Trading Derivatives. The main types of derivatives are, such as: 1. Forwards 2. Futures 3. Options 4. SWAPs Derivative trading in India can take place either on a separate and independent Derivative Exchange or on a separate segment of an existing Stock Exchange. Derivative Exchange/Segment function as a Self-Regulatory Organization (SRO) and SEBI acts as the oversight regulator. Futures Trading & Pricing A Futures Contract is a standardized agreement between a buyer and a seller; obligating the seller to deliver a specified asset of specified quality and quantity to the buyer on a specified date at a specified place and the buyer, in turn, is obligated to pay to the seller a pre-negotiated price in exchange of the delivery. The trading in these contracts is termed Futures Trading. In this type of trading, the contracting parties negotiate on, not only the price at which the commodity is to be delivered on a future date but also on what quality and quantity to be delivered and at what place. Based upon their reason for choosing futures trading, people engaging in it can be typically classified as-

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1. Hedgers 2. Speculators & Arbitragers In case of Hedgers, Future contracts are used a risk minimizing tool. For example, in case of commodity as the underlying asset, a wheat farmer and a wheat miller could enter into a futures contract to exchange cash for wheat in the future. The farmer agreeing to sell the wheat is said to assume the short position and the wheat miller agreeing to buy it is said to assume the long position. Both parties have reduced a future risk: for the wheat farmer, the uncertainty of the price and a sure buyer, and for the wheat miller, the availability of wheat. Farmers, manufacturers, importers and exporters, etc, are Example of Hedgers who trade in futures for protection from price risks. Though it minimizes risk, hedging has a black side to it also, if the wheat prices surge in the near future, the farmer will not be able to increase his prices and will lose the excess profit possible in that case and if the wheat prices fall down the buyer will still have to pay the agreed upon price in the contract, thus paying more than the market price. Speculators, trade with hedgers and other speculators and consider futures trading as a means to earn profits and not for minimizing risk purposes (like hedgers). They aim to profit from the very price change that hedgers are protecting themselves against. Hedgers want to minimize their risk no matter what they‟re investing in, while speculators want to increase their risk and therefore maximize their profits. They speculate the value of the underlying asset and buy if they feel its value will increase, selling later when it has indeed increased and sell when they feel its value will decrease. As the name indicates, this is pure speculation on their part, based on what they perceive as market conditions. If their speculation is right, it will result in profits, else loss. This is a risk they are willing to take in order to earn quick profits. Arbitragers are those who attempt to profit by exploiting price differences of identical or similar financial instruments, on different markets or in different forms. Unlike the stock market, where the capital gains or losses from movements in price aren‟t realized until the investor decides to sell the stock or cover his or her short position, futures Amit kumar Choudhury, MBA, SOM

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positions are settled on a daily basis, which means that gains and losses from a day‟s trading are deducted or credited to a person‟s account each day. The profits and losses depend upon the daily movements of the market for that contract and are calculated on a daily basis. For example, consider the futures contract between a wheat farmer and bread maker of INR 40 per bushel, if in the next day, the price of the futures contract for wheat increases to INR 50 per bushel, the farmer, as the holder of the short position, has lost INR 10 per bushel because the selling price just increased from the future price at which he is obliged to sell his wheat. The bread maker, as the long position, has profited by INR 10 per bushel because the price he is obliged to pay is less than what the rest of the market is obliged to pay in the future for wheat. On the day the change occurs, the farmer‟s account is debited INR 50,000 (INR 10 per bushel X 5,000 bushels) and the bread maker‟s account is credited by INR 50,000 (INR 10 per bushel X 5,000 bushels). As the market moves every day, these kinds of adjustments are made accordingly. Apart from functioning as a risk reduction tool, Futures contracts are used for Price Discovery. Due to its highly competitive nature, the futures market has become an important economic tool to determine prices based on today‟s and tomorrow‟s estimated amount of supply and demand. Futures Market is fast-paced and its prices depend upon a continuous flow of information from around the world and thus require a high amount of transparency. Factors such as weather, war, debt default, refugee displacement, land reclamation and deforestation can all have a major effect on supply and demand and, as a result, the present and future price of a commodity. In such a market into which information is continuously being fed, speculators and hedgers bounce off of – and benefit from – each other. The closer it gets to the time of the contract‟s expiration, the more solid the information entering the market will be regarding the commodity in question. Thus, all can expect a more accurate reflection of supply and demand and the corresponding price. This process is termed as competitive price discovery or simply price discovery. Futures prices have a price change limit that determines the prices between which the contracts can trade on a daily basis. The price change limit is added to and subtracted from the previous day‟s close and the results remain the upper and lower price boundary for the day and can be revised if the exchange feels it is necessary. Amit kumar Choudhury, MBA, SOM

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Say that the price change limit on silver per ounce is INR 2.50. Yesterday, the price per ounce closed at INR 50. Today‟s upper price boundary for silver would be INR 52.25 and the lower boundary would be INR 47.5. If at any moment during the day the price of futures contracts for silver reaches either boundary, the exchange shuts down all trading of silver futures for the day. The next day, the new boundaries are again calculated by adding and subtracting INR 2.50 to the previous day‟s close. Each day the silver ounce could increase or decrease by INR 2.50 until an equilibrium price is found. One drawback is that as trading shuts down if prices reach their daily limits, there may be occasions when it is NOT possible to liquidate an existing futures position at will. Derivatives are contracts that are based on or derived from some underlying asset, reference rate, or index. The underlying asset can be securities, commodities, bullion, currency, livestock or anything else. Generally, derivatives are contracts to buy or sell the underlying asset at a future date, with the price, quantity and other specifications defined today.

Types of Derivatives Derivatives can be classified into six types: Futures, Options, Swaps, Leaps, Baskets, Swaptions. But Futures and Options are two major forms of derivative trading.

Futures: A future contract involves agreement between two parties to exchange any asset or currency or commodity for cash at a certain future date, at pre-determined price. It takes place only in organized future markets and according to well established standards.

Options: An option gives the buyer the right but not the obligation to buy or sell something in the future. An option gives the holder the right but not the obligation to buy or sell something in the future. There are two types of Options: put and call. A put option is one which gives holder he right to sell at particlar number of shares (or any other commodity) at a given price, where as a whereas a call option gives you the right to buy the shares in the a finite predetermined period of time and at a predetermined price. Typically, you would buy call options if you expect the price of the underlying stock to rise, and you would buy put options if you expect the price of the stock to decline.

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With Securities Laws (Second Amendment) Act 1999, Derivatives has been included in the definition of Securities. As per the Act a Derivative includes: A security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; A contract which derives its value from the prices, or index of prices, of underlying securities Derivative trading in India can take place either on a separate and independent Derivative Exchange or on a separate segment of an existing Stock Exchange. Derivative Exchange/Segment function as a Self-Regulatory Organization (SRO) and SEBI acts as the oversight regulator If you are looking for a trading option outside of traditional stocks and bonds, derivatives trading may be a good option. Derivatives pay off over a period of time based on the performance of assets, interest rates, exchange rates, or indices. The payoff can be in cash or assets and vary, of course, by performance and timing. In addition to stocks and bonds, derivatives can also be traded through in the money market, foreign exchange (forex), and credit. Indicators affecting a derivative's performance are varied, and depending on the type of derivative. These can range from the stock market index to the consumer price index to weather conditions and fluctuations in currency exchange rates. The following reasons provide information on why it may be a good idea to begin derivatives trading.

1. Less Risk than other Trades When you trade in derivatives, you are not purchasing the underlying product or buying into the company, although in some cases you are agreeing to purchase assets in the future, also known as futures trading. Instead, your risk is on the performance. There are two main types of derivatives: futures and options, which allow someone the option to buy or sell at a prearranged price. There are three main types of firms that use derivatives. These are investment banks, commercial banks, and end users, such as floor traders, corporations, and hedge and mutual funds.

While you can still lose money in derivatives trading, the risk is much less of an investment. Amit kumar Choudhury, MBA, SOM

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Further, you can get involved in derivatives trading for a much lower initial investment, something that may appeal to those who cannot or do not want to invest as much as is required to purchase stock. Derivatives can also be a good way to add balance to your total portfolio, thereby spreading risk throughout a variety of investments rather than in only a few.

2. They can be a Good Short Term Investment

If you are looking for an investment opportunity that can pay off in a shorter time frame, derivatives may be a good option. While some stocks and bonds are long-term investments over the course of many years, derivatives can be days, weeks, or a few months. Because of the shorter turnaround time, they can be a good way to break into the market as well as a good way to mix short and long-term investments. If you have a portfolio consisting of long-term investments, such as some stocks, and want an option to put your money to work now, derivatives may be an option.

Making derivatives work for you requires careful research and consideration just like any other investment opportunity. However, in a fast-paced world, investors have the option to see results much sooner in options or futures trading that are not available through other means.

3. Variety and Flexibility The nature of derivatives essentially means that the opportunities for trading this type of investment are limited only by the imagination. The other side of this is that someone interested in entering the derivatives trading market needs to either have a trusted financial representative, or learn as much about the business as possible. Doing both is the best option, as you can then work with a financial representative in a much more involved way and have a better handle on what your money is doing and where. Numerous resources are available on the Internet for learning more about derivatives trading and the many options available. Those interested in derivatives training may want to begin by focusing on a particular area, such as currency trading. Some types of trading options are available around the clock, on a global scale. This is another reason some investors are drawn to derivatives trading. Getting involved in the global economy Amit kumar Choudhury, MBA, SOM

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can be exciting, and it opens international options that may not be available through the traditional stock market (particularly given the regulations placed on foreign companies to comply with U.S. laws such as Sarbanes-Oxley).

In short, derivatives trading can be an excellent way to either break into the trading market or to round out an existing portfolio. It offers a wide range of options, including international opportunities. Finally, with some skill, research, and a bit of luck, it can be a good way to make your money work for you.

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Role of Regional Stock Exchange with special reference to BhSE for economic development of the country A Seminar was conducted by Bhubaneswar Stock Exchange on role of Regional Stock Exchanges for promotion of economic growth of the country with specific reference to odisha.Sri Jugal Kishore Mohapatra Principal Secretary to Govt. of Odisha Finance Department addressed the session as chief guest. Speaking on the occasion, he emphasis the presence of Regional Stock Exchange in a growing economic to mobilization funds from various sectors specially for the SME sector. Regional exchanges with their local presence can work with the national exchanges and can mobilize equity funds for the local SMEs .He told that the funds available with the Banks will go to the government for spending various developmental projects. And partly go to the corporate sector. As such the SMEs will not able to get sufficient funds from the banking sector including Sidbi to meet their financial requirement for expansion and mobilization. Modernization. Further He stressed that it requires high level of financial literacy for retail investors to invest in Stock Market. Considering the size of the population of India 1.5% of the population invest in Stock market and most of them belong to metros. And major cities in Gujarat and Maharashtra. In order to have growth of the capital market participation of middle class and retail investors in the capital market is highly degradable. The financial inclusion can come only through the financial literacy. The regional stock exchanges with their local presence, experience on the subject and infrastructure available can take-up the financial literacy at the district and block level. He advises BhSE that should take-up massive literacy program at district / block levels. And also with educational institutions. He indicated Govt. support for taking up the Financial literacy program.Sri A.K Sabat Chartered Accountant and Sri K.N Rabindra Company Secretary Nalco and also director of the stock exchange spook on the occasion. Sri Debraj Biswal CEO of the exchange introduce the guest and gave a brief presentation on the subject .

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Sri Vivek Pattnaik Chairman of the board of management presided over the function and summed of the deliberation he advised to take-up financial literacy in a big way by the BhSE. He requested financial secretary to provide Govt. support to make the program success. The program was attended by students from various management collages and professional institute like Company Secretary, Costing and Chartered Accountant.

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CHAPTER- 3

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Conclusion: Buying and selling in the security market can seem risky and complicated. As we have already said, security market is not for everyone, but it works for a wide range of people. This tutorial has introduced you to the fundamental of future if you want to know more, talk to your broker. 

The security market is globally marketplace, initially created as a place for farmers and merchants to buy and sell commodities for either spot or future delivery. This was done to lessen the risk of both waste and security

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In terms of investment in derivative and equity investor have capacity of taking risk.

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Investor also prefers safety and time factor as the important parameter for investing.

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Rather than trade in physical commodities, security markets buy and sell future contracts, which state the price per unit, type, value, quality and quantity of the commodity in question, as well as the month the contract expires.

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The important factor affecting the investor decision is based on in consult with their broker..

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The CFTC and NFC are the regulatory bodies governing and monitoring future market in U.S. it is a importance to know your right.

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Once you make the decision to trade in commodities, there are several ways to participated in the security market. All of them involve risk – some more than others. You can trade your account, have a managed account or join a commodity pool.

Security market is growing very fast in the Indian Economy. The turnover of derivative market is incising year in the Indian largest stock exchange NSE, some factor of growing are:   

Increased the volatility in asset price in financial market. Increased integration of national financial market with international market. Market improved in communication of facilities & sharp decline in their costs. Innovation of security market, which optimally combines the risk & return over a large number of financial assets to higher returns, reduced risk as well as transaction cost as compared to individual financial asset.

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Security market encourages to entrepreneurship in India. It encourages the investor to take more risk & earn more returns. So in this way it helps the Indian Economy by developing entrepreneurship. Security market is more regulated & standardized so in this way it provided a more controlled environment. In nutshell, we can say that the rule of high risk & high return apply in different product. If we are able more risk then we can earn more profit under security market.

RECOMMENDATIONS AND SUGGESTION:-

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Investor interested in trading should be familiar with its pros & cons. Investor who are exposed to risk in the equity market, should try to hedge it through derivative market  RBI should pay a greater role in supporting derivative.  Speculation should be discouraged.  There must be more instrument aims at individual investors.  SEBI should conduct seminars regarding the use of investment procedure by through which he can educate individual investor.  After the study it was cleared that security market influence our Indian Economy up to a greater extent. So, SEBI should take necessary step for improving in Derivative markets  There is a need of more innovation in security market because in today scenario even educated people also fear for investing in security Market because of high risk involved.

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BIBLOGRAPHY

http://www.nesindia.com http:// www.derivativemarket.com http:// www.bseindia.com http:// www.5paisa.com http:// www.nirmaibang.com http:// www.mcx.com http:// www.ncdex.com

BOOKS John c Hull, Option, future And Other Derivatives. P.Chandra, Investment Analysis and Portfolio Management. Donald R Copper & Pamela S schindeier, “Business Research Methods”, Eight Edition, Tata McGraw-hill, New York 2003. N D Vohara and B R Bagri, “Future and Option” 2nd Edition, seventh reprint 2006 Tata McGraw-hill Publishing Company Ltd, 2006.

Finding & References 

The institute for Financial market (2003).Security market. Washington, DC: The IFM.p. 237.

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Redhead Keith (1997).financial Derivatives: An introduction to Futures, forwards, Options & swaps .London: Prentice-Hall.

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Lioui, Abraham; Ponect, Patrice (2005). Dynamic Asset Allocation with Forwa and Futures. New York: Springer..

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Arditti feed D. (1996), Derivatives: A Comprehensive Resource for security, Futures, interest rate swaps, and Mortgage Securities. Boston: Harved Business School Press.

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SEMI -STRUCTURE Questionnaires

. Questionnaires :To know how security trading is done in the stock market 1. How security is purchased and sold in the security market? 2. Is there any specific team involved with this activity? 3. Witch type of off people you usually targeted 4. Whether only listed companies can participate security trading process. 5. How u can take steps towards your successfully trading To know the on line trading procedure of stock exchange 6. How online trading process can done? 7. How many type of methods u use while online trading process 8. How online trading process is effecting to your organization? 9. Have any wrong information produced during the online trading process 10. What are the merit and demerit of online trading procedure?

To know role of corporate brokers and how are they different from proprietor brokers. 11. What was the role of broker in on line trading 12. What are the roles of corporate/firm broker 13. What are the roles of proprietor broker 14. What are the different factor witch differenced with corporate broker to proprietor broker To know the role of stock exchange in primarymarket and secondary market. 15. What is primary market and what are the function of primary market Amit kumar Choudhury, MBA, SOM

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16. What are the role of primary market 17. How does primary market can run 18. What is secondary market and what are the function of secondary market 19. How does secondary market can run 20. How primary market difference from the secondary market To know the role of stock exchange in Derivative Trading 21. What is the function of derivativeinstruments? 22. What are various types of derivative instruments traded at stock exchange 23. What are the benefits of derivative market while trading….. 24. What are the Risks associated with trading in Derivatives? 25. How the derivative effect the stock exchange

To know the role of Regional Stock Exchange with special reference to BHSE for economic development of the country. 26. what are different function perform by BhSE 27. What was role of BhSE in economic development of Indian market 28. How GDP gets effected by BhSE 29. What was the role of regional stock exchange 30. What was the role of BhSE in stock market.

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Thank you

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