a study on the share settlement cycle involved in sugal and damani share brokers pvt ltd

8/14/2019 A Study on the SHARE Settlement CYCLE Involved in Sugal and Damani Share Brokers PVT LTD

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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 ofDEPARTMENT 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 ofM.B.A course ofANNA 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 forhis 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 couldnt 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

1.1 Industry Profile

1.2 Company Profile

1.3 Product Profile

1-11

12-13

14-15

16-17

Chapter 2 REVIEW OF LITERATURE

2.1 Objective

2.2 Scope of the study

2.3 Limitations

18-21

22

23

24

Chapter 3 RESEARCH METHODOLOGY

3.1 Definition

3.2 Research Design

25

26

Chapter 4 ANALYSIS & INTERPRETATION 27-31

Chapter 5 FINDINGS OF THE STUDY 32

Chapter 6 SUGGESTIONS AND

RECOMMENDATIONS

33

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 ofObligation: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 members 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.

69

(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 custodians property remains vested

with the original holder, or in their nominee(s), or custodian trustee,

as the case may be. In NSCCL, custodian is a clearing member but not 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 BOs 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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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

brokers office and now its just a few steps away at your fingertips, introducing our SND

EASYTRADEwherever 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 ofstock 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 & DAMANIpowered 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 occurso

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

viewpointknown as 'hard' EMHalso 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 percentthe 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 notoccasioned 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 tosystematically 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 orink 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 phenomenonalso from psychologythat 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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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 conductions 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 ofObligation:NSCCL determines what counter-partiesowe, 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 members 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 ClearingMember 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 custodians property remains vested

with the original holder, or in their nominee(s), or custodian trustee,

as the case may be. In NSCCL, custodian is a clearing member but not

a trading member. 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
http://www.nseindia.com/http://www.en.wikipedia.com/http://www.encyclopedia.com/http://www.sugalshare.com/http://www.equitymaster.com/http://www.nseindia.com/http://www.en.wikipedia.com/http://www.encyclopedia.com/http://www.sugalshare.com/http://www.equitymaster.com/

a study on the share settlement cycle involved in sugal and damani share brokers pvt ltd

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