Beruflich Dokumente
Kultur Dokumente
4, April 2013
ISSN: 2319-4421
83
ABSTRACT
The term "market" can have many different meanings. One usage of the term denotes the primary market and the secondary market. These two markets distinguish between the market where securities are created and the market where they are traded among investors. Their function is the key in understanding how securities are traded. The primary market is where securities are created. It's in this market that firms sell (float) new stocks and bonds to the public for the first time. Secondary market is where most trading occurs, the secondary market is the one in which securities are traded after having been initially offered in the primary market. It is basically a market in which an investor purchases an asset from another investor, rather than an issuing corporation. This includes the NYSE, NASDAQ and all major exchanges around the world. The defining characteristic of the secondary market is that investors trade among themselves. For example, if you go to buy Microsoft stock, you are dealing only with another investor who owns shares in Microsoft. Microsoft (the company) is in no way involved with the transaction. However there was an improvement in the mechanism of trading whereby it was seen that there was a shift from the traditional method of physical trading to the updated version of online trading.
2008. At present online brokers hold $574billion in assets but this figure is expected to grow to $4 trillion by end of 2007. The market has become saturated and very competitive. As the number of players increase, it becomes very difficult to differentiate. The volatility in US equity, market in 1999 and September 11 World Trade Center attack has hurt the online brokerage trading volumes. Established E-brokerage firms have created bearer to entry that makes it difficult for new player to enter into the market. Dematerialization the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investor's account with his (DP) Depository Party. Only those certificates that are already registered in your name and are in the list of securities are admitted for Dematerialization at NSDL/ CDSL. Demat shares are supposed to obviate all the problems of physical trading. The biggest attraction of trading in Demat shares is that the shares an investor buys comes with a clean title and immediately after the settlement on the relevant stock exchange. Buying shares in the Demat form always guarantees the investor a good title as soon as the settlement is over and hence it is a preferred mode of trading today and will be so in the future also.
INTRODUCTION
Online brokerage has grown substantially since the introduction of Internet and now account for 40%-50% of retail trade. This change has come in because individual investors want to increase control over their finances and do not want someone else to manage the money. Online trading has become very popular in last couple of years because of convenience of ease and use. Numerous companies have gone on-line to meet their customers demands enabling them to trade when they want and how they want to. Online trade, which now accounts for 50%60% of all retail trade, is forecasted to increase to 70% by
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International Journal of Management and Social Sciences Research (IJMSSR) Volume 2, No. 4, April 2013
ISSN: 2319-4421
84
So how far this system is working in India and the investors experience with these new system of trading.
need to facilitate inflow of funds in the capital market. The trading system will enable all categories of investors, resident and non-resident Indian, to trade online. Online brokerage in India is still in its early days. Though the trade through online broking is very miniscule compare to total trading, the signs are that it will grow to 30%-35% in next few years.
METHODOLOGY
Throughout the study an attempt has been made to arrive at the conclusions with help of economic reasoning, experience derived from secondary markets from the lessons of the economic history. The study is explorative in nature as it aims in identifying the growth & benefits of DEMAT and on-line trading. The assets, which the corporation has inherited, have deep roots and justify full discussion in its historical perspective.
SOURCES OF DATA
Secondary data: The secondary data collected from different websites, journals, company reports and the available literature on the subject.
The Indian stock broking business has gone through a sea of changes. From that of a business dominated by few individual players to institutional members, as did trading open outcry and hidden deeds to screen best and transparency. India enters the cyber-trading era to equal the current market trends taking into consideration the
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International Journal of Management and Social Sciences Research (IJMSSR) Volume 2, No. 4, April 2013
ISSN: 2319-4421
85
They have access to numerous tools to invest and can create their own portfolio. They feel that trading through net can hide from others.
participants (DPs). Faced with the sudden dip in the number of new account being opened the DPs are devising ways to attracts customers. On offer is Interactive Voice Response (IVR) for the latest update on Demat accounts and services through the Internet. Most of these Demat accounts are now dormant. Several DPs are planning to launch Interactive Voice Response (IVR) units and Demat services on the Net, Through these IVR units , investor will be able to know the current value of their portfolio, current holdings, transaction list, etc. Some DPs are providing Demat services on the Net to enable customer to access their account and get the holding and transaction statement on a daily basis. For eg: HDFC Bank. With Online trading an investor can: Enter orders through internet. Review your account balances and transaction activity. Obtain stock quotes in real time. Access company profiles and research. Receive the most competitive and current commission schedule. Direct Floor Access-Submit trades directly to the pit in real time. Institutional Quality Order Entry. Market-to-Market Dynamic Account Updates. Reduced Commissions - Up to 80% discounted commission rates.
RECENT DEVELOPMENTS
The bumpy Bull Run in the stock markets has triggered a slowdown in the opening of new account by the depository
25%, Asia Pacific 21% and rest 10% is made by the rest of the word.
Table 2: Showing ranking of major benefits of online trading system Benefit Single bank Improved Information Transparency 4 Time Saving 1 Cost Saving 6 Better Security/Audit 2 Straight through Processing 3 Quality of Research /Analytics 5 This table indicate By observing the above table we can understand that by using the online trading the bank can get so many benefits like Improved Information Transparency, Time Saving, Cost Saving, Better
multi-bank 1 2 3 4 5 6
Security/Audit, Straight through Processing and Quality of Research /Analytics. These benefits are changes when observation made on single bank and multi-bank.
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International Journal of Management and Social Sciences Research (IJMSSR) Volume 2, No. 4, April 2013
ISSN: 2319-4421
86
Table 3: Showing products that are traded online Product Swaps and options Bonds Commercial paper Shares This table shows by observing the above table we can understand that what are the products are transacted through on-line trading and at what % the transaction will be made. Out of 100% 65% of transaction is made for shares and remaining 35% of transaction will be made as follows. Bond 13%, commercial paper 12% and remains 10% for swaps and options.
Percentage 8% 13% 12% 65% The NSDL and CDS have signed an agreement for interdepository connectivity.
Dematerialized Trading
Dematerialization or "Demat" is a process whereby the investors securities like shares, debentures etc, are converted into electronic data and stored in computers by a Depository. Securities registered in the investors name are surrendered to depository participant (DP) and these are sent to the respective companies who will cancel them after "Dematerialization" and credit investors depository account with the DP. The securities on Dematerialization appear as balances in investors depository account. These balances are transferable like physical shares. If at a later date, the investor wishes to have these Demat" securities converted back into paper certificates, the Depository helps them to do this. Depository functions like a securities bank, where the Dematerialized physical securities are traded and held in custody. This facilitates faster, risk free and low cost settlement. Depository is much like a bank and performs many activities that are similar to a bank. Following table compares the two:
Depository Holds securities in account Transfers securities between accounts Transfers without handling securities Safekeeping of securities In case the certificates are lost in transit or when the share certificates become mutilated or misplaced, to obtain duplicate certificates, the investor may have to spend at least Rs 500 for indemnity bond, newspaper advertisement etc, which can be completely eliminated in the Demat form The investor can also receive his/her bonuses and rights into their depository account as a direct credit, thus eliminating risk of loss in transit. The investor can also expect a lower interest charge for loans taken against Demat shares as compared to the interest for loan against physical shares. This could result in a saving of about 0.25% to 1.5%. Some banks have already announced this. The exclusive demat segments follow rolling settlement cycle of T+3 i.e. the settlement of trades
Benefits Of Demat
Transacting the depository way has several advantages over the traditional system of transacting using share certificates. Some of the benefits are: Trading in Demat segment completely eliminates the risk of bad deliveries, which in turn eliminates all cost and wastage of time Associated with follow up for rectification. This reduction in risk associated with bad delivery has lead to reduction in brokerage to the extent of 0.5% by quite a few brokerage firms. In case of transfer of electronic shares, you save 0.5% in stamp duty. The investor can also avoid the cost of courier/ notarization/ the need for further follow-up with your broker for shares returned for company objection
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International Journal of Management and Social Sciences Research (IJMSSR) Volume 2, No. 4, April 2013
will be on the 3rd working day from the trade day. This will enable faster turnover of stock and more liquidity with the investor. Reduction in handling of huge volumes of paper Periodic status reports to investors on their holdings and transactions, leading to better controls. RBI has increased the limit of loans against Dematerialized securities as collateral to Rs 2mn per borrower as against Rs1mn per borrower in case of loans against physical securities. RBI has also reduced the minimum margin to 25% for loans against Dematerialized securities as against 50% for loans against physical securities. Demat functions not only in capital market, it also does in money market.
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will not charge any custody fees to the DPs for shares of that company. Future issues by such companies would require a payment of 5 basis points on the new share capital created. The valuation for new shares will be done at the issue price. Companies would not be required to pay any additional amount, if they make a bonus issue
FINDINGS
After the introduction of dematerialization the stock market has become more transparent and it attracts more investors day by day. If the volume increases continuously, DPs will be in a position to decrease the charges for opening and maintenance of demat a/c. It is observed that banks normally levy a lower service charge compared to other depository participants. There are some other banks which charges less services charges for demat services than other securities companies. When the numbers of users are more on line, the speed of the transaction is affected. Since the rolling settlement is one day, people who are speculating without having full amount of money or shares with their DP, tend to face higher degree of risk. Some securities have not yet started with the Interactive Voice Response (IVR) units and demat on net. Even though online trading provides privacy to the clients, trends available from the trading room will not help most of the online traders. Investors dealing online must possess good knowledge for analyzing the information passed on by the companies through net.
Charges
NSDL does not charge the investor directly but charges its DPs, who are free to charge their clients. NSDL charges its DPs under the following heads: Transaction Fees: Market Trade - sale - nil; purchase - 5 basis points (i.e. 0.05% of the value of net receipts to a clearing members account) Off Market Trade: sale - nil; purchase - 10 basis points (i.e. 0.1% of value of securities) Custody Fees: 3.5 basis points p.a.(i.e. 0.035% p.a. of average value of securities) Dematerialization: Rs. 10/- per certificate One time payment scheme: NSDL has announced a new scheme under which, if a company makes a one-time payment of 5 basis points (0.05%) of the average market capitalization during the preceding 26 weeks, then NSDL
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International Journal of Management and Social Sciences Research (IJMSSR) Volume 2, No. 4, April 2013
ISSN: 2319-4421
88
CONCLUSION
Notwithstanding many problems, Indian stock market has emerged as a significant financial intermediary, assisting efficient resource allocation, providing strong support to Indian economy and help investors to realize the benefits of stock market investing. The growing importance of the Indian stock market place may be noted in terms of increased mobilization of funds and growing number of investors account. Indian stock market industry has remained centered around a limited product range. This has happened due to the tendency to avoid risk, inability to understand future market development and changes in investor preference. The absence of product diversification and a confused market situation has been made more by the absence of an innovative marketing network. Online is considered as one of the innovative network. The product range offered by stock broking firms needs to be redesigned to cater the changes in the short term, medium term and long term savings and investment markets. Management is considered to be a key for the operational efficiency of any business venture. This factor becomes even more crucial for service ventures such as stock broking business venture. Stock market industry must undertake a well-designed and comprehensive program of investor education especially aimed at investors in rural and semi-urban areas. However this has been mostly neglected in India. In India most of the broking business comes from the small investors and efforts are
concentrated on serving them efficiently, and this would help them in being a good intermediary for providing various financial services due to its reach to the last mile. SEBI has been playing a significant role in the regulation of stock market. SEBIs steps like dematerializing, and trading through net etc. has increased the transparency of the trading than before. In the global market place no industry can afford to be struck by inertia. But it is management which is crucial to the success of any business operation.
REFERENCES
[1] Buckley Adrian, Multinational Finance, (15 April 2008), PHI, New Delhi [2] Alan C. Shapiro Multinational Finance Management [3] M. Karunakar & S. Saravanan (May 2008 ) Impact of Micro-Finance, Southern Economists Vol. 46, page No.37- 39. [4] Mrs. Archana Sinha (July 2008) Micro Finance Vol. 35 No. 7, page No. 33 (Courtesy: Decan chronicle). [5] N. Mukudan & M. Hilaria Sundari, Emerging Dimensions in Online trading ; Micro Finance in India, Dominant publishers and distributors New Delhi 110002. [6] Levy International Finance , (2003) TMH New Delhi. [7] IAN Giddy, Global Finance Market,(2007) AITBS, New Delhi
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