CHAPTER - 1

INTRODUCTION

INTRODUCTION
A stock exchange is a nervous system of capital market. The changes in the capital market are brought about by a complex set of factors, all operating on the market simultaneously. A stock exchange is a key institution facilitating the issue and sale of various types of securities.In the absence of stock exchange, the people with savings would hardly invest in corporate securities for which there would be no liquidity (buying and selling facility). Corporate investments from the general public would have been thus lower. A stock exchange is a place or a market where securities, shares, debentures, bonds, mutual funds of joint stock companies, central and state government organizations, local bodies and foreign government are bought and sold. A stock exchange is a platform for the trade of already issued securities through primary market. It is essential pillar of the private sector and corporate economy. It is open auction market where buyer and seller met and involve a competitive price for the securities. It reflects hope aspirations and fears of people regarding the performance of the economy. The stock exchange defined The supreme court of India has enunciated the roll of stock exchange in these words: A stock exchange fulfills a vital function in the economic development of a nation. Its main function is to liquefy capital by enabling a person who has invested money in, say a factory or railway to convert it into cash by disposing off his shares in the enterprises to someone else.

Top 5 Stock Exchanges

Rank Stock exchange 1 New york stock exchange 2 NASDAQ OMX

Head quarter New york city

Market

Trade value

Logo

capitalization(US$billion) (US$billion) 14,242 20,161

New york city

4,687

13,552

Tokyo stock exchange

Tokyo

3,325

3,972

London stock exchange

London

3,266

2,871

Shanghai stock exchangge

Shanghai 2,357

3,658

STOCK EXCHANGES IN INDIA

In India only registered stock exchange can operate the stock market activities and the recognition is governed under the provision of securities and contract (Regulation) act, 1956. There are 24 Regional stock exchanges in INDIA under Bombay stock exchange (BSE) and National stock Exchange (NSE). Daily turnover of all the stock exchanges is about 30,000 crore daily. BSE is 131 years old, which was established in the year 1875 where NSE is just 13 year old and was established in 1993. NSE has brought screen based Trading System in INDIA. BOMBAY STOCK EXCHANGE Bombay Stock Exchange, commonly referred to as the BSE, (Bombay Share Bazaar) is a stock exchange located on Dalal Street Mumbai, Maharashtra, India. It is the 10th largest stock

exchange in the world by market capitalization. Established in 1875, BSE Ltd. (formerly known as Bombay Stock Exchange Ltd.), is Asias first Stock Exchange and one of Indias leading exchange groups. Over the past 137 years, BSE has facilitated the growth of the Indian corporate sector by providing it an efficient capital-raising platform. Popularly known as BSE, the bourse was established as "The Native Share & Stock Brokers Association" in 1875.It operates one of the most respected capital market educational institutes in the country (the BSE Institute Ltd.). BSE also provides depository services through its Central Depository Services Ltd. (CDSL) . NATIONAL STOCK EXCHANGE The National Stock Exchange (NSE) is stock exchange located at Mumbai, India. It is the 11th largest stock exchange in the world by market capitalization and largest in India by daily turnover and number of trades, for both equities and derivative trading. NSE has a market capitalization of around US$1 trillion and over 1,652 listings as of July 2012.Though a number of other exchanges exist, NSE and the Bombay Stock Exchange are the two most significant stock exchanges in India and between them are responsible for the vast majority of share transactions. The NSE's key index is the S&P CNX Nifty, known as the NSE NIFTY (National Stock Exchange fifty), an index of fifty major stocks weighted by market capitalization.

INTRODUCTION TO LUDHIANA STOCK EXCHANGE The Ludhiana Stock Exchange Limited was established in 1981, by Sh. S.P. Oswal of Vardhman Group and Sh. B.M. LalMunjal of Hero Group, leading industrial luminaries, to fulfill a vital need of having a Stock Exchange in the region of Punjab, Himachal Pradesh, Jammu & Kashmir and Union Territory of Chandigarh. Since its inception, the Stock Exchange has grown phenomenally. The Stock Exchange has played an important role in channelizing savings into capital for the various industrial and commercial units of the State of Punjab and other parts of the country. The Exchange has facilitated the mobilization of funds by entrepreneurs from the public and thereby contributed in the overall, economic, industrial and social development of the States under its jurisdiction. Ludhiana Stock Exchange is one of the leading Regional Stock Exchange and has been in the forefront of other Stock Exchange in every spheres, whether it is formation of subsidiary for providing the platform of trading to investors, for brokers etc. in the era of Screen based trading introduced by National Stock Exchange and Bombay Stock Exchange, entering into the field of Commodities trading or imparting education to the Public at large by way of starting Certification Programmes in Capital Market. It has around 325 listed companies.

Regional

212

Non-regional 113 Total 325

The vision and mission of Stock Exchange is: "Reaching small investors by providing services relating to Capital Market including Trading, Depository Operations etc and creating Mass Awareness by way of education and training in the field of Capital Market.

To create educated investors and fulfilling the gap of skilled work force in the domain in Capital Market."

Further, the Exchange has 295 members out of which 162 are registered with National Stock Exchange as Sub-brokers and 121 with Bombay Stock Exchange as sub-brokers through our subsidiary. LISTING OF SECURITIES OF COMPANIES AT LUDHIANA STOCK EXCHANGE At present, Ludhiana Stock Exchange has 324 listed companies, out of which 211 are regional and 113 are Non-regional. The total listed capital of aforesaid companies is Rs. 3063.56 Croresappx. The market capitalization of the said companies is more than Rs. 1890.53 crores. The Stock Exchange is covering the vast investor base through the listing of above said companies, which are situated in the region comprising of Punjab, Himachal Pradesh, Jammu & Kashmir, and Chandigarh. Ludhiana Stock Exchange has facilitated the capital generation for agro based industries as Punjab is a agricultural led economy. It will continue to do so, once it gets approval for a tie up with bigger Exchanges for commencing trading operations.

BOARD OF DIRECTORS

Sh. V.P. Gaur Sh. Anup Kumar Jain Sh. Ashok Kumar Sh. Rajinder Mohan Singla ShPadamParkashKansal Sh. VikasBatraSh. VikasBatra Dr. R.L. Behl

Chairman Shareholder Director Shareholder Director Shareholder Director Shareholder Director Shareholder Director Public Representative

STRENGTH OF LSE
1. LSE brand is popular among masses. The brand image of LSE can be capitalized. 2. We have requisite infrastructure for the Capital Market activities which includes a multistoreyed, centrally air conditioned building situated in the financial hub of the city i.e. Feroze Gandhi Market. 3. We have well experienced staff handling operations of Stock Exchange. 4. We have competent Board and professional management. 5. We have much needed networking of sub brokers in the entire region, who are having rich experience in Stock Market operations for the last 31 years. 6. We have more than 46,000 clients spread across Punjab, Himachal Pardesh, Jammu & Kashmir and adjoining areas of Haryana and Rajasthan. 7. The turnover of our subsidiary is the highest amongst all subsidiaries of Regional Stock Exchanges in India.

INTRODUCTION TO DEPOSITORY PARTICIPANTS

INTRODUCTION TO DEPOSITORY

A significant development of the 20th century particularly in its later part is expansion of financial market world over which mostly was driven by globalization, technology, innovations and increasing trade volume. India has not been an exception with probably largest number of listed companies with a very large investor population and ever increasing volumes of trades. However, this continuous growth in activities increased problems associated with stock trading. Most of these problems arose due to the intrinsic nature of paper based trading and settlement, like theft or loss of share certificates. This system required handling of huge volumes of paper leading to increased costs and inefficiencies. The process beginning from buying shares through the stock exchanges till getting the certificates duly endorsed in the buyers name was indeed quite complex and time-consuming and was riddled with a variety of problems. Growing number of investors participating in the capital market has increased the possibility of being hit by a bad delivery, The cost and time spent by the brokers for rectification of these bad deliveries tends to be higher with the geographical spread of the clients. The increase in trade volumes lead to exponential rise in the back office operations thus limiting the growth potential of the broking members. The inconvenience faced by investors (in areas that are far flung and away from the main metros) in settlement of trade also limits the opportunity for such investors, especially in participating in auction trading. The physical form of holding and trading in securities also acted as a bottleneck for broking community in capital market operations. Risk exposure of the investor also increased due to this trading in paper. Some of these associated risks were: delay in transfer of shares, possibility of forgery on various documents leading to bad deliveries, legal disputes etc., and possibility of theft of share certificates, prevalence of fake certificates in the market, mutilation or loss of share certificates in transit. Thus, the system of security transactions was not as investor-friendly as it ought to be. In this scenario dematerialized trading under depository system is certainly a welcome move. This popular financial service emerged in Germany first time.

Meaning of depository
A depository is an organisation which holds securities(like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered Depository Participant. It also provides services related to transactions in securities.

Depository Participants (DP):

A DP is investors representative in the depository system and as per the SEBI guidelines, financial institutions/banks/custodians/stock brokers etc. can become DPs provided they meet the necessary requirements prescribed by SEBI. DP is also an agent of depository which functions as a link between the depository and the beneficial owner of the securities. DP has to get itself registered as such under the SEBI Act. The relationship between the depository and the DP will be of a principal and agent and their relation will be governed by the bye-laws of the depository and the agreement between them. Application for registration as DP is to be submitted to a depository with which it wants to be associated. The registration granted is valid for five years and can be renewed. As depository holding the securities shall maintain ownership records in the name of each DP, DP in return as an agent of depository, Shall maintain ownership records of every beneficial owner (investor) in book entry form. A DP is the first point of contact with the investor and serves as a link between the investor and the company through depository in dematerialisation of shares and other electronic transactions. A company is not allowed to entertain a demat request from investors directly and investors have to necessarily initiate the process through a DP.

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ELIGIBILITY CRITERIA FOR DEPOSITORY PARTICIPANTS:

The following entities are eligible for becoming depository participant in accordance with Regulation 19 of the SEBI (Depositories and Participants) Regulations, 1996. A public financial institution as defined in Section 4A of the Companies Act, 1056. A bank included in the second schedule of the Reserve Bank of India Act, 1934. A foreign bank, operating in India with the approval of Reserve Bank of India. A state financial corporation established under the provisions of section 3 of the State Financial Corporations Act, 1951. An institution engaged in providing financial services, promoted by any of the four institutions mentioned above. A custodian of securities, who has been granted a certificate of registration by SEBI under Section 12(1A) of the SEBI Act, 1992.

Characteristics of depository participant:

1. Acts as an Agent of Depository

2. Directly deal with customer 3. Functions like Securities Bank 4. Account opening 5. Facilitates dematerialization 6. Instant transfer on pay out 7. Credits to investor in IPO, rights, bonus 8. Settles trades in electronic segment

11

CODE OF ETHICS FOR DPS

The Business Rules of Depository provide the general principles and operational principles for Depository/DPs. The Business Rules of NSDL provide as under:

(A) General Principles

(i)Professionalism: A DP in the conduct of its business shall observe high standards of commercial honor and just and equitable principles of business.

(ii)Adherence to Business Rules: DP shall adhere to the Bye-laws and Business Rules of the Depository and shall comply with such operational parameters, rulings, notices, guidelines and instructions of the relevant authority as may be applicable from time to time.

(iii)Honesty and fairness: In conducting its business activities, a DP shall act honestly and fairly in the best interests of its BOs. (iv) Capabilities: A DP shall have and employ effectively the resources and procedures which are needed for the proper performance of its business activities.

(B) Operational Principles

(i) DPs shall ensure that any employee who commits the DP to a transaction has the necessary authority to do so; (ii) DPs shall ensure that employees are adequately trained in operating in the relevant areas they are assigned to and are aware of their own, and their organizations responsibilities as well as the relevant statutory Acts governing the DP, the Bye-Laws and the Business Rules including any additions or amendments thereof; (iii) No DP or person associated with a DP shall make improper use of BOs securities or funds; (iv) While performing any transaction in the BO accounts, the D must ensure that, great care is taken at all times not to misrepresent in any way, the nature of the transaction; (v) No DP shall exercise any discretionary power in a BOs account unless such BO has given
12

prior written authorization in this regard. (vi) (a) Whether the DP has appointed Principal Officer as required under PMLA Act ?

(b) Whether the DP has prepared a proper policy framework as per the guidelines of PMLA ? (c) Whether DP is compliant with PMLA guidelines and latest SEBI Master Circular.

(C) General Guidelines

No DP shall shield or assist or omit to report about any DP whom it has known to have committed a breach or evasion of any Rules, Bye-laws, or Regulations of the Depository or of any resolution, order, notice or direction there under of the Executive Committee or the Managing Director or any Committee or officer of the Depository authorized in that behalf.

13

OPERATIONAL AND FUNCTIONAL ASPECTS OF DEPOSITORY PARTICIPANT Account Opening :An entity that wants to keep its cash safe in a bank has to open an account with a bank as a first step and maintain cash in book entry form. Similarly, an investor has to open a demat account with any DP of CDSL as a first step to hold securities in demat form in the depository system. CDSL system facilitates opening of demat accounts for different categories of investors. Demat accounts opened with CDSL are referred as Beneficial Owner Accounts or BO account. As explained earlier, when securities are held in physical form name of the investor is recorded in the books of the company as Registered owner. When the same securities are converted into electronic form and held in a demat account, the depository becomes registered owner of the securities A demat account may be opened and maintained in the name(s) of one person (sole holder) or more than one persons (joint holders). All the joint-holders have to sign the application form and the agreement. Though the beneficial ownership of jointly held securities vests equally in all joint-holders, communications about the joint demat account are provided only to the first holder. The dividend and interest warrants, annual reports and notices for meetings are also issued to the first holder only. All BO accounts are operated at DP level; however, data is maintained at CDSL level. A BO does not have direct access to CDSL system and must act through his / her DP.. Every demat account opened in the CDSL system is allocated a 16 digit number and isreferred as BO ID. Following is an example explains the components of the 16 digit BO ID. The first 8 digits form the DP ID and the remaining 8 digits form the Client ID.

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ACCOUNT ADMINISTRATION AND MAINTENANCE

After a demat account is opened, BO may want to change certain details such as address, signatures or any other details allowed by CDSL. This activity forms part of account administration and maintenance. Any additions, deletions and modifications in the account details should be done only against duly signed account modification form from the BO. Joint holders cannot individually make a request for any account modification. All additions/ modifications/ deletion entries are logged into CDSL records for audit purposes. DPs should verify the signatures of the BO on the Account Modification Form with the signatures of the BO captured in the CDSL system. Only those fields can be modified under a given BO status, which are predefined as modifiable.

Further, the requested modifications can be entered into CDSL system only if the account Status is Active. Following changes can be done: Modification of Account Holder Names Modification of Address Change of signature and address Change in name Delete Name and Address

15

DEMATERIALISATION
Dematerialization is the process by which a BO can get his physical securities converted into electronic form. Pre-requisites for dematerialization are: Investor should have a demat account with any DP of CDSL. Securities to be dematerialized must have been admitted in CDSL i.e. ISIN for the securities should be available in CDSL. Investor should be the registered holder for the securities in the books of the company.

The BO submits a request to the DP in the Dematerialization Request Form (DRF) along with the certificates. The DP verifies the information on the DRF and physical certificates and enters the details in the system to setup a request electronically. The DP sends the physical documents to the concerned Issuer/ RTA. If the Issuer/ RTA finds the DRF and certificates in order, it registers CDSL as the registered holder of the securities and confirms the DRN electronically to CDSL. On receiving such confirmation, CDSL credits the BO account. If the issuer / RTA rejects all or some of the certificates in a demat request then the same are sent back to the DP mentioning the rejection reason(s). DP will then ask the BO to rectify the reason of rejection and send the certificates again for dematerialization under a fresh demat request.

Transfer cum dematerialization of existing scrips

Transposition-cum-Dematerialization Transposition is Change in order of names. For example, if the certificates are in the names of A & B, the same can be lodged for dematerialization under account held in the name of B & A, by filling up the DRF and the Transposition Request Form (TPRF). This will enable the Issuer/RTA to transpose the securities in the order of the names in which the account is opened and then accept the dematerialization request. In case the BOs wish to transpose and demat the securities, the DP shall handover a TPRF along with the DRF to the BOs.

16

 In case of transposition-cum-dematerialization, the BO should mention the details of the account in which they wish to dematerialize the securities. The DP shall verify the following on the TPRF : Whether the TPRF is complete. Whether the TPRF contains only those names (in any order) that are the holders of the BO account. Whether all the holder(s) have signed the TPRF. The DP should maintain a copy of the TPRF along with a copy of the DRF. Transmission cum - Dematerialization In case of death of one or more joint holders, the surviving holder(s) can get the Share Certificate(s) dematerialized by submitting the following documents, along with the Share Certificate(s) : a) Dematerialization Request Form b) Original or copy of the death certificate of the deceased holder(s), duly notarized or attested by a Gazetted Officer. c) Transmission Request Form Annexure 4.5 (for death of one/more of joint holder(s)) The DP should ensure that the demat account is in the name of the surviving holders only. DP should setup a demat request and submit all the documents to the Issuer/RTA with the system generated letter. DP should write in the FROM BO ID column as Transmission-cum-Demat.

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SETTLEMENTS
When securities are purchased or sold, the same need to be transferred into the buyers account or transferred out of the sellers account. Since settlement of trades in all listed securities is to be compulsorily done in the dematerialized form, the transaction has to be routed through the depository system. The securities could either be sold or purchased through the stock exchange mechanism or outside the stock exchange mechanism. A demat account can be debited / credited only on instructions of the BO. BO therefore needs to give instructions to his / her DP to affect debit / credit of securities out of his / her demat account. However, instructions are, generally, required only for debit since a BO can give a onetime standing instruction to the DP, for crediting the account without a credit instruction, at the time of account opening. This one-time instruction is known as Purchase waiver. The DP executes all instructions in the CDSL system, only after verification of the signature of the account holder(s).

TRANSMISSION
The objective of transmission functionality is to allow the transfer of title of securities in case of death of an account holder and inheritance by a successor, as stated by the deceased BO. The securities are transferred into the account of either the surviving joint holder(s) or the claimant to the securities. This transaction can be initiated by the DP for transfer of securities only in case of death of all or any of the holders or in any other case with the prior approval of CDSL. For transmission of securities in case of death of one of the holders, the new account would need to be opened in the same order of names of the surviving holders as given in the old account. For example: If the old account is in the names of A, B & C and "C" expires, the new account, shall necessarily be in the names of A and B. In case the surviving holders wish to transfer the securities to a demat account with any other DP of CDSL, the DP shall ensure that the names of the surviving holders are in the same order of names as in the existing account. The surviving holders shall submit to the old DP, the Client Master Report of the new account duly stamped and signed by the new DP for effecting
18

the transmission of securities. A declaration stating that all transactions in the account are authentic shall be submitted by the surviving holders to the old DP. If the surviving holders wish to transfer the securities to a demat account with the same DP, the new account may be opened by the DP, based on the documents submitted at the time of opening of the original account. However, if the 1 holder in the new account is different from that in the old account, the DP shall ensure that the existing KYC norms are adhered to in obtaining the required proofs for recording of permanent and correspondence address. A declaration stating that all transactions in the account are authentic shall be submitted by the surviving holders to the old DP. Further, DPs shall ensure that the KYC documentation, for opening of new accounts, is as per SEBI and CDSL specifications in force at the time.
st

REMATERIALIZATION / REPURCHASE
Rematerialisation allows to convert the electronic balances held by the BO in itsdemat account into physical form. In the case of Repurchase, the remat module is used to expunge (remove) the securities and obtain the proceeds against the same. Features Rematerialisation is a process by which the Securities held in electronic form are converted into paper mode securities by the Beneficial Owners. While, in the case of Repurchase, the payment is issued to the BO by the Issuer/RTA in lieu of securities held in electronic form.

19

ACCOUNT CLOSURE
The BO himself or his DP or CDSL may initiate the request for Account Closure. A DP may request the closure of its BO accounts by specifying appropriate reason. A BO account can also be closed by CDSL on reasonable grounds. A CM may request closure of his CM Unified Settlement (CM Pool) Account / CM Principal Account / CM Clearing Member Account. A DP can set-up or cancel an account closing request only for the BO accounts serviced by the DP or its branches, if the Main DP has taken the rights from its branch with itself for this function. Procedure

A BO account can be closed in the following cases: Closure initiated by BO Closure initiated by DP Closure initiated by CDSL

The Account shall be closed by the CDSL system only when all the balances in the account are Zero.

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PENALTIES FOR VIOLATIONS, IRREGULARITIES, NON-COMPLIANCES OR DELAY IN COMPLIANCES

The objective of imposing penalty on the Depository Participants (DP) is to impress upon every DP the importance of observing compliance of various regulatory requirements and to discourage them from non-compliance or violation of these requirements. Classification of violations Violations are classified into four categories : 1) Fraud committed at the offices of DPs, including fraudulent / benami / fictitious demat accounts opened with DP. 2) Failure to resolve the grievances of investors. 3) Disruption of services due to system-related / connectivity failures. 4) Other procedural lapses.

Scale of penalty The scale of penalty to be levied for non-compliance, irregularity, violation or delay in compliance is furnished in Annexure 11.1 for DPs. The DAC will have the power and authority to impose penalties higher than mentioned in the said annexure depending upon the nature of irregularities observed. It shall be open to the authority empowered to impose the penalty to refer any violation to the DAC, if he deems it necessary to do so, irrespective of the monetary limits. The list of non-compliances is subject to such modification as may be deemed fit by CDSL from time to time and the same shall be effective on its notification to the DPs through communiqu.

Procedure for imposition of penalty on DPs In case any violation, irregularity, non-compliance or delay in compliance is noticed, the concerned functional department will inform the A I & C Department about its findings.
21

 All instances of complaints / cases involving or allegation of frauds will be reported to DAC.

Non-compliances where monetary penalty is levied The penalty amount will be included in the monthly bill of the DP. If the DP does not pay the monetary penalty within a month of the due date of the relevant bill, the matter will be reported to DAC. If penalties are imposed but the DP does not confirm rectification of non-compliance within 60 days of imposition of penalty, the matter will be referred to DAC.

Verification of Compliance

The compliance reported by the DP will be verified during the subsequent inspection. In case the compliance reported by the DP is found to be false, materially incorrect or misleading, the matter will be referred to the DAC for necessary action. Penalties for non-compliances not covered in Annexure 11.1

The MD or ED or COO will have the authority to introduce monetary penalty for such types of non-compliances which are not covered in Annexure 11.1, subject to reporting to the DAC for information and review.

General guidelines for imposition of penalty on DPs If the total monetary penalty levied on a particular DP in last 3 years exceed 1,00,000/-, the matter will be referred to DAC. The penalty will be accumulated for a period of 3 years. At the beginning of the 4 year, the penalty accumulated in the 1 year will be dropped and the penalty levied in the 2 and 3 year will be considered as the opening balance and so on for the subsequent years.
22
nd rd st th

 If any non-compliance attracts penalty under more than one head, the higher of the penalty will be applicable. The actual cost of travel & stay, etc. of depository officials and / or other person/s on behalf of depository, if any, with respect to the ascertainment or waiver of penalty or for rectification of the non-compliances will be recovered from the DP.

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CHAPTER 2

REVIEW OF LITERATURE

24

REVIEW OF LITERATURE
The role of financial system is considered to be the key to economic growth. A well-developed financial system promotes investment by identifying and financing lucrative business opportunities, mobilising savings, allocating resources efficiently, helping diversify risk and facilitating the exchange of goods and services. A growing body of literature has affirmed the importance of financial system to economic growth. Stock market development has assumed a development role in global economics and finance following the impact they have exerted in corporate finance and economic activity Comincioli (1996) provided theoretical justification for stock prices to act as indicator of economic growth. According to fundamental valuation models, stock prices depend on expectations about the future economy. Therefore, expected changes in real economy cause the values of stock prices. According to wealth effect, however changes in stock prices cause the variation in the real economy. Luintel and Khan (1999) studied 10 developing economies and find bi-directional causality between financial development and economic growth in all sample countries. Measure stock market development along various dimensions: aggregate stock market capitalisation to GDP and the number of listed firms (size), domestic turnover and value traded (liquidity), integration with worlds capital markets, and the standard deviation of monthly stock returns (volatility). The results suggest a strong and statistically significant relationship between initial stock market development and subsequent economic growth. Dennis O.Odife (2000) studied the state and extent of stock exchange and capital market development in sub-saharan African has come under scrutiny arising from increased global interest in emerging markets. Recent changes in stock exchange and capital market development all over the world and especially in the emerging economies of eastern Europe contains lessons, which African nation need to imbibe for their benefit. These changes are in the area of ownership and operations of stock exchanges, distribution of stock exchanges worldwide, trends towards alliances between stock exchange in Europe, and in economic literature concerning economic

25

growth. This paper examines some of these changes and suggests new direction for African economies in their quest for more rapid and broad based sustainable economic development Mukherji and Joydeep (2000) concluded that regional stock exchanges in india have for a long time, being suffering from low turnover and lack of liquidity. After NSE launched its screen based trading through terminals located all over the country, regional exchanges were facing a very tough time and struggling to survive. This note describes the status, operation and sources of revenue of one such regional exchange. This note also provides comparative data on the regional exchanges in india. P.V. Nishanth (2000) studied that capital market has witnessed numerous changes in the recent past as seen earlier. Traditionally stock market booms and decline have resulted in a number of problems for lay investor. A close introspection of this problem will reveal that most of them are due to intrinsic nature of the paper based trading and settlement system. Indian economies have been globalized and the capital market has been linked to the international financial market. Foreign individuals and institutional investors have encouraged to participant into it. So there is a need for raising the Indian capital market into the international standards in terms of efficiency and transparency. Goel and Prabhu (2004) concluded that National Securities Depository Ltd.(NSDL) is Indias first and largest depository with more than 90% market share. NSDL provides infrastructure facility to hold and transfer shares, debentures, bonds and such securities in electronic book entry form. NSDL provides these services to 48.85 lacs investors from 1700 locations in the country through the network of around 400 business partners connected to its central system over VSAT/Leased line closed user group network. NSDL has also set-up PKI enabled Internet based economic infrastructure facility to enable its business partners to receive instructions from depository user in an electronic form. The system holds records of over Rs. 9 lacs crores securities assets and handles close to million booking transactions and settlement exceeding Rs. 2000 crores. For NSDL, authenticity of debit instructions, privacy of investors data, continuity of its service, reconciliation and system integrity are core area of risk containment. Adjasi and Bickpe (2005) find that positive influence of stock market development on economic growth is significant for countries classified as upper middle-income economies from
26

the study of 14 african countries. Even when accounting for expectations, represented by the economic sentiment indicator, the stock market has certain predictive content for the real economic activity. Paudal (2005) studied that stock markets, due to their liquidity, enable firms to acquire much needed capital quickly, hence facilitating capital allocation, investment and growth. Stock market activity is thus rapidly playing an important role in helping to determine the level of economic activities in most economies. However, controversy does exist on the role of stock market as an indicator of future economic activity. Sabharwal and Falcon (2009) concluded that to fill the gap in the literature by re-examining the performance of value and growth strategies in India. Note that stock returns in India increases with market cap and P/E. their emerging market data are limited, however, and their counterintuitive results for India are neither statistically nor economically significant. We use a large and recent data set, and we are surprised to find that these odd results have maintained their sign and strengthened dramatically. In particular, we find that stock returns in India increase strongly with both market cap and P/E, and decrease strongly with dividend yield. International investors need to be aware that Indian markets do not follow the patterns that we have seen in most other markets and that growth beats value on the Bombay Stock Exchange.

Study found that depository is the main element of stock exchange. Previous researches had found that how the depositories have undergone a huge change in the working of the depositories, how the dematerialization of the shares has been extremely beneficial to the investors. The facts that are missing in the previous studies are operational aspect of depository and how the trading has changed due to introduction of depositories.

27

CHAPTER - 3

DATABASE AND METHODOLOGY

28

RESEARCH METHODOLOGY
Research Methodology refers to search of knowledge. One can also define research methodology as a scientific and systematic search for required information on a specific topic. In Research Methodology we study the various steps that are generally adopted by a researcher in his research problem along with the logic behind them.. In a research various methods are used. The selection of method depends on the nature of problem selected and kind of data necessary for the solution.

OBJECTIVES OF THE STUDY To study the working system of depository participants. To study factors affecting the choice of investments. To study the procedure regarding depository.

SAMPLING PLAN: a) Sampling unit: It consists of investors, brokers etc. b) Sampling size: 100 respondents were selected c) Sampling procedure: To obtain representative sample, non sampling procedures were adopted. Sampling was done to silent the most accessible population. d) Contact method: The respondents were personally interviewed.

29

DATACOLLECTION:
Data has been collected both from primary as well as secondary sources as described below: Primary data Primary data has been obtained through questionnaires and personal interview. Secondary data For this project secondary data is also used. Secondary data is the data compiled by someone other than the user. It includes published data in the form of documents, research papers, web pages and other organizational records.

Analysis method:
The data was tabulated and frequency distribution was developed. The percentages are computed for different variables

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CHAPTER - 4

DATA ANALYSIS AND INTERPRETATION

31

Q1. Do you invest in stock market?

Response Yes No

Respondent 45 55

45% Yes No 55%

Interpretation:
The researcher met people and firstly he asked that Are they investing their money in stock market or not because this is necessary to know of him for their research and the result is 45% are people are investing their money in stock market and 65% are not investing their money in this.

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Q2. How long you are investing in stock market?

Response Less than 1 year 1-5years 5-10years More than 10 years

Respondent 28 48 14 10

10% 14%

28% less than 1 yr 1-5 yrs 5-10 yrs more than 10 yrs 48%

Interpretation:
The researcher met those people who are trading in stock market to know the time period. According to him there are 28% people who are working in stock market since less than 1 year like this there are 48% people who are working since 1 to 5 years, 14% people are working since 5 to 10 years and 10 % people working in stock market since more than 10 years.

33

Q3. Which type of trading do you trade in stock market? Response Intraday Delivery Future and option Intraday &delivery Intraday &F&O Delivery & F& O Intraday .Delivery & F& O Respondent 14 13 6 41 11 4 11

45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

Series1

In tra da y

de liv er y

ive ry

Interpretation:
There are three option of trading in stock mardet:1) Intraday(buy today sell today), 2) Delivery and Future and Options. There was 14% investor trade in Intraday, 13% in Delivery, 6% in Future & Options, 41% in Intraday and Delivery, 11% in Intraday and Future & Options and 4% in Delivery and Future & Options and 11% investors in Intraday, Delivery and Future & Options.
34

O ive In ry tra & da F y, & D O el ive ry ,F & O

De l

&

in tra da y&

In tra da y

&

De l

&

Q4. Which among the following is deciding factor before your investment?

Response News paper Friends and Reletives Brokers Online Self Other

Respondent 19 48 10 8 11 4

Respondent
News paper Friends and Reletives Brokers Online Self Other

Interpretation:
There are various factors on which investment depends. There are 19%investors decides from newspaper,48% from friends and relettives, 10% from brkers, 8% from online , 11% self, and 4% from other factors .

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Q5. What factors affect your strategy of Investment?

Response Company name Growth Investment Price of share Annual report

Respondent 14 40 8 12 26

26%

14% Company name Growth Investment Price of share

12% 8%

40%

Annual Report

Interpretation:
Every investor thinks before investing money in any kind of investment. In stock market whenever and however an investor invests money he just think about that where he is investing his money in good company or not. So every investor has some strategy before investment. There are 14% investment on the basic of brand name of the company, 40% investor watch the growth of the company, 8% investment see the investment of the company, 12% investor take the decision of investment on the basic of price of shares and 26% investor invest money after watch on annual result or report of the company.

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Q6. In which particular sector do you invest your money?

Response Bank It Real Estate Petroleum Retail Mix

Respondent 14 10 6 10 6 54

14% 10%

Bank IT Real Estate Petrolium

54% 10% 6%

6%

Retail Mix

Interpretation:
There are 23 sectors in stock market but researcher take some sector from them those are running on boom at present. As per the matter of investment in different types of sectors of the investors invest money in more than one sector. There are 54% investors who in more than one sector, 14% are like to invest to invest in Bank, 10% are in IT, 6% are in Real Estate, 10% are in Petroleum and 6% are in retail sector.
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Q7. When would you like to invest your money?

Response Raising Time Falling Time

Respondent 32 68

70% 60% 50% 40% 30% 20% 10% 0% Raising Time Falling Time Series1

Interpretation:
In stock market 68% investor likes to invest their money in Falling Time. Because that time the price of share is going to less and investor thinks is the right time of investment. It is a fact that most of the investor in stock market are like to buy shares at minimum price. There are 32% investors believes investing their money in Raising Time. Because in raising time these investors thinks that market is going more up so they like to buy share that time.

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Q8. What strategy do you adopt when market is going up?

Response Sell Purchase None

Respondent 68 24 8

8% 24% Sell Purchases None 68%

Interpretation:
When the market is going up 68% investors sell out there shares and short sell the shares. Investors who trade on Delivery basis they sell out there shares on the higher price as compare to buying price of shares so that they get returns in higher market and investor who trade on intraday basis they short sell the shares and waiting for the down of price of short sell share and buy them to make profit. 24% like to buy the shares when market is going up.8% investor does not want to trade at this time. They just wait and watch the market.

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Q9. What strategy do you adopt when market is going down?

Response Purchase Sell None

Respondent 74 8 18

80% 70% 60% 50% 40% 30% 20% 10% 0% Purchases Series1

Sell

None

Interpretation:
When market is going down 74% investors like to buy at this time. The reason being most of the investors like to purchases shares at minimum price,8% investors sell out their shares that time reason being the limit of trading, capacity of facing loss and fear of market can go down more,18% investors are waiting for right investment at right time.

40

FINDING
According to many persons Stock Exchange is a place of high risk and high return. Most of the people are trade according to themselves. Company growth and annual result plays a crucial role in investment. Investment in long term is safe and gives secured returns.

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LIMITATIONS:
1. The sample size taken during project study may not represent the realistic picture hence there may be a margin of error. 2. Time constraint in the project. The survey was carried through questionnaire and the questions were based on perception. 3. There may be some interpretation error. 4. Complete data was not available due to company privacy and secrecy. 5. Since a smaller sample was chosen so it may not be a true representative of the population under study. 6. The possibility of the respondents responses being biased cannot be ruled out.

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SUGGESTION:
1. Since dematerialization has a great bearing on the creation and protection of wealth and investment earnings of an investor, DPs must increase their efforts in promoting enhanced services in general, and in those involving security and safety in particular. 2. To encourage the existing and prospective shareholders, all efforts should be made to ensure good returns, in addition to providing greater security and safety. 3. Since the investors expect better service form depository participants, it should provide them value-added services. 4. The processing of the DEMAT account opening should be made fast and non-tedious. 5. The DEMAT a/c holder should be given basic information about NSDL, CDSL and Depositaries Act 1996.

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CHAPTER - 5

CONCLUSION

44

Conclusion
To conclude, it can be said that the research findings clearly reveal the goodwill and reputation of depository system among the customers. But there is a need to strengthen this depository system by spreading awareness about the services offered by NSDL, CSDL and its trading companies through advertisement and by expanding the more branches of this system all over the country and also by tapping the potential customers through innovative means. It is very difficult to predict the stock market. Market fluctuation plays an important role in investment. Most of the people have same strategies. All strategies fail when market is suddenly turned.

45

Bibliography

46

BIBLIOGRAPHY
WEBSITES www.google .com www.moneycontrol.com www.rediff.com www.reliamcemoney.com

BOOKS 1. Financial institutions and markets-L.M.Bhale 2. Investment management-V.K.Bhalla

3. 4.

Research methodology-Mohitgupta,NavdeepAggarwal Financial services- Shashi k. gupta, Nishaaggarwal

47

Annexure

48

ANNXURE
PERSONAL INFORMATION:

1. Name ____________________________________________

2. Gender:

Male [ ]

Female [ ]

3. Age:

20-30 years[ ]

31-40 years[ ]

41-50 years [ ]

50 above

[ ]

Q1. Do you invest in stock market? (a) Yes ( ) (b) No ( )

Q2. How long you are investing in stock market? (a) Less than 1 year ( (c) 5-10year ( ) ) (b) 1-5year ( ) )

(d) above 10 years (

Q3. Which type of trading do you trade in stock market? (a)Intraday () (c) Future and Options ( ) (b) Delivery ( )

Q4. Which among the following is deciding factor before your investment? (a) Newspaper ( (c) Brokers ( (e) Self ( ) ) ) (b) Friends& relatives ( (d) Online ( (f) Others ) )

49

Q5. What factors affect your strategy of Investment? (a) Company Name ( (c) Investment ( (e) Annual report ) ( ) ) (b) Growth ( ) )

(d) Price of shares (

Q6. In which particular sector do you invest your money? (a) Bank ( ) ) (b) IT ( ) )

(c)Real Estate ( (e) Mix ( )

(d) Retail (

Q7. When would you like to invest your money? (a) Raising time ( ) (b) Falling time ( )

Q8. What strategy do you adopt when market is going up? (a) Sell ( (c) None ( ) ) (b) Purchases ( )

Q9. What strategy do you adopt when market is going down? (a) Sell ( (c) None ( ) ) (b) Purchases ( )

50