Introduction of Bonanza

OVERVIEW OF BONANZA
A financial powerhouse! Thats what Bonanza is for you! Established in the
year 1994, Bonanza developed into one of the largest financial services and
broking house in India within a short span of time. Today, Bonanza is the
fastest growing financial service with 5 mega group companies under it.
With diligent effort, acknowledged industry leadership and experience,
Bonanza has spread its trustworthy expertise all over the country with panIndia presence across more than 1632 outlets spread across 535 cities.
With a smorgasbord of services across all verticals in finance, Bonanzas
offers you the perfect blend of financial services right from Equity Broking,
Advisory Services that cover Portfolio Management Services, Mutual Fund
Investments, Insurance to exceptional Depository Services.
Bonanza believes in being technologically advanced so that we can offer you
our tech-savvy customers - an integrated and innovative platform to trade
online as well as offline. Besides, we also have one of the finest and most
dedicated research teams with experts who have in-depth, unsurpassed
knowledge of the market place. All this and more makes Bonanza the perfect
place for you to take your first step in the direction of financial success.
Bonanza is affiliated with the best in the industry right from the NSE, BSE
MCX, MCX-SX to CDSL, NSDL, ICEX and USE etc. These affiliations
prove our worth in the market and make Bonanza a name to reckon with.
With various titles and achievements under our belt, Bonanza looks forward
to tougher challenges and newer milestones to conquer, so that you our
customer can get nothing less than the BEST!

So come join the Bonanza family. We look forward to helping you grow
financially.
Vision & value
To be one of the most trusted and globally reputed financial distribution
companies.
Values

Customer-centric
approach
At Bonanza, customers come first. And their satisfaction is not just
our top priority but also the driving force for us, every single day.
Transparency
Honesty is our forte. We believe in dealing on thoroughly ethical
grounds, being fair and transparent with our customers.
Meritocracy
We recognize and appreciate efforts put in by our employees. And we,
as a matter of fact, reward and distinguish each one of them,
ceaselessly.
Solidarity
We believe in sharing a forthright and respectful relationship with our
business partners and employees. We consider them both as our team
associates, who work together. Succeed together.

Milestones of Bonanza
5th largest in terms of no.
of offices for the year
2010-2011*.

Top Equity Broking House

in terms of branch
expansion for 2008*.

4th in terms of Trading

terminals for the year 2010
- 2011*.

6th in terms of Sub

Brokers for the year 20102011*.

Nominated among the

Top 3 for the "Best
Financial
Advisor
Awards 08" in the
category of National
Distributors Retail
instituted by CNBCTV18 and OptiMix.

Nominated among the

Top 3 for the "Best
Financial
Advisor
Awards 09" in the
category of National
Distributors Retail
instituted by CNBCTV18 and OptiMix.

Awarded by BSE Major

Volume
Driver
04-05,06-07,07-08 .

Ranked 2nd by UTI MF

& CNBC TV 18
Financial Awards 2009
in the category Best
Financial
AdvisorRetail.

Top 4 in Commodity
Segment in Bloomberg
UTV

Financial Services Snapshot

One of Indias largest and fastest growing non-banking
financial services firms:
621 branches & 13,000 employees largest branch
network in Private Financial Services sector
Rs 20,000 million consolidated net-worth (including
preference capital)
Over 314,000 high net-worth clients in Securities and over
65,000 consumer finance clients
Sustained high growth driven by increased penetration of
Capital Markets and Consumer Financial services and strong
economic growth
CAGR (FY03-FY10)
Revenues - 140%
Earnings - 200%
Securities:
Securities & Derivatives Brokerage
Loan against shares & IPO Financing
Consumer Finance:
Personal Loans
Residential Mortgage & Loan against property
Commercial Vehicle Financing
Financial Services Revenue
Used Two-Wheeler Loans
Contribution
Small Business Loans

FY10 Rs 6,135 million

4

Financial Services Outlook

Net Profit:

Company expects to achieve net profits after tax in the range of Rs 3,100
to Rs 2,000 million from the Financial Services Business during the current
fiscal year as compared to Rs 1,511 million of net profits in fiscal year
ending March 2010

Securities Business:
Securities Business is expected to continue to gain market share through out
the current Fiscal year driven by strong customer additions
Business Conditions continue to be challenging with higher customer count
offset by weak per customer trading volumes and revenues. Business
volumes are expected to be sequentially flat to slightly down despite rapid
growth in customer base.

Consumer Finance Business:

Consumer Finance is expected to continue to show significant increase in
loan origination volume as it benefits from the nation-wide distribution
network combined with a comprehensive product offering
The Company expects to reach over Rs 11,000 million of balance
outstanding across its various loan product offerings such as personal loans,
commercial vehicle loans, two wheeler loans and loans against property by
end of FY 2009-10. This compares to Rs 2,386 million of balance
outstanding as of June 2010 with an average yield of 31%.

Diversified Businesses : High Growth Areas

Securities
&
Derivative
s Broking

Secured
Financing

Mortgage
&
Housing
Finance

Financial
Products
Distributi
on

Consumer
Financing

Leadership in Securities Industry

Increasing Market Share of Bonanza on NSE Trading Volumes (1)

35%
30.7%
30%

25%

22.3%
21.9%

20%

18.8
%

17.5
%

15%

10%
5.5%

3.4%

5%

2.2%

1.9%

1.1%
0%

(1)

FY200
6

FY200
7

FY200
8

FY200
9

FY201
0

Share in Online Trading

Share in Total Trading

Amongst the largest non-banking financial services

company in India

Strong brand recognition and customer acceptance

Trusted partner for retail customers
Top 5 securities industry players
Market leader in online trading
7

Robust Risk Management Systems

Risk Management Module

Centralized Back Office

Risk management logic built into

internet trading application

Continuous marking-to-market of

Inter-branch connectivity
enabling centralized order entry
and back office support to all
terminals

client exposure

Back office support for

centralized control and risk

management of non-internet
transactions

Strong risk management module

Backup and recovery functions to

enhance reliability of system and
data integrity
Maintenance and periodic testing
of disaster recovery plan

in place for credit appraisal and

loan disbursements

Strong redundancy arrangements

and disaster recovery plan in
place

Real-time Risk Management System requiring minimum

human intervention

Risk Management Logic takes into account all assets of client, to determine
allowable exposure value. Margin calls automatically relayed to client and
system administrator

On instances of extreme market volatility the system has demonstrated its

robustness in coping with extreme fluctuations
8

Growth Story
Bonanza has emerged as one of the leading and fastest growing financial
company in less than two year, since its initial public offering in September
2004. It has a market capitalization of around USD 500 million and
consolidated net worth of around USD 200 million.
2004-05:
Bonanza Financial Services Ltd. established Indias one of the first trading
platforms with the development of an in house team.
2005-06:
Bonanza expands its service offerings to include Equity, F&O, Wholesale
Debt, Mutual fund, IPO distribution and Equity Research.
2006-07:
Bonanza ventured into Insurance distribution and commodities trading.
Company focused on brand building and franchise model.
2007-08:
Bonanza came out with its initial public offer (IPO) in September
2008.Bonanza started its consumer finance business.
Bonanza entered the Indian Real Estate market and became the first
company to bring FDI in Indian Real Estate. Bonanza won bids for
landmark properties in Mumbai.
2008-09:
Bonanza has acquired over 115 acres of land in Son-pat for residential home
site development.

Merrill Lynch and Goldman sac, one of the renowned investment banks in
the world have increased their shareholding in Bonanza.
Bonanza is a market leader in securities brokerage industry, with around
31% share in online trading,
Farallon Capital and its affiliates, the worlds largest hedge fund committed
Rs. 2000 million for Bonanza subsidiaries Viz. Bonanza Credit Services Ltd.
and Bonanza Housing Finance Ltd.
2009-10:
Bonanza entered in a 50/50 joint venture with DLF, Kenneth Builders &
Developers (KBD). KBD has acquired 35.8 acres of land from Delhi
Development Authority through a competitive bidding process for Rs 450
crore to develop residential apartments.
Bonanza Financial Services Ltd. is included in the prestigious Morgan
Stanley Capital International Index (MSCI).
Farallon Capital has agreed to invest Rs. 6,440 million in Bonanza Financial
Services Ltd.

10

Sales Hierarchy
& Branch
Bonanza
Group Hierarchy
Structure

SENIOR VICE
PRESIDENT
REGIONAL
MANAGER
BRANCH MANAGER/
SENIOR SALES
MANAGER
Support
System

Back
office
Execu
tive

Sales
Function

Local
Compli
ance
Officer

RM/S
RM

ARM

Dealer
11

PRODUCT PROFILE
1.

Depository Services

Bonanza is a depository participant with the National Securities Depository

Limited and Central Depository Services (India) Limited for trading and
settlement of Dematerialized shares. Bonanza performs clearing services for
all securities transactions through its accounts. We offer depository services
to create a seamless transaction platform execute trades through Bonanza
Securities and settle these transactions through the Bonanza Depository
Services. Bonanza Depository Services is part of our value added services
for our clients that create multiple interfaces with the client and provide for a
solution that takes care of all your needs.
2.

CONSUMER FINANCE:

Bonanza being a retail focused organization fulfills the credit need of a large
percentage of population in India. The key aspect of Bonanza business
model is to provide an extremely unique customer experience. The blend of
power of the Internet with personalized services allows Bonanza to expand
its geographical coverage and capture a greater share in the highly
competitive retail market. We offer consumer loans, home loans, personal
loans, securities brokerage, and other financial products and services to retail
customers from across 414 Bonanza offices in 127 leading cities of the
country.
3.

MORTGAGE LOANS:

Bonanza has commenced lending of Mortgage Loans to prospective

customers under the flagship of Bonanza Housing Finance Ltd. Here we
enable home-seekers to access finance to buy their homes. We also provide
plot loans, Loan against Residential, Commercial and Rental Property,
thereby enabling the borrower to leverage the property owned to fund any
legitimate needs be it Business Expansion, Child's Education, Child's
Marriage or for Holiday Abroad.

12

BONANZA STATUS
After realty, Lakshmi Mittal wants a slice of the booming financial
services sector. Bonanza Financial Services, where Mittal owns a 6% stake,
wants a merger with beleaguered UWB.
In a proposal submitted to RBI, which is scouting for a suitor for the bank,
IFSL wants its financial services business to be merged with that of the
bank.
IFSL has proposed a swap ratio of 6:1 and an infusion of Rs 450 crore
equity. This means for every six shares of UWB, the shareholders will
receive one share of IFSL.
UWB trades at Rs 19 on BSE and Bonanza at Rs 149.After pumping fresh
capital into the bank, UWB's networth is likely to rise to around Rs 1,450
crore.
Currently the bank's networth is negative. After demerging the real estate
business, IFSL will have a net worth of Rs 1,000 crore, the presentation to
RBI said.
Eventually the merger will give Lakshmi Mittal Investment Ventures a 5%
stake in the merged entity. The proposal has also laid down certain riders to
comply with RBI norms.
Sameer Gehlaut, CEO of IFSL, who would own 14% stake in the merged
entity will pare his stake down to 10% as stipulated by RBI.
MUMBAI: Turning around steel companies may be Lakshmi Mittal's forte,
but that doesn't prevent the UK-based NRI from entering real estate
development and home financing in India.
A source said Mittal would fund specific realty projects in JV with Bonanza,
a financial serivices provider in which he owns a stake. "When we apprised

13

him of real estate opportunity in India, he expressed keenness to invest in

specific projects," a source familiar with development said.
His relationship with Bonanza started in 2000 when he purchased a 10%
stake In Bonanza Financial Services.

After the company made a public offering, two overseas issues and a
preferential sale of equity to US private equity firm Farallon Capital
Management, Mittal's stake came down to 6%. However, the company's
valuation has jumped from Rs 20 crore in 2000 to Rs 2,500 crore at present.
Mittal, it is learnt, wants a share of the booming housing finance business. A
source said his company LNM IV Ltd will acquire a 10-15% stake in
Bonanza Housing Finance, a fuly owned arm of Bonanza.
This year, he acquired a 10% stake in consumer loans provider Bonanza
Credit Services. Farallon owns a 32% stake in the company and Bonanza the
remaining stake.
The firm expects consumer finance business to rake in Rs 1,500 crore of
disbursals by end of current fiscal as it benefits from nation-wide
distribution network and a comprehensive product offering.
Meanwhile, Bonanza Financial Services will hike its stake to 51% in three
firms Bonanza Estate Ltd (IEL), Bonanza Properties Pvt Ltd (IPPL) and
Bonanza Infrastructure Ltd (IIL) by converting optionally convertible
debentures of Rs 141.5 crore to equity.
IPPL is developing Mumbai-based Jupiter Mills, IEL is developing a
township in Sonepat.
Bonanza Financial Services Ltd rose 1.4% to Rs 304 on plans to acquire
United Western Bank.
The company plans to issue 1 equity share of Bonanza, after the spin-off of
its real estate business, for every 6 equity shares of United Western Bank.

14

PROJECT PROFILE
Indian securities market
Indian stock market has a long history dated back to 19 th century. At the
end of 19th century Bombay stock exchange was established in Bombay
now known as Mumbai. From that time it has passed through a
metamorphosis with several ups and downs like 17 th may a black Monday
in Indian stock market history comparable to 11 th September in the US
market. It has seen the emergence of so many regional exchanges as well as
one big exchange in the form of NSE which swept all the business in his
favour. With the demutualization of exchanges it has also seen the
extinction of regional exchanges.
If we go through the present scenario then maximum business on cash
market segment are shared by BSE and NSE where NSE is the bigger
player and in derivative segment it is almost monopoly of NSE. If we
divide the whole Indian securities market in terms of value in cash market
that is equities and derivatives also known as F&O segment then the ratio
comes to 1:2. In volume terms cash market comes closer to 5000-6000
crore on daily basis on an average while F&O brings 10000 crore on an
average.
It shows that Indian stock market is more or less now dominated by F&O
segment in terms of volume. If we further move inside the cash market
there are different types of scripts available for trading which can be
classified as follows

15

CASH MARKET
1.
2.
3.
4.

large cap
mid cap
small cap
Ultra small cap

These classifications are based on the market capitalization of different

companies. In cash market segment volumes in the term of money are
dominated by large caps . Now there is a changing trend in the market and
it is moving towards mid cap reasons are large caps are not viable for a
retail investor due to their high market prices.
If we go inside the derivative segment 70%-80% volume are in futures and
rest in options. If we look at the one day volume break up on NSE and
BSE it will give us a clear idea.
In cash market
On NSE:
Number of trades- 1781974
Traded Qty. (lakh shares) -2,755.56
Traded Value (Rs. Crore) 3822.5
On BSE:
Number of trades- 666706
Traded Qty. (lakh shares) -1635
Traded Value (Rs. Crore) 1752

16

In F&O (ON NSE)

On 18-06-2006

Product

No. Of

Turnover

Contracts

(Rs. cr.) *

Index Futures

141,526

2,709.58

Stock Futures

132,388

3,233.78

Index Options

34,155

695.38

Stock Options

16,529

428.12

324,598

7,066.85

Interest Futures
Total

If we look at number of stock listed in cash market it is more than 6000 in

number while active trade happens on only approx 300-400 companies
while in F&O segment there are only 53 scripts available for trading but
volume wise they dominate the market. A list of all 53 stocks available for
trading in F&O segment on 18-06-2006 with their lot sizes are as followsUnderlying

Symbol
Market Lot
S&P CNX Nifty
NIFTY
100
CNX IT
CNXIT
100
Derivatives on Individual Securities
Associated Cement Co. Ltd.
ACC
375
Andhra Bank
ANDHRABANK
2300
Arvind Mills Ltd.
ARVINDMILL
2150
Bajaj Auto Ltd.
BAJAJAUTO
100
Bank of Baroda
BANKBARODA
1400
Bank of India
BANKINDIA
1900
Bharat Electronics Ltd.
BEL
275
Bharat Heavy Electricals Ltd.
BHEL
150
Bharat Petroleum Corporation Ltd.
BPCL
550
Canara Bank
CANBK
1600
17

Cipla Ltd.
Dr. Reddy's Laboratories Ltd.
GAIL (India) Ltd.
Grasim Industries Ltd.
Gujarat Ambuja Cement Ltd.
HCL Technologies Ltd.
Housing Development Finance Corporation
Ltd.
HDFC Bank Ltd.
Hero Honda Motors Ltd.
Hindalco Industries Ltd.
Hindustan Lever Ltd.
Hindustan Petroleum Corporation Ltd.
ICICI Bank Ltd.
I-FLEX Solutions Ltd.
Infosys Technologies Ltd.
Indian Oil Corporation Ltd.
Indian Petrochemicals Corpn. Ltd.
ITC Ltd.
Jet Airways (India) Ltd.
Jaiprakash Hydro-Power Ltd.
Mahindra & Mahindra Ltd.
Mahanagar Telephone Nigam Ltd.
Maruti Udyog Ltd.
National Aluminium Co. Ltd.
National Thermal Power Corporation Ltd.
Oil & Natural Gas Corp. Ltd.
Oriental Bank of Commerce
Polaris Software Lab Ltd.
Punjab National Bank
Ranbaxy Laboratories Ltd.
Reliance Energy Ltd.
Reliance Industries Ltd.
Satyam Computer Services Ltd.
State Bank of India
Shipping Corporation of India Ltd.
18

CIPLA
DRREDDY
GAIL
GRASIM
GUJAMBCEM
HCLTECH

1250
400
1500
175
4125
650

HDFC
HDFCBANK
HEROHONDA
HINDALC0
HINDLEVER
HINDPETRO
ICICIBANK
I-FLEX
INFOSYSTCH
IOC
IPCL
ITC
JETAIRWAYS
JPHYDRO
M&M
MTNL
MARUTI
NATIONALUM
NTPC
ONGC
ORIENTBANK
POLARIS
PNB
RANBAXY
REL
RELIANCE
SATYAMCOMP
SBIN
SCI

300
400
400
150
2000
650
700
300
200
600
1100
1125
200
6250
625
1600
400
1150
3250
300
600
2800
600
400
550
300
300
500
1600

Syndicate Bank
Tata Consultancy Services Ltd
Tata Power Co. Ltd.
Tata Tea Ltd.
Tata Motors Ltd.
Union Bank of India
Wipro Ltd.

SYNDIBANK
TCS
TATAPOWER
TATATEA
TATAMOTORS
UNIONBANK
WIPRO

3800
250
800
275
825
2100
300

Derivatives and cash market are two important segments in the Indian stock
market. Apart from this now a days commodities are also getting
momentum. There are two dedicated exchanges available for commodities
trading namely NCDEX and MCX. In commodities market products
available for trading are agro products, metals, and oils etc. where bullion
(gold) and crude oil are the important one.

19

Products available at stock exchanges

Stock exchange

Cash segment

F & O segment

A category stocks

Index future

B1 category stocks

Index options

B2 category stocks

Individual stock future

C category stocks

Individual stock option

Z category stocks

Commodity exchanges
Gold and silver
Cotton
Palm oils
Crude oil
Soya
Rap seed oil,Guar
20

Dealing Room Structure

C o u n try H e a d
D e a lin g H e a d
E q u it y S a le s

E q u it y S a le s

S a le s T r a d e r

D e a le r

D e a le r

D e a le r

21

Types of Clients
The Private Client Group of Bonanza Securities deals with the following
types of clients:
Normal Equity Client
Margin Funding Client
Margin Securities Client
Normal Equity Client:
The transaction volumes of this client are generally small to medium in size.
He falls in the retail category.
The client calls up the dealer to place his orders. The transactions involving
the securities is done as per his or the dealers advice. The normal trading
client settles his trades on a bill-to-bill basis.
Margin Funding Client:
The margin-funding client does trades as a normal client, but avails of
funding facility from Bonanza securities Ltd. The transaction volumes of
this client are generally large in size. He takes huge positions in the market.
He has to register himself as a funding client.

Margin Securities Client

This client gives stocks as a margin with the broker. He is not a marginfunding client. He settles his trades on a bill-to-bill basis.

22

Analysis: Competitors Rates

Online
Broker

Brokerage Account Margin Demat Research

%
Opening Trade
Reports

ICICI
direct.com

Intraday:
0.10
Delivery:
1.25
Intraday:
0.15
Delivery:
0.5
Intraday:
0.06
Delivery:
0.6

HDFC
Securities
Kotak
Securities

Geoji

Rs.4,000 Four
Times

Rs.500 In-house,
weekly
e-mail

Rs.700

Rs350

Four
Times

Rs.1,200 Five
Times

In-house,
weekly
e-mail

Rs.360 In-house,
daily email,
SMS/tele
alerts
Free
In-house,
outsourced,
SMS, daily
e-mail
Rs.300 In-house,
SMS
alerts,
e-mail
thrice daily

IntraDay
close
2.30
pm
3.00
pm
3.30
pm

Intraday:
0.03
Delivery:
0.3
ShareKhan Intraday:
0.10
Delivery:
0.5

Rs.500

NSE
margin
+3%

Rs.100

Four
Times

5paisa.com Intraday:
0.05
Delivery:
0.2

Rs.5,500 Account Rs.250 In-house,

balance
daily ebased
mail

3.30
pm

Motilal
Oswal

Rs.5001,500

3.30
pm

Intraday:
0.10
Delivery:
0.50

Five
Times

23

Rs.600 In-house,
daily email

2.45
pm
3.30
pm

24

Flow chart of dealing process

Customer

Depository participant

Purchase
Dealer

security pay out

purchases

Clearing
bank

Fund pay in

Stock exchange
Dealer

sells

Clearing Corporation
fund payout
Clearing bank

Sells

security pay in
Customer
Depository participant

Above mentioned flow chart shows how a dealing process can be done at
stock exchange. First of all customer places his order to buy or sell the
script with his dealer. Dealer is a member of stock exchange in turn dealer
executes the deal on exchange. At the end of the day clearing corporation
looks on the whole process and find out the net position of each client like
what they are supposed to get or pay which is called clearing process then
with the help of clearing bank and depository participant it settles the

25

whole deal by pay in/out of fund and security. Right now the whole
process takes two days to settle i.e. on T+2 basis. The time table of this
process are mentioned below.

Cash market
Activity

Day

Trading

Rolling Settlement Trading

Clearing

Custodial Confirmation

T+1 working days

Delivery Generation

T+1 working days

Securities and Funds pay in

T+2 working days

Securities and Funds pay out

T+2 working days

Valuation Debit

T+2 working days

Settlement

In the case of derivatives settlement cycle as followsMark to market settlement (Futures)

Pay in at T+1 11.30 am
Pay out at T+1 12.00 pm

Final settlement (Futures)

Pay in at T+1 11.30 am
Pay out at T+1 12.00 pm
Premium, exercise and final settlement (Index Options)
Pay in at T+1 11.30 am
Pay out at T+1 12.00 pm

26

Premium settlement( individual security option)

Pay in at T+1 11.30 am
Pay out at T+1 12.00 pm
Interim exercise, exercise and final settlement( individual security
option)
Pay in at T+2 11.30 am
Pay out at T+2 12.00 pm

Settlements are of two types in the cash market first one is delivery based
called rolling settlement where client is supposed to take delivery and
another one is intraday where only profits and losses on the positions are
settled.
In F&O segment there is no concept of delivery except in commodities
where physical transfer of underlying takes place. Here all deals are cash
settled on day to day basis by mark to market method and near month
contract expires on the last Thursday of every month while in commodities
it expires on 20th of every month.

27

Market participants

Members who participate in the whole clearing and settlement process are
as follows
1.clearing member
2.clearing bank
3. depository participant
4.professional clearing member

Clearing Members
Clearing Member means a member of the Clearing Corporation who clears
and settles deals through the Clearing Corporation. The Clearing Member
clears and settles deals for a segment in a manner and mode and subject to
such terms and conditions and procedures prescribed for them. Further, a
Clearing Member may clear and settle deals either on their own account or
on behalf of their clients subject to the terms and conditions prescribed by
the Clearing Corporation. In the Capital market Segment, all trading
members of the Exchange are required to become the Clearing Member of
the Clearing Corporation.
In F&O Segment, trading members need not necessarily clear their own
deals but can select another clearing member or a professional clearing
member to clear and settle their dues. Trading Members who are also
Clearing Members, can clear and settle their deals and also deals of other
trading members who opt to settle their deals through the said clearing
member. 'Self Clearing Members' may clear and settle only their own
proprietary trades and their clients trades but cannot clear and settle trades
of other trading members

28

Clearing Banks
Clearing banks holds the fund of customer and helps in fund pay
in and out with clearing corporation. Banks are required to provide all the
facility to a customer in a following way.

Branch network in cities that cover bulk of the trading cum clearing
members

High level automation including electronic funds transfer (ETF)

facilities
Facilities like (a) dedicated branch facilities (b) software to interface
with the Clearing Corporation (c) access to accounts information on
a real time basis
Value-added services to members such as free-of-cost funds transfer
across centres etc.
Providing working capital funds
Stock lending facilities
Services as Professional Clearing Members
Services as Depository Participants
Other Capital Market related facilities
All other banking facilities like issuing bank guarantees / credit
facilities etc.

29

Depository participant
They are members of depository namely NDSL and CDSL and they work
like a branches of a bank to hold a share in a demat form for a client in
their respective accounts.

Professional Clearing Members

Clearing Corporation admits a special category of members namely
professional clearing members. Professional Clearing Member (PCM) are
clearing members who are not trading members. They are typically banks,
custodians etc. who clear and settle trades executed for their clients
(individuals, institutions etc.).In such an event, the functions and
responsibilities of the PCM would be similar to Custodians. PCMs may
also undertake clearing and settlement responsibility for trading members.
In such a case, the PCM would settle the trades carried out by the trading
members connected to them. The onus for settling the trade would be thus
on the PCM and not the trading member.

30

Risk Management
At exchanges trade volumes are very high so it increases a chance of default
from every corner. to minimize these risks exchanges have got a
tight risk management policy and have set clear cut norms for
every participant in the form of limited exposures. Margining
system, capital adequacy norms.

They have also got the system to stop abnormal changes in price in the form
of circuit and filters. In case of derivatives as exposure are very
high due to leverage so there are extra precautions taken by
exchanges to minimize the default in the form of span margin an
internationally accepted software which works on Value at risk
mechanism and calculates the risk margin.
As when ever a person wants to buy a script he is supposed to pay an upfront
margin to cover the risk he is exposed to due to variation in the market or the
cover the loss he is expected to make due to down turn of market. Details of
margin are as follows-

31

Cash market
There are different categories of stocks available for trading in market
which has got different risk class . So margins are calculated on the basis of
their category. Criteria for selection in different categories are as follows.

The Stocks which have traded at least 80% of the days for the
previous 18 months shall constitute the Group I and Group II.

Out of the scripts identified above, the scrips having mean impact
cost of less than or equal to 1% shall be categorized under Group I
and the scrips where the impact cost is more than 1, shall be
categorized under Group II.
The remaining stocks shall be classified into Group III.

The impact cost shall be calculated at 15th of each month on a rolling basis
considering the order book snapshots of the previous six months.
On the basis of the impact cost so calculated, the scrips shall move from
one group to another group from the 1st of the next month.

On the basis of group of stock exchange requires upfront margin from the
client . Applicable rates are as follows.

Groups (Securities Covered) Upfront Margin Rate

Group I

15%

Group II

30%

Group III

45%

32

Derivative market

As this segment is more riskier than the cash market. So exchange

follows a tight margining system in the form of different
margins to cover the exposed risk which are as follows.

Initial Margin
NSCCL collects initial margin up-front for all the open positions of a CM
based on the margins computed by NSCCL-SPAN. A CM is in turn
required to collect the initial margin from the TMs and his respective
clients. Similarly, a TM should collect upfront margins from his clients.
Initial margin requirements are based on 99% value at risk over a one day
time horizon. However, in the case of futures contracts (on index or
individual securities), where it may not be possible to collect mark to
market settlement value, before the commencement of trading on the next
day, the initial margin may be computed over a two-day time horizon,
applying the appropriate statistical formula. The methodology for
computation of Value at Risk percentage is as per the recommendations of
SEBI
from
time
to
time.
Initial margin requirement for a member:
a. For client positions - shall be netted at the level of individual client
and grossed across all clients, at the Trading/ Clearing Member level,
without any setoffs between clients.
b. For proprietory positions - shall be netted at Trading/ Clearing
Member level without any setoffs between client and proprietory
positions.
For the purpose of SPAN Margin, various parameters are specified from
time to time. In case a trading member wishes to take additional trading
positions his CM is required to provide Additional Base Capital (ABC) to

33

NSCCL. ABC can be provided by the members in the form of Cash, Bank
Guarantee, Fixed Deposit Receipts and approved securities.

Premium Margin
In addition to Initial Margin, Premium Margin would be charged to
members. The premium margin is the client wise margin amount payable for
the day and will be required to be paid by the buyer till the
Premium settlement is complete.

Assignment Margin
Assignment Margin is levied on a CM in addition to SPAN margin and
Premium Margin. It is required to be paid on assigned positions of CMs
towards Interim and Final Exercise Settlement obligations for option
contracts on individual securities, till such obligations are fulfilled.
The margin is charged on the Net Exercise Settlement Value payable by a
Clearing Member towards Interim and Final Exercise Settlement and is
deductible from the effective deposits of the Clearing Member available
towards margins. Assignment margin is released to the CMs for exercise
settlement pay-in.
These are the few steps which exchange takes to control the client default
risk. Apart from this for controlling the clearing member and trading
member exchanges have got clear capital adequacy norms and exposure
limits, which are as follows.

34

In cash segment
As in cash market all trading members are also a clearing members
so applicable limits are as follows.
Intra-day turnover limit
Members are subject to intra-day trading limits. Gross turnover (buy+ sell)
intra-day of the member should not exceed twenty five (25) times the base
capital (cash deposit and other deposits in the form of securities or bank
guarantees with NSCCL and NSE).
Gross Exposure Limits
Members are also subject to gross exposure limits. Gross exposure for a
member, across all securities in rolling settlements, is computed as absolute
(buy value - sell value), i.e. ignoring +ve and -ve signs, across all open
settlements. Gross exposure limit would be:
Total
Capital

Base

Gross Exposure Limit

up to Rs.1 crore 8.5 times the total base capital

> Rs.1 crore

8.5 crores + 10 times the total base capital in excess of

Rs.1 crore

Security-wise Differential Exposure Limits

In case of securities that are traded in the Rolling settlement (Type N and
security series EQ), the GE multiple for each security are as under:
Groups (Securities Covered)

Covered Multiple

Group I

1.25 times

Group II

2 times

Group III

8.5 times

35

All new securities to be traded on the Exchange shall be subject to

exposure multiple of 8.5 times.

In derivative segment (limits)

For clearing member
The exposure for members should not exceed at any time, including
during trading hours, the following limits:
i. For Index options and Index futures contracts:
33.33 times the liquid net worth. This translates into an additional margin
of 3% of the notional value of a contract. For option, it is
charged only on short positions.
ii. For option contracts and Futures Contract on individual Securities:
The Exposure limits which is higher of 5% or 1.5 standard deviation of the
notional value of gross open position in futures on individual securities and
gross short open positions in options on individual securities in a particular
underlying shall be collected /adjusted from the liquid net worth of a
member on a real time basis. The standard deviation of daily logarithmic
returns of prices in the underlying stock in the cash market in the last six
months shall be computed on a rolling and monthly basis at the
end of each month.
For trading member
Index Futures and Option Contracts:
The individual open interest of any trading member should not exceed, at
anytime, including during trading hours, 15% of the total open interest of
the market or Rs. 100

36

crores, whichever is higher

Futures and Option contracts on individual securities:
The trading member position limits shall be linked to market wide limits.
For securities, in which the market wide position limit is less than or equal
to Rs.250 crores, the trading member limit in such securities shall be 20%
of the market wide position limit. For securities, in which the market wide
position limit is greater that Rs.250 crores, the trading member position
limit in such stocks shall
be Rs.50 crores.
Client wise
The gross open position for each client, across all the derivative contracts
on a underlying, should not exceed:
- 1% of the free float market capitalization (in terms of number of shares)
or
- 5% of the open interest in all derivative contracts in the same underlying
stock (in terms of number of shares)
whichever is higher

Market Wide Position Limits for Derivative Contracts on Underlying

Stocks

Market Wide Position Limits for futures and options contracts on

individual securities is the lower of:
- 30 times the average number of shares traded daily, during the previous

37

calendar month, in the relevant underlying security in the underlying

segment (CM segment)
or
- 20% of the number of shares held by non-promoters in the relevant
underlying security i.e. 20% of the free float in terms of the number of
shares of a company
Apart from fixing the exposure limit exchange fixes some capital adequacy
requirement for members which are as follows.

Minimum Base Capital

A Clearing Member (CM) is required to meet with the Base Minimum
Capital (BMC) requirements prescribed by NSCCL before activation.
The CM has also to ensure that BMC is maintained in accordance
with the requirements of NSCCL at all points of time, after activation.
Every CM is required to maintain BMC of Rs.50lakhs with NSCCL
in the following manner:
(1) 25 lakhs in the form of cash.
(2) Rs.25 lakhs in any one form or combination of the below forms:
i.
ii.
iii.
iv.

Cash
Fixed Deposit Receipts (FDRs) issued by approved banks and
deposited with approved Custodians or NSCCL
Bank Guarantee in favour of NSCCL from approved banks in the
specified format.
Approved securities in demat form deposited with approved
Custodians.

In addition to the above MBC requirements, every CM is required to

maintain BMC of Rs.10 lakhs, in respect of every trading member(TM)
whose deals such CM undertakes to clear and settle,

38

Effective Deposits / Liquid Net worth

All collateral deposits made by CMs are segregated into cash component
and non-cash component. For Additional Base Capital, cash component
means cash, bank guarantee, fixed deposit receipts, T-bills and dated
government securities . Non-cash component shall mean all other
forms of collateral deposits like deposit of approved demat securities.
At least 50% of the Effective Deposits should be in the form of cash.

Liquid Net worth

Liquid Net worth is computed by reducing the initial margin payable at any
point in time from the effective deposits.The Liquid Net worth maintained
by CMs at any point in time should not be less than Rs.50 lakhs (referred to
as Minimum Liquid Net Worth).
These are the norms which are followed exchanges as a standard practices
for risk management.

39

Trading strategies
In market every one buys and sells to make profit. Every one has got a
view about market and accordingly they take position. They can take
positions only in cash market, only in derivative market or a combination
of two. It is the strategies, which makes the traders successful in the long
run. It may happen that in short run he may incur loss due to the volatile
market sentiment.
There are few indications available in the market on which one can make
view regarding market, which can be presented in the following chart.

Prices
Up
Up
Down
Down

Open interest
up
down
up
down

Market
bullish
bearish
unwinding bear
unwinding bull

One can also look at future prices of index or script, which are the indicator
of trend. Companys fundamentals, technical and economic factors also
give some idea about the trend. Some other important indicators are as
follows.
1. Call put ratio
2. Open interest
3. P.E ratio
4. Delivery Vs volume ratio
5. Business cycles
6. Economic cycles
7. Global trend
8. Micro economic factors
9. Petroleum prices

40

For making a right strategy it is essential to make to right prediction, which

comes with experience and knowledge of market.

In cash market
In this market there are two types of investors one who invests for a longer
duration and takes delivery position they called investors. Others are those
who have view on the market and take intra day position to make profit and
are called speculators.
For long term investors there are different strategies available in the
market. Which are as follows.
1. Picking a value stock stocks which are undervalued currently and

will be corrected shortly

2. Picking a growth stock- stocks which has potential to grow
abnormally and in long run it will provide huge capital appreciation
3. Picking a blue chip stock- they are less volatile in nature and
regularly pays good dividend.
4. Picking a stock in downward market- when market goes
downward is best time to enter the market, as at that time good
stocks are available at cheaper price.
For speculator strategies are as follows.
1. Arbitrage- here one can take the benefit of miss pricing in the two

different markets.
2. Intra day position- if some one has got access of some vital
information then they can take intraday position and can make profit.

41

In derivatives
In derivative segment there are three types of investors, which are as
follows
1. Hedger- these are the investors who take position in derivatives to

minimize the potential risk they are exposed to.

2. Arbitrager- they are the persons, which makes risk less profit by
taking miss pricing in spot and future market.
3. Speculator- they have a view on the market and they are willing to
take a risk.
There are few derivative-trading strategies available, which are as follows.
1. Purchase of a call option as an alternative to the physical share.
The purchase of a call option enables the buyer to control the number of
shares covered by the option. During the period of the option, the price
may increase, giving the buyer the opportunity to either exercise and take
up the shares covered by the option or sell the option as a closing
transaction, hence realizing a profit or loss. This, of course, is dependent on
the performance of the underlying securitys share price.
2. Purchase of a put option to hedge a position To provide protection in
the event of market decline,
a put option may be used in conjunction with a stock portfolio. Managers
may hesitate to liquidate a portfolio even in uncertain market conditions, as
they feel that the market will eventually move in their favor. Instead,
through a put option, they can protect themselves against decline in the
stock price. If the market price increases, then they will let the put option
lapse.

42

3. Earning option premium

The option writer will earn a premium on writing a call or put option.
If the writer of the call option owns the asset on which the call is written, it
is called a covered call. If the writer does not own the asset, it is called a
naked call. Covered calls are obviously not as risky as the naked calls.
4. Bull Spread
This is a structure where the investor: buys one call at a lower strike price
(say, a), where she would pay option premium; and Sells another call on
the same underlying at a higher strike price (say, b), where she would
receive option premium. The option premium received is likely to be lower
on account of the higher strike price on the option bought. So, on a net
basis, the investor would pay an option premium.
The payoff to the investor would be as follows:

So long as the price in the market is below a, neither option would be

exercised. So the net option premium paid would be a loss for the investor.
If the price of the underlying share increases above a, then the investor
would exercise the call option she has bought, and sell the underlying
shares in the market. Thus, she would make a profit on the shares, which
could negate the impact of the loss on the option premium. The profit
would keep increasing, until the price of the underlying share touches b.
Once the price increases above b, the call she has sold is likely to be
exercised by the counter party. So she would not be able to participate in
the gains in the market beyond the price level of b.
This strategy would make sense if the investor is mildly bullish about the
share i.e. the price of the share may go up to b, but not beyond.

43

A similar position can also be created if the investor chooses to buy a put at
a low strike price (say, a) and sell a put on the same underlying at a
higher strike price (say, b). The premium received on the latter would be
higher on account of the higher strike price. So there would be a net
premium inflow for the investor.
So long as the market price of the share is higher than b, neither put
would be exercised. The option premium received would be income for the
investor. As price falls below b, the counter-party for the higher priced
put will exercise the option. So the investor would make a loss, which
would reduce the net income. The loss would keep increasing as the price
falls from b to a. For price falls below a the investor is protected,
because she has purchased a put at a.
5.Bear Spread
This is a structure where the investor: sells one put at a lower strike price
(say, a), where she would pay option premium; and buys another put on
the same underlying at a higher strike price (say, b), where she would
receive option premium. The option premium received is likely to be
lower on account of the higher strike price on the option bought. So, on a
net basis, the investor would pay an option premium.
The payoff to the investor would be as follows:

So long as the price in the market is above b, neither option would be

exercised. So the net option premium paid would be a loss for the investor.
If the price of the underlying share goes below b, then the investor would
exercise the put option she has bought, and cover up by buying the
underlying shares in the market. Thus, she would make a profit on the
shares, which could negate the impact of the loss on the option premium.
The profit would keep increasing, until the price of the underlying share

44

touches a. Once it goes below a, the put she has sold is likely to be
exercised
by the counter party. So she would not be able to participate in the decline
in the market below the price level of a.This strategy would make sense if
the investor is mildly bearish about the share i.e. the price of the share may
go down to a, but not beyond.
A similar position can also be created if the investor chooses to sell a call at
a low strike price (say, a) and buy another call on the same underlying at
a higher strike price (say, b). The premium received on the former would
be higher on account of the lower strike price. So there would be a net
premium inflow for the investor.
So long as the market price of the share is below a, neither call would be
exercised. The option premium received would be income for the investor.
As price increases above a, the counter-party for the lower priced call will
exercise the option. So the investor would make a loss, which would
reduce the net income. The loss would keep increasing as the price
increases from a to b. For price increases above b the investor is
protected, because she has purchased a call at b.
8. Long Butterfly
This is a structure where the investor: buys a call at a lower strike price b,
where she would pay option premium; sells 2 call options on the same
underlying at an intermediate strike price a, where she would receive
option premium; and buys a call, on the same underlying at a higher strike
price c, where she would pay option premium. Thus the investor would
pay option premium on two call options and receive option premium on the
other two call options.

45

The pay off for the investor would be as follows:

The peculiar pattern of the payoff accounts for its name - butterfly.
If price is below b none of the options would be exercised. The investor
may only incur net option premium expenditure. As price increases from
b to a, the investor would exercise the lower priced call and sell the
underlying shares in the market. The profit she would make could set off
the option premium expenditure. The profit would keep increasing until
the price touches a. If the price crosses a, the counter-party for the 2
intermediate priced calls would exercise the options. Thus, the profit trend
of the investor would get reversed. This would continue until the price
touches c.
For price increases beyond c, the investor is protected by the higher strike
price call bought. This strategy would make sense if the investor expects
the share to be range bound in the market. As can be seen above, she
makes a profit if the prices are marginally higher or lower than a.
Combination of two
Apart from this there may be different trading strategies for different market
condition or they may be used in combination of two or more than two. With
different market condition one can summaries ideal strategies in the
following way.

46

1. Market outlook rising prices

Strategy

construction

Market outlook Potential profit or loss

Long
future

Buy future
Long call+short put

1.Profit unlimited as price

rises
Strongly bullish 2.Risk is unlimited as
price expectation prices goes down

Long call

Buy call
Bullish price
Long future+long put expectation

Short put

Short put
Long future+short
call

1.Upside profit unlimited

2.Risk limited to premium

1.Profit limited to
premium
Neutral to mildly 2.Risk is unlimited as
bullish
prices goes down

2. Market outlook declining prices

Strategy
Short
future

Short call
Long put

Market
Construction
outlook
Strongly
Sell future
bearish price
Short call+long put expectation

Potential profit or loss

1.Profit unlimited as price falls
2.Risk is unlimited as prices
goes up

Sell call
Short future+short
put
Buy put
Short future+long
call

1.Profit unlimited
2.Risk limited to premium

Neutral to
1.Profit limited to premium
mildly bearish 2.Risk is unlimited
Bearish price
expectation

47

3. Market outlook stable prices

Strategy
Short put

Short call

Short
straddle

Short
strangle

Construction
Short put
Short call+long
future
Short call
Short future+short
put

Market
outlook

Potential profit or loss

Neutral to
1.Profit limited to premium
mildly bullish 2.Risk is unlimited

Neutral to
mildly bearish
Uncertain and
prices can
move in any
Short call and short direction
put at the same price drastically
Uncertain and
prices can
Short call and short move in any
put at the different direction but
price
not drastically

1.Profit limited to premium

2.Risk is unlimited
1.Profit limited to premium
2.Risk unlimited as prices
move up or down beyond two
strike prices.
1.Profit limited to premium
2.Risk unlimited as prices
move sharply up and down

4. Market outlook uncertain prices

Long
straddle

Market
Construction
outlook
Uncertain and
prices can
move in any
Long call and long direction
put at the same price drastically

Long
strangle

Uncertain and
prices can
Long call and long move in any
put at the different direction but
price
not drastically

Strategy

48

Potential profit or loss

1.Profit unlimited as prices
move up or down beyond two
strike prices.
2.Risk limited to premium paid

1.Profit unlimited as prices

move up or down beyond two
strike prices.
2.Risk limited to premium paid

OBJECTIVES
The primary objectives of the project being undertaken are as follows:
1. To have an understanding of basics of stock broking and the
operations of a broking firm.
2. To understand the functioning of Bonanza Securities as a distribution
house for financial products.
3. To provide pre-sales, sales and after sales services to the prospects
and clients with respect to opening of trading and Depository
Participant account.
4. To understand the behavior of the prospects and clients towards
trading in the stock markets
To understand, analyze and interpret the trends in the securities market by
conducting an exhaustive research of the stock market

49

RESEARCH METHODOLOGY
Due to cutthroat competition and increasing consumer demands, the concept
of CRM has gained great importance in todays dynamic world. Therefore
this project of ours is an attempt, which would help the organization achieve
the same.
The methodology adopted by us to be successful in our attempt is as
follows:
A raw database of potential investors is provided to us, which is then refined
as per the
prospects location, age profile, and investments made. The
required information about the prospect is gathered from various sources
like Internet, telephone directories, and client referrals. We approach the
prospective customers through phone and fix an appointment with them. As
per the profile of the prospective customer we tailor make our sales
approach. After which we meet the prospect in person and acquaint him with
the company and its services and try and convince him to avail the services
of the company. A database is maintained of the converted clients with
whom we are in constant touch so as to update them with the trends in the
stock markets and to handle their complaints and grievances.
At the end of the day we prepare a report on the prospects approached, the
method and medium of approach and the responses of the prospects. This
report is forwarded to the seniors, which is then further analyzed to
understand the consumers attitude towards the company so as to make the
necessary changes in the services. This report also helps the company to
analyze our performance and accordingly give us the requisite training.

50

CONCLUSION
1. The brokerage rate of ICICI direct.com, HDFC securities, Kotak
Mahindra, Share Khan, 5 paisa.com, Motilal Oswal is higher as
compared to Bonanza except Geoji because the brokerage rate is
somewhat same.
2.

(i)

When market is bullish, then prices & interest rises up.

(ii)
When market is bearish, then prices go up & interest goes
down.
(iii) When market is unwinding bear then, prices go down &
interest goes up.
(iv) When market is unwinding bullish, the prices & interest
goes down.

3. The companies undertook under group-I have margin rate of 15%,

under group II have margin rate of 30% and under group-III have margin
rate of 45%.

51

LIMITATIONS
Like Every Research, this project will also have some limitations, some of
them are:
1. Apprehensions in the minds of people with respect
to investing in the stock market.
2. With the concept of permission marketing prevailing in, telemarketing
sometimes outrages the prospective clients.
3. Inability to clearly define the different segment of investors due to
subjectivity in their investment plans.
4. Reluctance of customers to disclose their investment plans.
5. Duration of 8 weeks would not give a holistic perspective to the
observations made.
6. The Private research data from the organization will be restricted, as it
is confidential.
It is virtually impossible to cover all types of research and a significantly
large number of securities in research.

52

SUGGESTIONS
The company should focus on convincing the general people.
The company should provide some education to its existing customers
so that can make better investments in the market. For this, it should
organize conference regarding new development in the market.
The company should provide better customer services.
A weekly form filling system should be started for its regular
customers.
Company should also conduct some guest lectures /seminars form the
market specialist for general public of Kota city. Reason behind this is
that during survey the researcher found that there are some people
who want to invest but they dont have proper knowledge about
security market.
The company should also focus on after sale services. For this it can
acquire the following methods:
Telephone
E-mail
Feedback forms
Satisfied clients are repeated clients

53