#Introduction of secondary market

• Liquidity is one of the important characteristics of security to make it more

attractive .

• Most of the investors prefer to invest in such type of securities which are
liquid in nature .
• Secondary Market of securities plays an important role to make the securities
liquid by providing platform for this trading.
 MEANING OF SECONDARY MARKET
• Secondary market refers to a market where securities are traded after being
initially offered to the public in the primary market and / or listed on the
stock exchange .
• Majority of the trading is done in the secondary market .
• Secondary market comprises of equity markets and debt market
• Secondary market is also known as stock market or stock exchange /after
market.
 STOCK EXCHANGE

• Stock exchange refers to the entity or organisation that facilitates such buying and selling of
shares .
• It is an integral part of the stock market and brings the buyers and sellers together at a common
meeting point, which may be physical or virtual .
• Examples :
1. NSE and BSE in India
2. NASDAQ and NYSE in USA
ORGANISATION OF STOCK EXCHANGES IN INDIA

• The first organized stock exchange in India was started in Bombay in 1875.
• At present there are 22 recognized stock exchanges with about 9,339 members
and 23,479 sub-brokers spread over 358 cities in 2005-06.
• i) MAJOR STOCK EXCHANGES IN INDIA
• Following are the two most important stock exchanges in India.
BSE (Bombay Stock Exchange )
NSE (National Stock Exchange )
ii) Twenty stock exchanges which have been set up as companies , either limited by
guarantees or by shares . They are :
• Bangalore Stock Exchange
• Bhubaneswar Stock Exchange
• Calcutta Stock Exchange
• Coimbatore Stock Exchange
• Delhi Stock Exchange
• Guwahati Stock Exchange
• Hyderabad Stock Exchange
• Interconnected Stock Exchange
• Jaipur Stock Exchange
• Ludhiana Stock Exchange
• Madras Stock Exchange
• Pune Stock Exchange
• Mangalore stock Exchange
 BOMBAY STOCK EXCHANGE (BSE)
• BSE - Bombay Stock Exchange , was set up in 1875.
• At that time it was called as The native Share and Stock broker’s Association .

• It is located in Dalal Street in Mumbai . It is Asia’s first Stock exchange .

• It is the first listed stock exchange in India.
• It is the 11th largest stock exchange in the world in terms of market
capitalisation .
• It has the largest number of companies listed with it . (approximately over
5000 companies are listed in the (BSE).
• It is now a demutualised and corporatized entity registered under the
companies Acts , 1956.
 NATIONAL STOCK EXCHANGE
(NSE)
• NSE was set up by a group of leading Indian Financial Institutions in 1992 as a
company and was recognized as a Stock Exchange in 1993 under Securities
Contracts (Regulation) Act , 1956
• It started trading activities in 1994 .
• It is the largest and most modern stock exchange in India .
• The NSE is located in Mumbai . It was the first demutualized electronic
exchange in India.
• NSE was the first exchange in the country to provide a modern , fully
automated screen -based electronic trading system which offered easy
trading facility to the investors .
• The main index of NSE is the NIFTY which was launched in 1996.
 Demutualisation of stock exchanges
• The intermediaries [brokers] used to :
• own
• Control
• Manage
• The stock exchange
• The ownership and management of stock exchanges by brokers often led to
conflict of interests between brokers and their clients .
• To solve this problem , the Government did demutualisation of stock exchange .
• Demutualisation is the separation of ownership and control of stock exchange
from trading rights of members .
• Through there is reduction of chances of brokers using stock exchanges for
personal gain .
Corporatisation :

• In order demutualize a corporate structure of the exchange is a necessity.

• Exchanges like BSE that were not even a corporate entity needed to be
converted from “ association of persons “ to a company limited by shares .

• This process of conversion is termed as “ corporatisation “

FUNCTIONS /SERVICES OF STOCK EXCHANGES

1. Pricing of securities
2. Promotes the Habit of Savings and Investment
3. Protecting Interest of Investors
4. Providing Scope for Speculation
5. Capital formation
6. Contributes to Economic Growth
7. Liquidity
8. Economic Barometer
9. Mobilisation of Savings
10. Better Allocation of Capital
1. Pricing of securities :

• The stock market helps to value the securities on the basis of demand and
supply factors .

• The securities of profitable and growth oriented companies are valued

higher as there is more demand for such securities .

• The valuation of securities is useful for investors, government and creditors.

• The investors can know the market value of their investment .

• The creditors can estimate the credit worthiness of a company .

2. Promotes the habit of savings and investment

• The stock market offers attractive opportunities of investment in various

securities .

• These attractive opportunities encourage people to save more and invest in

securities of corporate sector rather than investing in unproductive assets such
gold , silver , etc.
3. Protecting interest of investors
• Stock exchange protects the interest of investors .

• In stock market only listed securities are traded .

• Stock exchange allows listing only after verifying the soundness of company

• The companies which are listed have to operate within the strict rules and
regulations laid down by the stock exchange .

• This ensures safety of dealing through stock exchange .

4. Providing scope for speculation
• To ensure liquidity and demand or supply of securities the stock
exchange permits healthy speculation of securities .
5. Capital formation

• Investors in securities are attracted due to good returns on investments and

capital appreciation .

• This attracts more investors to invest through the stock exchange .

• Corporates too can easily raise funds by offering various types of securities
to meet the needs of different types investors .

• Thus stock exchange serves as a tool for capital formation .

6. Contributes to Economic Growth

• In stock exchange , securities of various companies are bought and sold .

• Investors invest in companies which gives good return on investments .

• Hence companies , too, try to invest in most productive investments projects .

• This leads to capital formation as well as economic growth .

 7. Liquidity
• The main function of stock market is to provide ready market for sale and
purchase of securities .
• The presence of stock market gives assurance to investors that their investment
can be converted into cash whenever they want .
• The investors can invest in long term investment projects without any hesitation ,
as because of stock exchange they can convert long term investment into short
term and medium term or even liquidate their whenever they want .
8. Economic Barometer

• A stock exchange is a reliable barometer to measure the economic condition of a

country .

• Every major change in country and economy is reflected in the prices of shares .

• The rise of fall in the share prices indicates the boom or recession cycle of the
economy .

• Stock exchange is also known as a pulse of economy or economic mirror as it reflects

the economic conditions of a country .
9. Mobilisation of savings

• Stock markets are organised and regulated market which protects the
interests of the investors .

• This encourages small and big investors to invest in securities through the
stock exchange .

• It provides a ready market for buying and selling securities .

10. Better allocation of capital

• The shares of profit making companies are quoted at higher prices and are actively
traded so such companies can easily raise fresh capital from stock market .

• The prices of securities traded in the exchange indicates the opportunities for
investments.

• So stock exchange facilitates allocation of investors fund to productive and profitable

channels .
Trading Strategies
Trading Meaning:
In Finance, Trading is the process of buying and selling assets in a
relatively short period of time.

It differs form investing in that some traders are able to make money if
the market drops by ‘going short’ , in a effect betting on price fall.
Types of Trades:
1.Stock and Shares
2.Bonds
3.Commodities
4.Currencies
5.Mutual funds
6.Exchange-traded funds
7.Certificates of deposit
8.Derivatives
1. Stock and Shares: These are assets that represent
ownership in a company. They are traded on stock
exchanges and may give rewards in the form of dividends.

2. Bonds: Debt securities that represent a loan made by an

investor to a company or government entity.

3. Commodities: Raw material or agricultural products

that can be bought or sold, such as gold, oil or wheat.

4. Currencies: Foreign exchange instruments that allow

people to trade one currency for another.
5. Mutual funds: Investments vehicles that pool money
from multiple investors to purchase a diversified portfolio
of stock ,bonds, or other assets.

6. Exchange-trade funds: Similar to mutual funds, but

traded on exchange like a stock.

7. Certificates of deposit: Deposits that earn interest

over a fixed period of time.

8. Derivatives: Financial contracts that derive their value

from an underlying asset, such as futures, options, and
contracts for difference.
Trading Strategies:
It is a method used for selling and buying in stock markets, it
is based on predetermined instructions which are used for
making trading-related decisions.

Traders can also use a variety of trading strategies. These

Can include:
• Scalping or Micro-trading: Scalp or micro-trading
involves buying and selling within a very short space of time,
with trades sometimes only open for mere seconds.
 Day trading: Day trading is, as the name suggests, the
process of trading over the course of a single day, with
positions open when the markets do and closing at the end
of the day’s trading.

 Swing trading: Swing trading is a form of trading which

involves positions being open for days to weeks. It is a mid-
term form of trading.

 Position trading: Position trading sees trades left open

for weeks, month, and sometimes even years.
 Arbitrage: Arbitrage involves buying and selling the same
security or similar securities in different markets, in order to
profits from price differences between them.
 TRADING
 WHAT IS TRADING?
• In finance,Trading is the act of
buying and selling financial
instruments with the goal of
making a profit.
• It differs from investing in that
some traders are able to make
money if the market drops by
GOING SHORT in effect betting
on a price fall.
 TRADING MECHANISM
Trading mechanism refers to the logistics behind trading assets and
securities,regardless of the type of market.
These market can be exchanges,dealers,or OTC markets.the mechanism are the
operations by which buyers of an assets are matched with sellers.

THERE ARE TWO MAIN TYPES OF TRADING MECHANISMS:

 ORDER DRIVEN MARKETS-In an order driven market, buyers and sellers of assets
are able to place orders for assets they wish to purchase or sell. They can list at
market price, which executes a market order instantaneously at the best available
price.
 QUOTE DRIVEN MARKETS-In a quote driven market, continuous prices or "quotes"
are provided to buyers and sellers. These prices are provided by market makers,
which means these types of systems are better suited for dealer or OTC markets.
 Mechanics of stock market
• For every stock transaction, there must be a BUYER AND SELLER.
• The trading on stock exchanges in india used to take place through
open outcry without use of information technology for immediate
matching or recording of trades.
• This was time consuming and inefficient
• This imposed limits on trading volumes and efficiency
• So,in order to provide efficiency,liquidity and transparency,NSE
introduced a nation-wide on-line fully automated screen based
trading system.
• The BSE relies on the Bombay Online trading platform,BOLT, for
efficient trading.
 TRADING SETTLEMENT
Trade settlement refers to The transfer of securities and funds
between buyers and sellers after a trade is executed.
In the INDIA stock market,this process operates on a T+1 settlement
cycle,meaning that securities are delivered ,and funds are received
one day after the trade takes place.
In case any investor purchases shares,the payment for the shares is
required to be done prior to the pay in date for the relevant
settlements.of couse,it is subject to the rules and regulations of the
exchange also.
TYPICAL SETTLEMENT CYCLE FOR
VARIOUS ACTIVITIES
ITEM ACTIVITY DAY
Trading Rolling settlement trading T
Clearing Custodial confirmation T+1 working days
Delivery generation T+1 working days
Settlement Securities and funds payin T+2 working days
Securities and funds payout T+2 working days
Post-settle valuation debit T+2 working days
ment auction T+3 working days
bad delivery reporting T+4 working days
auction settlement T+5 working days
close out T+5 working days
rectified bad delivery payin T+6 working days
and payout
Re-bad delivery reporting T+8 working days
and pick-up
close out of re-bed delivery T+9 working days
BOMBAY STOCK EXCHANGE
BSE
The Bombay Stock Exchange is the oldest stock exchange in Asia and it
was established as early as 1875 itself.
It is under the control of a Governing Body consisting of 19 directors.
 Among them, one is an executive director, another one is a RBI nominee.
Nine are elected by brokers and the balance five are public
representatives.
It has more than 700 members and most of them are individual
members.
At present, corporate members are being admitted.
There are three segments in BSE. They are:
(i) Equity segment.
(ii) Debt segment.
(iii) Derivative segment.
1.Equity segment
In this segment, there are nearly 5,000 listed companies. It has market
capitalisation of 51,38,015 crore during 2007-08. The cash segment
turnover during 2007-08 was 15,78,856 crore. Many of the companies
listed on BSE are small in size. The shares of the listed companies of this
exchange are grouped into three categories in terms of their quantitative
characteristics. They are:
(i) Group A shares, having large equity base, very high liquidity and
consistency of good performance.
(ii) Group B1 shares, having sound financial conditions, high liquidity and
equity of more than RS.3 crore.
(iii) Group B2 shares, having equity below RS.3 crore, low trading record
and not sound financial conditions.
2.Debt segment
This segment purely deals with debt securities.it has also got two sub-
segments on the basis of the different issues of debt securities.
These segments are:
i. F Segment , and
ii. G Segment.
 F segment deals with all corporate debt securities
 G segment deals with different Government securities,treasury bills,
PSU bonds,etc.
3.Derivative segment
• This segment is meant for derivative trading only. Recently, SEBI has
permitted some of the derivative products like index futures, currency
futures, Interest rate futures, etc., and hence derivatives trading is
picking up in BSE.
• The derivative segment turnover was just RS. 9 crore in 2005-06 and it
has gone upto RS.2,42,308 crore in 2007-08.
Stock Indices of BSE
The major indices of BSE are:
i. Sensex
ii. BSE National Index
iii. BSE 200
iv. Dollex
v. BSE-500

bseindia.com
Trading and Settlement
1. Trading-BOLT
2. Scrips group
3. ‘c’ group scrip
4. Exit route scheme
5. Permitted securities
6. Closing price
COMPULSORY ROLLING SETTLEMENT (CRS) SEGMENT
NATIONAL STOCK EXCHANGE (NSE)
• It was set up in 1992 by leading financial institutions (IDBI, LIC, UTI,
ICICI, SBI and others) and started functioning as a stock exchange in
April 1993.
• It was set up with the objectives of:
establishing a nationwide trading facility for all types of securities
ensuring equal access to all investors in the country through an
appropriate communication network
providing a fair, efficient and transparent securities market using
electronic trading system
enabling shorter settlement cycles and book entry settlements
meeting international benchmarks and standards.
Features of NSE
Legal structure company ,Demutualized
Profit non profit company
Ownership structure owned by shareholders who can be
financial institutions which also have
broking firms as subsidiaries
Listing non listed,no public offering is made
Board structure The board comprises shareholders
academicians, charted accountants,
legalexperts, etc. Of these,three directors are
appointed by SEBI and three directors are public
representatives approved by SEBI.
NSE INDICES
The popular indices of NSE are:
o S&P CNX NIFTY
o S&P CNX DEFTY
o S&P CNX 500
o S&P CNX NIFTY JUNIOR
o CNX MID-CAP
o Sectoral Indices

nseindia.com
Speculation of Securities

• Stock exchange is the place where the listed securities are marketed.
• The people who buy and sell securities will have different
motives,namely,investment motive and speculative motive.
• Genuine investors – there are some persons who buy securities with a
view to investing their money for the purpose of getting an income or
selling them for getting ready cash.such persons are called genuine
investors.
• Speculators – but there are some people who buy securities with a
hope of selling them in future at a profit or in the expectation of being
able to buy them at a profit future.such dealers in the stock exchange
are called speculators.
Types of Speculators
In a stock exchange, the speculators are identified as some zoological
characters such as
BULLS : He is a speculator on the stock exchange who anticipates a
rise in prices and enters into a contract to buy the shares at current
prices with the hope of selling them at the future date when the
prices rise as per his expectation.
BEARS : A bear is an operator who anticipates a fall in prices and
enters into a contract to sell the shares at current price .
 STAGS : A stag is a premium humter.He does not buy or sell securities
in the market.he applies foe shares in the new issue market just like a
genuine investor.
LAME DUCKS : A lame duck is a bear speculator.he finds it difficult to
meet his commitments and struggles like a lame duck.
 TRADING PROCEDURE ON A
STOCKEXCHANGE
1.SELECTION OF A BROKER:
Any investor who wants to buy or sell securities must sign up with a SEBI-
licensed broker, which can be a startup, a partnership, or an individual. You
will need to submit some documents and provide personal information in the
sign-up process, such as a PAN card, bank account details, name, address,
date of birth, etc.
2. OPENING DEMAT ACCOUNT WITH DEPOSITORY:
Investors must open a Demat account
with depository participants such as
banks or stockbrokers to hold
securities digitally. These depository
participants open a Demat account on
behalf of two depositories: CDSL
(Central Depository Securities Ltd.)
and NSDL (National Securities
Depository Ltd.).
3.PLACING THE
ORDER

Once you have opened

the Demat account, you
can search for securities
from the stockbroking
platform and place an
order to buy. You can also
place an order by
contacting your broker
through email, phone, etc.
When placing an order,
ensure that all the
information entered or
communicated is correct.
 4.MATCH THE SHARE AND BEST PRICE

• If you have placed an order

manually, you can look at the
share price in real time to match
your order with the best price.
• If you have asked the broker,
they will go online to connect
with the chosen stock exchange
and match your order with the
best share price.
5.EXECUTING ORDER:

If the price you mentioned in

your order matches the
current share price, the order
will be executed on the stock
exchange immediately. Once
the trade is completed, you
will receive a trade
confirmation slip from the
broker.
6.ISSUE OF CONTRACT NOTE

Within 24 hours of the trade being executed, you will receive a contact
note from the broker. It includes details of the executed order, such as
the date and time of the execution, number of shares bought or sold,
cost or selling price, order type, etc. It is compulsory for a broker to
issue a contract note with every completed market order.
7.DELIVERY OF SHARE AND MAKING PAYMENT

The next step in the settlement in the stock exchange is to pay for the
shares bought or deliver the shares sold. The investor must deliver or
pay for the shares immediately after receiving the contract note. If it is
a buy order, investors can make payments a day before the broker
delivers the shares.
8.SETTLEMENT
CYCLE The next step in the
settlement in the stock
exchange is to pay for the
shares bought or deliver the
shares sold. The investor must
deliver or pay for the shares
immediately after receiving
the contract note. If it is a buy
order, investors can make
payments a day before the
broker delivers the shares.
9.DELIVERY OR SHARES OR MAKING PAYMENT

Once the clearing and settlement process in the stock market of T+0 is
complete, the exchange will provide the payment that you sent to the
seller. If you are the seller, the exchange will take the shares from your
Demat account and transfer the payment to you.
10.DELIVERY OF SHARES IN DEMAT FORM
This is the final clearing and settlement process in the stock exchange.
It includes the step where the exchange makes deliveries of the shares
to your Demat account. However, it is important that you provide the
details of the Demat account to the depository participant or the
exchange.
CONCLUSION
Understanding the trading procedure of the stock exchange and what
is settlement in the stock market are important steps for trading
stocks, such as multibagger stocks, effectively.
 Once you have understood both the steps, you can open a Demat
account and start investing in the equity market. However, make sure
your investments are based on prior stock market knowledge and
extensive research.
 Internet Stock Trading

Method of trading in securities whereby information about securities,

brokers, dealers, prices, etc are communicated through the official websites of
concerned stock exchanges so as to facilitate buying and selling of securities, is
known as 'internet stock trading
 Internet Trading - Alternatives

There are two forms of internet trading :

 Alternative Trading System(ATS):
Alternative Trading System provides investors with additional proprietary
electronic trading facilities for securities that are traded principally on stock
exchanges or other organized markets.
ATSs carry out price discovery functions. In addition, they also serve as
order-matching systems, besides serving as crossing systems using prices already
established in organized markets such as securities exchanges (e.g. closing price).
 Order Routing System (ORS):
An effective Order Routing System takes advantage of cutting edge
technology to bring an unprecedented level of efficiency to the order flow process.

It involves the utilization of technology to route orders of the investors to the

brokers reducing any time lag between their order and its execution on the
exchange.
 INTERNET TRADING –SOME
ISSUES
There are many issues that comprise the on-line trading mechanism called
the 'Internet Trading’ . They are discussed as under:
• Examining Alternative Trading System:
The feasibility of introducing the alternative trading system for the purpose of
internet trading is examined as follows:
• Recognized stock exchanges:
According to the Securities Contracts (Regulation) Act,1956 that deals with
regulation and control of contracts in securities, a contract in securities can be
entered and performed only as per the provisions of SC(R) Act.
• Stock Exchange Or Recognized Stock Exchange:
 Section 2(f) of the SC(R) Act, 1956 defines a stock exchanges as “any body of
individuals whether incorporated or not, constituted for the purpose of
regulating or controlling the business of buying, selling or dealing in securities
 Section 2(1) of the SC(R) Act, defines a Regional Stock Exchange (RSE) as "a stock
exchange that is recognized by the Central Government or SEBI under Section 4
of the SC(R) Act.“
SECURITIES AND EXCHANGE BOARD OF
INDIA(SEBI) Conditions:
According to the SEBI's press release dated December 10, 1996,
recognition of new stock exchanges would be allowed subject to the following
conditions:

1. That the exchange begins trading only after the introduction of on-line screen
based trading
2. That the exchange makes rules, regulations and byelaws with adequate
provisions for investor protection, with the approval of SEBI and thereafter strictly
follows them
3. That the exchange establishes a clearing house within 6 months from the date of
recognition
Additional Trading Floors:
Section 13A of the SC(R) Act, 1956, allows a RSE to establish Additional Trading
Floors (ATFS) with prior approval from SEBI. The Act defines the term 'trading floor'
as, "a trading ring or trading facility offered by a RSE outside its area of operation to
enable the investors to buy and sell securities through such trading floor under the
regulatory framework of that stock exchange.“
 All or None, Cross and Negotiated Deals:
SEBI has banned all negotiated deals in securities including cross deals and
requires that such deals are executed only on the screens of the exchanges in the
price and order matching mechanism of the exchanges.
Kerb Deals:
Kerb deals are transactions in securities between members of stock exchanges
carried on after the official close of trading hours on the exchange. Under the
byelaws of the RSE in India, trading after official trading hours is prohibited. Such
trading can come within the ambit of Section 23(1)(i) of SC(R) Act.
Over-The-Counter
Contracts Under section 16(1) of SC(R) Act, no person without permission of
Central Government can enter into any contract for sale or purchase of securities
other than such spot delivery contract or contract for cash or hand delivery or
special delivery in any securities as is permissible under the SC(R) Act and the rules,
byelaws and regulation of a RSE.
Clearing Houses/Trade Guarantee:
Fund All RSEs were required to establish a clearing house or a clearing
corporation by June 30, 1996 in terms of the provisions of the circular of SEBI.
Further all the exchanges were also advised to settle all their deliveries through the
clearing houses.
Price:
In India, securities are required to be listed in such RSE whose name is
mentioned in the offer document in terms of Section 73 of the Companies Act,
1956. Further, securities can be traded in other RSE as permitted securities.
Listing of Securities on ATS:
Section 73 of the Companies Act, 1956 requires every company intending to
offer shares or debentures to the public for subscription by the issue of a
prospectus, to make an application to one or more of the RSE for permission for the
shares or debentures to be dealt with on that or those stock exchanges.

Concluding Remarks:
In view of the provisions of the SCR Act, especially, Sections 2(f), 13, 134, 19
and Section 23, an ATS cannot operate without seeking recognition as a stock
exchange or as additional trading floor after satisfying all the legal requirements
therefore.
MARGIN TRADING

where an investor buys securities by borrowing a portion of the

transaction value and using the securities in the portfolio as collateral,
it is called ‘margin trading’.
Features of margin trading

1. Enhanced power
2. Leveraging
3. Margin account
4. Margin value
5. Commission
6. Margin requirements
7. Margin call
8. Margin agreement
9. Caveats.
1. Enhanced power
• Margin trading allows for an increase in the purchasing and
selling power of the investor and thereby increases the
possibility of a larger gain if the stock market moves on
expected lines.

• At the same time, it magnifies the losses too, in case the stock
market behaves contrary to the expectation.
2. Leveraging
• Margin trading is essentially a form of leverage trading. Leveraging implies
borrowing on the strength of the asset purchased and using it as a collateral.

• Leveraging leads to a doubling of the purchasing power, offering more flexibility

to the investor besides presenting the possibility of multiplying the return on
investment.
3. Margin account
• An account opened by the investor with the brokerage firm,
which allows the investor to borrow a certain percentage of
the value of his purchases, using his securities as collateral.

• It implies taking loan from the broker like any other borrowing-
lending, with the investor owing the principal and the interest
to the broker who has lent money through a margin account.
4.Margin value:-

 The investor will be entitled for a loan up to 50% of the

value of purchase. Only certain assets are considered to be
marginable securities.

 Accordingly, securities that cannot be purchased on the

margin must be purchased in a cash account .

 These are normally the securities that trade below a certain

minimum price or are highly volatile in nature with
substantial risk to the investor as well as to the broker, if
purchased on margin.
5.Commission:-
 Trade commission as applicable in the case of cash dealings are
also applicable to margin account. The brokerage firm charges
interest on the margin loans made to the investor.
.

 The interest is a fixed rate stipulated by the authorities plus a

markup depending upon the exposure in the margin account.
The interest rate on the loan varies depending upon the
amount borrowed. The cost of margin trading to the investor
thus depends on the prevailing rate of the interest of margin
account.
6.Margin Requirement:-

 It is essential that the securities purchased on margin have

to appreciate enough in value so as to cover the cost of
borrowing. Margin requirements aim at limiting trade size
done in margin account.

 The brokerage firms fix higher margin requirements if the

securities in a margin account are particularly volatile, thinly
traded or concentrated in a single security or single industry.
The different type of margin requirement

a) Minimum margin:-
It is the minimum amount of 100 purchase of the purchase
price to be deposited by the investor with the brokerage firm
before trading on margin.

b) Initial margin:-
It is that portion of the purchase price, which is deposited by
the investor with the broker firm. Brokerage firms allow the
investors to borrow up to 50 percent of the value of securities.
c)Maintenance margin

• It is the minimum level of equity balance that should be

maintained in the account at all times.

• If the equity balance in the margin account falls below this

level, then the brokerage firm will insist that the investor
deposit.
7.Margin call:-
• When the equity balance in the margin account falls below the
floor acceptable to the broker, he can make a ‘margin call’.

• When the broker makes a margin call, the investor is required to

deposit more cash or securities into his account. If the margin
call is not met, the broker has a right to sell the securities in the
margin account to increase the equity level in the account above
the minimum margin requirement.

• If the investor gets a margin call, he will be required to bring in

additional funds before a set time or date.
8.Margin agreement

 The margin account are governed by a margin agreement

signed by the broker and the investor. The brokerage firm
is not even required to make a margin call or notify the
investor that equity in the account has fallen below the
minimum requirement.
9.Caveats:-
The investors venturing into margin trading need to be aware of
the several of the following risks associated with it.
a) Losing more money:-
In a declining stock market, the losses get amplified in a margin
account, with the potential threat of losing more money than one
had originally invested.

b) Meeting deficiency:-
The brokerage firm can sell the securities in the investors
account at the current price available in the market. This price may
not be the best price at which the investor himself would have
preferred to sell his securities.
 C) No information

The margin trading rules allow the brokerage firms to liquidate securities in
investor account without contacting the investor. Most of firm try to intimate their
investors of the margin call, but they are not required to do so.

d) No extension of time
When the firm makes a margin call, the investor is required to respond to it
immediately. Normally ,one is not entitled to an extension of time to meet initial
margin requirements, while some firms may allow sometime to meet a
maintenance margin call.
INTRODUCTION TO STOCK
BROKERS
Meaning:
• A stock broker is a licensed professional or entity
that buys and sells securities (such as stocks,
bonds, mutual funds, and exchange-traded
funds) on behalf of investors. They act as
intermediaries between investors and the stock
market, facilitating the trading of financial
instruments.
 Registration of Stock brokers
• Application for registration of stock broker.
• Furnishing information, clarification, etc.
• Consideration of application.
• Criteria for fit and proper person.
• Procedure for registration.
• Conditions of registration.
• Stock Brokers to abide by Code of Conduct.
• Procedure where registration is not granted.
• Effect of refusal of certificate of registration.
• Payment of fees and the consequences of failure to pay fees.
 ROLES AND RESPONSIBILITIES
Executing Trades: Buying and selling securities on behalf of
clients.
Providing Investment Advice: Offering recommendation based
on market analysis and client goals.
Conducting Research: Analysing market trends and financial
data to inform investment decisions.
Client Communication: Keeping clients informed about market
conditions,portfolio performance, and potential investment
opportunities.
Code of conduct for Stock - brokers
• Integrity: We shall maintain high standards of integrity, promptitude and
fairness in the conduct of all our businesses
• Exercise of due skill and care: We shall act with due skill, care and
diligence in the conduct of all our businesses.
• Manipulation: We shall not indulge in manipulative, fraudulent or
deceptive transactions or schemes or spread rumors with a view to
distorting market equilibrium or making personal gains
Code of conduct for Stock - brokers
• Malpractices: We shall not create false market either singly or in
concert with others or indulge in any act detrimental to the investors’
interest or which leads to interference with the fair and smooth
functioning of the market
• Compliance with statutory requirements: We shall abide by all the
provisions of the Act and the rules, regulations issued by the
Government, SEBI, FMC and the Exchange from time to time as may
be applicable to us
Full-Service Brokers:
They provide a comprehensive range of services, including investment
advice, research, portfolio management, and retirement planning. They
typically charge higher fees for these services. Examples include:

• ICICI Direct
• HDFC Securities
Discount Brokers
They offer lower-cost trading services with fewer added features or
personal advice. They primarily focus on executing trades at lower
commissions.
Examples include:
• Zerodha
• Angel One
 Meaning of Sub - broker
Sub broker means a person not being a member of stock exchange who acts on
behalf of stock broker as an agent, Or assisting for investors in buying and
selling.
Listing and depository
system.
Module 2 : Secondary
Market.
WHAT IS LISTING AND
DEPOSITORY SYSTEM :

• The platform that facilitates the buying and selling of shares

whereas all the shares of registered companies are held in the
dematerialized(electronic) form in the depositories. A
depository system is the process of allotment and transfer of
securities in electronic form.
Activities Of The Depository .
• Accepting deposit of securities for custody.
• Making computerised book entry deliveries of securities which are immobilised in
custody.
• Creating computerised book entry pledges of securities in it’s custody,
• Providing for withdrawal of securities.
• Undertaking corporate actions like distribution of dividend and interest.
• Redemption of securities on maturity.
Functions Of Depository :
• 1). Serves as a link between public companies and
investors/shareholders.
• 2). Eliminates risk related to owning physical financial securities.
• 3). Create a system for the central handling of all securities.
• 4). Reduced paperwork and accelerates the process of transferring
securities.
• 5)_ Enhance liquidity and efficiency.
• 6)_ Reduce the cost of transaction for the investor.
• 7) Promote the country’s competitiveness by complying with global
standards.
• 8) Provide service infrastructure in a capital market namaste.
Features of depository :
• A depository system is an institution that holds securities.
• In the stock market, depository participants are the medium through which
depositories interact with investors.
• SEBI's certificate is required for Depository Participants (DPs) to offer their
services.
• It is mandatory for an investor to open a depository account with any DP
called a Demat account.
• Depositories with the help of DPs control the electronic transfer of
securities and settlement of transactions.
• Depositories issue receipts of bonus shares in an electronic form.
• A Depository in the stock market offers a nomination facility in the Demat
account.
Depositories in India :

In India, there are mainly two Depositories which are Central Depository
Services Limited(CDSL) and National Securities Depository Limited(NSDL).
National Securities Depository LID.
(NSDL)
• The first depository in India--- The National Securities Depository Limited (NSDL)
was established in 1996. it has been promoted by the Industrial Development
Bank of India, Unit Trust of India and National Stock Exchanges. NSDL started
operations in November 1996 and has made significant progress since then.
NSDL performs a wide range of securities
related functions through the DPs:
• Maintenance of individual investor’s beneficial holdings in an electronic form.
• Dematerialisation and Rematerialisation of securities.
• Account transfer for settlement of trade in electronic shares.
• Allotments in the electronic form in case of initial public offerings.
• Distribution od f non-cash corporate actions.
• Facility for freezing /locking of investor accounts.
• Facility for pledge and hypothecation of securities.
NSDL.
• In the first 16 months of its operation, 186 company constituting over 50
per cent of the total market capitalisation have signed up agreement with
NSDL to get their securities admitted for dematerialisation. A total of 163
crore shares valued at 19,600 crore have already been dematerialised.
• According to NSDL the dematerialisation volume has crossed 59,47,979
crore during July 2010.
• There are 287 depository participants(DP’s) operational as on July 2010
which are providing services at about 11,779 locations in India.
• Over one crore clients have opened accounts with these DP’s. There are
8,374 corporates which have signed agreement with NSDL of which
securities of more than 7,000 corporates are available for
dematerialisation.
• Right now , seven stock exchange – the NSE, BSE, CSE, DSE, OTCEI,
Ludhiana and Bangalore stock exchange have established connectivity
Central Depository Service Ltd.
(CDSL)
• The CDSL has been set up by Bombay Stock Exchange and cosponsored by
SBI, Bank of Baroda and HDFC Bank, it commenced it’s operation on
March 22, 1999.
• As on April 2008, there were 422 depository participant with 5,771 DP
service centres. The number of investor account was 52,68,932.the 6,063
companies made available their shares for demat as on April 2008. there
were 422 depository participant with 5,771 DP service centres,
Features of
CDSL
 Dematerialisation
CDSL allows you to store physical securities in electronic form inside your Demat account.
Saving share certificates in a digital format minimises the chances of loss, and even theft. Additionally you
can easily access your investment in CDSL portal anytime, anywhere.
 Different types of accounts
CDSL offers different types of accounts to match the investment requirements of different
investors. Individual retail investors can open individual Demat accounts while corporations and other
entities can open corporate accounts, In fact CDSL also offers provisions for partnership, joint and trust
accounts.
 Security
CDSL ensures the safety of all dematerialised assets held in demat account. The depository keeps
investors credentials confidential, ensuring each transaction is encrypted to ensure 100% safety against
data breaches.
 Transaction ease
CDSL maintains a simple and easy to use transfer system. The CDSL poral allows investors
to seamlessly and safely transfer their securities from their CDSL Demat account to another CDSL/NSDL
Demat account using an OTP verification system.
 Corporate actions
CDSL Update : 2024
CDSL Update Date : 31-Jul-2024

Investor accounts(Excluding closed accounts) 12,96,33,061

Securities available for demat
Equity 23,760

Debt instruments including debentures, bonds,

Government securities, certificates of deposits, 43,518
commercial paper, pass through certificates and Others

Mutual fund units 14,244

Depository Participants
Number of Depository Participants 572

Number of branches with LIVE Connectivity 212

Number of cities/ towns with LIVE connectivity 108

Number of locations with LIVE connectivity 317

Demat Custody
Number of securities in million 7,03,105
Value (INR in million) 7,73,52,717
Differences between NSDL
and CDSL : CDSL
NSDL

Full Form
National Securities Depositories Central Depository Services
Limited(NSDL) Limited(CDSL)

Established
NSDL was established in the year CDSL came into existence in the year
1996. 1999.

The promoters of NSDL are IDBI Bank On the other hand, CDSL’s promoters
Promoters ltd. Unit Trust of India & are Standard Chartered Bank, PPFAs
NSE. Mutual Fund, HDFC Bank & LIC.

Stock Exchanges
NSDL is primarily concerned with the On the other hand, CDSL majorly deals
shareholders of those companies with with the shareholders of those companies
banking brokers such as HDFC with discounted brokers such as Zerodha
securities. or Upstox.

Demat Account Number Format In NSDL the Demat account number Whereas, the Demat account number
consists of 16 numeric digits. in CDSL is 14 numeric digits.
What are Depository
Participants and its role in
the depository system?
• In order to invest in the stock market, it is mandatory to open a Demat
account by stock brokers, and these stock brokers are called Depository
Participants such as Groww, Zerodha, and other registered SEBI brokers.
• Depository Participants help you open a Demat account in the
depositories by collecting the required information about an investor and
submitting it to the depositories. Then a depository will open a Demat
account by the name of the investor which will be maintained by the
depository participants like Zerodha, Groww, Angel One, and many more.
This is who? Depository work’s
Share certificate 1992