Project Report On Trading Around The Globe

Report on Summer Training
Trading Around the Globe

With reference to KOTAK TRADER
Submitted to Lovely Professional University
In partial fulfillment of the

Requirements for the award of Degree of
Master of Business Administration
Submitted by:
Name: Varun Puri
Registration no.: 10800464
DEPARTMENT OF MANAGEMENT
LOVELY PROFESSIONAL UNIVERSITY
PHAGWARA
(2008 - 2010)
Student’s Declaration
I, Varun Puri, student of M.B.A, hereby declare that project entitled “TRADING AROUND
THE GLOBE” submitted in the partial fulfilment of the degree for Master of Business
Administration to “Lovely Professional University” is of my own accurate work. I further
declare that all the facts and figures furnished in this project report are the outcome of my
own intensive research and findings.
Submitted By
Varun Puri
Acknowledgement
“Expression of feelings by words makes them less significant when it comes to make
statement of gratitude” It gives me pleasure to express my most profound regards and sense
of great indebtedness and sincere gratitude to my Company Guide Mr. Kapil Tandon (Cluster
Head, Kotak Securities Ltd. Jalandhar.).
I would thank to my project guide Ms. Anu Shital for her guidance in preparing this report. I
would also like to thank my co employees who gave guidance and support during the
completion of the project.
Varun Puri
EXECUTIVE SUMMARY
It is commonly said that
“Finance is the life & blood of economy”
So, to generate blood & to manage this blood, oxygen i.e. brokerage houses are there, A stock
broker or stockbrokerage house is a regulated professional broker who buys and sells shares
and other securities through market makers or Agency Only Firms on behalf of investors. In
modern world these organizations work as life & blood of the commerce system of an
economy.
Without practical training, management education is meaningless so long with theory;

practical training is provided to M. B.A. students to expose them to actual working
environment of any organization. Such training provides a framework of knowledge relating
to the concepts & practices of assigned topics in the organization.
The summer training is integral part of the course curriculum of two years full time Masters
of Business Administration course. In this the student is in the position to analyze the integral
working of an organization with mature eyes & understand the dynamics in a much better
manner.
This particular project has been conducted at Kotak Securities Ltd., Jalandhar. The basic
purpose is to know the customer perception about International stock trading, with reference
to their new product KOTAK TRADER, through which their clients can trade in worlds 24
stock exchanges. It begins with introduction of stock broking, Company profile of Kotak
Securities. Then details of the products offered by Kotak Securities ltd. has been given &
Data analysis of respondents.
This study has been conducted with a variety of important objectives in mind. The following
provides us with the chief objectives that have tries to achieve through the study. The extent
to which these objectives have been met could be judged from the conclusions & suggestions,
which appear later in the study.
The Chief objectives of the study are:

 To study the product & services provided by Kotak Securities.
 To know the consumer perception towards Kotak’s new product Kotak Trader.
 To know about what are the considerations, that a investors keeps in his/her mind
while investing
 To study the factors influencing the investment by investors
 To study the unique constraints that would be faced by investors in International
Investment.
 To get suggestions for the improvement or change in services of Kotak Securities Ltd.
Research Methodology
Research is defined as human activity based on intellectual application in the investigation of
matter. The primary purpose for applied research is discovering, interpreting, and the
development of methods and systems for the advancement of human knowledge on a wide
variety of scientific matters of our world and the universe. Research can use the scientific
method, but need not do so.
Research methodology means a “defining a problem, defining the research objectives,

developing the research plan, collecting the information, analyzing the information &
presentation of findings.” Such framework is called “Research Design”.
The research plan that was followed by me consisted following steps;

A) Defining the problem
B) Developing the research plan
C) Collection of data
D) Analysis of data
E) Presentation of findings
Defining the problem
My research problem is to study the new product launched by Kotak securities i.e. KOTAK
TRADER. In which an investor can trade in worlds 24 stock exchanges.
Developing the research plan

The development of research plan has following steps
1. Data source
2. Research approach
3. Research instrument
4. Sampling plan
i. Sample unit
ii. Sample size
iii. Contact methods
5. Questionnaire design
Data Source: The researcher can get two types of data:

a) Primary data
Primary data is a data which did not exist earlier & is being collected by the researcher
first time for his/her specific objectives. In other words, direct collection of data from the
source of information, technology including personal interview, telephonic interviews,
observations, Questionnaire & through schedules
b) Secondary data
Secondary data is data collected by someone other than the user. Common sources of
secondary data for social science include censuses, surveys, and organizational
records. Primary data, by contrast, are collected by the investigator conducting the
research. Such as:
 Published statistics: Census, housing and social security data, and so on
 Published texts: Theoretical work, secondary analyses by ‘experts’ and reports
 Media: Documentaries for example, as a source of information
 Personal documents: Diaries
 Case studies and literature Reviews.
For collecting the secondary data, the literature review has been done, case studies
have been carried out, published texts and statistic have been used, and media
(especially internet) and personal contacts have also been utilized.
Research Approach
Survey is best suited for the descriptive & analytical research. Survey are undertaken to learn
about people’s knowledge, beliefs, preferences, satisfaction & so on & to measure these
magnitudes in the general public. Therefore, I have done survey for conducting my research
project.
Descriptive research includes surveys & fact finding enquiries of different kinds. The main
purpose is description of the state of affairs is noted down & analytical research used to
analyze the material & facts.
Research Instrument
Questionnaire: A questionnaire is a research instrument consisting of a series of questions
and other prompts for the purpose of gathering information from respondents. Although they
are often designed for statistical analysis of the responses, this is not always the case.
Sampling Plan
Sampling is that part of statistical practice concerned with the selection of individual
observations intended to yield some knowledge about a population of concern, especially for
the purposes of statistical inference. Each observation measures one or more properties
(weight, location, etc.) of an observable entity enumerated to distinguish objects or
individuals. Survey weights often need to be applied to the data to adjust for the sample
design. Results from probability theory and statistical theory are employed to guide practice.
In business, sampling is widely used for gathering information about a population.
The sampling plan calls for three decisions:
a) Sample unit – who is to be surveyed?
b) Sample size – how many people have to be surveyed?
c) Contact methods – how they will be contacted?
Questionnaire Design:
There are 14 questions in my questionnaire & I asked all these questions from 100
respondents in Jalandhar & Nakodar city.
Collecting Information:
After this I have collected the information from the respondents with the help of
questionnaire.
Data analysis & Interpretation

The next step is to extract the pertinent findings from the collected data. I have tabulated the
collected data & developed frequency distributions. Thus, the whole data was grouped aspect
wise & was presented in tabular form. Thus, frequency & percentages were prepared to
render impact of study. I have used the factor analysis method in order to know about the
various considerations of respondents about international stock trading.
LIMITATIONS OF THE STUDY
Due to constraints of time & resources, the study is likely to suffer from certain limitations.
Some of these are mentioned here under so that the findings of the study may be understood
in a proper perspective.
 Awareness level of peoples affected the research. Lack of awareness of Stock market
among respondents.
 The sample size taken may not be sufficient to predict the results with 100% accuracy.
For a study like this o ne a still bigger sample size would have been appropriate.
 The information given by the respondents might be biased because some of them might
not be interested to give correct information.
 Some of the respondents of the survey were unwilling to share information.
The research was carried out in a very short time period. Therefore the sample size and
other parameters were selected accordingly so as to finish the work within the given time
frame.
Findings of the study
 From the above study it was clear that due to new product (Kotak Trader) maximum
of people are not aware of the International stock trading. Only 28 % people were
aware of it & the rest were unaware. & those who were aware are the online clients &
they too came to know about it from internet only.
 From the above study it is clear Kotak securities’ majority of clients are ready to
invest in international market. About 56 % of respondents were in favor of investing
in global exchange & majority of them think it will be safe to invest in global market.
 From the above study it is evident that Kotak securities Jalandhar. Branch is lacking
in marketing aspect as very few people knew about their new product KATAK
TRADER.
 From my study we came to know that most of respondents trade during market hours,
so Kotak securities will have to make special arrangement to harmonize their clients
timing with the timing of the stock exchange in which he/she ids trading.
 The study also indicates that the respondent who had experience of more than 4 years
think that, such a platform for global securities trading will help Indian market to
grow.
 The study also helps the Kotak securities to know about the beliefs of investors they
have for the factors they will be considering while investing in international market.
For e.g. Majority of respondents said SECURITY, TIME ZONE DIFFERENCE,
AVAILEBILITY OF DATA ABOUT CO., is the most considerable factors.
 The study also indicates that, when the respondents came to know about the new
product of Kotak trader, majority of them were ready to invest in international market.
About 56% said they would like to invest outside the country
 From the study we came to know about the various obstacles, which investors will be
facing while trading in international market.
 Some of these were: Time zone difference, Forex conversion, Clearing & settlement
etc.
Recommendations
Based on the study conducted the following suggestions are given to the Kotak Securities ltd,
Jalandhar branch.
 24 hours securities trading should be inducted so as to facilitate the customers who

may be trading in the stock exchange which have difference in time zone.
 More Relationship managers should be appointed to cover the marketing aspect
 Kotak should bring out the brokerage structure in such manner that the investor is
attracted with its lower prices
 In order to create awareness regarding the various products & services provided by
Kotak, various medium of media can be put to use to advertise about the same
 New strategies should be made by Kotak which enables them to face the competition
with other brokerage houses like AnandRathi, Unicon, Religare & Indiabulls
 The branch should promote cooperation & coordination among employees which help
them in efficient working
CONTENTS
CHAPTER 1: Introduction of Subject &Review of Literature 1- 45
 Stock Exchange- An Introduction 1
 The Meaning of Globalization 2
 Trends Driving Globalization 3
 The Evolution of Global Securities Market 6
 International Stock Trading 6
 Channels for International Stock Trading 7
 Benefits of International stock trading 9
 Unique Risks of and Institutional Constraints for
International Investment 13
 Securities Market in India – An Overview 22
 International scenario of Indian Market 23
 Key Strengths of Indian securities market 26
 Clearing & Settlement 35
CHAPTER 2: Overview of Industry & Company Profile 46 - 62

 The Kotak Mahindra Group 46
 Kotak Securities Limited 48
 Awards and Reorganizations of Kotak Securities Ltd. 50
 Key Developments of Kotak Securities Ltd. 51
 Salient Features Offered by Kotak Securities for their investors 51
 Kotak Research Products 52
 Core strengths of Kotak Securities Ltd. 53
 Products Range 54
CHAPTER 3: Objectives of the Study & Research Methodology 63 - 69

 Objectives of the study 63
 Defining the problem 63
 Developing the research plan 65
o Data source
o Research approach
o Research instrument
o Sampling plan
o Questionnaire design
 Data analysis & Interpretation 67
 Presentations of findings 68
 Significance 68
 Managerial Usefulness of Study 68
 Scope of the Study 68
Limitations of the Study 69
CHAPTER 4: Data Presentation, Analysis & Interpretation 70 - 82

Data Presentation, Analysis & interpretation 70
Chapter 5: Summary, Conclusions & Recommendations 83 - 86
 Findings of study 83
 Summary & Conclusion 84
 Recommendations 85
Chapter 6: On the Job Training 87 - 88

 Title of the On Job Training 87
 Objectives 87
 Target/ Task Assigned 87
 Strategies Applied 87
 Achievements 87
 Limitations 88
 Conclusion 88
 Corporate learning 88
Appendix
 Questionnaire
 Dummy Application form for KOTAK TRADER
 Bibliography
List of Tables
Tables
Table 1.1: Trading Cost Comparison for Equity Trades, 1999 20
Table 1-2: International Comparison: end December 2007 24
Table 1.3: Market Concentration in the World Index as on End 2007 24
Table 1.4: Market Capitalisation and Turnover for Major Markets 25
Table 1.5: Select Stock Market Indicators 26
Table 1.6: Savings of Household Sector in Financial Assets 28
Table 1.7: Resource Mobilisation from the Primary Market 28
Table 1.8: Market Participants in Securities Market 29
Table 2.1: 24 Stock exchanges in a Kotak client can trade in 59
List of Graphs
Chart 1.1: Clearing & settlement process at NSE 37

Chart 2.1: Journey of Kotak 46
Chart: 4.1: Experience held by investors/respondents 70
Chart 4.2: No. of Online & Offline clients 71
Chart 4.3: Trading hours preferred by investors 72
Chart 4.4: Is international stock trading safe 73
Chart 4.5: Investors preference to invest in international stock exchange 74
Chart 4.6: What do investors think about the effect of international
Trading on Indian Market 75
Chart 4.7: Investor’s trading preference 76
Chart 4.8: Factors considered by investors while investing 77
Chart 4.9: How many people knew about KOTAK TRADER 78
Chart 4.10: Will this new product will help Kotak in attracting new
Investors 79
Chart 4.11: How do investors get fundamental & technical analysis about
Companies 80
Chart 4.12: Obstacles faced by Investors 81
Chart 4.13: Brokerage clients are ready to pay 82
CHAPTER 1:
INTRODUCTION OF SUBJECT &
REVIEW OF LITERATURE
CHAPTER 1:
INTRODUCTION OF SUBJECT & REVIEW OF LITERATURE
Overview of Industry
Stock Exchange- An Introduction
The world's foremost marketplace New York Stock
Exchange (NYSE), started its trading under a tree (now
known as 68 Wall Street) over 200 years ago? Similarly,
India's premier stock exchange Bombay Stock Exchange
(BSE) can also trace back its origin to as far as 125 years
when it started as a voluntary non-profit making association.
The history of the earliest stock exchange, the French stock

exchange, may be traced back to 12th century when transactions occurred in commercial bills
of exchange. The first stock exchange in India, Bombay Stock Exchange was established in
1875 as 'The Native Share and Stockbrokers Association' and has evolved over the years into
its present status as the premier stock exchange in the country. It may be noted that BSE is
the oldest stock exchange in Asia, even older than the Tokyo Stock Exchange, which was
founded in 1878. The country's second stock exchange was established in Ahmadabad in
1894, followed by the Calcutta Stock Exchange (CSE). CSE can also trace its origin back to
19th century. From a get together under a 'Neem Tree' way back in the 1830s, the CSE was
formally established in May 1908.
India’s other major stock exchange National Stock Exchange (NSE), promoted by leading
financial institutions, and was established in April 1993. Over the years, several stock
exchanges have been established in the major cities of India. There are now 23 recognized
stock exchanges — Mumbai (BSE, NSE and OTC), Calcutta, Delhi, Chennai, Ahmadabad,
Bangalore, Bhubaneswar, Coimbatore, Guwahati, Hyderabad, Jaipur, Kochi, Kanpur,
Ludhiana, Mangalore, Patna, Pune, Rajkot, Vadodara, Indore and Meerut. Today, most of the
global stock exchanges have become highly efficient, computerized organizations.
Computerized networks also made it possible to connect to each other and have fostered the
growth of an open, global securities market.
1|Page
Lovely Professional University (2008-2010)
Realizing there is untapped market of investors who want to be able to execute their own
trades when it suits them, brokers have taken their trading rooms to the Internet. Known as
online brokers, they allow you to buy and sell shares via Internet.
Investment in share markets are influenced by the analysis & reasoning which help in
predicting the market to some extent. Over the past years a number of technical & theories
for analysis have evolved, these combined with modern technology guides the investor. The
big players in the market, like Foreign Institutional Investors, Mutual Funds, etc. have the
expertise for various analytical tools & make use of them. Generally a small investor’s
investments are based on market sentiments, inside information, through grapevine, tips &
intuition. The small investors depend on brokers and brokerage house for his investments.
In recent years a large number of players have entered into his market. The project has been
carried out to have an overview of International stock trading and to understand investor’s
perception about international stock trading in the context of their trading preference, explore
investor’s risk perception & find out their preference over Top brokerage houses that provide
the same product.
The Meaning of Globalization

Foreign currency exchange and markets for government debt securities have long been
international. To the extent that there is still argument about the future of global securities
trading, it focuses on how quickly 24-hour trading will emerge, and to what degree it will
extend to corporate equities. A two-tier market system could develop, with international
electronic trading of the shares of 500 to 1,000 multinational corporations, and domestic
(country of domicile) trading on traditional exchanges and over-the-counter markets of most
other corporate securities. Or—although this is less likely—traditional exchange-based, face-
to face markets could lose out entirely to the competition of electronic systems.
There is growing evidence, especially since the October 1987 market break and the October
1989 break in America, that securities markets around the world are linked. They tend to
move in parallel in response to economic and financial news, and to react sharply to stress in
other markets. Although there has been relatively little response in other markets to sharp
declines in Tokyo Stock Exchange prices in early 1990, the anxious attention of market
2|Page
observers around the world attests to the general recognition that this stability may be
precarious.
“Globalization of equity securities trading” is a term that covers a variety of related growth
trends. It includes the cross-listing of securities in several countries, cross-national portfolio
diversification and hedging, holding membership (generally through affiliates) in another
country’s exchanges, legal or contractual ties between exchanges, electronic systems for 24-
hour trading, “passing the book,” the development of cross-national stock index derivative
products, and related phenomena such as multinational primary offerings of stock and
international mutual funds. All of these are now growing, although at different rates.
There are nevertheless major obstacles, such as legal, regulatory, and cultural differences
between nations and markets. Some of these differences impose serious risks on investors,
market organizations, and other financial institutions. These new or aggravated risks are often
poorly understood by individual investors and perhaps by professional investment managers.
In the worst case, the failure of major market participants (e.g., securities firms or banks)
with heavy commitments in several countries could have gravely detrimental results for
national financial and payment systems and possibly for entire economies.
Trends Driving Globalization

Institutional investors, and to a lesser degree individual investors, trade in the markets of
more than one country in order to find higher rates of return at acceptable risk, to diversify
their portfolios, or to take advantage of other hedging techniques. The forces encouraging the
rapid expansion of international securities trading are:
1) The declining costs of international communications:

International securities trading require a system for efficient, rapid, and secure
transmission of market data, transactions messages, and payment instructions. The
infrastructure to do this has developed rapidly over the last 25 years and is continuing
its turbulent development. Four technological trends contributed to this development:
3|Page
 Expanding computer capability and declining costs;

 Digitization of data, and the resulting convergence of computer and
telecommunications technologies;
 Satellite communications development; and
 Fiber optics development.
Improved computer performance and declining costs have resulted from improvements in
basic computer technology, very large-scale integration (VLSI) technology, materials (e.g.,
use of gallium arsenide in production of chips), and computer architectures and software.
In 1960, it cost about $75 to do 1 million computer operations; in 1980 it cost 0.1 cent. By
1997 a survey found that computer costs are expected to decrease still further. Computers
make it possible to use telephone systems to transmit, store, and distribute electronically
encoded information; they also control the switches that route information through a network.
“Digitizing’ is the translation of information from traditional analog forms such as pictures,
speech, or written/printed characters, into discrete binary-coded electronic signals for
processing, storage, or transmittal. This makes possible the fusion of telecommunication and
information-processing technologies. It allows man-to-machine communication not possible
with a conventional telephone, and has prompted the carriers to build multi-media
communications systems by combining facsimile, data, and video with voice transmittal
capability.
Advances in global communications infrastructure technologies will probably accelerate.

Nevertheless, there is some danger that network interdependence may slow innovation,
because once users have invested in equipment conforming to a particular standard, they will
be reluctant to purchase equipment that is incompatible even if it is otherwise superior.
2) Increasing world trade and interdependence among national economies:

World trade patterns in goods and services encourage world trade in securities. Not
only do multinational corporations become familiar in many countries, but they need
to raise capital in the local currency for plant, property, equipment, and daily
operating expenses. International trading of corporate securities grew sharply in the
1970s and 1980s. After the 1987 market crash, there was a temporary reduction in
international trading. Most agree that an international trading incorporate equity is
4|Page
likely to be limited to stocks of “world class” corporations. There are already at least
500 corporations whose issues trade internationally.
World trade patterns in goods and services encourage world trade in securities. Not
only do multinational corporations become familiar in many countries, but they need
to raise capital in the local currency for plant, property, equipment, and daily
operating expenses. International trading of corporate securities grew sharply in the
1970s and 1980s. After the 1987 market crash, there was a temporary reduction in
international trading. Most agree that an international trading incorporate equity is
likely to be limited to stocks of “world class” corporations. There are already at least
500 corporations whose issues trade internationally.
International imbalances lead to a flow of capital across national boundaries that some
economists view with concern. In the United States, the growing Federal deficit has
been financed to a significant degree by foreign purchases of Treasury bonds.
3) Institutional Investors
The growth of institutional investment funds such as pension funds and insurance
funds, especially in the United States, is a major force encouraging international
securities trading. Public and private pension plans represent large concentrations of
funds that must be invested, and’ many institutional investment managers want to
diversify fund holdings outside of their own country to protect against both potentially
adverse currency fluctuations and domestic economic recessions.
4) Privatization
Another force encouraging the cross-national holding of equities has been the
privatization in the United Kingdom and Japan of-very large industries that had been
owned by the state. More stock had to be offered for sale than could be absorbed by
investors in a single country, so there have been many stock issues that are offered in
several countries at the same time, with each country’s allotment, or “tranche,”
consisting of millions of shares.
5|Page
The Evolution of Global Securities Market
As national economies are linked together by the exchange of goods and services and by
public and private communications networks, global securities markets develop. Indian
securities markets, among the one of world’s most liquid, efficient, and fair, should stand out
in this expanded arena, provided they do not fall behind in technological and financial
innovation. But securities trading on a global scale brings with it new risks, as well as
beckoning opportunities. Indian investors and Indian regulators and policymakers are seeking
to understand these risks and appraise the demands that they will place on markets, market
participants, and their regulators.
This project describes the forces encouraging the development of international securities
markets, the obstacles that must be overcome, and the major sources of unnecessary risk. It
provides some estimates of the present extent of cross-border trading, and describes the
largest and most active organized markets-our competitors in providing securities-related
services in Japan, the United Kingdom, and the rest of the European & American
Community. It also describes the important clearing, settlement, and payment mechanisms
that support major markets. Finally, it outlines the questions to be faced as the span of
securities trading stretches beyond the scope of national regulatory regimes.
International Stock Trading
International online stock trading deals with trading of stock of different companies located
in various countries. With the help of a single online trading account, investors are able to
trade in a number of stock markets worldwide. Various mutual funds and exchange-traded
funds (ETFs) can also be traded online. Stocks can also be bought or sold away from the
physical stock exchanges, which is of significant benefit to investors.
A number of online trading brokers offer their services at a nominal cost to cater to the
multifarious investment necessities of numerous stock market investors. They also provide
valuable investment tips, which include stock market research, analysis, portfolio
management advice, and investment planning.
Buying and selling orders can be placed conveniently through facilities provided by stock
brokerage firms and the proceeds of the purchases or sales are debited or credited to the
6|Page
customer's bank account. Investors also have the option to trade on their own without the help
of an online stockbroker. Free quotes are also provided by a number of companies from
which investors can choose their preferred stock.
Channels for International Stock Trading

Investors who wish to benefit from the ownership of foreign securities can implement their
portfolio strategy in a number of ways, each of which has its peculiar advantages and
drawbacks. The most direct way for an investor to acquire foreign securities is to place an
order with a securities firm in his home country which would then acquire the securities in
the market of the foreign issuer, usually with the aid of a securities broker operating in the
foreign country. Furthermore, the investor can establish an investment account with a
financial institution in a country other than his residence, and purchase securities either in
that country or in the countries of issue.
Because of cost, complex delivery procedures, and the difficulty of securing adequate
information about individual securities, the investor might be inclined to buy foreign
securities issued or traded in the market of the country in which he resides instead. In this
case, he only needs to pay the transaction costs of local brokerage and has the advantage of
the protection of local laws and regulations. A preferable alternative to all but large investors
consists of indirect investment via mutual funds specializing in foreign securities.
DIRECT FOREIGN INVESTMENT

Purchase of Foreign Securities in Foreign Markets
The most direct way to implement international investment is the purchase of foreign
securities directly in the respective local (foreign) market of the issuer. While restrictions on
outward international investment have been eliminated by many countries, theoretically
foreign investors could place orders through banks or securities brokers either in the domestic
or foreign country when they wish to purchase foreign securities. This is true for both
outstanding securities and new issues. When the securities have to be purchased in a
secondary market, it is usually in the domestic market of the issuing entity, i.e., the borrower.
At this point a number of problems arise. On a technical level, there are difficulties with the
delivery of the certificates. Also, there is the expense of making timely payment in foreign
funds. Finally, investors may find it difficult to secure good information on the situation of
the issuer, conversion and purchase offers, and rights issues, and to collect interest and
7|Page
dividends. Many of these technical problems stem from a lack of international integration of
securities markets. Because of a combination of extensive regulation to protect the investing
public from fraud, conflict of interest, gross incompetence, or the resistance of entrenched
local institutions to competition, especially from abroad, organized securities markets have
been less open to securities firms operating on a multinational basis than, say, markets for
commercial banking services.
Trading and owning of foreign securities presents, however, several difficulties and problems
to investors. Among these are myriad settlement procedures, a high rate of trade failures,
unreliable interest and dividend payments, restrictions on foreign investment, foreign
withholding taxes, capital controls, differences in accounting rules and reporting
requirements and poor information flow.76 In order to avoid or overcome these complications,
investors might consider the purchase of foreign securities in the domestic market.
Purchase of Foreign Securities in the Domestic Market

In some countries, the possibility exists to purchase foreign securities in the domestic market
of the investor. This represents in many respects a convenient alternative to purchasing
foreign securities abroad. Foreign securities are available to the investor domestically as well,
if the issuing corporation sells its securities not only in the market of the country where it is
incorporated, but also in other markets. Such transactions are often accompanied by a listing
of the securities usually on one of the exchanges of the country where the securities are
placed. Normally, a minimum number of securities must be distributed among local investors
as a requirement for listing, or alternatively the listing is a prerequisite for the successful
placement of a substantial issue. Since the latter part of the 1980s, world financial markets
have witnessed a considerable volume of so-called ‘‘Global’’-equity issues, often in
connection with the privatization of state-owned enterprises. Local listing fees as well as
different disclosure requirements can make multiple listings quite expensive for corporations.
Nevertheless, the access to local investors may make this effort worthwhile.
All national and international securities markets must deal with the need to organize the
physical handling and delivery of traded securities efficiently. In national markets, the trend
seems to be moving toward central depositories of one form or another; in some markets, the
physical handling and shipping of securities has been virtually eliminated. Instead, a
8|Page
computerized accounting system keeps track of transfers, while the securities themselves are
safely tucked away at the central depository, usually run by the securities brokers’
association.
While the basic idea is simple and appealing, it is difficult to implement in some markets,
since thorny issues regarding the nature of collateral and the fragmented structure of the
securities industry arise. Interestingly, some Continental European countries, whose securities
markets do not fare well in comparison with those of the United States, the United Kingdom,
or even Canada by most criteria, have transfer systems based on central depositories which
seem to be far ahead of those found in these otherwise superior markets.
The problems surrounding the physical transfer of securities multiply when extended to
international transactions. Complications range from such mundane matters as the length of
mailing time and the unreliability of mail in international transit, to arcane points of
contradictory or nonexistent provisions in the securities and commercial laws of the different
jurisdictions.
Benefits of International stock trading
There are several potential benefits that make it attractive for investors to internationalize
their portfolios. These perceived advantages are the driving force and motivation to engage in
IPI and will, therefore, be dealt with first i.e., before looking at the risks and constraints.
Specifically, the attractions of international investment are based on
1.) The participation in the growth of other foreign markets,

2.) Hedging of the investor’s consumption basket,
3.) Diversification effects and,
4.) Abnormal returns due to market segmentation.
All else being equal, an investor will benefit from having a greater proportion of wealth
invested in foreign securities
1.) The higher their expected return,

2.) The lower the variation of their returns,
9|Page
3.) The lower the correlation of returns of foreign securities with the investor’s home
market, and possibly,
4.) The greater the share of imported goods and services in her consumption.
While there appears overall significant empirical evidence in support of benefits from
international portfolio diversification, the interpretation of the empirical results is generally
plagued by a set of crucial assumptions. In particular, it has to be considered to what extent
risk aversion among investors in various countries is different, to what degree results based
on past correlations are informative about the future, whether country indices reflect
securities that are actually accessible to foreign investors, and what the effect of inflation
(real interest rate differences) on the results would be.
Participation in Growth of Foreign Markets
High economic growth usually goes hand in hand with high growth in the country’s capital
market and thus attracts investors from abroad. International investments allow investors to
participate in the faster growth of other countries via the purchase of securities in foreign
capital markets. This condition applies particularly to the so-called ‘‘emerging market’’ of
India, Asia, the Mideast and Africa. Countries are classified as emerging if they have low or
medium income according to World Bank statistics, but enjoy rapid rates of economic
growth. Typical examples are India, Mexico or Turkey as well as newly industrialized
countries such as Korea or Taiwan.
Driven by the general economic expansion, the financial markets in these countries have
exhibited tremendous growth. This means that the security holdings of investors attained
values several times worth the original investment after just a few years. However, investors
seeking high growth should not limit their analysis to the fascinating and breath-taking
developments in emerging markets, but also take a close look at some of the well-developed,
industrialized countries like Japan, Denmark or the Netherlands. These countries can provide
interesting investment opportunities as well, because they do not only show above average
growth, but are also politically more stable.
A second issue that comes up, assuming that an investment in high growth country stocks can
be an attractive opportunity as some of them might not be correctly priced, is the concern that
10 | P a g e
foreign investors may not be able to fully participate in the growth potential since they are
expropriated by local, dominant managers-shareholders. In many emerging markets, foreign
investors not only lack protection from a local, dominant manager-shareholder, but they tend
to lose out in conflicts with the local power structure. As a result, foreign investors cannot
stop the company from reducing their fair share of the company’s success by means of
dividend policy, management compensation, and transactions with companies owned by
controlling shareholders, or other corporate decisions favouring the family and political
interests of the dominant local shareholders. Corporate governance tends to be a major issue
for portfolio investors in emerging markets.
Hedging of Consumption Basket
Since the (international) investor is at the same time a consumer of real goods and services,
the return of his (financial) investment must be related to his consumption pattern. This is a
source of considerable difficulty that bedevils formal models of international portfolio
investment. The temptation is to simplify and to assume that goods are homogeneous
(essentially one good). This implies that goods are perfect substitutes domestically as well as
internationally. If one assumes, realistically, that goods are not perfect substitutes, then
deviations from
1.) Purchasing Power Parity (PPP),

2.) The Law of One Price (LOP) is possible.
Future consumption can be curtailed by unexpected inflation, which can be caused by

exchange rate changes and/or shocks of domestic as well as international demand (monetary
policies) and supply (crop failure). Consequently, the type of risk that consumer-investors
may face is directly related to their consumption pattern and investment position. The nature
of the risk is also affected by the structure of markets for financial assets and real goods and
services, for example, whether or not PPP holds. Given that the typical investor can be
assumed to consume at least some foreign goods, she may derive benefits from international
portfolio investment in that she can hedge her internationalized consumption basket against
foreign exchange risk through the investment in foreign assets.
In addition to hedging the individual consumption basket against exchange rate risk,
international portfolio investment can be beneficial to the consumer-investor by reducing
‘‘domestic output risk.’’ Through the purchase of securities which are ultimately claims on
11 | P a g e
other countries’ output, consumption can in principle be smoothed when output is not highly
correlated across countries because of different shocks. Empirical evidence, however,
suggests the presence of a ‘‘consumption home bias’’ as consumption growth rates show
lower degrees of correlations than growth rates of output.
Some other Benefits:-
1. Instant execution of order: It is no news how orders are delayed in local stock
trading. I personally bought a public offer from a local company which took up to a
year to get those shares credited to my account. Placing a buy order you have to take
your time and stress going to your broker’s office to fill your order and then have to
wait for the next day for your order to be taken to the market. This is one beautiful
thing I enjoy about global stock trading you don’t need all those stress just by the
click of your mouse, ''buy or sell'' your orders are executed. This is possible because
the international stock broker will give you access to trade directly from his platform
through internet enabled computer which links you directly to the stock exchange.
Here you are trading the same way a broker should trade.
2. Access to information: Unlike the local stock trading where access to information is
most times restricted or delayed, international stock trading gives every investor an
access to real time information about the companies they are buying into making it a
less riskier to invest. There are countless of research institutions on the web ready to
provide enough information for the investors. Through financial search engines you
can source for information, current news releases, financial data or anything about the
company you want to invest in.
3. Higher yield on investment: Prices of stocks on Nigerian stock exchange are

regulated not to exceed 5% daily. But, global stocks are more volatile and can run
over 1000% returns on investment (ROI) a day depending on the stock type you
picked.
4. The advantage of leveraging your account: Leverage is borrowed money which

increases your buying power. It comes from your broker in the form of 1:2, 1:4 and so
on. If you are using 1:2 leverage, it means you’re investing amount let's say $1000
multiply by two which will give you a purchasing power of $2000.
12 | P a g e
5. The advantage of short trading: Short trading means opening a trade with a sell
position. This means that trade is not only open with a buy position but also with a
sell position. When a trader speculates a fall in share price of any company, he open a
position by selling their shares and close position by buying back to make his profit if
the price actually fall. The story is quite different with local stock trading where you
can only open a position with a buy order.
6. Access to your account: an investor has an access to monitor his account 24 hours.
This is quite unlike the local stock trading where access to view account is only
monthly or when demanded by an investor. Global stock trading allows you trade
directly from the floor and monitor your account just the same way a broker does;
through your brokerage account area given to you by your broker, you can access
virtually every stock traded on any stock exchange local in any part of the world.
Unique Risks of and Institutional Constraints for International

Investment
Although there are strong forces encouraging globalization, there are also many obstacles.
1) Lack of liquidity in smaller markets:

Market liquidity refers to the ability to buy or sell a particular asset without causing a
significant movement in the price. The essential characteristic of a liquid stock is that
there are a significant number of ready and willing buyers and sellers at all times.
Stock liquidity is an important consideration in short term share trading, as the lack of
liquidity can decrease your profit, or worse, increases your loss. Indicators that can be
used to assess the liquidity of a stock include: market depth, slippage, spread, stock
volume and stock turnover.
An illiquid asset is an asset which is not readily saleable due to uncertainty about its
value or lacking a market in which it is regularly traded. The mortgage related assets
which resulted in the subprime mortgage crisis are examples of illiquid assets as their
value is not readily determinable despite being secured by real property. Another
example is an asset such as large block of stock, the sale of which affects the market
value.
13 | P a g e
Speculators and market makers are key contributors to the liquidity of a market, or
asset. Speculators and market makers are individuals or institutions that seek to profit
from anticipated increases or decreases in a particular market price. By doing this,
they provide the capital needed to facilitate the liquidity. The risk of illiquidity need
not apply only to individual investments: whole portfolios are subject to market risk.
Financial institutions and asset managers that oversee portfolios are subject to what is
called "structural" and "contingent" liquidity risk. Structural liquidity risk, sometimes
called funding liquidity risk, is the risk associated with funding asset portfolios in the
normal course of business. Contingent liquidity risk is the risk associated with finding
additional funds or replacing maturing liabilities under potential, future stressed
market conditions. When a central bank tries to influence the liquidity (supply) of
money, this process is known as open market operations.
2) Currency Risk:
In what follows, the unique aspects of risk due to international diversification of
investment portfolios need to be analyzed in more detail. The major point is that
improved portfolio performance as a result of international stock investment must be
shown after allowing for these risk and cost components. For convenience as well as
analytical clarity, the unique international risk can be divided into two components:
exchange risk (broadly defined) and political (or country) risk. For example, if an
investor considers U.S. dollar denominated and euro-denominated Eurobonds listed
on the Singapore Exchange, one class of risks is attached to the currency of
denomination, dollar or euro, and another is connected with the political jurisdiction
within which the securities are issued or traded.
As foreign assets are denominated, or at least expressed, in foreign currency terms, a

security of foreign securities is usually exposed to unexpected changes in the
exchange rates of the respective currencies (exchange rate risk or currency risk).
These changes can be a source of additional risk to the investor, but by the same
token can reduce risk for the investor. The net effect depends, first of all, on how
volatility is measured, in particular whether it is measured in real terms against some
index of consumption goods, or in nominal terms, expressed in units of a base
14 | P a g e
currency. In any case, the effect ultimately depends on the specifics of the portfolio
composition, the volatility of the exchange rates, most importantly on the correlation
of returns of the securities and exchange rates, and finally on the correlation between
the currencies involved. If total risk of a foreign security is decomposed into the
components currency risk and volatility in local-currency value, exchange risk
contributes significantly to the total volatility of a security. Nevertheless, total risk is
less than the sum of market and currency risk.
3) Country Risk:
The fact that a security is issued or traded in a different and sovereign political
jurisdiction than that of the consumer-investor gives rise to what is referred to as
country risk or political risk. Country risk in general can be categorized into transfer
risks (restrictions on capital flows), operational risks (constraints on management and
corporate activity) and ownership-control risks (government policies with regard to
ownership managerial control). It embraces the possibility of exchange controls,
expropriation of assets, changes in tax policy (like withholding taxes’ being imposed
after the investment is undertaken) or other changes in the business environment of
the country. In effect, country risk are local government policies that lower the actual
(after tax) return on the foreign investment or make the repatriation of dividends,
interest, and principal more difficult.
Political risk also includes default risk due to government actions and the general
uncertainty regarding political and economic developments in the foreign country. In
order to deal with these issues, the investor needs to assess the country’s prospects for
economic growth, its political developments, and its balance of payments trends.
Interestingly, political risk is not unique to developing countries. In addition to
assessing the degree of government intervention in business, the ability of the labour
force and the extent of a country’s natural resources, the investor needs to appraise the
structure, size, and liquidity of its securities markets. Information and data from
published financial accounting statements of foreign firms may be limited; moreover,
the information available may be difficult to interpret due to incomplete or different
reporting practices. This information barrier is another aspect of country risk. Indeed,
it is part of the larger issue of corporate governance and the treatment of foreign
15 | P a g e
(minority) investors, mentioned earlier. At this point it is worth noting that in many
countries foreign investors are under a cloud of suspicion which often stems from a
history of colonial domination.
Perception of country risk is, therefore, a reason for the unwillingness of many
international investors to hold a portion of their securities in some of the less
developed countries and those that face political turmoil, despite evidence that
investments in these countries could contribute to improving the risk return
combination of a portfolio. By the same token, this fact is consistent with the
observation of disproportionately large (relative to the share of GNP) holdings of U.S.
securities in the portfolios of many non-U.S. mutual funds. Empirical evidence
supports the idea that stock markets are perceived differently in terms of political risk.
However, the data also show that diversification among politically risky countries
improves the risk-return characteristics of portfolios. Even greater benefits result from
combining securities from countries with high and low political risk due to generally
low correlation between these groups.
4) Taxation
When it comes to international stock investment, taxes are both an obstacle as well as
an incentive to cross-border activities. Not surprisingly, the issues are complex in
large part because rules regarding taxation are made by individual governments, and
there are many of these, all having very complex motivations that reach far beyond
simply revenue generation. In the present context, it is not details but a framework or
‘‘pattern’’ of tax considerations affecting International stock trading that is of
foremost interest.
It is obvious then, since tax laws are national, that it is individual countries that
determine the tax rates paid on various returns from portfolio investment, such as
dividends, interest and capital gains. All these rules differ considerably from country
to country. Countries also differ in terms of institutional arrangements for investing in
securities, but in all countries there are institutional investors which may be tax
exempt (e.g., pension funds) or have the opportunity for extensive tax deferral
(insurance companies). However, countries do not tax returns from all securities in the
16 | P a g e
same way. Income from some securities tends to be exempt in part or totally from
income taxes. Interest paid on securities issued by state and municipal entities in the
United States, for example, is exempt from Federal income taxes. A number of
countries, e.g., Japan, provide exemptions on interest income up to a specified
amount, but only on interest received from certain domestic securities. Almost all
countries tax their resident taxpayers on returns from portfolio investment, whether
the underlying securities have been issued and are held abroad or at home. This is
known as the worldwide income concept.
There are a significant number of countries, however, who tax returns from foreign
securities held abroad only when repatriated. The United Kingdom and a number of
former dependencies, for example Singapore, belong to this category. Obviously, such
rules promote a pattern of international investment where financial wealth is kept
‘‘offshore,’’ preferably in jurisdictions that treat foreign investors kindly. Such
jurisdictions are frequently referred to as ‘‘tax havens.’’
The point of all this is that the legal and illegal use of tax haven jurisdictions has led
to significant flows of International stock trading, creating an incentive for such
activities by both private and institutional investors, offsetting barriers that otherwise
exist. As often, the net effect is difficult to verify empirically; still when everything is
said and done, taxes and the uncertainties as well as the associated transactions costs
represent one obstacle to International stock trading.
5) Foreign Exchange Controls

While the effect of taxation as an obstacle to international stock trading is only
incidental to its primary purpose, which is to raise revenue, exchange controls are
specifically intended to restrain capital flows. Balance of payment reasons or the
effort to reserve financial capital for domestic uses lead to these controls. They are
accomplished by prohibiting the conversion of domestic funds for foreign moneys for
the purpose of acquiring securities abroad. Purchases of securities are usually the first
category of international financial transactions to be subjected to, and the last to be
freed from, foreign exchange controls. While countries are quite ready to restrict
undesired capital inflows and outflows, they prove reluctant to remove controls when
17 | P a g e
the underlying problem has ceased to exist, or even when economic trends have
reversed themselves. The classic example is provided by Japan where, during the
early seventies, exchange controls prevented Japanese investors from purchasing
foreign securities. At the same time, new measures were taken to prevent a further
increase in Japanese liabilities through foreign purchases of Japanese securities. At
times, countries have resorted to more drastic measures by requiring residents to sell
off all or part of their foreign holdings and exchange the foreign currency proceeds for
domestic funds.
6) Capital Market Regulations

Regulations of primary and secondary security markets typically aim at protecting the
buyer of financial securities and try to ensure that transactions are carried out on a fair
and competitive basis. These functions are usually accomplished through an
examining and regulating body, such as the Securities and Exchange Commission
(SEC) in the United States, long regarded as exemplary in guarding investor interests,
Supervision and control of practices and information disclosure by a relatively
impartial body is important for maintaining investors’ confidence in a market; it is
crucial for foreign investors who will have even less direct knowledge of potential
abuses, and whose ability to judge the conditions affecting returns on securities may
be very limited.
Most commonly, capital market controls manifest themselves in form of restrictions

on the issuance of securities in national capital markets by foreign entities, thereby
making foreign securities unavailable to domestic investors. Moreover, some
countries put limits on the amount of investment local investors can do abroad or
constrain the extent of foreign ownership in national companies. While few
industrialized countries nowadays prohibit the acquisition of foreign securities by
private investors, institutional investors face a quite different situation. Indeed, there
is almost no country where financial institutions, insurance companies, pension funds,
and similar fiduciaries are not subject to rules and regulations that make it difficult for
them to invest in foreign securities.
18 | P a g e
In the United States, for example, different state regulations severely constrain the
proportion of insurance company portfolios invested in foreign securities. In some
states, institutions, such as pension funds for public employees including teachers,
cannot invest in foreign securities at all. Similarly, state banking regulations specify
severe limits for commercial banks, and trustees of even private pension funds have
been plagued by the uncertainties of legal interpretation of the ‘‘prudent man’s rule,’’
effectively limiting the acquisition of foreign securities. In most other countries, there
are similar or even more binding restrictions.
7) Transaction Costs
Transaction costs associated with the purchase of securities in foreign markets tend to
be substantially higher compared to buying securities in the domestic market. Clearly,
this fact serves as an obstacle to International stock trading. Trading in foreign
markets causes extra costs for financial intermediaries, because access to the market
can be expensive. The same is true for information about prices, market movements,
companies and industries, technical equipment and everything else that is necessary to
actively participate in trading. Moreover, there are administrative overheads, costs for
the data transfer between the domestic bank and its foreign counterpart (be it a bank
representative or a local partner institution), etc. Therefore, financial institutions try to
pass these costs on to their customers, i.e., the investor. Simply time differences can
be a costly headache, due to the fact that someone has to do transactions at times
outside normal business hours.
However, transactions costs faced by international investors can be mitigated by the

characteristic of ‘‘liquidity,’’ providing depth, breadth, and resilience of certain
capital markets, thus reducing this constraint and as a consequence inducing
international portfolio investment to these countries. Issuers from the investors’
countries will then have a powerful incentive to list their securities on the exchange(s)
of such markets.
The development of efficient institutions, the range of expertise and experience

available, the volume of transactions and breadth of securities traded, and the
19 | P a g e
readiness with which the market can absorb large, sudden sales or purchases of
securities at relatively stable prices all vary substantially from country to country. The
U.S. and British markets have a reputation for being superior in these respects, and
have attracted a large amount of international portfolio investment as a result. These
markets can offer and absorb a wide variety of securities, both with regard to type
(bonds, convertibles, preferred shares, ordinary shares, money market instruments,
etc). And with regard to issuer (public authorities, banks, nonbank financial
institutions, private companies, foreign and international institutions, etc.)
Table 1.1: Trading Cost Comparison for Equity Trades, 1999
20 | P a g e
They offer depth, being able to supply and absorb substantial quantities of different
securities at close to the current price, whereas in Continental Europe and Asia one
often hears complaints about the ‘‘thinness’’ of the securities markets leading to
random volatility of prices. Therefore, all other factors being equal, investors are
attracted to markets where transactions are conducted efficiently and at a low cost to
borrower and lender, buyer and seller. Historically, New York has provided foreign
investors with one of the most efficient securities markets in the world. A comparison
of cost estimates for trading in the shares of the national stock-market index shows
that trading in U.S. stocks is in most cases still less expensive than trading in non-U.S.
Securities(Table 2.1).
8) Familiarity with Foreign Markets

Finally, investing abroad requires some knowledge about and familiarity with foreign
markets. Cultural differences come in many manifestations and flavours such as the
way business is conducted, trading procedures, time zones, reporting customs, etc. In
order to get a full understanding of the performance of a foreign company and its
economic context, a much higher effort has to be made on the investor’s side. He
might face high cost of information, and the available information might not be of the
same type as at home due to deviations in accounting standards and methods (e.g.).,
with regard to depreciation, provisions, pensions., which make their interpretation
more difficult.
However, multinational corporations increasingly publish their financial information

in English in addition to their local language and adjust the style, presentation and
frequency of their disclosure, e.g., of earnings estimates, to U.S. standards. Moreover,
major financial intermediaries provide information about foreign markets and
companies to investors as international investment gains importance; the same is true
for data services that extend their coverage to foreign corporations.74
Sometimes, existing or perceived cultural differences represent more of a

psychological barrier than a barrier of a real nature. As the benefits from international
investment diversification are known, it might be worthwhile to invest a reasonable
amount of time studying foreign markets in order to overcome barriers and take
21 | P a g e
advantage of the gains possible. Indeed, the perception of foreign market risk might
be higher than it actually is. To illustrate, just looking at volatility foreign markets
might appear very risky at first sight. Nevertheless, this might not be true when
assessing them in a portfolio context as foreign stocks might eliminate some more
diversifiable risk and only add little to total portfolio (market) risk.
Securities Market in India – An Overview

Introduction
We are living in exciting times, witnessing a process of ever-increasing globalization and

innovation in the financial markets. This is bringing with it sophistication and thus a need to
better understand financial risks and develop tools to manage them. The financial markets
and institutions have undergone significant changes keeping pace with the changing needs of
market participants. Alongside the rise of private finance, the financial markets are seeing an
enhanced role of National Governments through Sovereign Wealth Funds. Venture capital
funds and hedge funds have added new dimension to the market dynamics.
India has not remained untouched by these developments worldwide. With its growing and
increasingly complex market-oriented economy and increasing integration with global trade
and finance, India’s financial system has also innovated.
In the securities markets, organisational innovation has been witnessed with corporatisation
and demutualization of all the stock exchanges; institutional innovations in the form of
emergence of regulators, Self Regulatory Organizations and clearing corporations and more
recently, market innovations through a short selling and Securities Lending and Borrowing
Scheme, Direct Market Access, addressing of the legal, regulatory, tax and market design
issues in the development of the corporate bond market in the country, provision of a legal
framework for trading of securitized debt, quicker procedures for registration and operation
by FIIs, making PAN as the sole identification number for all transactions in securities
market and new derivative products such as currency futures.
22 | P a g e
Market Segments
The securities market has two interdependent and inseparable segments, the new issues
(primary) market and the stock (secondary) market.
The primary market provides the channel for creation and sale of new securities, while the
secondary market deals in securities previously issued. The securities issued in the primary
market are issued by public limited companies or by government agencies. The resources in
this kind of market are mobilized either through the public issue or through private placement
route. It is a public issue if anybody and everybody can subscribe for it, whereas if the issue
is made available to a selected group of persons it is termed as private placement. There are
two major types of issuers of securities, the corporate entities who issue mainly debt and
equity instruments and the government (central as well as state) who issue debt securities
(dated securities and treasury bills).
The secondary market enables participants who hold securities to adjust their holdings in
response to changes in their assessment of risks and returns. Once the new securities are
issued in the primary market they are traded in the stock (secondary) market. The secondary
market operates through two mediums, namely, the over-the-counter (OTC) market and the
exchange-traded market. OTC markets are informal markets where trades are negotiated.
Most of the trade’s in the government securities are in the OTC market. All the spot trades
where securities are traded for immediate delivery and payment take place in the OTC
market. The other option is to trade using the infrastructure provided by the stock exchanges.
The exchanges in India follow a systematic settlement period. All the trades taking place over
a trading cycle (day=T) are settled together after a certain time (T+2 day). The trades
executed on exchanges are cleared and settled
International scenario of Indian Market
International Scenario
Following the implementation of reforms in the securities industry in the past years, Indian
stock markets have stood out in the world ranking. India has the distinction of having the
second largest number of listed companies after the USA. As per Standard and Poor’s Fact
Book 2007, India ranked 8th in terms of market capitalization and 15th in terms of turnover
23 | P a g e
ratio as of December 2007. India posted a turnover ratio of 84% at end 2007. Table 1.2 below
present India’s position vice-a-versa major international markets.
Table 1.2: International Comparison: end December 2007
*Listed companies in India pertain to BSE.

Market Capitalisation Ratio is computed as a percentage of GNI 2006
Source: S&P Global Stock Market Fact book, 2008
A comparative study of concentration of market indices and index stocks in different world
markets is presented in the (Table 1.3). It is seen that the index stocks share of total market
capitalization in India is 77.5% whereas US index accounted for 78.1% as on end 2007. The
concentration levels in index stocks in 2006 were 81.6% for India and 89.5% for US. Thus,
there is a decline in concentration in 2007. The ten largest index stocks share of total market
capitalization is 26.8% in India and 12.4% in case of US.
Table 1.3: Market Concentration in the World Index as on End 2007(In Percentage)

The stock markets worldwide have grown in size as well as depth over the years. As can be
observed from (Table 1.4), the turnovers of all markets taken together have grown from US $
47.39 trillion in 2005 to US $ 98.82 trillion in 2007. US alone accounted for about 43.12 % of
24 | P a g e
worldwide turnover in 2007. The share of India in the total world turnover increased from
0.95% in 2006 to 1.12% in 2007.
Table 1.4: Market Capitalisation and Turnover for Major Markets (US $ million)

The market capitalization of all listed companies taken together on all markets stood at US $
64.56 trillion in 2007 up from US $ 53.38 trillion in 2006. The share of US in worldwide
market capitalization decreased from 36.39 % as at end-2006 to 30.90 % at end 2007, while
Indian listed companies accounted for 2.82% of total market capitalization as at end 2007 (an
increase from 1.53% at end of 2006). According to the ‘World Development Indicators
2008’, World Bank there has been an increase in market capitalization as percentage of Gross
Domestic Product (GDP) in some of the major country groups as is evident from (Table 1.5).
The increase, however, has not been uniform across countries. The market capitalization as a
percentage of GDP was the highest at 126.1% for the high income countries as at end 2006
and lowest for low income countries at 67%. The Middle income countries have shown a
remarkable improvement in market capitalization to GDP ratio from 49.5% in 2005 to 74.2%
in 2006.
25 | P a g e
Table 1.5: Select Stock Market Indicators
Source: World Development Indicators 2008, World Bank.
Market capitalisation as percentage of GDP in India stood at 89.8 % as at end 2006. The
turnover ratio, which is a measure of liquidity, was 150.2 % for high-income countries and
93.3% for low-income countries in 2007. The total number of listed companies stood at
30,016 for high-income countries, 13,195 for middle-income countries and 6,911 for low-
income countries as at end-2007.
Key Strengths of Indian securities market
The key strengths of the Indian capital market include a fully automated trading system on all
stock exchanges, a wide range of products, an integrated platform for trading in both cash and
derivatives, and a nationwide network of trading through over 4,000 corporate brokers. The
securities markets in India have made enormous progress in developing sophisticated
instruments and modern market mechanisms.
The real strength of the Indian securities market lies in the quality of regulation. The market
regulator, Securities and Exchange Board of India (SEBI) is an independent and effective
regulator. It has put in place sound regulations in respect of intermediaries, trading
mechanism, settlement cycles, risk management, derivative trading and takeover of
companies. There is a well designed disclosure based regulatory system. Information
technology is extensively used in the securities market. The NSE and BSE have most
advanced and scientific risk management systems. The growing number of market
26 | P a g e
participants, the growth in volume of securities transactions, the reduction in transaction

costs, the significant improvements in efficiency, transparency and safety, and the level of
compliance with international standards have earned for the Indian securities market a new
respect in the world.
Market Participants
In every economic system, some units, individuals or institutions, are surplus-generating,
who are called savers, while others are deficit- generating, called spenders. Households are
surplus-generators and corporate and Government are deficit generators. Through the
platform of securities markets, the savings units place their surplus funds in financial claims
or securities at the disposal of the spending community and in turn get benefits like interest,
dividend, capital appreciation, bonus etc. These investors and issuers of financial securities
constitute two important elements of the securities markets. The third critical elements of
markets are the intermediaries who act as conduits between the investors and issuers.
Regulatory bodies, which regulate the functioning of the securities markets, constitute
another significant element of securities markets. The process of mobilisation of resources is
carried out under the supervision and overview of the regulators. The regulators develop fair
market practices and regulate the conduct of issuers of securities and the intermediaries. They
are also in charge of protecting the interests of the investors. The regulator ensures a high
service standard from the intermediaries and supply of quality securities and non-manipulated
demand for them in the market.
Thus, the four important elements of securities markets are the investors, the issuers,
the intermediaries and regulators.
Investors
An investor is the backbone of the capital markets of any economy as he is the one lending
his surplus resources for funding the setting up of or expansion of companies, in return for
financial gain.
Households’ investment pattern

According to Reserve Bank of India (RBI) data, the household sector accounted for 80.5% of
the Gross Domestic Savings in Fixed Income investment instruments during 2007-08, as
against 84.5% in 2006-07 (Table 1.6). Mutual funds accounted for the bulk of securities
27 | P a g e
markets investments with an absolute amount of Rs 568,000 million in 2007-08 against Rs.
398,030 million in 2006-07. 2007-08 saw huge investments in mutual funds to take
advantage of the booming stock market. Besides, bank deposit rates were very low then.
Table 1.6: Savings of Household Sector in Financial Assets
Source: RBI. Annual Report 2007-08

P: Provisional Figures
# Preliminary Estimates
Issuers
Primary Markets
An aggregate of Rs. 5,788,150 million (US $ 144,812 million) were raised by the government
and corporate sector during 2007-08 as against Rs. 3,944,540 million (US $ 90,492 million)
during the preceding year, an increase of 46.74%. Private placement accounted for 71.75% of
the domestic resource mobilization by the corporate sector. (Table 1.7).
Table 1.7: Resource Mobilisation from the Primary Market
28 | P a g e
The Indian market is getting integrated with the global market, though in a limited way
through Euro Issues, since they were permitted access in 1992. Indian companies have raised
about Rs. 265,560 million i.e. US $ 6,644 million during 2007-08 through American
Depository Receipts (ADRs)/Global Depository Receipts (GDRs), an increase of 56.17% as
compared with Rs.170,050 million ( US $ 3901 million) during 2006-07. Of the total
resources mobilized through the primary markets, the share of resources raised by the
Government decreased from 51 % in 2006-07 to 42% in 2007-08. While the primary issues of
the Central Government increased from Rs. 1,793,730 million in 2006-07 to Rs. 1,882,050
million in 2007-08, the resources raised by State Governments increased by 225% from Rs.
208,250 million in 2006-07 to Rs.677, 790 million in 2007-08.
Intermediaries
The term “market intermediary” is usually used to refer to those who are in the business of
managing individual portfolios, executing orders, dealing in or distributing securities and
providing information relevant to the trading of securities. The market mediators play an
important role on the stock exchange market; they put together the demands of the buyers
with the offers of the security sellers. A large variety and number of intermediaries provide
intermediation services in the Indian securities markets. Table 1.8 presents an overview of
market participants in the Indian securities market.
Table 1.8: Market Participants in Securities Market
29 | P a g e
The market intermediary has a close relationship with the investor with whose protection the
Regulator is primarily tasked. As a consequence a large portion of the regulation of a
securities industry is directed at the market intermediary. Regulations address entry criteria,
capital and prudential requirements, ongoing supervision and discipline of entrants, and the
consequences of default and failure.
One of the issue concerning brokers is the need to encourage then to corporatize. Presently,
44% of the brokers are corporate. Corporatisation of their business would help them compete
with global players in capital markets at home and abroad. Corporatisation brings better
standards of governance and better transparency hence increasing the confidence level of
customers.
Regulators
The absence of conditions of perfect competition in the securities market makes the role of
regulator extremely important. The regulator ensures that the market participants behave in a
desired manner so that securities market continues to be a major source of finance for
corporate and government and the interest of investors are protected. The responsibility for
regulating the securities market is shared by Department of Economic Affairs (DEA),
Ministry of Company Affairs (MCA), Reserve Bank of India (RBI) and SEBI. The activities
of these agencies are coordinated by a High Level Committee on Capital Markets. The orders
of SEBI under the securities laws are appealable before a Securities Appellate Tribunal.
Most of the powers under the SCRA are exercisable by DEA while a few others by SEBI.
The powers of the DEA under the SCRA are also con-currently exercised by SEBI. The
powers in respect of the contracts for sale and purchase of securities, gold related securities,
money market securities and securities derived from these securities and ready forward
contracts in debt securities are exercised concurrently by RBI. The SEBI Act and the
Depositories Act are mostly administered by SEBI. The rules under the securities laws are
framed by government and regulations by SEBI. All these are administered by SEBI. The
powers under the Companies Act relating to issue and transfer of securities and non-payment
of dividend are administered by SEBI in case of listed public companies and public
companies proposing to get their securities listed. The SROs ensure compliance with their
own rules as well as with the rules relevant for them under the securities laws.
30 | P a g e
Policy debates
Regulatory Impact Assessment (RIA)
Regulations for the securities markets are made by the Government and regulators to achieve
the goal of a well functioning market area, with minimal conflicts of interests and ensuring
investor protection. However, regulations may create unintended and unavoidable barriers for
market players and may not be without costs of compliance. Also, these are reviewed from
time to time based on changing market practices, changing mindset and ideology of the
regulators.
However, when a new regulation in put in place or an existing regulation is reviewed, it may
perhaps be desirable to assess and understand the alternatives available, the costs of
compliance and enforcement, potential impact of new or changed regulation and whether it
would achieve the desired objectives. In essence, some relevant questions on these lines need
to be posed and answered to make any new regulation or revised regulation a success both
with the regulated and the regulators. RIA is a tool that helps do this. RIA facilitates
understanding of the impact of regulatory actions and enables integration of multiple policy
objectives, improves transparency and consultation, and enhances accountability of
governments and regulators. It not only brings the actions of decision-makers under public
scrutiny and highlights how their decisions impact society as a whole, but also mandates
greater information sharing by them.
RIA is essentially a document created before a new regulation is introduced or a regulation is

modified, systematically assessing the positive and negative impacts of the proposed
regulation. It serves as a tool for regulatory reform.
International Practice
RIAs are produced in many countries, although their scope, content, role and influence on
policy making vary. For example, The European Commission introduced an impact
assessment system in 2002, integrating and replacing previous single-sector type of
assessments. In the European Commission perspective, Impact Assessment (IA) is a process
aimed at structuring and supporting the development of policies. It identifies and assesses the
problem at stake and the objectives pursued. It identifies the main options for achieving the
objective and analyses their likely impacts in the economic, environmental and social fields.
31 | P a g e
It outlines advantages and disadvantages of each option and examines possible synergies and
trade-offs.
In the United Kingdom, RIAs have been a key tool in helping improve the quality of
regulation and reduce unnecessary burdens on business. RIAs have been produced by Central
Government departments for many years using guidance produced by the Better Regulation
Executive (BRE) in the Cabinet Office. In May 2007 a new system of Impact Assessments
(IAs) was introduced and made fully operational in November 2007. The aim of IAs is to
help improve policy making by placing a greater emphasis on quantifying benefits and costs
in the IA.
RIA has been adopted in most OECD (Organization for Economic Co-operation and
Development) countries. RIA has also been undertaken in middle-income developing
countries, especially South Korea and Mexico.
On the other hand, despite considerable interest in measuring the effectiveness of

development policy and in the design and implementation of regulatory measures, the
potential of RIA has neither been explored nor analysed in the developing countries and in
their organizations involved in the design and formulation of development policy.
Indian context
The High Level Expert Committee on Making Mumbai an International Financial Centre
(HPEC on MIFC), which submitted its report to the Government in February 2007, has,
among other things, recommended that adopting practice that is now normal in almost all
OECD countries, the Government of India should conduct-using independent, impartial
interlocutors, including regulators from other IFCs- a periodic RIA of the financial regulatory
regime. The RIA would aim to evaluate, using enhanced cost-benefit methodology, how
efficient and cost effective extant regulation is in meeting the main regulatory objectives, and
to understand what modifications are needed to improve it.
The Government and regulators need to decide on how to go about implementing this
recommendation. It may perhaps be better if the impact assessment is integrated into the
decision-making process from the stage of formulation of policies, acts and regulations,
32 | P a g e
instead of later in the process simply to comply with externally imposed requirements.
Among other things, integration would help the earlier consideration of alternative solutions
and help weigh each ones cost and benefits.
Comprehensive regulations for intermediaries

Various intermediaries in the securities markets, including depositories, depository
participants, custodians of securities, mutual funds, foreign institutional investors, credit
rating agencies etc., are regulated under various regulations of SEBI. As each of these
regulations was drafted in order to provide a framework which would enable SEBI to better
regulate and monitor intermediaries/entities, the broad framework of such regulations is very
similar to one another.
It was observed that every regulation seeking to regulate an intermediary incorporates some
basic provisions regarding registration, general obligations, inspection and investigation,
default etc. In addition to the above, the general requirements of the Code of Conduct
provided in almost all the regulations are also similar in nature. Except for the clauses
relating to the specific requirements of, and particular concerns in, each category, the content
of all the regulations is common either in language or in spirit, if not in both.
Given the overlap in content and the fact that many requirements and obligations of most
intermediaries are common, SEBI now proposes to consolidate the common requirements
under these regulations and put in place a comprehensive regulation which will apply to all
intermediaries and prescribe the obligations, procedure, limitations etc in so far as the
common requirements are concerned. Some of the highlights of the proposed comprehensive
regulations are:
• Registration is proposed to be made permanent for all intermediaries subject to

compliance with law, updating of relevant disclosures and payment of annual fees.
• As updating is required either promptly or annually, thus more accurate filing of

material developments is made available to SEBI and to the public.
33 | P a g e
• Conducting multiple activities by the same intermediary becomes a simpler process

without reducing the regulatory rigours previously imposed.
• Substantial amounts of filing details will enter the public domain, thus allowing
investors to assess the appropriateness of using the intermediary.
• The number of investor grievances not addressed beyond a particular period will
need to be disclosed, thus incentivising early resolution of complaints by the
intermediary.
• The code of conduct rules will be found in one place making compliance with the
code easier.
• Consistency across regulation of various intermediaries stand improved.
• Fit and Proper person requirements are rationalized and inserted into these draft
regulations.
• The intermediary shall prominently display the registration certificate and the name
and contact details of the compliance officer to whom complaint may be made.
• Rationalization of prior approval upon change in status and constitution of the

intermediary.
The draft proposal of SEBI on the above lines was put out in public domain in July, 2007,
seeking comments and suggestions before the same is finalized.
34 | P a g e
Clearing & Settlement

The transactions in secondary market pass through three distinct phases, viz., trading, clearing
and settlement. While the stock exchanges provide the platform for trading, the clearing
corporation determines the funds and securities obligations of the trading members and
ensures that the trade is settled through exchange of obligations. The clearing banks and the
depositories provide the necessary interface between the custodians/clearing members for
settlement of funds and securities obligations of trading members.
Several entities, like the clearing corporation, clearing members, custodians, clearing
banks, depositories are involved in the process of clearing. The role of each of these
entities is explained below:
• Clearing Corporation: The clearing corporation is responsible for post-trade activities

such as the risk management and the clearing and settlement of trades executed on a stock
exchange.
• Clearing Members: Clearing Members are responsible for settling their obligations as
determined by the NSCCL. They do so by making available funds and/or securities in the
designated accounts with clearing bank/depositories on the date of settlement.
• Custodians: Custodians are clearing members but not trading members. They settle trades
on behalf of trading members, when a particular trade is assigned to them for settlement. The
custodian is required to confirm whether he is going to settle that trade or not. If he confirms
to settle that trade, then clearing corporation assigns that particular obligation to him. As on
date, there are 11 custodians empanelled with NSCCL. They are Citibank N.A., Deutsche
Bank A.G., HDFC Bank Limited, HSBC Limited, ICICI Limited, IL&FS Limited, and
Standard Chartered Bank, State Bank of India, SHCIL, Kotak Mahindra Bank Ltd., DBS
Bank Ltd and Axis Bank.
• Clearing Banks: Clearing banks are a key link between the clearing members and Clearing
Corporation to effect settlement of funds. Every clearing member is required to open a
dedicated clearing account with one of the designated clearing banks. Based on the clearing
member’s obligation as determined through clearing, the clearing member makes funds
35 | P a g e
available in the clearing account for the pay-in and receives funds in case of a pay-out. There
are 13 clearing banks of NSE, viz., Axis Bank Ltd., Bank of India Ltd., Canara Bank Ltd.,
Citibank N.A, HSBC Ltd., HDFC Bank Ltd., ICICI Bank Ltd., IDBI Bank Ltd., Indusind
Bank Ltd., Kotak Mahindra Bank, Standard Chartered Bank, State Bank of India and Union
Bank of India
• Depositories: Depository holds securities in dematerialized form for the investors in their
beneficiary accounts. Each clearing member is required to maintain a clearing pool account
with the depositories. He is required to make available the required securities in the
designated account on settlement day. The depository runs an electronic file to transfer the
securities from accounts of the custodians/clearing member to that of NSCCL and vice-versa
as per the schedule of allocation of securities.
• Professional Clearing Member: NSCCL admits special category of members known as

professional clearing members (PCMs). PCMs may clear and settle trades executed for their
clients (individuals, institutions etc.). In such cases, the functions and responsibilities of the
PCM are similar to that of the custodians. PCMs also undertake clearing and settlement
responsibilities of the trading members. The PCM in this case has no trading rights, but has
clearing rights i.e. he clears the trades of his associate trading members and institutional
clients.
Clearing & Settlement in India

The clearing process involves determination of what counter-parties owe, and which
counter-parties are due to receive on the settlement date, thereafter the obligations are
discharged by settlement. The clearing and settlement process comprises of three main
activities- Clearing, Settlement and Risk Management.
36 | P a g e
The clearing and settlement process for transaction in securities on NSE is presented in
Chart1.1: Clearing & settlement process at NSE
1. Trade details from Exchange to NSCCL (real-time and end of day trade file).
2. NSCCL notifies the consummated trade details to clearing members/custodians who affirm
back. Based on the affirmation, NSCCL applies multilateral netting and determines
obligations.
3. Download of obligation and pay-in advice of funds/securities.
4. Instructions to clearing banks to make funds available by pay-in time.
5. Instructions to depositories to make securities available by pay-in-time.
6. Pay-in of securities (NSCCL advises depository to debit pool account of custodians/CMs
and credit its account and depository does it)
7. Pay-in of funds (NSCCL advises Clearing Banks to debit account of custodians/CMs and
credit its account and clearing bank does it)
8. Pay-out of securities (NSCCL advises depository to credit pool account of custodians/CMs
and debit its account and depository does it)
9. Pay-out of funds (NSCCL advises Clearing Banks to credit account of custodians/CMs and
debit its account and clearing bank does it)
10. Depository informs custodians/CMs through DPs.
11. Clearing Banks inform custodians/CMs.
37 | P a g e
The core processes involved in clearing and settlement include:
(a) Trade Recording: The key details about the trades are recorded to provide basis for
settlement. These details are automatically recorded in the electronic trading system
of the exchanges.
(b) Trade Confirmation: The parties to a trade agree upon the terms of trade like
security, quantity, price, and settlement date, but not the counterparty which is the
NSCCL. The electronic system automatically generates confirmation by direct
participants.
(c) Determination of Obligation: The next step is determination of what counter-parties
owe, and what counterparties are due to receive on the settlement date. The NSCCL
interposes itself as a central counterparty between the counterparties to trades and nets
the positions so that a member has security wise net obligation to receive or deliver a
security and has to either pay or receive funds.
The settlement process begins as soon as members’ obligations are determined through the
clearing process. The settlement process is carried out by the Clearing Corporation with the
help of clearing banks and depositories. The Clearing Corporation provides a major link
between the clearing banks and the depositories. This link ensures actual movement of funds
as well as securities on the prescribed pay-in and pay-out day.
(d) Pay-in of Funds and Securities: This requires members to bring in their
funds/securities to the clearing corporation. The CMs make the securities available in
designated accounts with the two depositories (CM pool account in the case of NSDL
and designated settlement accounts in the case of CDSL). The depositories move the
securities available in the pool accounts to the pool account of the clearing
corporation. Likewise CMs with funds obligations make funds available in the
designated accounts with clearing banks. The clearing corporation sends electronic
instructions to the clearing banks to debit designated CMs’ accounts to the extent of
payment obligations. The banks process these instructions, debit accounts of CMs and
credit accounts of the clearing corporation. This constitutes pay-in of funds and of
securities.
38 | P a g e
(e) Pay-out of Funds and Securities: After processing for shortages of funds/securities
and arranging for movement of funds from surplus banks to deficit banks through RBI
clearing, the clearing corporation sends electronic instructions to the
depositories/clearing banks to release pay-out of securities/funds. The depositories
and clearing banks debit accounts of the Clearing Corporation and credit accounts of
CMs. This constitutes pay-out of funds and securities. Settlement is deemed to be
complete upon declaration and release of pay-out of funds and securities.
CLEARING AND SETTLEMENT: International Scenario

The most critical problems for international securities trading, but also the most concerted
efforts at problem resolution, are in the area of clearing and settlement. Clearing and
settlement systems for financial instruments differ greatly within and across countries, in
procedures, in timing of settlement, in the institutions involved, and in the degree, nature, and
locus of risks. These differences in countries’ systems are important because:
1) Systems traditionally used for domestic trading are now being called upon to
accommodate international participants;
2) The integrity and efficiency of a nation’s clearing, settlement, and payment system are
important to its internal financial and economic stability and its ability to compete
with other nations;
3) The failure of a foreign clearing entity could affect a U.S. clearinghouse through the
financial failure of a common clearing member;
4) The growing number of U.S. investors in foreign markets may be unaware that risk
levels in some foreign markets can be much higher than those in our domestic
markets.
To improve efficiency and reduce risks, the world’s clearing and settlement systems must be
coordinated with each other in a number of ways. Both the private sector and regulators in the
United States and other countries have begun to take, or are considering, actions to
accomplish the needed improvements. A number of international studies are in general
agreement on the types of improvements needed. These studies have been done by the
European Economic Commission, the Federation International des Bourses de Valeurs
(FIVB), the Group of Thirty, the International Society of Securities Administrators, and
Bankers Trust Co. (the last as contractor to OTA). One of the shared conclusions of these
39 | P a g e
studies is that the world’s major clearing and settlement systems should be “harmonized” in
selected ways in order to strengthen them and prepare for the emerging global trading
environment.
“Clearing and settlement” is the processing of transactions on stock, futures, and options
markets. It is what happens after the trade. “Clearing” confirms the identity and quantity of
the financial instrument or contract being bought and sold, the transaction price and date, and
the identity of the buyer and seller. It also sometimes includes the netting of trades, or the
offsetting of buy orders and sell orders. “Settlement” is the fulfilment, by the parties to the
transaction, of the obligations of the trade; in equities and bond trades, “settlement” means
payment to the seller and delivery of the stock certificate or transferring its ownership to the
buyer. Settlement in futures and options takes on different meanings according to the type of
contract.
Trades are processed differently depending on the type of financial instrument being traded,
the market or exchange on which it is traded, and the institutions involved in the processing
of the trade (i.e., an exchange, a clearinghouse, a depository, or some combination). The
clearing and settlement mechanisms and institutions in the United States, the United
Kingdom, Japan, and India are described in the appendix. The differences in countries’
clearing and settlement are important because clearing and settlement systems used for
domestic trading are now being called onto accommodate international participants. The
integrity and efficiency of a nation’s clearing and settlement systems are important to both its
internal financial and economic stability and its ability to compete with other nations.
Many markets have ‘clearinghouses’ that handle both the clearing process and some of the
settlement process. This is the most common system in the United States for exchange-traded
financial products. Many markets, including the Indian markets, have “depositories,” that
hold stocks and bonds for safekeeping on behalf of their owners.
Where clearinghouses do not exist (e.g., in some European markets), depositories may take
on functions of clearinghouses. Depositories may transfer ownership of stocks and bonds by
‘‘book entry” (a computer entry in the depository’s record books) instead of physical delivery
of certificates to the buyer, which saves time and money. There are also markets in which
exchanges perform some of the clearing and settlement functions (e.g., London’s
40 | P a g e
International Stock Exchange), and markets in which neither clearinghouses nor depositories
exist (e.g., until very recently, foreign exchange, or “forex,” markets).
The Goals of Clearing and Settlement

Differences in the clearing and settlement process among countries are often linked to
historical, economic, and cultural factors in their laws and customs. These differences can
expose international investors to extra risk in some instances. Perceptions of the purposes of
the clearing and settlement process vary widely among countries. In the United States and
Canada, where public policy supports broad public access to the markets, the reduction of
risk, through the clearinghouse as an intermediary, is a major goal of clearing and settlement.
These policies are reflected in a hierarchy of protections for the clearinghouse, including
minimum capital requirements for clearinghouse members.
In many other counties, risk reduction is imposed before trading takes place, by controls on
who is allowed to participate, or by the participants ‘knowing their trading partners,’ and, in
equities, by reducing the time allowed to settle a transition. In these markets, clearinghouse
guarantee funds are generally small or nonexistent, and settlement is seen merely as a
delivery function, rather than as a mechanism for risk reduction.
These different views of the purpose of clearing and settlement have become significant as
more investors begin trading in markets other than their domestic markets. Indian investors,
accustomed to domestic markets where safeguards are in place, may assume that the clearing
and settlement of their trades in a foreign market has risks comparable to those in the United
States, where there are guarantees provided by clearing and settlement organizations.
The chief aims of clearing and settlement in the India and some other countries are efficiency
and safety. The faster and more accurately a trade can be processed, the sooner the same
capital can be reinvested, and at less cost and risk to investors. Therefore, as markets become
global, one could expect that investment capital will flow toward markets that are most
attractive on a risk-return basis, and that also have efficient and reliable clearing and
settlement systems.
41 | P a g e
The soundness of clearing and settlement systems in one nation can also impact other nations.
The failure of a clearing member at a foreign clearinghouse could affect an Indian
clearinghouse through the impact on a common clearing member. To reduce the risk of such
an occurrence, different countries’ clearing and settlement systems must be coordinated with
each other, for example, by sharing risk information and harmonizing trade settlement dates.
Both the private sector and Federal regulators have begun to take steps in this direction. It is
doubtful that the private sector can achieve the needed changes without national governments
taking a prominent and concerted role.
Risks from Differences in Clearing and Settlement Mechanisms

These differences-the use of guarantee funds, the time allowed to settle a trade, etc.—in
countries’ clearing and settlement systems are a major constraint on global trading and may
impose risks on traders and investors. Defaults in a national clearing and settlement process
can propagate through other national systems, since multinational financial institutions may
be active in several national markets. Collapse of a major settlement system could endanger
financial systems in both its own and other countries.
Even in day-to-day operations, differences in clearing and settlement systems and in their
performances constrain some kinds of trading. For example, in Japan, settlement in equities
and bonds is normally on the third day after a trade (T+3) and in the United States it is
normally on the fifth day (T+5). An investor trading General Motors (GM) stock on both the
New York Stock Exchange (NYSE) and the Tokyo Stock Exchange (TSE) would have
trouble perfectly arbitraging his holdings. If the investor were to buy GM shares on the
NYSE and simultaneously sells them on the TSE, because the U.S. settlement period is 2
days longer, the GM shares would be delayed by 2 business days for the Japanese settlement.
If the investor were to buy GM stock on the TSE and sell GM stock that same day on the
NYSE, the shares could be available for the NYSE settlement because that is 2 days later
than Tokyo’s. The Japan Securities Clearing Corp. (JSCC)--through its link with
International Securities Clearing Corp. (ISCC) in the United States— holds the U.S. shares at
The Depository Trust Co. (DTC); therefore instead of physical movement of certificates there
simply would be a book entry delivery at DTC. The average number of days for settlement of
various financial instruments in different countries differs widely (figure 5-2). The number of
42 | P a g e
days for settlement varies widely among countries in each geographical region. As a result,
harmonized clearing and settlement is needed.
Trading in European markets, unlike in the United States, mostly does not rely only on stock
exchanges. In Japan, there is as yet no central depository, but there is a clearing and custody
system at TSE. Many European countries have depositories, but their functions vary from
country to country, and are often different from U.S. depositories.
There are three principal models for clearing and settlement in the world’s major stock
markets. The first model has no centralized depository or independent clearinghouse beyond
the stock exchange. The exchanges usually perform as many of the clearing and settlement
functions as are feasible. These include trade matching, confirmation, and some type of
settlement facility-usually a central location where market participants can deliver and
receive securities and payments. The equities market in the United Kingdom is an example.
The second model of clearing and settlement is one in which there is a central depository
structure, with trade matching and confirmation services provided by the exchanges. Once
trades have been matched and confirmed, the trade data are sent to the depository for
settlement. There are variations on this model with differing degrees of settlement services
provided by the depository. The depository may offer book-entry transfer of ownership of
immobilized securities, with limited provisions for varying payment methods. Or the
depository may provide book-entry transfer of dematerialized securities and the ability,
through direct links to local payment systems, to simultaneously and irrevocably transfer
funds for each settlement. An example is West Germany and its Deutscher Kassenverein
(KV) Depository system.
The third model has not only a stock market and a central depository, but also a
clearinghouse that stands between the stock market and depository to reduce risk. The stock
market, along with the clearinghouse, provides trade matching and confirmation services. A
trade is confirmed by the market participants and is then passed to the clearinghouse, which
substitutes itself as the counterpart to each trade. This gives a degree of financial assurance to
The markets since the clearinghouse will honour the obligations of a clearing member if
necessary. The clearinghouse then passes the trade information to the depository for delivery
versus payment on the settlement date. An example is the United States equities market.
43 | P a g e
In most European equities markets, there are no central clearing organizations that assume the
role of counterpart to every trade or provide other kinds of mechanisms to ensure the
financial integrity of all market participants in the clearing and settlement phase. Where there
is no third-party guarantee mechanism for trade settlement, market participants are forced to
choose their counterparties based on their own credit assessment.
But when a market ceases to be a closed structure with only a select group of participants
who know each other, the market must implement some standardized processes which can
offer a guarantee of financial integrity. When a national market encourages international
participation, it must try to ensure the continuing financial integrity of the market. The
current focus in Europe on the standardization or harmonization of clearing, settlement, and
depository systems is in preparation for the common market in 1992. The movement toward
increased coordination of clearing and settlement systems is, however, worldwide, stemming
from recognition of the increasing internationalization of securities trading.
Efforts to Reduce the Differences

Improvement of clearing and settlement for global or cross-border trading in equities is being
addressed by the Group of Thirty, an independent, non-profit organization of
businesspersons, bankers, and representatives of financial institutions from 30 developed
nations. The Group of Thirty addresses multinational financial and economic issues,
including Third World debt. The Group’s recommendations for the world’s securities markets
are aimed at ‘‘maximizing the efficiency and reducing the cost of clearance and settlement,”
and thereby reducing risk.
While the development of a single global clearing facility was not practical, agreement on a
set of practices and standards that could be embraced by each of the many markets that
makeup the world’s securities system was highly desirable, . . . and (reached) agreement that
the present standards were not acceptable.
Their recommendations are:

1.) All comparisons of trades between direct market participants (i.e., brokers, dealers,
and other exchange members) should be compared within 1 day after a trade is
executed, or “T+l.”
44 | P a g e
2.) Indirect market participants-institutional investors or any trading counterparties which

are not broker/dealers-should be members of a trade comparison system which
achieves positive affirmation of trade details.
3.) Each country should have an effective and fully developed central securities
depository, organized and managed to encourage the broadest possible industry
participation.
4.) Each country should study its market volumes and participation to determine whether
a trade netting system would be beneficial in terms of reducing risk and promoting
efficiency.
5.) Delivery versus payment should be the method for settling all securities transactions.
6.) Payments associated with the settlement of securities transactions and the servicing of
securities portfolios should be made consistent across all instruments and markets by
adopting the “same day” convention.
7.) A “rolling settlement” system should be adopted by all markets. Final settlement
should occur on T+3 by 1992.
8.) Each country should adopt the technical standard for securities messages developed
by the International organization for Standardization (ISO Standards 7775 and 6166).
45 | P a g e
CHAPTER 2:
Overview of Industry &
Company Profile
CHAPTER 2:
OVERVIEW OF INDUSTRY & COMPANY PROFILE
The Kotak Mahindra Group

Kotak Mahindra is one of India's leading financial institutions, offering complete financial
solutions that encompass every sphere of life. From commercial banking, to stock broking, to
mutual funds, to life insurance, to investment banking, the group caters to the financial needs
of individuals and corporate.
The group has a net worth of over Rs. 2,840 crore, employs around 7,800 people in its
various businesses and has a distribution network of branches, franchisees, representative
offices and satellite offices across 264 cities and towns in India and offices in New York,
London, Dubai and Mauritius. The Group services over 1.6 million customer accounts.
The Kotak Mahindra Group was born in 1985 as Kotak Capital Management Finance
Limited. Uday Kotak, Sidney A. A. Pinto and Kotak & Company promoted this company.
Industrialists Harish Mahindra and Anand Mahindra took a stake in 1986, and that's when the
company changed its name to Kotak Mahindra Finance Limited. Since then it's been a steady
and confident journey to growth and success.
Chart-3.1: Journey of Kotak
In October 2005, Kotak Group acquired the 40% stake in Kotak Prime held by Ford Credit International (FCI)
and FCI acquired the stake in Ford Credit Kotak Mahindra (FCKM) held by Kotak Group. In May 2006, Kotak
Group bought 25% stake held by Goldman Sachs in Kotak Capital and Kotak Securities.
46 | P a g e
1986 Kotak Mahindra Finance Limited starts the activity of Bill Discounting
1987 Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market
1990 The Auto Finance division is started
1992 Enters the Funds Syndication sector
1995 Brokerage and Distribution businesses incorporated into a separate company -

Kotak Securities. Investment Banking division incorporated into a separate
company - Kotak Mahindra Capital Company
1996 The Auto Finance Business is hived off into a separate company - Kotak Mahindra
Prime Limited (formerly known as Kotak Mahindra Primus Limited). Kotak
Mahindra takes a significant stake in Ford Credit Kotak Mahindra Limited, for
financing Ford vehicles. The launch of Matrix Information Services Limited marks
the Group's entry into information distribution.
1998 Enters the mutual fund market with the launch of Kotak Mahindra Asset
Management Company.
2000 Kotak Mahindra ties up with Old Mutual plc. For the Life Insurance business.
Kotak Securities launches its on-line broking site (now www.kotaksecurities.com).
Commencement of private equity activity through setting up of Kotak Mahindra
Venture Capital Fund.
2001 Matrix sold to Friday Corporation Launches Insurance Services
2003 Kotak Mahindra Finance Ltd. converts to a commercial bank - the first Indian
company to do so.
2004 Launches India Growth Fund, a private equity fund.
2005 Kotak Group realigns joint venture in Ford Credit; Buys Kotak Mahindra Prime
(formerly known as Kotak Mahindra Primus Limited) and sells Ford credit Kotak
Mahindra.
Launches a real estate fund
2006 Bought the 25% stake held by Goldman Sachs in Kotak Mahindra Capital Company
and Kotak Securities
47 | P a g e
Kotak Securities Limited
Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, is the stock broking and
distribution arm of the Kotak Mahindra Group. The company was set up in 1994. Kotak
Securities is a corporate member of both The Bombay Stock Exchange and the National
Stock Exchange of India Limited & now the company is associated with SAXO Bank of
Singapore. Its operations include stock broking and distribution of various financial products
- including private and secondary placement of debt and equity and mutual funds. Currently,
Kotak Securities is one of the largest broking houses in India with wide geographical reach.
The company has four main areas of business:
(1) Institutional Equities,
(2) Retail (equities and other financial products),
(3) Portfolio Management and
(4) Depository Services.
 Institutional Business: This division primarily covers secondary market broking. It

caters to the needs of foreign and Indian institutional investors in Indian equities (both
local shares and GDRs). The division also incorporates a comprehensive research cell
with sect oral analysts who cover all the major areas of the Indian economy.
 Client Money Management: This division provides professional portfolio

management services to high net-worth individuals and corporate. Its expertise in
research and stock broking gives the company the right perspective from which to
provide its clients with investment advisory services.
 Retail distribution of financial products: Kotak Securities has a comprehensive retail

distribution network, comprising approximately 7000 agents, 13 branches and over 20
franchisees across India. This network is used for the distribution and placement of a
range of financial products that includes company fixed deposits, mutual funds, Initial
Public Offerings, secondary debt and equity and small savings schemes.
48 | P a g e
 Depository Services: Kotak Securities is a depository participant with the National

Securities Depository Limited and Central Depository Services (India) Limited for
trading and settlement of dematerialized shares. Since it is also in the broking
business, investors who use its depository services get a dual benefit. They are able to
use its brokerage services to execute transactions and its depository services to settle
these.
The company has been the first in providing many products and services which have now
become industry standards. Some of them are:
 Facility of Margin Finance to the customers
 Investing in IPO’s and Mutual Funds on the phone
 SMS alerts before execution of depository transactions
 Mobile application to track portfolios
 Auto Invest - A systematic investing plan in Equities and Mutual funds
 Provision of margin against securities automatically against shares in your De-mat

account
49 | P a g e
Awards and Reorganizations of the Kotak Securities Ltd.
 Finance Asia Award (2006): Best Broker In India
 Euro money Award (2005): Best Equities House In India
 Finance Asia Award (2005): Best Broker In India
 Asia Money (2004): Best Equity House in India
 Finance Asia Award (2004): India's Best Equity House
 Euro money (2004): Best Equity House in India
 Prime Ranking Award (2003-04): Largest Distributor of IPOs
50 | P a g e
Key Developments of Kotak Securities Ltd.
Kotak Securities Ltd. and Saxo Capital Markets Pvt. Ltd. Launched Global Trading
Platform in Equities
05/29/2009
Kotak Securities Ltd. and Saxo Capital Markets Pvt. Ltd. have announced the launch of
Saxo's global trading platform in India. The company claim that the multi-award winning
platform would provide direct access to equities, ETF's and REITS spanning 24 stock
exchanges across the USA, Europe, Asia and Australia.
Kotak Securities Launches Online Trading Service
03/2/2009
Kotak Securities Ltd. has launched an online trading service to provide information on
currency derivatives and equity players. The platform will provide information on real time
basis, using the same trading system. The company now offers a single platform for
investments in equities, Mutual Funds and currency derivatives. Available margin can be
used for any of the three segments. The online trading service is expected to provide
opportunities to importers and exporters to hedge their future payables and receivables
facilitate borrowers who can hedge fiscal loans for interest and principal payments. The
service will also be a platform for resident Indians to hedge their offshore investments.
Salient Features Offered by Kotak Securities for their investors:
K.E.A.T: Kotak E-trading Access Terminal is the live terminal on your desktop. Wherever
you go, with you always. With K.E.A.T. you get live tick-by-tick updated rates.
Research & Advice: To assist you in your investment and trading, our team of experts and
professionals give you research reports on companies, industries and sectors for making
informed investment decisions research inputs and valuable recommendations.
SMS Alert: Get Free SMS alerts delivered to your mobile phone. This way you can be in
touch with market wherever you are.
51 | P a g e
Call & Trade: Call and Trade enables you to while or the move. Make a call from where
ever you are and get your market on your phone.
Portfolio Advice: Get Free Portfolio Advice and constantly monitor the value of your
portfolio with inputs from our expert advisor.
Margin Trading: To help you invest in your dream stocks, we offer you margin Trading
Facility.
Easy IPOs: With you easy IPO service, you can now apply for IPOs at a click of a button.
You can even place your bid over the phone. Which means, no more hassles of standing in
long queues and tedious paperwork.
Easy Mutual Funds: Easy Mutual Funds is a one stop-shop for multiple mutual funds. All
you have to do is log on our website or simple cause and invest in the Mutual Fund of your
choice. (Presently 8 Mutual Funds are available for investing)
Easy Payment: Kotak Securities, in collaboration with HDFC bank, UTI Bank, Citi Bank
and Kotak Mahindra Bank provides online payment facility. You can make and receive you
payment directly to your bank account. Therefore, no hassle of going to the bank and stand in
long queues, also hassle free transaction of your money at any time form anywhere across the
globe. Investment options for every one
They have a wide range of products according to investor’s requirements. One can choose
from the following list the plan best suited to your investment needs.
Kotak Research Products
Market Morning: A daily dose of vital market information with concise technical review of
the index along with technical support and resistance of the select stock.
Daily Morning Brief: The Daily Morning Brief features economy and corporate news
enabling buy/sell calls based on the company fundamentals. It also lists bulk deals, Nifty
gainers and losers and forthcoming corporate events.
Stock Ideas: A detailed report based on company fundamentals covering research team
analysis of several pick of the companies, which are primarily strong and offer high returns.
52 | P a g e
Sector Reports: The research team regularly studies various factors, which could impact a
particular sector. It provides a list of all stocks / companies which could either be affected
positively or negatively and give recommendations on the same.
Weekly Technical Analysis: A definitive tool that besides summarizing the calls for the
week.
Monthly Research Reports: A consolidated report of all the research calls \ given during the
month with insights that enable wise financial decisions in a time bound manner.
SMS Alerts: Critical information on the move. Get FREE SMS Alerts delivered to your
mobile phone and stay in touch with the market wherever you are.
Core strengths of Kotak Securities Ltd.
1. Convenience: Through these services investors care trade on a chair, he can buy and
sell shares self not depend upon any broken. In this system any cheque or paper is not
required.
2. Speed: One can get the latest quotes of scripts on Kotak Security.com and place an
order almost instantly.
3. KEAT: Software provide the best Terminal for the investors within the help of KEAT
investor get profile of any company and see sensex, share prices, nifty and up and
down market position.
Things you can do with KEAT –

 Live ticker rates
 Speedy transactions
 Script alerts
 Customize watch list
 View status of orders
 Intraday alerts and exchange messages.
 Trade report, net position report, exercise report.
 Company research
53 | P a g e
4. Satisfaction: Within Kotak investors satisfy within its services. They care transfer
funds from trading account to their saving account within only 30 seconds and
withdrawal by ATMs.
5. Centralized back office: We have a centralized back office in Mumbai, which has a
work force of over 500 dedicated people
6. Robust Direct Sales Force: Our strong and well-networked direct sales force of over
650 executives is available you to sound investment solutions in an ever changing
market environment.
<
Products Range
Kotaksecurities.com offers you a range of products and services to meet your

investing needs. Whether you are a savvy investor or just getting started, you would find our
services just right to meet your specific needs.
a) Kotak Gateway Account: If you are new to do trading, open a Kotak Gateway account
with kotaksecurities.com. It’s a basic account that always you to do trading over the
Internet and phone. Offering ease and convenience, Kotak Gateway Account allows you
to make smart investments through its research-based assistance.
You can activate Kotak Gateway Account with any amount less than Rs 1, 00,000/- as
margin, by way of cash.
With Kotak Gateway account you can avail of the following:
 4 times exposure on the margin.
 Access to K.E.A.T Desktop.
 Research Reports on companies, industries and sectors for making informed

investment decisions.
 Research Advice via SMS.
 Call and Trade facility.
 Free news and updates on the markets.
 Access to 8 mutual funds.
54 | P a g e
b) Kotak Value Account: The intelligent investor in you has always opted for something
smarter. Kotaksecurities.com offers you Kotak Value Account, an easy and convenient
account that allows you to trade over the Internet and phone. You can also avail of
Research-based reports to make smarter investments.
You can activate Kotak Value Account with any amount between Rs. 1, 00,000/- and Rs.
5, 00,000/- as margin, by way of cash.
With Kotak Value Account you can avail of the following:
 Access to K.E.AT Desktop.
 Research Reports on companies, industries and sectors for making informed

investment decisions.
 Call and Trade facility.
 Lower delayed payment interest.
 Margin finance.
Free news and updates on the market.
c) Kotak Privilege Circle: Why stop at anything when you can potentially do so much more
with your money. Open a Kotak Privilege Circle Account – make more, make most, with
all our premium services readily available for you.
You can activate a KPC Account any amount more than Rs. 10, 00,000/- as margin, by
way of cash or stock.
In the Kotak Privilege Circle you can avail of the following:
 Access to K.E.A.T Premium.
 Assistance in terms of Research Reports on companies, industries and sectors for
making informed investment decisions.
 Call & Trade facility.
 Lowest delayed payment interest.
55 | P a g e
 Margin finance at attractive rates.

 Dedicated KPC customer service desk available for assisting right from opening the
account to handling day-today problems.
 Assistance from Relationship Managers for taking care of all your investment needs.
 Free news updates from the market.
d) Kotak High Trader Account: Kotak High Trader Account offers you higher exposure. It
is an Auto Square Off product where only Intra-Day trading can be done and all open
orders will be automatically squared off at 3:10 pm.
You can activate Kotak High Trader Account with any amount less than Rs. 5, 00,000/- as
margin by way of cash or stock.
With Kotak High Trader Account you can avail of the following:
 Assistance in terms of Research Reports on companies, industries and sector for

making informed investments.
 Research advice via SMS.
 Free news and updates from the market.
 Access to mutual funds.

In this product you get charged the normal brokerage according to the slab you fall in. At the
start of the month you will get charged at the slab. At the end of the month based on your
volumes during the month, your effective slab will be calculated and you will be reversed the
brokerage if any.
e) Kotak Freeway Account: This product is designed for the intraday trader .One can pay a
flat fee of Rs.999 as brokerage and trade unlimited number of times.
You can activate Kotak Freeway Account with any amount less than 1, 25,000/-as margin, by
way of cash or stock
56 | P a g e
With Kotak Free way account you can avail of the following:
 Assistance in the terms of Research Reports on companies, industries and

sectors of making informed investments.
 Research advice via SMS.
 Free news and updates from the market.

Delivery transactions will be charged according to normal slab rates. Intraday transactions
will have a service charge of 0.03% on both sides. Brokerage Structure indicated as KPC
account in attached details.
f) Kotak Trader Account: Kotak Trader offered by Saxo Capital Markets is an easy-to-use,
fully customisable platform that integrates all of the trading, analysis, price monitoring
and updates all in one interface.
Kotak Trader offers many important features that help you trade more effectively.
Here is what you get:

 Direct trading on live tradable prices on agreement with specific exchanges
 Trades in Stocks, ETFs, ADRs & GDRs
 Trading in 24 different exchanges across the globe
 Market analysis from Saxo Capital Markets
 News from AFX, Dow Jones Newswire, Market News International
 2-way dealer chat - direct access to dealers at Saxo Capital Markets
Kotak Securities is the official introducing broker for Saxo Capital Markets Pte Ltd.
Singapore. This exclusive relationship gives you the power to trade in 24 International
Exchanges through a single trading platform, Kotak Trader - powered by Saxo Capital
Markets.
57 | P a g e
Awards are testimony to the fact that Kotak Trader offered by Saxo Capital Markets is among
the best trading platforms available. Easy to use and fully customizable, Kotak Trader
integrates trading, analysis, price monitoring and updates functions all into one interface
The Kotak Trader platform keeps you updated with the latest news updates and various
information with regards to the global markets.
Following are some frequently asked questions when I interacted with investors
How do I trade in international market?
Trading in International Capital Markets is very simple. You just need to open an account
with Saxo Capital Markets through Kotak Securities. Once your account is opened and funds
are transferred, you get access to trade on Kotak Trader through which you can trade in 24
different international exchanges. In addition to live trading and direct access to your
account, Kotak Trader offers a wealth of trading information such as real-time quotes, charts
and analysis to help you make successful trading decisions.
What are the products offered through Kotak Trader?

As per the remittance norm of the RBI, an Indian citizen can remit money for investments in
international capital markets under the liberalised remittance norm, subject to maximum US$
200,000.
 Kotak Trader offers trading in equity market through 100% cash and carry system.
 ETFs, ADRs & GDRs can be traded through Kotak Trader.
What is Kotak Trader?
Kotak Trader is a trading platform offered by Saxo Capital Market Pte to the clients
introduced by Kotak Securities Limited. With Kotak Trader, you get access to trade in 24
different international exchanges. In addition to live trading and direct access to your
account, Kotak Trader offers a wealth of trading information such as real-time quotes, charts
and analysis to help you make successful trading decisions. This trading Platform is owned
and managed by Saxo Capital Markets Pte. Your trade on Kotak Trader is processed through
Saxo Capital Market Pte without any interference of Kotak Securities Limited.
58 | P a g e
What are the advantages of Kotak Trader?

This trading platform offers many important features to help you trade more effectively. Here
is what you get:
 Trading in 24 different exchanges across the globe
 Direct trading on live tradable prices on agreement with specific exchanges
 Market updates from Saxo Capital Markets
 Analysis from the team at Saxo Capital Markets
 News from AFX, Dow Jones Newswire, Market News International
 2-way dealer chat - direct access with the dealers at Saxo Capital Markets
Which all international exchanges can I trade in?
You can trade in 24 exchanges across the globe,
Table 4.1: 24 stock exchanges
Trading
Brokerage
Country Exchange name Exchange hours
Rate
(GMT)
United States of
American Stock Exchange AMEX 04:00 - 04:00 0.75%
America
United States of
NASDAQ Capital Market NASDAQ SC 13:30 - 20:00 0.75%
America
United States of
NASDAQ Global Markets NASDAQ NM 13:30 - 20:00 0.75%
America
United States of
New York Stock Exchange NYSE 04:00 - 04:00 0.75%
America
United States of
NYSE ARCA NYSE_ARCA 13:30 - 20:00 0.75%
America
United States of
OTC Bulletin Board on NASDAQ OTCBB 13:39 - 20:00 0.75%
America
United States of Other OTC on NASDAQ (Pink
OOTC 13:30 - 20:00 0.75%
America Sheets)
United Kingdom London International Exchange LSE_INTL 08:00 - 14:40 0.75%
London Stock Exchange SETS
United Kingdom LSE_SETS 07:00 - 15:35 0.75%
Market
Australia Australian Stock Exchange Ltd. ASX 14:00 - 14:00 0.75%
Wiener Börse (Vienna) Stock
Austria VIE 07:21 - 15:34 0.75%
Exchange
Belgium Euronext Brussels BRU 07:00 - 15:35 0.75%
Denmark OMX Copenhagen CSE 07:00 - 15:00 0.75%
Finland OMX Helsinki HSE 21:00 - 21:00 0.75%
France Euronext Paris PAR 22:00 - 22:00 0.75%
Germany Frankfurt /Xetra Stock Exchange FSE 07:00 - 15:35 0.75%
59 | P a g e
Hong Kong Hong Kong Stock Exchange HKEX 02:00 - 08:00 0.75%
Italy Milano Stock Exchange MIL 22:00 - 22:00 0.75%
Netherlands Euronext Amsterdam AMS 22:00 - 22:00 0.75%
Norway Oslo Stock Exchange OSE 22:00 - 22:00 0.75%
Portugal Euronext Lisbon LISB 23:00 - 23:00 0.75%
Singapore Exchange Securities
Singapore SGX-ST 01:00 - 09:06 0.75%
Trading Limited
Sistema De Interconexion Bursatil
Spain SIBE 07:00 - 15:35 0.75%
Espanol
Sweden OMX Stockholm - First North SSE_FN 22:00 - 22:00 0.75%
Switzerland Swiss Exchange SWX 07:00 - 15:30 0.75%
Switzerland SWX Europe VX 07:00 - 15:30 0.75%
How do I remit money?
Once you provide the documents of due diligence and the same are approved by Saxo Capital
Markets, you will be informed that the account is ready for funding. On receiving this
information you can remit maximum of USD 200,000 annually from any of the authorised
banks in India to Saxo Capital Markets, Singapore.
Saxo Capital Markets accepts fund transfer through many major financial institutions around
the world. Saxo Capital Markets will only accept funds originating from a bank account held
in client's name. Funds from any third party's account will be rejected and returned less
Intermediary Banks fees. Saxo Capital Markets does not accept Bankers Drafts, Cheques or
Cash deposits.
You have to go to bank and fill up A2 Form and Remittance Request Form. Along with that
you need a PAN card copy. If the account is less than one year old you need submit the one
year tax return certificate. If the account in older than one year, only bank statement copy is
required.
Note: Actual requirement may vary from bank to bank, above given details are indicative of
the process generally followed.
60 | P a g e
How much time does it take to remit/withdraw money?
It will take around 24 to 48 hrs to remit money from your bank account to your account in
Saxo Capital Markets.
To withdraw money it will take around 48 to 72 hours from your account in Saxo Capital
Markets to your bank account.
How do I know that my funds have been transferred?
As soon as Saxo Capital Markets receives the funds, it will be credited to your trading
account. Once the funds are shown in your account you will be receiving an activation email
with a download link, User ID & Password.
In what currency can I remit money?
You can remit the money in as many as 13 currencies (Australian Dollar, Swiss Franc,
Danish Kroner, Euro, Pounds Sterling, Hong Kong Dollar, Japanese Yen, New Zealand
Dollar, Swedish Kroner, Singapore Dollar, Thai Baht, US Dollar). All your transactions will
be done in a base currency.
Do I get any kind of recommendations to trade or get updates on the international

financial markets?
Clients are updated by Saxo Capital Markets regularly on all the important moves in
international equity market. Experts at Saxo Capital Markets help clients by providing
recommendation to invest in international equity markets through various reports like Equity
Market Updates, Trading Strategies, Weekly Updates, and Global Reports etc...
Do I get latest news related to international equity markets and my investments?
At Kotak Trader you are provided with latest updates on the international financial markets.
The news that will affect your portfolio will be immediately flashed in the trader so that you
don't miss any opportunity. Three of the major and renowned news providers namely AFX,
DOW Jones Newswire and Market News International provide updates of the latest
happening in the market.
61 | P a g e
What services will I receive as a client trading in International Equity Market through
Kotak Trader?
Being a client of Saxo Capital markets you will receive all kind of support from them to
invest in the international equity market. Though you will be doing most of the activity online
but still you will be assigned with an Account Executive by them who will take care of all the
requirements related to your account to trade on Kotak Trader. Your Account Executive will
act as your primary contact person with Saxo Capital Markets and can be contacted through
online chat facilities available at Kotak Trader or by telephone or e-mail.
Kotak Securities in India

Andhra Pradesh Assam Bihar Chhattisgarh
Delhi Goa Gujarat Haryana
Jammu & Kashmir Jharkhand Karnataka Kerala
Madhya Pradesh Maharashtra Orissa Punjab
Rajasthan Tamil Nadu Uttar Pradesh Uttaranchal
West Bengal
62 | P a g e
CHAPTER 3:
Objectives of the Study &
CHAPTER 3:
OBJECTIVES OF THE STUDY & RESEARCH METHODOLOGY
Objectives
This study has been conducted with a variety of important objectives in mind. The following
provides us with the chief objectives that have tries to achieve through the study. The extent
to which these objectives have been met could be judged from the conclusions & suggestions,
which appear later in the study.
The Chief objectives of the study are:

 To study the product & services provided by Kotak Securities.
 To know the consumer perception towards Kotak’s new product Kotak Trader.
 To know about what are the considerations, that a investors keeps in his/her mind
while investing
 To study the factors influencing the investment by investors
 To study the unique constraints that would be faced by investors in International
Investment.
 To get suggestions for the improvement or change in services of Kotak Securities Ltd.
Research is defined as human activity based on intellectual application in the investigation of
matter. The primary purpose for applied research is discovering, interpreting, and the
development of methods and systems for the advancement of human knowledge on a wide
variety of scientific matters of our world and the universe. Research can use the scientific
method, but need not do so.
Research methodology means a “defining a problem, defining the research objectives,

developing the research plan, collecting the information, analyzing the information &
presentation of findings.” Such framework is called “Research Design”.
Research Methodology is search for knowledge objectives and systematic method of finding
solution to a problem in a research. It may be understood as a science to study how research
is done scientifically.
63 | P a g e
Research methodology is a way to systematically solve the research problem. The research
methodology includes various methods and techniques for conducting a research. D.Slesinger
and M.Stephenson in the encyclopedia of social sciences define research as" the manipulation
of things, concepts or symbols for the purpose of generalizing to extend, Correct or verify
knowledge, whether that knowledge aids in construction of theory or in the practice of art.
Research simply means the search for facts answer to the questions and solutions to
problems. It is a purposive investigation. It is an organized inquiry. In other words research
means search for knowledge and Research methodology is a way systematically solve the
research problems. It is science of studding how the search is actually done. It presents the
sources of data collection, the sampling procedures, and tools of investigation and limitations
of the study.
I decided to do the project in two parts. The first part of the project is comprised of the study
of Global securities market as a whole and the second part deals with the investor’s
perception regarding their investment preferences about investment in global market.
The first part of the project i.e. descriptive study comprises an overall study of global
securities market as what it is, why to invest and where to invest; risk factor associated with it
i.e. an overview of whole global securities industry.
The second part of the project that is related to investors’ perception about investment in
Global Securities Market. Indian Stock market has undergone tremendous changes over the
years. Investment in share market has become a major alternative among Investors. The
project has been carried out to understand investor’s perception about investing in companies
registered in other countries in the context of their trading preference and explore investor’s
risk perception. The first part of the project relating the study of Global securities market is
collected through secondary data obtained from internet & books whereas the second part
relating the Investors perception about investment in Global market is covered using primary
data.
The research plan that was followed by me consisted following steps;
A) Defining the problem
B) Developing the research plan
C) Collection of data
D) Analysis of data
E) Presentation of findings
64 | P a g e
Defining the problem

My research problem is to study the new product launched by Kotak securities i.e. KOTAK
TRADER. In which an investor can trade in worlds 24 stock exchanges.
Developing the research plan

The development of research plan has following steps
1. Data source
2. Research approach
3. Research instrument
4. Sampling plan
i. Sample unit
ii. Sample size
iii. Contact methods
5. Questionnaire design
Data Source: The researcher can get two types of data:

a) Primary data
Primary data is a data which did not exist earlier & is being collected by the researcher
first time for his specific objectives. In other words, direct collection of data from the
source of information, technology including personal interview, telephonic interviews,
observations, Questionnaire & through schedules
b) Secondary data
Secondary data is data collected by someone other than the user. Common sources of
secondary data for social science include censuses, surveys, and organizational
records. Primary data, by contrast, are collected by the investigator conducting the
research. Such as:
 Published statistics: Census, housing and social security data, and so on
 Published texts: Theoretical work, secondary analyses by ‘experts’ and reports
 Media: Documentaries for example, as a source of information
 Personal documents: Diaries
 Case studies and literature Reviews.
65 | P a g e
For collecting the secondary data, the literature review has been done, case studies
have been carried out, published texts and statistic have been used, and media
(especially internet) and personal contacts have also been utilized.
Research Approach
Survey is best suited for the descriptive & analytical research. Survey are undertaken to learn
about people’s knowledge, beliefs, preferences, satisfaction & so on & to measure these
magnitudes in the general public. Therefore, I have done survey for conducting my research
project.
Descriptive research includes surveys & fact finding enquiries of different kinds. The main
purpose is description of the state of affairs is noted down & analytical research used to
analyze the material & facts.
Research Instrument
Questionnaire: A questionnaire is a research instrument consisting of a series of questions
and other prompts for the purpose of gathering information from respondents. Although they
are often designed for statistical analysis of the responses, this is not always the case.
A questionnaire was constructed for my survey
Sampling Plan
Sampling is that part of statistical practice concerned with the selection of individual
observations intended to yield some knowledge about a population of concern, especially for
the purposes of statistical inference. Each observation measures one or more properties
(weight, location, etc.) of an observable entity enumerated to distinguish objects or
individuals. Survey weights often need to be applied to the data to adjust for the sample
design. Results from probability theory and statistical theory are employed to guide practice.
In business, sampling is widely used for gathering information about a population.
The sampling plan calls for three decisions:
 Universe: It constitutes all the elements of the population who are investing in
securities market. All the persons who are using on line or offline share trading
method for trading with shares.
 Sampling Unit: Research sample unit refers to the geographical area that I have
covered while conducting the research. The sampling unit contains all Men and
66 | P a g e
Women of Business Class, Industrialist as well as the Small Investors who are the
residents of the Jalandhar.
 Sample Size: This refers to the number of respondents to be selected from the
universe to constitute a sample. Large samples give more reliable results than small
samples. The sample of 100 respondents has been taken for this study. The sample
size contains all the Men and Women of Business Class, Industrialist as well as the
Small Investor who are residing in Jalandhar.
 Sampling Technique: A sample technique is a plan for obtaining a sample from the
given population. It refers to the techniques or the procedure the researcher would
adopt in selecting the sample. The sampling technique which has been used for this
study is basically Convenience Sampling, which is basically a part of the Non-
Probability Sampling. The reason behind taking this technique was as we met only
those respondents who make investments
Questionnaire Design:
There are 14 questions in my questionnaire & I asked all these questions from 100
respondents in Jalandhar & Nakodar city.
Collecting Information:
After this I have collected the information from the respondents with the help of
questionnaire.
Data analysis & Interpretation

The next step is to extract the pertinent findings from the collected data. I have tabulated the
collected data & developed frequency distributions. Thus, the whole data was grouped aspect
wise & was presented in tabular form. Thus, frequency & percentages were prepared to
render impact of study. I have used the factor analysis method in order to know about the
various considerations of respondents about international stock trading.
67 | P a g e
Significance:
Significance of the project is to find out prospect investors of International stock trading and
also to provide key information about the investor’s perception and preferences by Global
securities market. The study will help in getting information about their performance at
distributors as well as at their own investment centre or why people will go for trading in
international stock exchanges. Study will also helps in finding out the problems related to
distribution.
Managerial Usefulness of Study:

 The study also provides the problems related to trading in international stock
exchanges so that they can improve the service rendered by them as a distributor.
 The study will also give information about prospective investors both individual as
well as institutional clients in areas of surrey where they can get lead.
 The study provides the complete information about all close competitors in
brokerage houses who are providing the same service.
 It provides the AMC a feedback from customers regarding their problems and
perception about investing in global exchanges so that they can improve their
services.
 To study the global securities market industry in detail.
 To study the Investment procedure in global securities market.
 To study the investors Preference regarding Investment in international stock trading.
Scope of the Study:

 In current scenario, the bank rates have been cut down rapidly due to severe
competition, so people are not going for contemporary deposits because that cannot
provide them the better returns or the desired interest rates. So, they can look for some
new investment options like investing in other countries, which can provide them
higher returns in medium to long term and can easily meet their financial goals.
 To look out for new prospective customers who are willing to invest in global market
68 | P a g e
Limitations of the Study
 Awareness level of peoples affected the research. Lack of awareness of Stock market
among respondents.
 The sample size taken may not be sufficient to predict the results with 100% accuracy.
For a study like this o ne a still bigger sample size would have been appropriate.
 The information given by the respondents might be biased because some of them might
not be interested to give correct information.
 Some of the respondents of the survey were unwilling to share information.
 The research was carried out in a very short time period. Therefore the sample size
and other parameters were selected accordingly so as to finish the work within the given
time frame.
69 | P a g e
CHAPTER 4:
Data Presentation,
Analysis & Interpretation
CHAPTER 4:
DATA PRESENTATION, ANALYSIS & INTERPRETATION
All the analysis has been made on the basis of the data collected through the questionnaire.
What is your experience in stock market?
Options: a) Less than a year, b) 2 to 3 years, c) More than 4 years
The motive behind having this question was to what experience the respondents have in share
market so that the further questions can be analyzed on the vary basis of the experience the
respondents have.
Chart: 8.1: Experience held by investors/respondents
Experience holded by Investors
35%
40%
Less than a year
2 to 3 years
More than 4 years
25%
70 | P a g e
Q 2: How do you trade?
Options: a) Online, b) Offline
The main idea behind keeping this question in the questionnaire was to study how do
investors/ respondents trade. If a respondent is using an online account to trade that would be
easy for him to avail the new product KOTAK TRADER, which can be availed only through
online trading.
Chart 8.2: No. of Online & Offline clients
Online vs. Offline

Less than a year 2 to 3 years More than 4 years
24
20 20
15
11
10
Online Offline
Inference
It can be concluded from the graph that most of the respondents prefer to buy the stocks
online, & also the major online investors include investors who have experience of less than a
year while in case of investors having experience of more than 4 years are equal in number in
trading online & offline, this might be due to the reason, they don’t know how to operate
computer. So Kotak Securities will not face much problem as their new product can be
availed only through online account.
71 | P a g e
Q 3: At what hours you trade?
Options: a) Office hours, b) Non office hours, c) Free hours only, d) Market Hours
The main idea of keeping this question was to study the preference of the trading hours. As
we talking of international trading so different time zone is one of the main constraints in it.
So this question was added to know what are the timings at which the Kotak will have to
provide facilities.
Chart 8.3: Trading hours preferred by investors
Trading Hours prefferd by investors having

diifrent exprience in market
Les than a year 2 to 3 years More than 4 years
32
20
15
10
5 4 5 5
3
0 1 0
Office hours Non office hours Free hours Market hours
Inference
It can be concluded from the graph that most of the respondents prefer to trade on market
hours, but still a major chunk of new investors who are fresh in the market prefer non office
hours than market hours. So Kotak will have to make some information available to clients
about the timings of different stock exchanges so that the clients do not face any problem
regarding the timing.
72 | P a g e
Q 4: Do you feel international trading will be safe?
Options: a) Yes, b) No
The main motive of adding this question in questionnaire is to know the perception of
investors for the international stock trading.
Chart 8.4: Is international stock trading safe
Is International stock trading safe?

Less than a year 2 to 3 years More than 4 years
28
26
13
12 12
9
Yes No
Inference
It can be concluded from the graph that we have both type of respondents, one those who
think that international trading would be safe & others who think it would not be safe. The
major parts of total respondents who think that international stock trading will be safe are the
new investors who have less experience.
73 | P a g e
Q 5: Would you like to invest in International stock exchanges?
Chart 8.5: Investors preference to invest in international stock exchange
25 23
22
20 18
15 14
12
11
10
0
Yes No
Les than one year 2 to 3 years More than 4 years
Inference
The conclusion that can be drawn from the data collected is that most of the respondents are
ready to invest in global market. Since there were some respondents who are not willing to go
for investment in global market but still the majority of the respondents are willing to do
trading in global market.
74 | P a g e
Q 6: Do you think international trading would help Indian stock market to grow?
Chart 8.6: What do investors think about the effect of international trading on Indian
Market
25 23
20
20
17
15
15 14
11
10
0
Yes No
Les than a year 2 to 3 years More than 4 year
Inference
This chart is showing the perception of the investors for effect of international stock trading
on Indian Market. From the above graph it is clear that out 100 respondents, 15+11+23=49 so
49 % of respondents think it will help Indian market to grow, while 51% think this may not
have a positive effect.
75 | P a g e
Q 7: Your trading preference is
Options: a) Speculation, b) Investment, c) Both
Chart 8.7: Investor’s trading preference
Speculation Vs. Investment

Less than one year 2 to 3 years more than 4 years
27
23
12
10
7 7
6
5
3
Speculation Investment Both
Inference
This chart is showing the trading preference of investors i.e. what do they like to do in stock
market either they like speculation or they like investment or both. From the above graph it is
clear that out 100 respondents, majority respondents prefer speculation specially the
fresher’s, that might be because of the speedy movement of money, while 35% of
respondents like investment( delivery) while the rest 16 % respondents have expressed their
preference for both.
76 | P a g e
Q 8: What factors do you consider when you trade in securities market
Options: a) Security, b)Instant online transfers, c)Time Zone difference, d) Convenience,

e) Foreign Exchange, f) Availability of information about the company, g)Lot size,
a) Total investment, h) Popularity of security, i) Historical returns of company
Chart 8.8: Factors considered by investors while investing
Factors considered by investors while investing

Most Considered Moderately Considered May be Considered Not a Consideration
90 90
79 79
75 73
65
55 57
4547
27 25
20 21 23
15 15 14 15
10 11 8 8
52 7 46 5
3
Inference
As the above data is presented in simple bar graph chart. The conclusion that can be made is
that, most of respondents considered SECURITY, TIME ZONE DIFFERENCE, FOREIGN
EXCHANGE, AVAILABILITY OF INFORMATION ABOUT THR CO., are the most
considered factors while investing by the investors. So Kotak will have emphasise on such
things which will help investors in overcoming the constraints.
77 | P a g e
Q 9: Have you heard of new product of Kotak Securities in which their client can trade
in 24 stock Exchanges of World?
If yes from where...................................................................................................................
Chart 8.9: How many people knew about KOTAK TRADER
80
72
70
60
50
40
28
30
20
10
0
Yes No
Invetors
Inference
This is the response that can make Kotak officials to think something for their product. As the
graph is self explanatory. Only 28 % of respondents were aware of their new product that too
through some internet & a few were told by the customer care. Rest 78% were totally
unaware of the KOTAK TRADER. So I would recommend the relationship manger & the
marketing department of the organization to make strategies to communicate clients about
new product which is being offered.
78 | P a g e
Q 10: Do you think availability of such a platform where you can trade in worlds 24
stock exchanges will help in attracting new investors?
Chart 8.10: will this new product will help Kotak in attracting new investors
53
52
52
51
50
49
48
48
47
46
Yes No
Investors
Inference
This question does not give us much useful data because 52 % of respondents said they think
it would help Kotak to attract new investors & on the other hand 48% said they don’t feel so.
So can’t be at some decision from this question but still we can say more people think that
this product can help the Kotak to attract new investors.
79 | P a g e
Q 11: How do you find the fundamentals analysis & technical analysis of companies in
which you invest?
Options: a) Brokerage house, b) Co. Website, c) NSE Web Site, d) Professionals
Chart 8.11: How do investors get fundamental & technical analysis about companies
30
25
20
15 Online
Offline
10
0
Brokerage house Co. Web site NSE web site Professionals
Inference
From the above graph it is clear that majority of the respondents have get information
regarding fundamental & technicals of the companies through brokerage housed, then co.
Website & then NSE website. Very few investors approach professionals for the investment
guidance.
80 | P a g e
Q 12: What obstacles do you think you will face in international stock trading?
Options: a) Forex Conversion, b) Clearing & Settlement, c) Time zone,
d) Slow Processing, e) Unavailability of information, f) Difference in Accounting Standards

Any other: ............................................. . (Can choose more than one)
The goal behind keeping this question was to know the obstacles that, respondent’s think they
will face while making the international investments. One respondent can face more than one
obstacle in making international investment
Chart 8.12: Obstacles faced by Investors
Obstacles
80
70
60
50
40
30 Obstacles
20
10
0
Forex Clearing & Time zone Slow Unavilebility Diffrence in
coversion settelment processing of accounting
information standards
Inference
From the above graph it is clear that majority of the respondents thinks the Forex Conversion,
Clearing & settlement & time zone difference will be the main obstacles that they would face
in international stock trading, but a very few think that the processing will be slow & same
was the response about accounting standards.
81 | P a g e
Q 13: What amount of brokerage you would be ready for international trading?
Chart 8.13: Brokerage clients are ready to pay
Respondents
90
80
70
60
50
40 respondents
30
20
10
0
1$ 2$ 1.5& 3$ Cant say
a)
1$, b) 2$, c) 1.5$, d) 3$, e) Can’t say
Inference
Majority of respondents/ investors didn’t have any idea about what amount of brokerage they
would be ready to pay. As we see in the char 83 % of investors said Can’t Say.
82 | P a g e
Chapter 5:
SUMMARY, CONCLUSION &
RECOMMENDATIONS
Chapter 5:
SUMMARY, CONCLUSIONS & RECOMMENDATIONS
Findings of the study

 From the above study it was clear that due to new product (Kotak Trader) maximum
of people are not aware of the International stock trading. Only 28 % people were
aware of it & the rest were unaware. & those who were aware are the online clients &
they too came to know about it from internet only.
 From the above study it is clear Kotak securities’ majority of clients are ready to
invest in international market. About 56 % of respondents were in favour of investing
in global exchange & majority of them think it will be safe to invest in global market.
 From the above study it is evident that Kotak securities Jalandhar. Branch is lacking
in marketing aspect as very few people knew about their new product KATAK
TRADER.
 From my study we came to know that most of respondents trade during market hours,
so Kotak securities will have to make special arrangement to harmonize their clients
timing with the timing of the stock exchange in which he/she ids trading.
 The study also indicates that the respondent who had experience of more than 4 years
think that, such a platform for global securities trading will help Indian market to
grow.
 The study also helps the Kotak securities to know about the beliefs of investors they
have for the factors they will be considering while investing in international market.
For e.g. Majority of respondents said SECURITY, TIME ZONE DIFFERENCE,
AVAILEBILITY OF DATA ABOUT CO., is the most considerable factors.
 The study also indicates that, when the respondents came to know about the new
product of Kotak trader, majority of them were ready to invest in international market.
About 56% said they would like to invest outside the country
 From the study we came to know about the various obstacles, which investors will be
facing while trading in international market.
 Some of these were: Time zone difference, Forex conversion, clearing & settlement
etc.
83 | P a g e
Summary &Conclusion
At first sight, the idea of investing internationally seems exciting and promising because of
the many benefits of international portfolio investment. By investing in foreign securities,
investors can participate in the growth of other countries, hedge their consumption basket
against exchange rate risk, realize diversification effects and take advantage of market
segmentation on a global scale. Even though these advantages might appear attractive, the
risks of and constraints for international portfolio investment must not be overlooked. In an
international context, financial investments are not only subject to exchange risk and political
risk, but there are many institutional constraints and barriers, significant among them a
complexity of tax issues. These constraints, while being reduced by technology and policy,
support the case for internationally segmented securities markets, with concomitant benefits
for those who manage to overcome the barriers in an effective manner.
In this regard, the different channels available to acquire foreign securities come into focus.
The most obvious way to invest internationally consists in the purchase of foreign securities
directly/either abroad as a foreign direct share via a domestic or foreign broker, or at home in
case shares or DRs of foreign companies are traded in the domestic market. Although
investing in foreign securities is becoming easier every day as more and more investment
banks offer non-resident investment accounts to their clients and the number of companies
that are listed at several exchanges in the world is increasing, there are still significant
barriers and complexities to this strategy such as transactions costs and lack of information.
In the face of these obstacles to the acquisition of foreign securities, it might be most sensible
for the private investor to consider investing in international mutual funds, preferably those
that are linked to a world capital market index _with the problem still remaining as to what
appropriate index/benchmark would be. Thus, a maximum of diversification can be exploited
at low transactions cost and management fees. Finally, some ‘‘fine-tuning’’ will be necessary
to account for the consumption pattern of the investor by shifting the portfolio towards the
national index.
Kotak Securities Ltd. Lay emphasis on providing value added products & quality services
which are responsive to financial needs of customers. The Kotak Securities Ltd provides
various schemes & the latest one with the collaboration with the SAXO Bank of Singapore,
through which their online clients can trade in worlds top 24 stock exchanges. Kotak
84 | P a g e
Securities Ltd. Has emerged as one of the biggest players in the financial services distribution
industry in country. In short financial position as well as operating position of the Kotak has
improved. Kotak Securities has also adopted the latest technology of online trading; they
completed 9 years of online trading on 14th of august 2009. After conducting the study with
reference to their new product & the results we got from it, one can easily conclude that there
is good scope for their new product Kotak Trader. Many clients are ready to invest in global
market.
Recommendations
Based on the study conducted the following suggestions are given to the Kotak Securities ltd,
Jalandhar branch.
 24 hours securities trading should be inducted so as to facilitate the customers who

may be trading in the stock exchange which have difference in time zone.
 More Relationship managers should be appointed to cover the marketing aspect
 Kotak should bring out the brokerage structure in such manner that the investor is
attracted with its lower prices
 In order to create awareness regarding the various products & services provided by
Kotak, various medium of media can be put to use to advertise about the same
 New strategies should be made by Kotak which enables them to face the competition
with other brokerage houses like AnandRathi, Unicorn, Religare & Indiabulls
 The branch should promote cooperation & coordination among employees which help
them in efficient working
 First Aid Kit for New Entrant into Securities Market: This will be a new step
towards a good service provider in this field. After all, this market depends on the
after sales service. After seeing such a boost in the share market, not only our Adult
generation but also the young generation is also so much excited to enter the share
market. Now the actual problem starts especially with the young ones in excitement
initially they invests the money & due to lack of experience they lose big block of
money in one go & later they blames the company about the loss. So, to make them
85 | P a g e
train in the field we should provide them the initial precautions that they should take
while enter into the market.
“The More You Care For Your Customer More the Faith
Will Get Develop From Customer Side”
 Provision for Class Room training for the new: investors for the above reason same
thing to boost their moral and to give them something related to the market will help
them. Also some tips can also be given to this investor during the session as a
precaution.
 Toll Free Number: Customers generally want to call to the respective branch for
asking some problems or give orders, a customer can save the money by dialling on
the toll free number. It gives a feeling to the customer that company care for them.
 Customer Care for general query handle: Initially customer want to solve his or
her problem at the moment as it arises. Our relationship manager many times don’t
have that much time to discuss all that details on phone, they may sometime get busy
with the meeting with client. So for general query handle we can have a separate
section.
Note:
The recommendations which I have listed here above are strictly based on the knowledge of
the securities market that I have acquired during my training of two months duration.
All the recommendations are for the improvement in the functioning of the front end
operations of the Kotak Securities Ltd. (Jalandhar).
The recommendations are purely based on the problems that I had faced as a Management
Trainee.
86 | P a g e
CHAPTER 6:
ON THE JOB TRAINING
Chapter 6:
ON THE JOB TRAINING
Title
To generate leads by tele calling, canopies, presentations clients & also by personal meetings
and to close the deal along with the handling of the customer’s queries regarding share
trading, account opening and maintenance, software installation and demonstration .
Objectives
 To create awareness among the people about the different products offered by the
company in the market through telecalling, canopies, presentations etc.
 To generate leads for endorsement of deals.
 To accompany the ‘relationship manager’ on his visits to the prospective clients.
 To open De-mat accounts.
 To learn how to work in a team.
 To acquaint myself with the work culture.
 To understand the operating terminals of both equity & commodity market.
 To learn the trading procedures of equity & commodity market.
Target/Task
 Overall Target: To generate business and gain experience in the tenure of six weeks of
summer internship project.
Strategy
To achieve a goal successfully one needs to sketch a perfect roadmap or strategy to the
destination and also need to follow the path strictly. The strategies applied to achieve the
above mentioned targets are –
 Telecalling
 Arranging Canopy
 Personal Visits
 Clients References
 Promotional Activities
87 | P a g e
Limitation
Being a service industry, the quality is main concern in differentiation and it is not exactly
measurable.
Conclusions
 In a nutshell, I have learned various practical aspects of trading in the stock market.
 I have made about 50-100 calls per day in the initial days of training so as to generate
maximum leads.
 In addition, I did personal meetings with clients in order to close the deals.
 I handled the queries of both the new & existing clients of the company pertaining to
different issues like opening of accounts, trading procedures etc.
 I also assisted in executing trades from the existing clients so as to get brokerage for
the company.
Corporate Learning’s
To be a part of Kotak Securities was the best opportunity for me to have:
 A practical exposure of financial world.
 Independently handling of clients.
 Came to know the practical problems of clients.
 Learnt the technical procedures and analysis of various research systems, such as
marketing research and equity research.
 Learnt corporate culture.
88 | P a g e
APPENDIX
To know Consumer preference towards International Stock Trading.
Questionnaire
Dear Customer,
Please fill up & return the questionnaire which will be valuable input in our endeavour for
customer opinion regarding International Stock Trading.
General Instructions:-
1. Please tick in appropriate space.

2. Please answer all the questions
3. If you are unable to understand any question please ask the surveyor
4. The information given will be strictly confidential
5. Please fill neatly
Name: _ _ _ _ _ _ _ _ _ _ _ _ _ _ Income <50,000
Age: _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 50, 000 – 100,000
Gender: _ _ _ _ _ _ _ _ _ _ _ _ _ <100,000
Occupation: _ _ _ _ _ _ _ _ _ _ _
Qualification: _ _ _ _ _ _ _ _ _ _
Address: _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _
Contact No.:_ _ _ _ _ _ _ _ _ _ _
Q 1: What is your experience in stock market?
a) Less than a year c) 4 or > 4 years
b) 2 to 3 years
Q 2: How do you trade?
a) Online b) Offline
Q 3: At what hours you trade?
a) Office hours c) Free hours only
b) Non office hours d) Market Hours
Q 4: Do you feel international trading will be safe?
a) Yes b) No
Q 5: Would you like to invest in International stock exchanges?
a) Yes b) No
Q 6: Do you think international trading would help Indian stock market to grow?
a) Yes b) No
Comment......................................................................................................................................
......................................................................................................................................................
Q 7: Your trading preference is
a) Speculation b) Investment
c) Both
Q 8: What factors do you consider when you trade in securities market
Factors Most Considered Moderately May be Not a

Considered Considered Consideration
Security
Instant online transfers
Time Zone difference
Convenience
Foreign Exchange
Availability of
information about the
company
Lot size
Total investment
Popularity of security
Historical returns of
company
Q 9: Have you heard of new product of Kotak Securities in which their client can trade
in 24 stock Exchanges of World?
a) Yes b) No
If yes from
where...................................................................................................................................
Q 10: Do you think availability of such a platform where you can trade in worlds 24
stock exchanges will help in attracting new investors?
a) Yes b) No
Q 11: How do you find the fundamentals analysis & technical analysis of companies in
which you invest?
a) Brokerage house b) Co. Website
c) NSE Web Site d) Professionals
Q 12: What obstacles do you think you will face in international stock trading?
a) Forex Conversion c) Slow Processing
b) Clearing & Settlement d) Unavailability of information
e) Time zone f) Difference in Accounting Standards

Any other: ............................................. . (Can choose more than one)
<<<<<
Q 13: What amount of brokerage you would be ready for international trading?
a) 1$ b) 2$
c) 1.5$ d) 3$
e) Can’t say
Q 14: What facilities you think you want from Kotak securities for international
trading?
......................................................................................................................................................
......................................................................................................................................... .
Signature
Dummy Application Form for KOTAK TRADER
BIBLIOGRAPHY
Books
 C. R Kothari, Research Methodology, New Delhi, New Age International (P)
Limited, Publishers, 2005.
 National Stock Exchange of India Limited, Capital Market (Dealers) Module

Workbook, National Stock Exchange Limited, 2006.
 Ahuja, Ritu, Security Analysis and Portfolio Management, (2007) Atlantic

Publishers & Distributors, New Delhi.
 Michie, Ranald C., The Global Securities Market: A History,(2008), Oxford

University Press, USA
 Hough, Peter, Understanding Global Security, (2008), Taylor & Francis, USA
Articles & Research Papers

 U.S. Congress, Office of Technology Assessment, Trading Around the Clock:
Global Securities Markets and Information Technology--Background Paper, OTA-
BP-W-66 (Washington, DC: U.S. Government Printing Office, July 1990).
p 2, 3, 25-27, 28-29, 35, 55-68
 Bartram, So¨Hnke M. And Dufey, Gunter, International Portfolio Investment:

Theory, Evidence, and Institutional Framework,(2000),
p 85, 93-101, 113-124, 125-129,
 National Stock Exchange of India Ltd. (NSE), Indian Securities Market -A

Review,(2008) p 1-11, 117-119,
 Wharton, (2002), Global Securities Markets Present Tough Challenges for

Investors and Regulators, Knowledge@Wharton magazine, New York.
Websites
 http://www.kotaksecurities.com/internationaleq/homepage.htm
 http://www.kotaksecurities.com/internationaleq/trader_intro.htm
 http://www.kotaksecurities.com/internationaleq/faqs.htm
 http://www.kotaksecurities.com/aboutus/index.html
 http://www.kotaksecurities.com/research/kotakstreetresearchcenter.html
 http://www.kotaksecurities.com/whatweoffer/index.html
 http://www.kotaksecurities.com/accountsection/index.html
 http://www.kotak.com/kotak_groupsite/default.htm

Project Report On Trading Around The Globe

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Project Report On Trading Around The Globe

Uploaded by

Copyright:

Available Formats

Report on Summer Training

Trading Around the Globe

Submitted to Lovely Professional University

In partial fulfillment of the

It is commonly said that

“Finance is the life & blood of economy”

Without practical training, management education is meaningless so long with theory;

The Chief objectives of the study are:

Research methodology means a “defining a problem, defining the research objectives,

The research plan that was followed by me consisted following steps;

Developing the research plan

Data Source: The researcher can get two types of data:

Data analysis & Interpretation

 Some of the respondents of the survey were unwilling to share information.

 24 hours securities trading should be inducted so as to facilitate the customers who

 More Relationship managers should be appointed to cover the marketing aspect

CHAPTER 2: Overview of Industry & Company Profile 46 - 62

CHAPTER 3: Objectives of the Study & Research Methodology 63 - 69

Limitations of the Study 69

CHAPTER 4: Data Presentation, Analysis & Interpretation 70 - 82

Chapter 6: On the Job Training 87 - 88

Chart 1.1: Clearing & settlement process at NSE 37

The history of the earliest stock exchange, the French stock

The Meaning of Globalization

Trends Driving Globalization

1) The declining costs of international communications:

 Expanding computer capability and declining costs;

Advances in global communications infrastructure technologies will probably accelerate.

2) Increasing world trade and interdependence among national economies:

The Evolution of Global Securities Market

International Stock Trading

Channels for International Stock Trading

DIRECT FOREIGN INVESTMENT

Purchase of Foreign Securities in the Domestic Market

Benefits of International stock trading

1.) The participation in the growth of other foreign markets,

1.) The higher their expected return,

Participation in Growth of Foreign Markets

Hedging of Consumption Basket

1.) Purchasing Power Parity (PPP),

Future consumption can be curtailed by unexpected inflation, which can be caused by

Some other Benefits:-

3. Higher yield on investment: Prices of stocks on Nigerian stock exchange are

4. The advantage of leveraging your account: Leverage is borrowed money which

Unique Risks of and Institutional Constraints for International

1) Lack of liquidity in smaller markets:

As foreign assets are denominated, or at least expressed, in foreign currency terms, a

5) Foreign Exchange Controls

6) Capital Market Regulations

Most commonly, capital market controls manifest themselves in form of restrictions

However, transactions costs faced by international investors can be mitigated by the

The development of efficient institutions, the range of expertise and experience

Table 1.1: Trading Cost Comparison for Equity Trades, 1999

8) Familiarity with Foreign Markets

However, multinational corporations increasingly publish their financial information

Sometimes, existing or perceived cultural differences represent more of a

Securities Market in India – An Overview

We are living in exciting times, witnessing a process of ever-increasing globalization and

International scenario of Indian Market

Table 1.2: International Comparison: end December 2007

*Listed companies in India pertain to BSE.

Source: S&P Global Stock Market Fact book, 2008

Source: S&P Global Stock Market Fact book, 2008