Final Report On Demat Ameen

DEMAT & On-line trading.
Executive Summary
The term "market" can have many different meanings. One usage of the
term denotes the primary market and the secondary market. These two
markets distinguish between the market where securities are created and
the market where they are traded among investors. Their function is the
key in understanding how securities are traded.
The primary market is where securities are created. It's in this market that
firms sell (float) new stocks and bonds to the public for the first time.
Secondary market is where most trading occurs, the secondary market is

the one in which securities are traded after having been initially offered in
the primary market. It is basically a market in which an investor purchases
an asset from another investor, rather than an issuing corporation. This
includes the NYSE, NASDAQ and all major exchanges around the world.
The defining characteristic of the secondary market is that investor’s trade

among them selves. For example, if you go to buy Microsoft stock, you are
dealing only with another investor who owns shares in Microsoft.
Microsoft (the company) is in no way involved with the transaction.
However there was an improvement in the mechanism of trading whereby

it was seen that there was a shift from the traditional method of physical
trading to the updated version of online trading. This gave birth to the
system of DEMATERIALISATION (Demat). With the age of computers
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and the Depository Trust Company, securities no longer need to be in

certificate form. They can be registered and transferred electronically.
Dematerialization the process by which physical certificates of an investor

are converted to an equivalent number of securities in electronic form and
credited in the investor's account with his (DP) Depository Party. Only
those certificates that are already registered in your name and are in the list
of securities are admitted for Dematerialization at NSDL/ CDSL.
Demat shares are supposed to obviate all the problems of physical trading.
The biggest attraction of trading in Demat shares is that the shares an
investor buys comes with a clean title and immediately after the settlement
on the relevant stock exchange. Buying shares in the Demat form always
guarantees the investor a good title as soon as the settlement is over and
hence it is a preferred mode of trading today and will be so in the future
also.
Topic of study “A study on growth and benefits of Demat account and
online trading.”
Need for the study
• Physical trading has been given up by many stock exchange
around the world and till India is catching up.
• Transparency has become an important issue with the regular
series of scams over the years
• At this junction, Indian investors are able to avail the facilities of
Depository participants, Depositories, along with brokerage.
2
• So how far this system is working in India and the investors

experience with these new system of trading.
Objectives of the Study

• To study the awareness level of various concepts of Demat & online
trading.
• To identify the most preferred Demat & online trading.
• To study various plans of any company.
• To study the cost of online trading.
• To identify the market leaders in this segment
Methodology
Throughout the study an attempt has been made to arrive at the

conclusions with help of economic reasoning, experience derived from
secondary markets from the lessons of the economic history. The assets,
which the corporation has inherited, have deep roots and justify full
discussion in its historical perspective.
Sources of data
Secondary data: The secondary data collected from different websites,
journals, company reports and the available literature on the subject.
Scope of the Study

The study encompasses only the major Secondary market that have a
substantial share in the share market. The scope of the study is limited to
the performance of the industry for the limited period.
3
General Introduction
Online brokerage has grown substantially since the introduction of Internet

and now account for 40%-50% of retail trade. This change has come in
because individual investors want to increase control over their finances
and do not want someone else to manage the money.
Online trading has become very popular in last couple of years because of
convenience of ease and use. Numerous companies have gone on-line to
meet their customer’s demands enabling them to trade when they want and
how they want to.
Online trade, which now accounts for 50%-60% of all retail trade, is
forecasted to increase to 70% by 2008. At present online brokers hold
$574billion in assets but this figure is expected to grow to $4 trillion by
end of 2007. The market has become saturated and very competitive. As
the number of players increase, it becomes very difficult to differentiate.
The volatility in US equity, market in 1999 and September 11 World Trade

Center attack has hurt the online brokerage trading volumes. Established
E-brokerage firms have created bearer to entry that makes it difficult for
new player to enter into the market.
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Indian e-broking scenario
The Indian stock broking business has gone through a sea of changes.
From that of a business dominated by few individual players to
institutional members, as did trading open outcry and hidden deeds to
screen best and transparency.
India enters the cyber-trading era to equal the current market trends taking
into consideration the need to facilitate inflow of funds in the capital
market. The trading system will enable all categories of investors, resident
and non-resident Indian, to trade online.
Online brokerage in India is still in its early days. Though the trade
through online broking is very miniscule compare to total trading, the signs
are that it will grow to 30%-35% in next few years.
Effect on off-line Business

With the emergence of e-broking, which offers many benefits like, level
playing filled to all investors, comfort of the house, simplicity, low
brokerage and value added services it could be possible for some of the
offline trade to shift to online trade.
The proportion of online broking business compare to off line broking is

miniscule about less than 1%. The offline player would not be affected
unless the figure reaches a minimum of 8-10%.
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Online trade has not started to eat the volumes of, off line business till
now. But at he same time it has created new set of clients for e.g., NRI’s
who were not very active in the market due to lack of transparency and
information, have moved to use this facility. Housewives are another new
category. Net savvy student’s and retired persons are the next expected
category.
But a question is still there, those who get value added services from
broker will continue to stay offline and those that are like any other normal
retail investors, will have no hesitation to shift to online trading. The fact is
that over a few years we would see more non-professionals getting to
access to the market. E-broking has eaten the share of offline broking
business especially into the sub-broking where the same investors went to
get whatever services was provided.
Depository services-beginning of the era of stocks at click

Today it is a practical reality that one can arrange delivery of securities
(shares) sold anytime, anywhere to anyone by a ‘click’ of the mouse and it
is possible to trade in securities and settlement of the accounts from the
convenience of a sitting room or via a laptop. The depository is responsible
to deliver and receive securities trade at the stock exchange, which are the
business partners of the depository. It dose not deal with financial aspect of
the settlement of the trade.
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Dematerialization of securities (shares) was the commencement of the era

of stocks. The beginning was made in 1996, with legislation of the
depository act 1996 and SEBI regulations 1996.
Indian Stock Market Overview
The two primary exchanges in India are the Bombay Stock Exchange
(BSE) and the National Stock Exchange of India Ltd (NSE). In addition,
there are 25 Regional Stock Exchanges. However, the BSE and NSE have
emerged as the two leading exchanges and account for about 80 percent of
the equity volume traded in India.
The NSE and BSE are almost equal in size in terms of daily traded volume.
The average daily turnover at the exchange has increased from Rs 851
crore in 1997-98 to Rs 17,351 crores in 2005- 2006(march) and further to
20000 crores (source;nseindia.com). NSE has around 1900 shares listed
with a total market capitalization of around Rs 31, 40,392.32 crore. The
BSE has over 7000 stocks listed and has a market capitalization of around
Rs 22, 54,378 crore (march06) source; bseindia.com.
Most of the key stocks are traded on both the exchanges and hence an
investor can buy these stocks from either of the two exchanges. Both the
exchange has same settlement cycle, which does not allow investors to
shift their positions. The primary index of BSE is BSE Sensex comprising
30 stocks.
The BSE Sensex is the older and more widely followed index. Both these
indices are calculated on the basis of market capitalization and contain the
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heavily traded shares from key sectors. The timing of trading hours starts
from 9.55 am to 3.30 pm. The markets are closed on Saturdays and
Sundays.
The key regulator governing Stock Exchanges, Brokers, Depositories

participants, Mutual Funds, FIIs and other participants in Indian secondary
and primary market is the Securities and Exchange Board Of India
(SEBI) Ltd.
India ranked top 08 countries in term of the market capitalization of its

stock market. If you decide to operate through an exchange, you have to
avail the services of a SECURITIES AND EXCHANGE BOARD OF
INDIA registered broker/sub-broker. You have to enter into a broker-client
agreement and file a client registration form. Since the contract note is a
legally enforceable document, you should insist on receiving it.
You have the obligation to deliver the shares in case of sale or pay the
money in case of purchase within the time prescribed. If you have opted
for transaction in physical mode, in case of bad delivery of securities by
you, you have the responsibility to rectify them or replace them with good
ones.
To affect a transfer in the physical mode the securities should be sent to

the company along with a valid, duly executed and stamped transfer deed
duly signed by or on behalf of the transferor (seller) and transferee (buyer).
It is essential to send by registered post with acknowledgement due and
watch out for the receipt of the acknowledgement card.
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If the confirmation of receipt is not received within a reasonable period,

the postal authorities should be immediately approached for confirmation.
Sometimes, for our own convenience, we may choose not to transfer the
securities immediately. This may facilitate easy and quick selling of the
securities. In that case care should be taken to see that the transfer deed
remains valid. However, in order to avail the corporate benefits like the
dividends, bonus or rights from the company, it is essential to get the
securities transferred in our name.
On receipt of our request for transfer, the company proceeds to transfer the
securities as per provisions of the law. In case they cannot affect the
transfer, the company returns back the securities giving details of the
grounds under which the transfer could not be affected. This is known as
Company Objection.
In case we are unable to get the errors rectified or get them replaced, we
may have to recourse to the seller and his broker through the stock
exchange to get back our money. Sometimes securities in physical form
may be lost or misplaced then we must immediately request the company
to record a stop transfer of the securities and simultaneously apply for
issue of duplicate securities.
For transactions in Demat mode we are requested to refer to the

trading/settlement in depositories section. Whom to approach for
Grievance Redressal? There will be occasions when there are grievances
against the company in which we are stake-holders.
Given below are types of grievances for which we could approach SEBI:
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 Issue related i.e. non-receipt of refund order/allotment advice,

cancelled stock invests.
 Non-receipt of dividend.
 Shares related i.e. non-receipt of share certificates.
 Debenture related i.e. non-receipt of deb. certificates, non-receipt of
interest warrant.
 Non-receipt of letter of offer for rights and interest on delayed
payment of refund orders.
 Complaints related to collective investment schemes.
 Complaints related to Mutual Funds Mutual Funds Dept., SEBI
 Complaints related to Dematerialization or DPs, Depositories and

Custodian Cell.
Apart from taking up grievances against companies of the types

mentioned above through SEBI the following types of grievances
could be taken up with other authorities/agencies as given below:
With the Stock Exchange: At the investor Information Centre of all the
recognized Stock Exchanges:
 Complaints related to securities traded/listed with the exchanges.

 Regarding the trades effected in the exchange against the companies.
 Complaints regarding the trades effected in the exchange against the
members of the exchange.
With the Department Of Company Affairs/ concerned Registrar of

Companies (ROC)
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 Complaints against unlisted companies.

 Complaints regarding non-receipt of annual report, AGM Notice.
 Fixed deposit in manufacturing companies.
With the Reserve Bank of India:
Fixed deposits in banks and NBFCs.
With the concerned company/ROC:
Forfeiture of shares.
Moreover two other avenues always available to the investors to seek
redressal of their complaints. They areas follow:
 Complaints with Consumers’ Disputes Redressal
 Suit in the court of Law.
EVOLUTION OF ON-LINE TRADING
The history of e-trading began in 1983, when a doctor in Michigan placed

the first online trade using E TRADE technology. What began with a
single click over 16 years ago has now taken the world by storm. The
concept was visualized by one Bill Porter, a physicist and inventor with
more than a dozen patents to his credit, who provided online quotes and
trading services to Fidelity, Charles Schwab, and Quick & Reilly.
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This led Bill to wonder why, as an individual investor, he had to pay a

broker hundreds of dollars for stock transactions. With incredible foresight,
he saw the solution at hand: Someday, everyone would own computers and
invest through them with unprecedented efficiency and control.
And today his dream has become a reality. E trading has become a way of
investing in the developed world and is soon catching on in developing
countries too.
There are three basic things needed for e-trading, a bank account, a Demat
account and a brokerage account. The steps in e-trading replicate the real
life situation and are fairly simple to follow. Once these three accounts are
opened, the money and shares are transferred to your bank and Demat
account automatically, electronically and without any paper work.
The first step is of course to open an account. One can open multiple
accounts with himself or herself as the first name in the account. Then it is
necessary to determine the type of account that you want and how you
want to pay for the trades you make. Accounts can be Individual, Joint,
Sole Proprietorship, Corporate, or Partnership etc.
The form filling requires simple personal details like full legal name,
Citizenship status, Residency status, employer's name and address, your
passport\PAN number, Date of birth, etc.
One can download the forms or request for them by post or even request
for a representative of the firm to come over to help you with the form.
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Post-submitting, you are allotted a USER ID and PASSWORD while

giving details for registration.
Then an Account Reference Number is generated and displayed to you.

These three things are unique to an individual and ensure security of
transactions. The acceptance of the application is communicated by email.
The Online Trading is a discount trading service appropriate for

individuals who require fast execution, lowest commissions and have the
expertise to make their own trading decisions without the direction of a full
service broker. It gives you an opportunity to leverage your independence
to execute, receive automatic fills, monitor, and manage your account on
your time. With online order-entry system the investor can transmit his/her
orders via the Internet (electronically), directly to the Pit or to the
Exchange floor in real time (in as little as 2.5 seconds).
In order to start trading online it is important that you deposit money in

your bank account before placing a buy order. In order to place a sell order
you must have shares in your DEMAT Account. In order to place a buy
order you need to fund your account.
You can do this by depositing money in your bank account or else you can
sell some shares existing in your Demat account and use the proceeds of
sale to fund your purchase transaction. The amount of money required
before placing a buy order would depend on the value of order and the type
of e-invest account you have enrolled for - whether cash or margin.
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In a Margin account one can use a line of credit to buy marginable

securities or for overdraft protection. Such an account is opened after
taking into consideration Annual income, Net worth, description of your
investment objectives, as it involves lending a line of credit. In a cash
account, the amount of securities bought has to be backed by the cash in
the account.
Then comes placing the order. For this you enter your Trading password
and go to trade. From the Trading tab, select Enter Order under the Stocks
heading. Select a transaction type: Buy, Sell. At 'Number of Shares', type
the number of shares that you want to buy. At 'Stock Symbol or Name(s)',
type the stock symbol.
If you don't know the symbol, click 'Find Symbol', type the company
name, click 'Search' and click the symbol that you want from the list. For a
market order, select 'Market'. Otherwise, select 'Limit', 'Stop' or 'Stop
Limit' and enter the price.
'Market Order': you just ask the broker to buy or sell your stocks at the best
price available. 'Limit Order': you tell the broker to trade only when the
stock hits a certain price or better. 'Stop Order': you tell the broker to sell
your shares if the stock drops below a certain price.
Select either 'Good for Day' or 'Good Until Canceled'. If you want to place
an 'All-or-None' order, click 'All or None'. Type your trading password and
click 'Preview Order'. If you want to change your order, click 'Cancel' and
make your changes.
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To see if your order has been executed and filled as you expect, check your
account balance. The 'Account Balances' page shows your account equity
(the value of your account) and your buying power.
If an order to buy or sell stock hasn't been executed yet, you might be able
to change or cancel the order. Orders that you have placed but for which
you haven't yet received execution reports appear when you click 'View
Open Orders' under the 'Stocks' heading of the 'Trading' tab.
To change a stock order from the 'Trading' tab, select 'View Open Orders',
make sure you're currently in the correct account, the click 'Change' beside
the order you want to change.
Enter your change or changes - you can change the quantity, price, and
term. For a new price, select the appropriate option button and then enter
the price (unless you're changing it to a market order).
You cannot change the stock symbol or the transaction type (Buy, Sell,
Sell Short, or Buy to cover). Enter your trading password and click
'Preview Change Order'. Or, if you want to cancel your changes, click 'Do
Not Change'.
The account opening charge, commission rates and the minimum limit of
transaction vary from site to site. Other charges can include Annual
Services Charges, Custody charges, D-Mat account charges etc.
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So sitting at home one can take an investment decision at ease after having
researched and read up fully about the stock. With the advent of online
trading, it would seem that the markets are just a click away.
However, do remember that currently in India the handful of online trading

offers are mere order routing systems. But it will not be long enough
before the entire system goes online.
REASONS FOR ONLINE TRADING IN INDIA:

Each investor has one or other reasons to go for online trading instead of
offline trading. They are as follows:
 They are independent. They fell they have control over their
account, can make their own decisions and don’t have to give
reasons for their actions.
 They have a reason to participate in the stock market and learn about
it.
 They find it interesting, cheap, easy, and fast and convenience.
 A lot of information is online so they can keep up-to-date with what
is happening in the trading world.
 They are sure and overconfident.
 They have access to numerous tools to invest and can create their
own portfolio.
 They feel that trading through net can hide from others.
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REASONS FOR THE EMERGENCE OF ONLINE TRADING IN

INDIA:
The reasons for providing online trading facility to investors by the Indian
companies are various. They are as follows:
 Online trading has a very good future in India as it is not exploited
properly so far.
 Consistent increase in the number of users of interest.
 Consistent increase in the number of personal computer users.
 Part of diversification.
 Less investment in technology and other areas compared to the
returns.
 More awareness in investors about the stock market.
RECENT DEVELOPMENTS:
The bumpy Bull Run in the stock markets has triggered a slowdown in the
opening of new account by the depository participants (DPs). Faced with
the sudden dip in the number of new account being opened the DPs are
devising ways to attracts customers.
On offer is Interactive Voice Response (IVR) for the latest update on

Demat accounts and services through the Internet.
Analysts said there was booms in Demat account opening as retail

customers were riding high on the loans extended to pick up initial public
offers. Most of these Demat accounts are now dormant.
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Several DPs are planning to launch Interactive Voice Response (IVR) units
and Demat services on the Net, Through these IVR units , investor will be
able to know the current value of their portfolio, current holdings,
transaction list, etc.
Some DPs are providing Demat services on the Net to enable customer to
access their account and get the holding and transaction statement on a
daily basis. For eg: HDFC Bank.
With Online trading an investor can:

 Enter orders through internet.
 Review your account balances and transaction activity.
 Obtain stock quotes in real time.
 Access company profiles and research.
 Receive the most competitive and current commission schedule.
 Direct Floor Access-Submit trades directly to the pit in real time.
 Institutional Quality Order Entry.
 Market-to-Market Dynamic Account Updates.
 Reduced Commissions - Up to 80% discounted commission rates.
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DESIGN OF THE STUDY
Statement of problem:
Online trading and Demat are the two emerging concepts in stock market.
It involves personal factors, technical factors, business factors and
economic factors. The interplay of these factors on stock market requires a
deep study about the pattern process and procedures and performance. This
study is intended to identify the various concepts about Demat and the
online trading and its way of functioning.
Topic of study “A study on growth and benefits of Demat account and
online trading.”
Need for the study
• Physical trading has been given up by many stock exchange

around the world and till India is catching up.
• Transparency has become an important issue with the regular
series of scams over the years
• At this junction, Indian investors are able to avail the facilities of
Depository participants, Depositories, along with brokerage.
• So how far this system is working in India and the investors
experience with these new system of trading.
19
Objectives of the Study

• To study the awareness level of various concepts of Demat & online
trading.
• To identify the benefits of Demat & online trading.
• To study percentage of savings of online trading.
• To identify the market leaders in this segment
Methodology
Throughout the study an attempt has been made to arrive at the

conclusions with help of economic reasoning, experience derived from
secondary markets from the lessons of the economic history. The study is
explorative in nature as it aims in identifying the growth & benefits of
DEMAT and on-line trading. The assets, which the corporation has
inherited, have deep roots and justify full discussion in its historical
perspective.
Sources of data
Secondary data: The secondary data collected from different websites,
journals, company reports and the available literature on the subject.
Scope of the Study

The study encompasses only the major Secondary market that have a
substantial share in the share market. The scope of the study is limited to
the performance of the industry for the limited period.
20
LIMITATIONS OF THE STUDY
 The information provided by the managers may not be the actual

figures; it may be a virtual data in the sense conclusions based on the
real data vary from the virtual data.
 The study is conducted in the short period of time, and hence the
results vary from time to time.
• The study covers only a particular geographical region, and hence

the conclusions cannot be considered as a whole outcome of the
industry.
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THEORETICAL OVERVIEW
Concept of depositories
A depository means a place where anything is deposited. It can be anything
and can include securities, physical goods, cash and or money or valuables.
We have safe deposit vaults where we deposit our valuables for safe
custody but under our control. This is also a form of depository.
SECONDARY MARKET: Secondary market is the one in which

securities are traded after having been initially offered in the primary
market. It is basically a market in which an investor purchases an asset
from another investor, rather than an issuing corporation.
STOCK EXCHANGE: It is an association, organization or body of

individuals whether incorporated or not, established for the purpose of
assisting, regulating and controlling business in buying, selling and dealing
in securities.
CLEARING HOUSE (CH): Clearing House is entities setup by Stock

exchanges to ensure that process of settlement takes place smoothly.
Generally Stock Exchange will set aside some capital to start the CH.
ROLLING SETTLEMENT CYCLE: Rolling settlement cycle starts and

ends on the same day and the settlement takes place on T+2, which is 2
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business days from the date of the same day from the date of the
transaction.
INITIAL PUBLIC OFFERING – IPO: The first sale of stock by a

private company to the public. IPO’s are often smaller, younger companies
seeking capital to expand their business. IPO’s can be a risky investment,
for the individual investor it is tough to predict what the stock will do on
its initial day of trading. It is also known as going public.
FLOAT: It indicates that portion of a new issue which has not yet been
procured by the public. The term also depicts the amount of funds that are
in the process of collection and represented by cheques possessed by one
bank drawn on other local or out of town banks. It also signifies the value
of cheques covered by the Federal Reserve but which are not collected by
the Federal Reserve from the bank on which the cheques were drawn.
MARGINAL TRADING: It suggests buying of security or commodity by

a person from the funds borrowed for part of the purchase price rather than
the entire price. Such a person does not pay for the entire transaction from
his own funds but borrows money for part of the purchase price.
DEMATERIALISATION: Dematerialization is the process by which

physical certificates of an investor are converted to an equivalent number
of securities in electronic form and credited to the investor’s depository
account with his Depository Party (DP).
DEPOSITORY: A depository account is similar to a bank account. It

gives a summary of an investor’s holding of securities in the companies in
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the Indian stock exchange and records transaction details of securities

bought and sold during the period. The information of securities holding is
maintained in the electronic form.
SCRIP: It denotes any temporary document entitling its holder or bearer to

receive stock or a fractional share of stock in a corporation, cash, or some
other article of value upon demand, or at some specified future date.
DEPOSITORY PARTICIPANT: A Depository Participant (DP) is an

agent appointed by the Depository and is authorized to offer depository
services to all investors. An investor cannot directly open a demat account
with the depository. An investor has to open his account through a DP
only. The DP in turn opens the account with the Depository. The DP in
turn takes up the responsibility of maintaining the account and updating
them as per the instructions given by the investor from time to time. The
DP generates and provides the holdings statement from time to time as
required by the investor. Thus, the DP is basically the interface between
the investor and the Depository.
Internationally, there are two systems to hold securities.

• The first is to hold securities in a physical form. The ownership can be
transferred by any means, including the electronic media. This is also
known as ‘immobilization of securities’. This system is followed where the
physical volume of securities is low, for example bullion.
• The second system is to retain the details of the security holding in an
account in an electronic format, which is similar to maintaining a bank
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account. This is known as ‘Dematerialization of securities’. This system is

followed where the volume of securities is substantial.
With the growth of the Indian capital market in the decade and the
increasing trading activity in the stock market, the volume of paper being
exchanged has increased exponentially and will continue to increase. This
was one of the primary reasons for India opting for the ‘Dematerialization’
depository route.
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Analysis and Interpretation
Table 1: Showing usage of Online trading system continent wise.
Continent Percentage
N.America 25%
Asia Pacific 21%
W.Europe 44%
Rest of the world 10%
INTERPRETATION:
By observing the above table we can understand that 90% usage of online
trading is made by the three continents that is W.Europe 44%, N.America
25%, Asia Pacific 21% and rest 10% is made by the rest of the word.
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N .A m e r ic a
Us a g e o f o n lin e t r a d in g s y s t e m c o n t in e n t w is e
A s ia Pa c if ic
W .Eu r o p e
10% 25% R e s t o f th e
w o r ld
21%
44%
Source:
o www.bse.com
o www.nse.com
o www.sebi.com
o www.nsdl.co.in/
o www.birlamartin.com
o www.timesbankindia.com
o www.hll.com
o www.sharekhan.com
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Table 2: Showing ranking of major benefits of online trading system
Benefit Single bank multi-bank
Improved Information Transparency 4 1

Time Saving 1 2
Cost Saving 6 3
Better Security/Audit 2 4
Straight through Processing 3 5
Quality of Research /Analytics 5 6
INTERPRETATION:
By observing the above table we can understand that by using the online
trading the bank can get so many benefits like Improved Information
Transparency, Time Saving, Cost Saving, Better Security/Audit, Straight
through Processing and Quality of Research /Analytics. These benefits are
changes when observation made on single bank and multi-bank.
Ranking of major benefits multi-bank

Single bank
12
10
8
Ranks 6
4
2
0
IIT TS CS BS/A STP QR/A
Benefits
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Table 3: Showing products that are traded online
Product Percentage
Swaps and options 8%
Bonds 13%
Commercial paper 12%
Shares 65%
INTERPRETATION:
By observing the above table we can understand that what are the
products are transacted through on-line trading and at what % the transaction
will be made. Out of 100% 65% of transaction is made for shares and
remaining 35% of transaction will be made as follows. Bond 13%,
commercial paper 12% and remains 10% for swaps and options.
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P r o d u c ts t r a d e d o n lin e Sw aps and

o p tio n s
8%
15% B o n ds
Co mme rc ia l
12% paper
65 %
S h a re s
Source:
o www.bse.com
o www.nse.com
o www.sebi.com
o www.nsdl.co.in/
o www.hll.com
o www.sharekhan.com
30
Physical Trading
Indian investor community has undergone sea changes in the past few
years. India now has a very large investor population and ever increasing
volumes of trades. However, this continuous growth in activities has also
increased problems associated with stock trading.
Most of these problems arise due to the intrinsic nature of paper based
trading and settlement, like theft or loss of share certificates. This system
requires handling of huge volumes of paper leading to increased costs and
inefficiencies. Risk exposure of the investor also increases due to this
trading in paper.
The risks involved are a follows:
• Delay in transfer of shares.

• Possibility of forgery on various documents leading to bad
deliveries, legal disputes etc.
• Possibility of theft of share certificates.
• Prevalence of fake certificates in the market.
• Mutilation or loss of share certificates in transit.
The physical form of holding and trading in securities also acts as a

bottleneck for broking community in capital market operations.
The introduction of NSE and BOLT has increased the reach of capital
market manifolds. The increase in number of investors participating in the
capital market has increased the possibility of being hit by a bad delivery.
The cost and time spent by the brokers for rectification of these bad
31
deliveries tends to be higher with the geographical spread of the clients. The
increase in trade volumes lead to exponential rise in the back office
operations thus limiting the growth potential of the broking members.
The inconvenience faced by investors (in areas that are far flung and away
from the main metros) in settlement of trade also limits the opportunity for
such investors, especially in participating in auction trading. This has made
the investors as well as broker wary of Indian capital market. In this scenario
Dematerialized trading is certainly a welcome move.
Trading can be at minimum number in capital market. Split of shares made

more investors to join the investment scenario.
Dematerialized Trading
Dematerialization or "Demat" is a process whereby the investors securities

like shares, debentures etc, are converted into electronic data and stored in
computers by a Depository. Securities registered in the investors name are
surrendered to depository participant (DP) and these are sent to the
respective companies who will cancel them after "Dematerialization" and
credit investor’s depository account with the DP.
The securities on Dematerialization appear as balances in investors

depository account. These balances are transferable like physical shares. If
at a later date, the investor wishes to have these “Demat" securities
converted back into paper certificates, the Depository helps them to do
this.
32
Depository functions like a securities bank, where the Dematerialized

physical securities are traded and held in custody. This facilitates faster,
risk free and low cost settlement. Depository is much like a bank and
performs many activities that are similar to a bank. Following table
compares the two:
Bank Depository
Holds funds in accounts Holds securities in account
Transfers funds between accounts Transfers securities between accounts
Transfers without handling money Transfers without handling securities
Safekeeping of money Safekeeping of securities
National Securities Depository Limited (NSDL)
At present there are two depositories in India, National Securities

Depository Limited (NSDL) and Central Depository Services (CDS).
NSDL is the first Indian depository; it was inaugurated in November 1996.

NSDL was set up with an initial capital of US$28mn, promoted by
Industrial Development Bank of India (IDBI), Unit Trust of India (UTI)
and National Stock Exchange of India Ltd. (NSEIL). Later, State Bank of
India (SBI) also became a shareholder.
NSDL has since its inception built a network of its business partners and
10 stock exchanges are now trading in securities in the Demat form.
Chart 1: Showing NSDL and its Interface
33
Investor
Depositor
y
Participan
NSDLRcarries
& T out its activities through various functionaries called business
Clearing
NSDL Houseand
partners who include Depository Participants (DPs), Issuing corporate
their Registrars and Transfer Agents, Clearing corporations/ Clearing
Houses etc. NSDL is electronically linked to each of these business partners
via a satellite link through Very Small Aperture Terminals (VSATs). The
investor interacts with the depository through a depository participant of
NSDL. A DP can be a bank, financial institution, a custodian or a broker.
Table 4 : Showing statistics of NSDL as on Aug’2006
Companies available for demat 4,464

Companies signed for demat 4,510
Debt instruments admitted for demat 4,767
Commercial papers admitted for demat 619
Depository participants of NSDL 213
34
Depository participants' service centre 1,718

locations
Active clients accounts (in thousands) 3,798
Demat custody (Qty. in crores) 6170
Demat custody (Value in Rs crores) 478,845
Statistics of NSDL as on Aug'05 1

2
3
4
5
6
7
8
9
o Source:
o www.bse.com
o www.nse.com
o www.sebi.com
o www.nsdl.co.in/
o www.hll.com
o www.sharekhan.com
Central Depository Services (CDS)
The other depository is Central Depository Services (CDS). It is still in the

process of linking with the stock exchanges. It has registered around 20 DPs
35
and has signed up with 40 companies. It had received a certificate of

commencement of business from SEBI on February 8, 1999.
These depositories have appointed different Depository Participants (DP) for

them. An investor can open an account with any of the Depositories’
Participant (DP). But transfers arising out of trades on the stock exchanges
can take place only amongst account-holders with NSDL's DPs. This is
because only NSDL is linked to the stock exchanges (nine of them including
the main ones-NSE and BSE).
Once connected to both the depositories the stock exchanges have also to
ensure that inter-depository transfers take place smoothly. It also involves
the two depositories connecting with each other. The NSDL and CDS have
signed an agreement for inter-depository connectivity.
Benefits Of Demat
Transacting the depository way has several advantages over the traditional
system of transacting using share certificates. Some of the benefits are:
• Trading in Demat segment completely eliminates the risk of bad

deliveries, which in turn eliminates all cost and wastage of time
• Associated with follow up for rectification. This reduction in risk

associated with bad delivery has lead to reduction in brokerage to the
extent of 0.5% by quite a few brokerage firms. In case of transfer of
electronic shares, you save 0.5% in stamp duty.
36
• The investor can also avoid the cost of courier/ notarization/ the need
for further follow-up with your broker for shares returned for company
objection
• In case the certificates are lost in transit or when the share certificates
become mutilated or misplaced, to obtain duplicate certificates, the
investor may have to spend at least Rs 500 for indemnity bond, newspaper
advertisement etc, which can be completely eliminated in the Demat form
• The investor can also receive his/her bonuses and rights into their
depository account as a direct credit, thus eliminating risk of loss in transit.
• The investor can also expect a lower interest charge for loans taken
against Demat shares as compared to the interest for loan against physical
shares. This could result in a saving of about 0.25% to 1.5%. Some banks
have already announced this.
• The exclusive demat segments follow rolling settlement cycle

of T+3 i.e. the settlement of trades will be on the 3rd working day from the
trade day. This will enable faster turnover of stock and more liquidity with
the investor.
• Reduction in handling of huge volumes of paper
• Periodic status reports to investors on their holdings and
transactions, leading to better controls.
• RBI has increased the limit of loans against Dematerialized securities

as collateral to Rs 2mn per borrower as against Rs1mn per borrower in
case of loans against physical securities.
37
• RBI has also reduced the minimum margin to 25% for loans against
Dematerialized securities as against 50% for loans against physical
securities.
• Demat functions not only in capital market, it also does in money

market.
Savings
Trading in dematerialized shares results in substantial savings for the

investors. Following tables and graphs gives an idea about these savings.
38
Table 5: Showing savings for a person who buys shares for long term
investment. (On a purchase of Rs10000)
Physical Depository (demat) Savings

Item
(Rs) (RS) (Rs)
Brokerage 100 75 25
*Stamp Duty 50 - 50
Postal Charges 30 - 30
Company Objection (courier 35 - 35
etc.)
Settlement charges 10 5 5
Custody (5 years) 50 30 20
Total 275 110 165
* Stamp duty of 0.5%.
Analysis: In physical trading an investor incurs 50% charges more than

he/she does in demat. Due to trading in demat an investor saves up to 10%
in brokerage, 50% in stamp duty, postal charges and company objection
like courier etc. Investor can save up to 25% in settlement charges and
20% in custody of 5 years.
Inference: As compared to physical trading, an investor saves a lot in

demat on account of brokerage, settlement charges and custody and does
not incur any cost in stamp duty, postal charges and courier.
39
Savings (Rs)
Long term investment
Demat (Rs)
Physical (Rs)
100%
90%
80%
70%
60%
Savings
50%
40%
30%
20%
10%
0%
Brokerage Stamp Postal Company Settlement Custody
Duty Charges Objection charges (5 years)
(courier
etc.)
Items
Table 6: Showing savings for an investor who sells dematerialized

shares (For a sale of Rs10000).
Physical Depository (demat) Savings

Item
(Rs) (Rs) (Rs)
Brokerage 75 50 25
Company Objection 35 - 35
40
(courier.)
Total 120 55 65
Analysis: Many brokers offer reduced brokerage for selling of

dematerialized securities since they will not have the fear of bad delivery.
Saves up to 35% in company objection, 20% in brokerage charges and 5% in
settlement charges when trading is done through demat rather than doing
physical trading
Selling of dematerialised shares
Brokerage
80
70 Company Objection
60 (courier, etc.)
50 Settlement charges
Savings 40
30
20
10
0
Physical Demat (Rs) Savings
(Rs) (Rs)
Form of shares
Table 7: Showing savings for a trader who buys and sell very often.(For
a trader who turns over his portfolio of Rs10000 ten times in a year).
Item Physical (Rs) Depository (demat) (Rs) Savings (Rs)

Brokerage 1000 500 500
Custody (5 years) 125 25 100
41
Total 1125 575 650

Analysis: For those who sell and buy shares frequently, they save up to
20% in brokerage and settlement charges and up to 40% in custody for 5
years if trading is done through demat and not physically.
Inference: For frequent traders in the stock market demat is a better
option.
Frequent buying & selling of shares Savings (Rs)

Demat (Rs)
Physical (Rs)
100%
90%
80%
70%
60%
Savings 50%
40%
30%
20%
10%
0%
Brokerage Settlement Custody (5
charges years)
Item s
Bank Accounts
How to open a bank account with a DP?
Opening a depository account is as simple as opening a bank account. To
open an account the investor has to:
• Fill up the account opening form, which is available with the DP.
• Sign the DP-client agreement, which defines the rights and duties of
the DP and the person wishing to open the account.
42
• Receive your client account number (client ID).

• This client ID along with investors DP ID gives them a unique
identification in the depository system.
There is no restriction on the number of depository accounts a person can

open. However, if the existing physical shares are in joint names, investor
has to open the account in the same order of names before they submit
their share certificates for demat. A sole holder of the share certificates
cannot add more names as joint holders at the time of dematerializing
his/her share certificates.
However, if the investor wants to transfer the ownership from his

individual name to a joint name, he should first open an account as the sole
holder (account A) and dematerialize the share certificates. He should then
open another depository account (account B) in which he is the first holder
and the other person is the second holder and make an off market transfer
of the shares from the account A to account B. The investor will incur a
charge on this transaction.
A client can choose to open more than one account with same DP. In
addition to this, he has a choice of opening accounts with more than one
DP. There is no compulsion for the client to open his account with the
same DP as that of his broker. Even if he has an account with another DP,
he can carry out normal business with his broker. There is no loss in
operational efficiency.
How to choose a DP?
43
Following are the few aspects that you should consider before choosing a
DP:
Branch-level service: Most DPs offer depository services from their main
branch as well as through other branches and franchisees. Higher the
number of branches your DP has greater will be the geographical
convenience you will have. Before opening an account with a DP you
should also check whether the DP is offering all the services through its
branches.
DPs mandate a time limit for submission of debit instructions before

settlement pay-in time. It should be checked whether the time limit applies
equally to all the branches (or franchisees) of the DP or whether it varies.
Backup facilities: Having an adequate backup system is extremely

necessary for a DP. In case of a system failure all the data could be lost if
backup facilities are not present. Although depositories too have the data
with them but a strong system with the DP ensures no risks and hassles. So
before opening an account get details from your DP about its computer
system's technical specifications and backup facilities.
Safe procedures: Your securities account can get debited only if you
submit to your DP a duly filled and signed 'delivery instruction' form
(separate for market trades and off-market transfers) that authorizes the DP
to debit your account. This form will be executed only when the investor
has sold shares. But the investor could have worries that some one else can
forge your signature on such a form, which your DP will not be able to
detect, and their account will get debited .To get rid of these worries
44
investor should check that delivery instruction form book that they get
from their DP must be serial-numbered with numbers unique to their
account and recorded in the DP's system.
There is an additional safety feature available with the DPs. Investor can
freeze their account on the debit side if they do not want to sell the shares
from their account, this will ensure that no debit is done in their account.
When they want to sell their shares they can execute the same form to
unlock their account.
Customer Service: DPs should have adequate customer service facilities.

At some time or other the investor will need some information on their
account. DP should be able to provide quick service, so it should be
checked whether the DP has a dedicated customer service department.
OPENING OF DEPOSITORY ACCOUNT
An investor is required to open a depository account with a depository

participant, if he / she wish to buy or sell securities listed in demat form in
the Indian stock exchanges. At present, the following groups of investor
are permitted to open a depository account:
• Individuals
45
• Non- Resident India

• Foreign nationals of Indians origin, except those from Pakistan,
Nepal and Bangladesh.
• Corporate
• Clearing Members (CM)
• Foreign Institutional Investors (FIIs)
• Mutual Funds (MFs).
SEBI, on 28 January 2000, also permitted foreign corporation and

individuals to invest in the Indian market, albeit with some restrictions. It
has, however, yet to issue the guidelines for opening depository accounts
for this group of investors.
PROCEDURE OF OPENING A DEPOSITORY ACCOUNT
Chart 2: Showing procedure of opening a demat account

Investor • Select a Depository Participant
46
• Complete Depository Account Opening

Form
Investor
• Prepare Required Documents, Detailed
• Submit DAOF , with documents to DP
Investor • Sign Agreement with DP
• Open Depository Account
• Generate Client ID ( account ) number

Depositor
y
Participan • Transmit details to depository
• Acknowledge Client ID
• Client ID Activated
Depositor • Communicates to investor
y
Participan
• Client ID number
• Guidelines for availing depository
services
Depositor
y
Depositor
y
Participan
47
Dematerialization and Rematerialization
How to Dematerialize Your Shares?
To dematerialize the share certificates the investor has to:
• Fill up a dematerialization request form, which is available with the

DP;
• Submit their share certificates along with the form; (write
"surrendered for demat" on the face of the certificate before
submitting it for demat)
• Receive credit for the dematerialized shares into their account in 15
days.
Dematerialized shares do not have any distinctive or certificate numbers.

These shares are fungible - which means that 100 shares of a security are
the same as any other 100 shares of that security.
Shares held in street name (market deliveries) cannot be dematerialized.

Odd lot share certificates can also be dematerialized. No transfer deed is
required for dematerializing certificates, the certificates have to be
accompanied by a demat request form (DRF) which can be obtained from
DPs. It is compulsory to mention the ISIN number of the company while
filling up the Demat Request form.
This, to a certain extent, ensures that the security mentioned in the Demat
Request Form is the same as the one the investor intends to dematerialize.
According to the Depositories Act, 1996, an investor has the option to hold
shares either in physical or in dematerialized form. An investor can hold
48
part of his holdings in demat form and part of his holdings in the form of
share certificates for the same security. An investor can dematerialize
shares that are pledged with a bank, which is a DP as well.
How to Rematerialize Your Shares?
During a dematerialization process, the request goes from the DP to the

R&T agent via NSDL. The R&T Agent, after processing the request, will
print and dispatch the share certificate directly to the investor. No transfer
duty will be charged when they rematerialize their shares. They have the
option of rematerializing their total holdings or part of it.
Trading
Trading in dematerialized securities is quite similar to trading in physical

securities. The major difference is that at the time of settlement, instead of
delivery/ receipt of securities in the physical form, it is done through
account transfer. An investor cannot trade in dematerialized securities
through his DP.
Trading at the stock exchanges can be done only through a registered

trading member (broker) of the stock exchange irrespective of whether the
securities are held in physical or dematerialized form. DPs role will only
be to facilitate settlement of trade in the dematerialized form, by
transferring securities from and to the account of the investor, for selling
and buying respectively. Trading in dematerialized securities is presently
available at NSE, BSE, CSE, DSE, BgSE, LSE, MSE, ISE and OTCEI.
49
Any investor, who buys securities from any of the stock exchanges where
dematerialized securities are available, may receive his delivery in the
dematerialized form as dematerialized shares can be delivered in the
physical segment at the option of the seller. Therefore those investors who
buy securities from these exchanges should necessarily open a depository
account to take delivery of these shares.
Squaring off
In the exclusive demat segment, the trades can be squared off within the
same day as this segment follows a rolling settlement cycle. In the physical
segment the trades can be squared off within the trading period specified
for that stock exchange. This is presently five working days, between
Wednesday to Tuesday at NSE, Monday to Friday at BSE and Thursday to
Wednesday at CSE
If an investor squares off his position within the trading period, he does not
need to open a depository account. Depository account is required for
taking delivery or giving delivery of dematerialized securities in case an
investor buys or sells respectively. In case the investor squares off his trade
and does not have to take or give delivery of dematerialized securities, the
depository account is not used. As in the physical segment, an investor can
go long or short in the demat segment also.
How to access scrip?
At NSE, the AE and BE segments can be accessed by selecting the scrip

the investor wants to trade in and typing AE or BE in place of EQ.
50
At the BSE, all scraps have a scrip code. For going to the Demat segment,
add 500000 to the scrip code. For eg If the scrip code of RIL is 325 in the
physical segment, the scrip code to be typed for going to Demat segment is
500325.
Selling and Buying Of Shares
Selling dematerialized shares in stock exchanges is similar to the

procedure for selling physical shares. Instead of delivering physical shares
to the broker, the investor instruct their DP to debit their account with the
number of shares sold by them and credit their broker's clearing account
The investor can sell shares in any of the stock exchanges linked to a
depository through a broker of their choice. On the pay-in day, the broker
gives instruction to his DP for delivery of the shares to clearing
corporation of the relevant stock exchange. The broker receives payment
from the clearing corporation. The investor receives payment from their
broker for the sale in the same manner they would receive payment for a
sale in the physical mode.
The procedure for buying dematerialized shares in stock exchanges is

similar to the procedure for buying physical shares. When the investor
wants to purchase shares in electronic form, they have to instruct their
broker to purchase the dematerialized shares from the stock exchanges
linked to a depository.
The investor has to ensure that their broker gives a matching instruction to
his DP to transfer the shares purchased on their behalf into their depository
account. The investor should also ensure that their broker transfers the
51
shares purchased from his/her clearing account to their depository account,

before the book closure. This is really important because shares that
remain in the clearing account of the broker on the book closure/ record
date will not be eligible for corporate benefits.
Charges
NSDL does not charge the investor directly but charges its DPs, who are
free to charge their clients. NSDL charges its DPs under the following
heads:
Transaction Fees: Market Trade - sale - nil; purchase - 5 basis points (i.e.
0.05% of the value of net receipts to a clearing members account)
Off Market Trade: sale - nil; purchase - 10 basis points (i.e. 0.1% of
value of securities)
Custody Fees: 3.5 basis points p.a.(i.e. 0.035% p.a. of average value of
securities)
Dematerialization: Rs. 10/- per certificate
One time payment scheme: NSDL has announced a new scheme under
which, if a company makes a one-time payment of 5 basis points (0.05%)
of the average market capitalization during the preceding 26 weeks, then
NSDL will not charge any custody fees to the DPs for shares of that
company. Future issues by such companies would require a payment of 5
basis points on the new share capital created. The valuation for new shares
will be done at the issue price. Companies would not be required to pay
any additional amount, if they make a bonus issue.
52
Receipt of Cash/ Non-Cash and Corporate benefits
When any corporate event such as rights or bonus or dividend is

announced for a particular security, depository will give the details of all
the clients having electronic holdings in that security as of the record date
to the registrar.
The disbursement of cash benefits such as dividend/ interest will be done

directly by the registrar. In case of non-cash benefits, depository will
directly credit the securities entitlements in the depository accounts of all
those clients who have opted for electronic allotment based on the
information provided by the registrar.
If an investor has holdings in physical form, he can receive the bonus/

rights issue against this in the dematerialized form. In case of fractional
part, as in the physical segment, it would be paid in cash and the remaining
whole part would be credited to the investors account.
NSDL provides details of the beneficial owner as on (the record date) to

the Issuer Company / register so as to enable the company the benefits
arising out of these holdings. Shareholders are given the option by the
issuer, of receiving their securities entitlements (like bonus or rights) in the
form of physical certificates or in the form of dematerialized holdings. If
the investors choose to receive securities in the dematerialized form, he
gets a direct credit to his account through NSDL, thereby avoiding the risk
of loss of certificates in transit..
53
Lending, borrowing and transmission of securities
How to Lend Securities?
The investor has to instruct their DP through a standard format (which is

available with your DP) to deposit their securities with the intermediary. If
the intermediary accepts the deposit of securities, the securities will be
moved from their account into the intermediary's account. If they wish to
recall the securities lent, then they can make a request through a standard
format available with their DP.
How to Borrow Securities?
The investor has to instruct their DP through a standard format (which is

available with your DP) to borrow securities from the intermediary. If the
intermediary accepts the request, the securities will be moved from the
intermediary's account to their account. If they wish to return the securities
borrowed, then they can make a request through a standard format
available with the DP.
Transmission of Securities:
Transmission of securities due to death, lunacy, bankruptcy, insolvency or

by any other lawful means other than transfer is also possible in the
depository system. In the case of transmission, the claimant will have to
fill in a transmission request form. The DP, after ensuring that the
application is genuine, will transfer securities to the account of the
claimant. For this, the claimant must have a depository account.
54
The major advantage in transmission of dematerialized holdings is that the

transmission formalities for all securities held with a DP can be completed
in one go, unlike in the case of share certificates, where the claimant will
have to interact with each issuing company or its R&T Agent.
In case where the deceased was one of the joint holders in the Client
account, the surviving client(s) shall be the person(s) recognized by
depository as having title to the securities held in that joint Client account.
In case where the deceased was a sole holder of the Client account, his
legal heir(s) or the legal representative(s) will be the person(s) recognized
by depository as having title to the securities held in that sole Client
account.
Security
National Security and Depository Limited claims to have undertaken

sufficient security measures. These measures are:
• A DP can be operational only after registration by SEBI, which is

based on the recommendation from NSDL and SEBI’s own
independent evaluation.
• Every day, there is a system driven mandatory reconciliation between

the DP and NSDL.
• There are periodic inspections into the activities of both DP and R&T
agent by NSDL. This also includes records based on which the debit/
credit are affected.
55
• The data interchange between NSDL and its business partners is

protected by standard protection measures such as encryption. This is
a SEBI requirement.
• There are no direct communication links between two business

partners and all communications between two business partners are
routed through NSDL
• All investors have a right to receive their statement of accounts

periodically from the DP.
• Every month NSDL forwards statement of accounts to a random

sample of investors as a counter check.
• In the depository, the depository holds the investor holdings on trust.

Therefore, if the DP goes bankrupt the creditors of the DP will have
no access to the holdings in the name of the clients of the DP. These
investors can then either dematerialize their holdings or transfer them
to a different account held with another DP.
• Investor grievance: All grievances of the investors are to be resolved

by the concerned DP. If they fail to do so the investor has the right to
approach NSDL.
• Insurance Cover: NSDL has taken a comprehensive insurance policy

to protect the interest of the investors in cases of failure of the DP to
resolve a genuine loss. The details of the policy is as under:
• Upper limit per claim: Rs200mn

• Number of claims allowed: unlimited
56
• Minimum value of the claim: Rs150, 000

• To cover claims valued less than Rs150, 000 NSDL has an investor
protection fund in place.
Besides all these safety measures efforts have been done to make this
electronic system foolproof.
Demat Shares: Are They 100% Safe
When an investor buys physical shares from the stock market, they can
never be certain of the validity of the title of shares. There were many
reasons- the sellers' signature did not match, or the certificates were fake,
forged or stolen, and so on.
Demat shares are supposed to obviate these problems. Buying shares in the
demat form always guarantees the investor a good title as soon as the
settlement is over. The biggest attraction of trading in demat shares is that
the shares an investor buys comes with a clean title and immediately after
the settlement on the relevant stock exchange.
Rule 100 of market regulator SEBI determines whether the shares

delivered in a settlement, are good or not. Under rule 100, the shares that
have been transferred any number of times can still be withdrawn by the
company, if a transfer is found to be invalid for any reason.
Suppose an investor <A> sells physical shares to investor <B> and

investor <B> gets them dematerialized. Later <B> sells the shares in the
stock exchange and investor <C> buys them. Meanwhile <A> discovers
that his share certificates were stolen and fraudulently sold by someone
57
else. He gets a court order restraining the company from further

transferring the shares and attaching them (currently in possession of C).
This is known as 'stop transfer'. So <C> who has bought dematerialized
shares is now struck with the shares. He cannot sell these shares since they
would be frozen in his account
Safety of the system has given boost to secondary market operations.

Volume increased and number of securities increased by reducing the face
value. In demat shares, pre-demat problems about the validity of a share do
not affect the interest of the buyers after dematerialization. Shares go
through a verification process at the registrars' before they are
dematerialized.
Therefore the responsibility lies with the registrar. The registrar must find
a remedy if the original transfer of shares, before their dematerialization
comes under doubt. But there is a catch. The company and its registrars are
not responsible if the reasons for original transfer being invalid were not
available at the time of dematerialization. Matters have to be dealt with, on
a case to case basis. Which means that even demat buyer may find that his
shares have been frozen in his demat account. This kind of case has to be
contested in court by the parties involved.
This issue is not directly addressed in ‘The Depositories Act, 1996’.

SEBI’s regulations on depositories and depository participants also do not
mention the issue. Matters get more complex if an investor has traded
further in shares of the same company in his demat account. Demat shares
are fungible and don’t have distinctive numbers. It is not easy to track the
sale or trade of shares after they are dematerialized.
58
One of the major worries in case of dematerializing the physical holdings

is the taxman. Through depositories or DPs Income Tax department can
easily track down your holdings in capital market. This could be a reason
for worry to the people as it is not possible at all as the settlement process
is streamlined.
59
Findings
• After the introduction of dematerialization the stock market has
become more transparent and it attracts more investors day by day.
• If the volume increases continuously, DPs will be in a position to

decrease the charges for opening and maintenance of demat a/c.
• It is observed that banks normally levy a lower service charge

compared to other depository participants.
• There are some other banks which charges less services charges for
demat services than other securities companies.
• When the numbers of users are more on line, the speed of the
transaction is affected.
• Since the rolling settlement is one day, people who are speculating
without having full amount of money or shares with their DP, tend to face
higher degree of risk.
• Some securities have not yet started with the Interactive Voice
Response (IVR) units and demat on net.
• Even though online trading provides privacy to the clients, trends

available from the trading room will not help most of the online traders.
60
• Investors dealing online must possess good knowledge for analyzing

the information passed on by the companies through net.
• Online service depends highly on technology.
61
Suggestions
1. Since more and more companies are planning to enter into online
trading, quality of service should be continuously updated.
2. Companies have to offer Interactive Voice Response (IVR) facility to

their clients, as it will help clients to know the current value of their
portfolio, current holding, transaction list etc.
3. Online professional assistance will be helpful to investors. It will

increase the customer base in online trading because it will be helpful to
those who are not much aware of the market trends.
4. It is important to maintain a very good relationship with the partners-

banks, depositories. It is important to have good relation with the channel
participants and the sub brokers. There should be responsibility and
accountability.
5. As the whole set up is getting sophisticated, and one is moving from
offline to online, the war and the differentiated factor could be technology.
One has to constantly innovate and offer better services.
6. One should see where they stand in the whole value chain. One should
carve a niche for themselves. It could be in providing the lowest charges or
could have the technology as edge or full service brokerage. One should
not try to be all in one or constantly move up and down the value chain.
62
7. Target the new hidden customers, for whom the net can bring out
convenience and comfort like NRI, women, young executives,
professionals etc.
8. Try to work in the existing constraints rather than wasting time on

things, which are beyond the control and common to all the connectivity
etc.
9. Apart from providing the basic content free, if extra services like prices
alerts can be provided then one must not hesitate to charge the people
using the services. They must not fear to charge for the services if they
think they are worth being charged, as the facility is not elsewhere.
10.Develop a brand name for the services, which is quickly secure and
reliable.
11.It is very important to educate and train the customer on the use and
limitation of the services. This helps them to have a realistic expectation of
the use. It also reduces the number of complaints like difficulty of
accessing the account and best execution issues.
12.Control the cost of unnecessary, unproductive activities, which do not

in any way add value to the services.
63
Conclusion
Notwithstanding many problems, Indian stock market has emerged as a
significant financial intermediary, assisting efficient resource allocation,
providing strong support to Indian economy and help investors to realize
the benefits of stock market investing. The growing importance of the
Indian stock market place may be noted in terms of increased mobilization
of funds and growing number of investors account.
Indian stock market industry has remained centered around a limited

product range. This has happened due to the tendency to avoid risk,
inability to understand future market development and changes in investor
preference.
The absence of product diversification and a confused market situation has

been made more by the absence of an innovative marketing network.
Online is considered as one of the innovative network. The product range
offered by stock broking firms needs to be redesigned to cater the changes
in the short term, medium term and long term savings and investment
markets.
Management is considered to be a key for the operational efficiency of any

business venture. This factor becomes even more crucial for service
ventures such as stock broking business venture.
64
Stock market industry must undertake a well-designed and comprehensive

program of investor education especially aimed at investors in rural and
semi-urban areas. However this has been mostly neglected in India. In
India most of the broking business comes from the small investors and
efforts are concentrated on serving them efficiently, and this would help
them in being a good intermediary for providing various financial services
due to it’s reach to the last mile.
SEBI has been playing a significant role in the regulation of stock market.
SEBI’s steps like dematerializing, and trading through net etc. has
increased the transparency of the trading than before.
In the global market place no industry can afford to be struck by inertia.

But it is management which is crucial to the success of any business
operation.
65
Sources of information:
Books:
• I.M.Panday, Financial Management,
Vikas publishing house pvt ltd, 2002
• Prasannachandra, Financial Management,
Tate McGraw Hill Publishing Co. ltd, New Delhi, 2002
Websites referred:
o www.bse.com
o www.nse.com
o www.sebi.com
o www.nsdl.co.in/
o www.hll.com
o www.sharekhan.com
• News papers:
Financial Express
Economic Times
Business line
66
THE OXFORD COLLEGE OF ENGINEERING

(MBA PROGRAMME)
BOMMANAHALLI, HOSUR ROAD, BANGLORE-68
WEEKLY REPORT
NAME : Madhusudhan K S
REG NO : 1OY05MBA22
TITLE : “A study on growth and

benefits of Demat account
and online trading.”
WEEK NO : 01
DATE : 01-01-2007 TO 06-01-2007
PROJECT DONE ON FIRST WEEK:
It contains the introduction to the study and the

background of the study in detail.
Ms.A.SAHANA
(INTERNAL GUIDE)
67

(MBA PROGRAMME)
WEEKLY REPORT
REG NO : 1OY05MBA22

WEEK NO : 02
DATE : 08-01-2007 TO 13-01-2007
PROJECT DONE ON SECOND WEEK:
It covers the objectives of the study, scope of the study, the

definition of the operational terms, tools for data collection, and
limitations of the study and the overview of the report.
Ms.A.SAHANA
(INTERNAL GUIDE)
68

(MBA PROGRAMME)
WEEKLY REPORT
REG NO : 1OY05MBA22

WEEK NO : 03
DATE : 15-01-2007 TO 20-01-2007
PROJECT DONE ON THIRD WEEK:
It gives an overall information and its developments and the

profile of the organization.
69
Ms.A.SAHANA
(INTERNAL GUIDE)

(MBA PROGRAMME)
WEEKLY REPORT
REG NO : 1OY05MBA22

WEEK NO : 04
DATE : 22-01-2007 TO 27-01-2007
PROJECT DONE ON FOURTH WEEK:
It contains analysis and interpretation of the study.
70
Ms.A.SAHANA
(INTERNAL GUIDE)

(MBA PROGRAMME)
WEEKLY REPORT
REG NO : 1OY05MBA22

WEEK NO : 05
DATE : 29-01-2007 TO 03-02-2007
PROJECT DONE ON FIFTH WEEK:
It includes summary of findings, and conclusions. It also contains the

suggestions and recommendations of the researcher.
71
Ms.A.SAHANA
(INTERNAL GUIDE)

(MBA PROGRAMME)
WEEKLY REPORT
REG NO : 1OY05MBA22

WEEK NO : 06
DATE : 05-02-2007 TO 10-02-2007
PROJECT DONE ON SIXTH WEEK:
72
It includes the study of growth and percentage change in the

company’s weightage.
Ms.A.SAHANA
(INTERNAL GUIDE)
Top 30 Companies
SENSEX 30
Sensex 30 Companies
Friday, April 27, 2007 BSE Index: 14096.78 (--132.10)
COMPANY INDUSTRY MARKET % CHANGE EQUITY MARKET CAP. WEIGHTAGE(%)

PRICE(Rs) IN SHARES (Rs crores)
PRICE ( crores)
ACC Cement 827.9 -0.3 18.424 15253 1.0
Bajaj Auto Automobile 2508 0.7 10.118 25376 1.6
Bharti Tele Telecom 865.7 0.4 189.3 163877 10.
BHEL Engineering 2501.25 -0.4 24.476 61221 4.0
Cipla Pharma 219 -13.5 29.97 6563 0.4
Dr Reddys Pharma 718.1 0.1 7.97 5723 0.3
Grasim Cement 2487 -0.5 9.169 22803 1.5
73
Guj
Cement 119 -0.1 135.51 16126 1.0
Ambuja
Financial
HDFC 1711.05 -1.4 24.933 42662 2.8
Services
HDFC Bk Banking 1015 -1.5 31.314 31784 2.1
Hero
Automobile 670 -1.5 19.97 13380 0.8
Honda
Hindalco Metals 147.75 -0.5 98.6 14568 0.9
HLL FMCG 214.5 -0.1 220.14 47220 3.1
ICICI Bk Banking 947.15 -1.8 27.6 26141 1.7
Information
Infosys 2015.95 -0.1 27.6 55640 3.7
Technology
ITC FMCG 160 -0.9 375.52 60083 4.0
L&T Cement 1702 -0.3 13.74 23385 1.5
Maruti Automobile 795.1 -0.2 28.892 22972 1.5
NTPC 159 0.5 824.55 131103 8.7
ONGC Oil & Refinery 941 -2 142.593 134180 8.9
Ranbaxy Pharma 374.05 0.5 37.248 13933 0.9
RCVL 474 0.1 122.314 57977 3.8
Rel Energy Power 516.1 -0.2 21.236 10960 0.7
RIL Oil & Refinery 1564.7 -2 139.4 218119 14.
Information
Satyam 463 0.6 32.445 15022 1.0
Technology
SBI Banking 1140 -0.5 52.63 59998 4.0
Tata
Automobile 768.15 0.2 38.287 29410 1.9
Motors
Information
TCS 1227 -1 48.93 60037 4.0
Technology
TISCO Metals 552 -1.5 55.367 30563 2.0
Information
Wipro 566.2 0.6 142.6 80740 5.3
Technology
TOTAL 2950.846 1496820
74
75

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DEMAT & On-line trading.

Secondary market is where most trading occurs, the secondary market is

The defining characteristic of the secondary market is that investor’s trade

However there was an improvement in the mechanism of trading whereby

and the Depository Trust Company, securities no longer need to be in

Dematerialization the process by which physical certificates of an investor

• So how far this system is working in India and the investors

Objectives of the Study

Throughout the study an attempt has been made to arrive at the

Scope of the Study

Online brokerage has grown substantially since the introduction of Internet

The volatility in US equity, market in 1999 and September 11 World Trade

Indian e-broking scenario

Effect on off-line Business

The proportion of online broking business compare to off line broking is

Depository services-beginning of the era of stocks at click

Dematerialization of securities (shares) was the commencement of the era

The key regulator governing Stock Exchanges, Brokers, Depositories

India ranked top 08 countries in term of the market capitalization of its

To affect a transfer in the physical mode the securities should be sent to

If the confirmation of receipt is not received within a reasonable period,

For transactions in Demat mode we are requested to refer to the

 Issue related i.e. non-receipt of refund order/allotment advice,

 Complaints related to Dematerialization or DPs, Depositories and

Apart from taking up grievances against companies of the types

 Complaints related to securities traded/listed with the exchanges.

With the Department Of Company Affairs/ concerned Registrar of

 Complaints against unlisted companies.

With the Reserve Bank of India:

Fixed deposits in banks and NBFCs.

With the concerned company/ROC:

Moreover two other avenues always available to the investors to seek

redressal of their complaints. They areas follow:

 Complaints with Consumers’ Disputes Redressal

 Suit in the court of Law.

EVOLUTION OF ON-LINE TRADING

The history of e-trading began in 1983, when a doctor in Michigan placed

This led Bill to wonder why, as an individual investor, he had to pay a

Post-submitting, you are allotted a USER ID and PASSWORD while

Then an Account Reference Number is generated and displayed to you.

The Online Trading is a discount trading service appropriate for

In order to start trading online it is important that you deposit money in

In a Margin account one can use a line of credit to buy marginable

However, do remember that currently in India the handful of online trading

REASONS FOR ONLINE TRADING IN INDIA:

REASONS FOR THE EMERGENCE OF ONLINE TRADING IN

On offer is Interactive Voice Response (IVR) for the latest update on

Analysts said there was booms in Demat account opening as retail

With Online trading an investor can:

DESIGN OF THE STUDY

Need for the study

• Physical trading has been given up by many stock exchange

Objectives of the Study

Throughout the study an attempt has been made to arrive at the

Scope of the Study

LIMITATIONS OF THE STUDY

 The information provided by the managers may not be the actual

• The study covers only a particular geographical region, and hence

SECONDARY MARKET: Secondary market is the one in which

STOCK EXCHANGE: It is an association, organization or body of

CLEARING HOUSE (CH): Clearing House is entities setup by Stock

ROLLING SETTLEMENT CYCLE: Rolling settlement cycle starts and