Professional Documents
Culture Documents
ON
KIRAN V. SHENDE
MBA Finance UNDER THE GUIDANCE OF
DECLARATION
I, the undersigned, hereby declare that the Project Report entitled RISK MANAGEMENT REGARDING WORKING OF A BROKING FIRM, AND ITS INVESTORS written and submitted by me to the University of Pune, Pune in partial fulfillment of the requirement for the award of degree of Master of Business Administration under the guidance of Prof. Rajesh Kumar Hukre is my original work and the conclusions drawn therein are based on the material collected by myself.
ACKNOWLDGEMENT
Its a great privilege that I have done my project in such a well-organized and diversified organization. I am great full to all those who helped and supported me in completing the project.
First of all I would sincerely like to thank Mr. Rajendra Vadzirkar (Branch Manager, Ahmednagar), for his valuable guidance and kind co-operation during the project. I am highly grateful to Mrs. Priya Venkatraman (Sr. Relationship Manager) for the help provided by them in various forms.
I am also thankful to our director Dr. P. D. Nare and my project guide Prof. Rajesh Kumar Hukre for helping me in completing the project.
Last but not least, I am also thankful to my parents, all college staff and my friends for helping me directly or indirectly in my project
INDEX
Sr No.
Contents
Page No.
I-III 1-15
16-24
25-28
29-37
38-41
5.1 Main Findings (Conclusions) 5.2 Policy Suggestions 5.3 Scope of Development
6 7
BIBLIOGRAPHY ANNEXURE
42-43 44-46
LIST OF TABLE
Table No.
Page No.
Preference of Investment Awareness of Online Share Trading Awareness of Religare as a Brand Awareness of Religares Facilities DEMAT Account Market Satisfaction level of Customer Frequency of Trading % of Earning Invested in Trading
30 31 32 33 34 35 36
LIST OF CHART
Chart No.
Page No.
Preference of Investment Awareness of Online Share Trading Awareness of Religare as a Brand Awareness of Religares Facilities DEMAT Account Market Satisfaction level of Customer Frequency of Trading % of Earning Invested in Trading
30 31 32 33 34 35 36
EXECUTIVE SUMMARY
Objectives of the Project: To get familiar with the working of a broking firm.
To understand various risks involved in the broking firm. To understand various risk for the investors of the broking firm. To manage and reduce the identified risks.
Need of the Study: Create awareness among investors about the different risks involved in the broking firms. Understand the total transparency and automation of broking firm Give basic knowledge to investors regarding risk in broking firm Also understand the equity market and different way of trading
2
Conclusions: The researcher found that the working of a broking firm is a very risky job because risk is involved in each and every activity of the business. The risk prevailing in the business is recognized therefore an efficient risk management department is essential in every broking firm. Broking business is a client-based business. The recent trend of voluminous increase in investors has also increased the risk involved in it. There is need of continuous up gradation of internal control measures Staff in a broking firm is continuous busy and due to which they are always under stress.
Suggestions: An Organization should have a risk management function that is independent of its trading staff i.e. personnel responsible for the risk management function should be separate from trading floor personnel. A periodical compliance review should be conducted to ensure conformity with the rules and regulations. The designated compliance officer should perform a review of trading Practices annually.
Limitations of Study: To understand the overall working of share market, the period of 60 days is not enough. Moreover, very few investor and agents have a detail knowledge of the study.
The study was conducted in Ahmednagar only, which restricted the scope of the study.
CHAPTER I
INTRODUCTION
stock exchanges are well regulated and function smoothly, then it is an indication of healthy capital market. Stock exchange provide a good leverage of the capital market and their relationship is directly proportional. India has multi-stock exchange system with more than 24 stock exchanges functioning across the country. In our country, capital markets are generally also known as security/stock market. The Indian Capital Markets can be broadly classified into three types of markets. 1. Money market
2. Primary market
3. Secondary market
Money market
The money market is part of overall financial system and securities or capital market. It deals in short term financial assets which can be readily converted into cash. Money market is a place for trading in money and short tern financial assets that are as liquid as money. It provides a platform for short term surplus funds of lenders or investors and short term requirements of borrowers, the instruments can be traded at low cost and are highly liquid.
Primary market
The primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities; Government as well as corporates, to raise resources to meet their requirements of investment and/or discharge some obligation. They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market.
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Secondary Market
Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets.
RISK MANAGEMENT
Risk is defined as possibility of suffering losses This risk in itself is not bad, risk is essential to progress, and failure is often key part of learning, but we must learn to balance the possible negative consequences of risk against the potential benefits of its associated opportunities. This is risk management.
Open Communications
Encouraging free-flowing information at and between all project levels
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Enabling formal, informal, and proper communication Using processes that value the individual voice (bringing unique knowledge and insight to identifying and managing risk)
4 Integrated management
Making risk management an integral and vital part of project management Adapting risk management methods and tools to a projects infrastructure and culture
5 Continuous processes
Sustaining constant vigilance Identifying and managing risks routinely through all phases of the projects lifecycle
7 Team work
Working cooperatively to achieve common goal Pooling talents, skills, and knowledge
impact, probability, and time frame, classify risks, and prioritize them
iii. Plan - Translate risk information into decision and mitigating actions (both
the project on the risk activities, current risks, and emerging risks.
Margins
NSE has specified Different margins for different instruments like stocks futures and options etc. Margins depend upon the volatility and market conditions, It vary from stock to stock and instrument to instrument Categorization of stocks for imposition of margins Daily margins payable by members consists of the following:
Daily margin, comprising of the sum of VaR margin and mark to market margin is payable.
The VaR based margin would be rounded off to the next higher integer (For E.g.: if the VaR based Margin rate is 10. 0 1, it would be rounded off to 11. 00) and capped at 100%. The VaR margin rate computed as mentioned above will be charged on the net outstanding position (buy value-sell value) of the respective clients on the respective securities across all open settlements. The net positions at a client level for a member are arrived at and thereafter, it is grossed across all the clients for a member to compute gross exposure for margin calculation. For example, in case of a member, if client A has a buy position of 1000 in a security and client B has a sell position of 1000 in the same security, the net position of the member in the security would be taken as 2000. The buy position of client A and sell position of client B in the same security would not be netted. It would be summed up to arrive at the member's exposure for the purpose of margin calculation. VaR margin rate & Security category
Mark-to-Market Margin
Mark to market margin is computed on the basis of mark to market loss of a member. Mark to market loss is the notional loss which the member would incur in case the cumulative net outstanding position of the member in all securities, at the end of the relevant day were closed out at the closing price of the securities as announced at the end of the day by the NSE. Mark to market margin is calculated
2
by marking each transaction in scrip to the closing price of the scrip at the end of trading. In case the security has not been traded on a particular day, the latest available closing price at the NSE is considered as the closing price. In the event of the net outstanding position of a member in any security being nil, the difference between the buy and sell values would be considered as notional loss for the purpose of calculating the mark to market margin payable.
Some Risk management are also taken by BSE they are as follows 1. Know your client scheme
Under the procedure the member brokers of the exchange are compulsory required to obtain detailed information of clients prior to commencement of any transactions with new clients. A similar procedure is also to be followed for existing clients. This information is to be made available to the exchange authorities whenever called for. In case the member broker fails to furnish the same it is viewed seriously.
3. Inspection
4. Insurance
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The exchange presently has in place insurance policies to protect itself in the event of losses on account of fire, damage to computer systems and a comprehensive policy that covers risks faced by the exchange, its member brokers and the clearinghouse. The risks covered under the basic cover of the policy are detailed as below. Loss to members on account of infidelity of employees Loss of member on account of fake/forged/ stolen shares being introduced by his clients Direct financial losses suffered by the member broker on account of physical loss, destruction, theft or damage to securities and cash. Loss on account of securities lost in transit Loss suffered on account of incomplete transaction Loss sustained as final receiving member on exchange on account of default of the introducing member Loss on account of errors and omission Directors and officials liability cover
The steps taken by SEBI to regulate and control the business of stock exchanges and reduce the risks of investors are as follows
1. Regulation on insider trading with the object to curb it completely and punish the guilty
2. Uniform Trading hours at all the stock exchanges in the country to check arbitrage. 3. Registration of market players- brokers, non member brokers, sub brokers, registrars to issues, merchant bankers, portfolio managers, underwriters, debenture trustees, custodians etc so as to have access/inspection of their books, records and verification of transactions.. 4. Indirect supervision through stock exchanges in day-to-day business by fixing margins, imposing curbs, penalties and fines. 5. Gradual automation to reduce paper work and ensure transparency in transactions this is now almost complete and all stock exchanges have been computerized. 6. Brokers contact notes to mention brokerage separately. 7. Nationwide paperless trading through over the counter exchange of India, National Stock Exchange, BSE, DSE and other exchanges. 8. Brokers to keep clients money in a separate bank account. 9. Forward trading being banned on stock exchanges 10. Stress upon shorter settlement period. 11. Dematerialization of securities permitted on a selective basis. By March 2001, about 3500 companies will have compulsory trading in Demat mode. 12. Stern action against erring brokers, stock exchanges, companies, merchant bankers, etc. 13. Regulation for fraudulent trade practices 14. Total transparency and automation of stock exchanges. 15. Effective margin system for smooth settlement. 16. Circuit breaker system to check volatility on the exchanges 17. Introduction of modified carry forward system and automated lending borrowing mechanism (ALBM). 18. Introduction of Internet trading. 19. Derivative trading in index based futures of 30, 60 and 90 days.
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Recent Development steps taken by SEBI for Investor protection 1. Appointment of administrators to check bad deliveries
To get rid of bad deliveries, SEBI has decided to appoint administrator to implement the signature guarantee and certificate authentication programs. The administrators appointed by SEBI act on behalf regulator in resolving problems arising out of signature mismatch
2. Compliance Officer
Each company is required to appoint compliance officer who would be able to verify rumors and information floating in the market about the company to the stock exchange. This will reduce motivated rumors about companies, which aids in price manipulation.
3. Corporate Governance
SEBI has prescribed prudent corporate governance norms for all listed companies to ensure transparency and better disclosure practices.
4. Investor Education
SEBI has taken steps to educate investors through various awareness programmes and publications
1.2
There are several financial security companies playing their roles in Indian equity market. But People dont have basic knowledge regarding stock market. So they not understand there is various risk involved in the working of broking firm. Due to none availability of the proper guidance most of the person take stock market as gambling.
CHAPTER II
PUNE:
Ground Floor, Amar Caliber, BMCC Road, Shivajinagar, Pune 411004
AHMEDNAGAR:
5&6, Himalaya Tower, Opp. Deepak Hospital, Savedi Road, Ahmednagar - 414003
Companys Mission
Providing complete financial care driven by the core values of diligence and transparency.
Brand Essence
Core brand essence is Diligence and Religare is driven by ethical and dynamic processes for wealth creation.
To make a mark in the global arena, REL acquired UK-based Hichens, Harrison & Co. in 2008 which was subsequently re-named as Religare Hichens Harrison PLC ("RHH"). Hichens, Harrison & Co. was incorporated in London in the year 1803 and is believed to be one of the oldest firms of stockbrokers in the City of London. Pursuant to expansion of REL's business, the company has grown from largely an equity trading company into a diversified financial services company. With the addition of RHH the REL group now operates out of multiple global locations, other than India, (the UK, the USA, Brazil, South Africa, Dubai and Singapore). RELIGARE was founded with the vision of providing integrated financial care driven by the relationship of trust. The bouquet of services offered by RELIGARE includes Broking (Stocks and Commodities), Depository Participant Service, Advisory on Mutual Fund Investments and Portfolio Management Services. RELIGARE is a pioneer in the concept of partnership to reach multiple locations in order to effectively service its large base of individual clients. Besides the reach of RELIGARE, the clients of the company greatly benefit by its strong research capability, which encompasses fundamentals as well as technical knowledge.
RELIGARE GROUP:
RELIGARE in recent years has expanded its reach in health care and financial services wherein it has multiple specialty hospital and labs which provide health care services and multiple financial services such as secondary market equity services, portfolio management services, depository services etc. RELIGARE financial services group comprises of Religare Securities Limited, RELIGARE Comdex Limited and RELIGARE Finvest Limited which provide services in Equity, Commodity and Financial Services business & Religare Insurance Advisory Ltd.
RSL provides platform to all segments of the investor to leverage the immense opportunity offered by equity investing in India either on their own or through managed funds in Portfolio Management. The ARN No. of the Religare Securities Ltd. is 33764. The ARN No. is required by to be available with the broker who deals on behalf of investors or sell the mutual funds of the different companies present in the market.
2.4
Religare Enterprises Limited Religare Securities Limited Equity Broking Online Investment Portal Portfolio Management Services Depository Services Religare Commodities Limited Commodity Broking Religare Finvest Limited Lending and Distribution business Proposed Custodial business
Religare Capital Markets Limited Investment Banking Proposed Institutional Broking Religare Realty Limited In house Real Estate Management Company Religare Hichens Harrison** Corporate Broking Institutional Broking
Religare Arts Initiative Limited Business of Art Gallery launched - arts-i Religare Venture Capital Limited Private Equity and Investment Manager Religare Asset Management* Derivatives Sales Corporate finance
2.5 SERVICES :-
2.7 Competititors of Religare:There are several financial security companies playing their roles in Indian equity market. But Religare faces competitions from these few companies.
1
ICICI Direct.com
Kotak Securities.com
India Bulls
HDFC Securities
5paisa.com
Motilal Oswal
IL&FS
Karvy
Client base of more than 5000,000 and growing across the retail, wealth and Institutional Spectrum. Pan India and global footprint. Width and depth of management leading a formidable employee base. Best-in-class Research. Sweetly placed to spot new opportunities and power ahead.
Research Methodology comprises defining and redefining the problem, formulating hypothesis or suggesting solution, collecting, organizing and evaluating the data, making deduction and reaching to conclusions and determines whether the formulated hypothesis is right and wrong. Research Methodology is a way to solve research in study and solving research problems along with logic behind them are defined through research methodology. Thus while talking about research methodologies we are not only talking of research methods but also consider the logic behind the methods. During my project, I collected data through various sources primary & secondary.
3.2Sampling Design
I have taken sample size of 50 respondents. Because the population is too large so it is difficult to survey. Any organization whether big or small, private or public need different types of information are to know its popularity. I have gathered secondary data and primary data and collected information from the combination of these two data.
Moreover, very few investor and agents have a detail knowledge of the study.
The study was conducted in Ahmednagar only, which restricted the scope of the study
The data provided by the investor and the agents cant be held true as 100% correct.
The study was conducted to understand with respect to Risk involved in broking firm and investors, which is a part of the equity share market.
1) Preference of Investment:
Financial Instruments Shares Mutual Funds Bonds Derivatives
Source: Primary Data
Chart 5.1
Interpretation: This shows that although the mutual funds market is on the rise yet, the most favored investment continues to be in the Share Market. So, with a more transparent system, investment in the Stock Market can definitely be increased.
YES 45
NO 5
Chart 5.2
Interpretation: With the increase in cyber education, the awareness towards online share trading has increased by leaps and bounds. This awareness is expected to increase further with the increase in Internet education.
A A E E SO R L A EA AB A DW R N S F E IG R SRN
Chart 5.3
Interpretation: This pie chart shows that Religare has a reasonable amount of Brand awareness in terms of a premier Retail stock broking company. The company to increase its market share over its competitors should further leverage this brand image.
Interpretation: Although there is sufficiently low brand equity among the target audience yet, it is to be noted that the customers are not aware of the facilities provided by the company meaning thereby, that, the company should concentrate more towards promotional tools and increase its focus on product awareness rather than brand awareness.
Interpretation: This shows that even with sufficiently high Brand Equity, Religare ranks only 3rd amongst the Demat account providers. This is probably because of two main reasons:
1. Lack of promotion and unfocussed approach towards Product awareness 1. Non transparent marketing policies of the company
Hence, the company should crystallize its products and should indulge in aggressive marketing and promotion.
YES 46
NO 4
Yes - 92%
No- 8%
Chart 5.6
Interpretation: This pie chart accentuates the fact that Strategic marketing, today, has gone beyond only meeting Sales targets and generating profit volumes. It shows that all the competitors are striving hard not only to woo the customers but also to make them Brand loyal by generating customer satisfaction.
NO. OF INVESTORS 5 13 26 6
Frequency of T rading
D aily - 9% W ee kly - 27% M o n th ly -53% Yea rly -11%
Chart 5.7
Interpretation: In spite of the huge returns that the share market promises, we see that there is still a dearth of active traders and investors. This is because of the non transparent structure of the Indian share market and the skepticism of the target audience that is generated by the volatility of the stock market. It requires efficient bureaucratic intervention on the part of the Government.
No. of Investors 35 9 4 2
(Table No. 5.8)
Chart 5.8
Interpretation: This shows that people invest only upto 10% of their earnings in the stock market, again reiterating the volatile and non-transparent structure of the Indian stock market. Hence, effective and efficient steps should be undertaken to woo the customers to invest more in the lucrative stock market.
CHAPTER V
The researcher found that the working of a broking firm is a very risky job because risk is involved in each and every activity of the business.
2
The risk prevailing in the business is recognized therefore an efficient risk management department is essential in every broking firm. Capital Market is growing very fast, turnover wise as well as area of operation wise. The activities have reached through lengths and breadth of the country. All these necessitated in the introduction of latest technology in the form of advanced softwares.
Broking business is a client-based business. The recent trend of voluminous increase in investors has also increased the risk involved in it. There is need of continuous up gradation of internal control measures Staff in a broking firm is continuous busy and due to which they are always under stress.
Senior management should regularly evaluate the risk management procedure in place to ensure they are appropriate and sound. Senior management should also foster and participate in active discussions with the board of directors, sub brokers, franchisee, staff of risk management function and investors regarding procedures for measuring and managing risk.
Highly qualified staff not only in front office positions such as trading desk, relationship officer and sales but also all back office functions responsible for risk management and internal control.
Risk management or control function should be able to produce a risk management report that highlights positions, limits and excess on a basis commensurate with trading activity. This report should be sent to senior management, reviewed, signed and returned to control staff. Auditors should perform a comprehensive review of risk management annually, emphasizing segregation of duties and validation of data integrity.
The designated compliance officer should perform a review of trading Practices annually.
Recording of trader and dealer telephone calls, which will facilitate to resolve the disputes at different levels.
Fast and frequent interaction between the risk managers, the sub brokers and client will help in reducing the delay in giving limits.
Periodical visits to the sub brokers and franchisee by the RELIGARE SECURITIES personnel for interaction and inspection will help in minimizing the risk to great extent.
Regarding dealers risks, well-trained and less stressed dealers will help in reducing the mistakes. It has been observed that most of the mistakes are done when they are under stress. HRD must help in this matter. In settlement department the persons have be appointed with utmost care and their periodic check can be conducted to avoid any employee fraud. Along with large client base, quality of clientele will help in balanced growth of business and minimizing the risk.
CHAPTER VI
ANNEXURE
QUESTIONNAIRE
Q1. In which of these Financial Instruments do you invest into? Shares Mutual Funds Bonds
3
Derivatives
Q5. With which company do you have your DEMAT account? Religare ICICI Direct Kotak Mahindra India Bulls
Q6. Are you currently satisfied with your Share trading company? Yes No
Q8. What percentage of your earnings do you invest in share trading? Up to 10% Up to 25% Up to 50% Above 50%
Q10.What more facilities do you think you require with your DEMAT account? ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------