SUMMER INTERNSHIP PROJECT ON

BACK OFFICE FUNCTION IN A STOCK EXCHANGE

Undertaken At

Submitted for partial fulfillment of award of Master of Business Administration By ARJUN SONAR Student Id:-D1012FWISBE-B10676-(KOL-2A-2032) Supervisor: Mr. Varun Dhawan Faculty guide: Mr. Aman Chugh

Indian Institute of Planning and Management Session: - 2010-2012

Training joining date: 15-07-2011 Training completion date: 02-09-2011

PREFACE
The present era is undoubtedly a management era. Management is an important function in any organization. A management is one of the most important fields which are widely used in every stage of life. The effective management can be achieved only by effective management training and developing skill to understand the organizational level this project work is a part of the course of MFC and was done at India Infoline Limited. This project is prepared on the basis of awareness of India Infoline in market and Understanding the need of financial advisor to the investors. India Infoline is world class financial service providing company who provides financial solution to investors.

ACKNOWLEDGEMENT Success is not a destination, but a journey. While this project has reached its end, I realize that I may not have come this far without the guidance, help and support of people who acted as guides, friends and torch bearers along the way. It gives me great pleasure in presenting the Project Report that gives the details of my project on back office functioning of stock market carried out in India Infoline Limited (IIFL). I thank the college guide Mr Rashmi ranjan Panigrahi for his kind and consistent guidance and help during the project work. It is impossible to list all the people who have helped us during my project. I take this opportunity to express whole heart thanks to Mr. Nomit Kochar (Senior Research Manager), Mr. Pranab Sharma (Senior Relationship Manager), Mr. Varun Dhawan (Senior Account Manager) who guided me at every step in the execution of the project & their experience and valuable guidance were very helpful. I would like to express our deep sense of gratitude towards all Managers, Staff and workers and to all those who directly or indirectly helped us in successful completion of project. I am also thankful to the other staff members of India Infoline Ltd. for providing me all the requisite information related to the organization. This is to genuinely thank all the Customers and the Clients who have taken their time out to answer the survey and queries.

Sushree SangitaMohanty Roll No-

INDEX
1. 2 3 4 5 6 7 8 9 10 11 12 Executive Summery Introduction Company Profile Objectives Methodology Adopted. . Information and Analysis Interferences of Government on Stock Market Back Office Functioning. Recommendations and Suggestions Conclusion. Chronological Order Bibliography 1 2 13 14 15 16 23 28 29 30 31 32

Executive Summary

This project underlines the need and importance of the back office function in a share broking firm with special reference to its deployment in India Infoline Limited (Investment Firm). Back office is the back bone of any broking business. The main and important function of the back office is to ensure that the rules and regulations are strictly adhered to and the control is maintained on the operations of the firm. The success of the back office largely depends on the efficient functioning of the back office. It can be well understood by each and every broking firm that in order to gain a competitive edge and sustain the challenges of a dynamic environment today it must have a very efficient back office. This project tries to tell us that the why back office functioning is essential for every firm in this kind of business, so as to increase its profitability, efficiency and sustain the pressures posed by competition. This project also tries to bring out the role of the personnel working in the back office, and how their efficiency and devotion plays an important role in the success of any broking firm. The project contents are followed by the objectives which will be followed by the introduction to the topic. Methodology adopted will help us to know how the project has been carried out. Observations and Findings will be followed by the suggestions to improve the efficiency of the back office function in India Infoline Limited.

Introduction
In world of commerce, apart from money equally revolutionary concept was the concept of limited liability. Before the industrial revolution economy was self sufficient village economy. The artisans produced goods and services on demand. It was industrial revolution which paved the way for production in anticipation of demand, and along with it came the economies of large scale production and to support this was needed huge finance. Innovative forms of business establishment, incorporating the principle of limited liability emerged. Form the highly imaginative world of business, a novel form of business organization viz. Joint Stock Companies, with the features like limited liability and the separation of ownership and management was born. Risk is an important and inherent part of any business. Risk cannot be avoided. You can only try to manage it. This was the best example of risk management by spreading it in small proportions amongst large number of shareholders. This was achieved by a concept called shares or stock and the need for trading in these stocks was felt.

Capital Formation and Economic Development

Multiplicity of wants and scarcity of means to satisfy these unlimited wants has continued to be the fundamental of economic problem. Money resources are required to move physical resources. Mobilization of resources for economic development was and continues to be the major problem with all developing and developed nations. In a capitalist economy the key decisions like what to produce? When to produce? And how much to produce is driven by market forces, the where withal for all this provided by money, by capital. The capital might be from within the country or outside the country. But one of the greatest challenges of nations today is creating conditions conducive for capital formation as also for attracting capital from various countries. A growing economy with vibrant capital and money market with rules and regulations in place is a prerequisite for attracting capital. Stock market

plays a key role in the entire gamut of financial system. Having broadly discussed the developments and the basic issues involved, we will now try to review the Indian Financial System. India has come a long way during the last decade of the 20th Century. With the path-breaking budget of 91-92 presented by Dr. Man Mohan Sign an era of globalization, liberalization, decontrol and de-regulation was adhered in. Since then a lot of water has flown from under the bridge and lot of development has taken place. The focus all along has been to faster economic development.

Indian Financial System

The financial system comprises a variety of intermediaries, markets, and instruments. It provides the principal means by which savings are transformed into investments. Given its role in the allocation of resources, the efficient functioning of the financial system is critical to a modern economy.

ABOUT IIFL
The IIFL (India Infoline) group, comprising the holding company, India Infoline Ltd (NSE: INDIAINFO, BSE: 532636) and its subsidiaries, is one of the leading players in the Indian financial services space. IIFL offers advice and execution platform for the entire range of financial services covering products ranging from Equities and derivatives, Commodities, Wealth management, Asset management, Insurance, Fixed deposits, Loans, Investment Banking, Goi bonds and other small savings instruments. IIFL recently received an in-principle approval for Securities Trading and Clearing memberships from Singapore Exchange (SGX) paving the way for IIFL to become the first Indian brokerage to get a membership of the SGX. IIFL also received membership of the Colombo Stock Exchange becoming the first foreign broker to enter Sri Lanka. IIFL owns and manages the website, www.indiainfoline.com, which is one of Indias leading online destinations for personal finance, stock markets, economy and business.

IIFL has been awarded the Best Broker, India by Finance Asia and the Most improved brokerage, India in the Asia Money polls. India Infoline was also adjudged as Fastest Growing Equity Broking House - Large firms by Dun & Bradstreet. A forerunner in the field of equity research, IIFLs research is acknowledged by none other than Forbes as Best of the Web and a must read for investors in Asia. Our research is available not just over the Internet but also on international wire services like Bloomberg, Thomson First Call and Internet Securities where it is amongst one of the most read Indian brokers. A network of over 2,500 business locations spread over more than 500 cities and towns across India facilitates the smooth acquisition and servicing of a large customer base. All our offices are connected with the corporate office in Mumbai with cutting edge networking technology. The group caters to a customer base of about a million customers, over a variety of mediums viz. online, over the phone and at our branches

HISTORY
The India Infoline Group was originally incorporated on October 18, 1995 as Probity Research and Services Private Limited at Mumbai under the Companies Act, 1956 with Registration No. 11 93797. The IndiaInfoline Group commenced its operations as an independent provider of information, analysis and research covering Indian businesses, financial markets and economy, to institutional customers. We became a public limited company on April 28, 2000 and the name of the Company was changed to Probity Research and Services Limited. The name of the Company was changed to India Infoline.com Limited on May 23, 2000 and later to India Infoline Limited on March 23, 2001. In 1999, The IndiaInfoline Group identified the potential of the Internet to cater to a mass retail segment and transformed our business model from providing information services to institutional customers to retail customers. Hence we launched our Internet portal, www.indiainfoline.com in May 1999 and started providing news and market information, Independent research, interviews with business leaders and other specialized features. In May 2000, the name of our Company was changed to India Infoline Limited to reflect the transformation of our business. Over a period of time, we have emerged as one of the leading business and financial information services provider in India.

In the year 2000, The India Infoline Group leveraged its position as a provider of financial information and analysis by diversifying into transactional services, primarily for online trading in shares and securities and online as well as offline distribution of personal financial products, like mutual funds and RBI Bonds. These activities were carried on by our wholly owned subsidiaries. The India Infoline Groups broking services was launched under the brand name of 5paisa.com through its subsidiary, India Infoline Securities Private Limitedandwww.5paisa.com, the e-broking portal, was launched for online trading in July2000. It combined competitive brokerage rates and research, supported by Internet technology Besides investment advice from an experienced team of research analysts, This group also offers real time stock quotes, market news and price charts with multiple tools for technical analysis. Acquisition of Agri Marketing Services Limited ("Agri") In March 2000, The IndiaInfoline Group acquired 100% of the equity shares of Agri Marketing Services Limited, from their owners in exchange for the issuance of 508,482 of our equity shares. Agri was a direct selling agent of personal.

MILESTONES
1995 Incorporated as an equity research and consulting firm with a client base that included Leading FIIs, banks, consulting firms and corporate. 1999 Restructured the business model to embrace the internet; launched Archives.indiainfoline.com mobilized capital from reputed private equity investors. 2000 Commenced the distribution of personal financial products; Launched online equity trading; Entered life insurance distribution as a corporate agent. Acknowledged by Forbes as Best of the Web and ...must read for investors. 2004 Acquired commodities broking license; launched Portfolio Management Service. 2005

Listed on the Indian stock markets. 2006 Acquired membership of DGCX; launched investment banking services. 2007 Launched a proprietary trading platform; inducted an institutional equities team; formed a Singapore subsidiary; raised over USD 300 million in the group; Launched consumer finance business under the Money line brand. 2008 Launched wealth management services under the IIFL Wealth brand; set up India Infoline Private Equity fund; received the Insurance broking license from IRDA; received the venture capital license; received in principle approval to sponsor a mutual fund; received Best broker- India award from Finance Asia; Most Improved Brokerage- India award from Asia money. 2009 Received registration for a housing finance company from the National Housing Bank; received Fastest growing Equity Broking House - Large firms in India by Dun &Bradstreet.

COMPANY STRUCTURE
India Infoline Limited is listed on both the leading stock exchanges in India, viz. the Stock Exchange, Mumbai (BSE) and the National Stock Exchange (NSE) and is also a member of both the exchanges. It is engaged in the businesses of Equities broking, Wealth Advisory Services and Portfolio Management Services. It offers broking services in the Cash and Derivatives segments of the NSE as well as the Cash segment of the BSE. It is registered with NSDL as well as CDSL as a depository participant, providing a one-stop solution for clients trading in the equities market. It has recently launched its Investment banking and Institutional Broking business.

A SEBI authorized Portfolio Manager; it offers Portfolio Management Services to clients. These services are offered to clients as different schemes, which are based on differing investment strategies made to reflect the varied risk-return preferences of clients.

India Infoline Media and Research Services Limited.

The content services represent a strong support that drives the broking, commodities, mutual fund and portfolio management services businesses. Revenue generation is through the sale of content to financial and media houses, Indian as well as global. It undertakes equities research which is acknowledged by none other than Forbes as 'Best of the Web' and 'a must read for investors in Asia'. India Infoline's research is available not just over the internet but also on international wire services like Bloomberg (Code: IILL), Thomson First Call and Internet Securities where IndiaInfoline is amongst the most read Indian brokers.

India Infoline Commodities Limited

India Infoline Commodities Pvt Limited is engaged in the business of commodities broking. Our experience in securities broking empowered us with the requisite skills and technologies to allow us offer commodities broking as a contra-cyclical alternative to equities broking. We enjoy memberships with the MCX and NCDEX, two leading Indian commodities exchanges, and recently acquired membership of DGCX. We have a multi-channel delivery model, making it among the select few to offer online as well as offline trading facilities.

India Infoline Marketing & Services

India Infoline Marketing and Services Limited is the holding company of India Infoline Insurance Services Limited and India Infoline Insurance Brokers Limited. (a) India Infoline Insurance Services Limited is a registered Corporate Agent with the Insurance Regulatory and Development Authority (IRDA). It is the largest Corporate Agent for ICICI Prudential Life Insurance Co Limited, which is India's largest private Life Insurance Company. India Infoline was the first corporate agent to get licensed by IRDA in early 2001.

(b) India Infoline Insurance Brokers Limited is a newly formed subsidiary which will carry out the business of Insurance broking. We have applied to IRDA for the insurance broking license and the clearance for the same is awaited. Post the grant of license, we propose to also commence the general insurance distribution business.

India Infoline Investment Services Limited

Consolidated shareholdings of all the subsidiary companies engaged in loans and financing activities under one subsidiary. Recently, Orient Global, a Singaporebased investment institution invested USD 76.7 million for a 22.5% stake in India Infoline Investment Services. This will help focused expansion and capital rising in the said subsidiaries for various lending businesses like loans against securities, SME financing, distribution of retail loan products, consumer finance business and housing finance business. India Infoline Investment Services Private Limited consists of the following step-down subsidiaries. (a) India Infoline Distribution Company Limited (distribution of retail loan products) (b) Money line Credit Limited (consumer finance) (c) India Infoline Housing Finance Limited (housing finance)

IIFL (Asia) Pte Limited

IIFL (Asia) Pte Limited is wholly owned subsidiary which has been incorporated in Singapore to pursue financial sector activities in other Asian markets. Further to obtaining the necessary regulatory approvals, the company has been initially capitalized at 1 million Singapore dollars.

Management Team

1. Mr. Nirmal Jain Chairman & Managing Director India Infoline Ltd. 2. Mr. R Venkataraman Executive Director India Infoline Ltd.

The Board of Directors

Apart from Nirmal Jain and R Venkataraman, the Board of Directors of India Infoline Ltd. Comprises:1. Mr. Nilesh Vikamsey Independent Director India Infoline Ltd. 2. Mr. Sat Pal Khattar Non Executive Director India Infoline Ltd. 3. Mr. Kranti Sinha Independent Director India Infoline Ltd. 4. Mr. Arun K. Purvar Independent Director India Infoline Ltd.

Product & Services

Overview We are a nonstop financial services shop, most respected for quality of its advice, Personalized service and cutting-edge technology.

Equities
Indiainfoline provided the prospect of researched investing to its clients, which was hitherto restricted only to the institutions. Research for the retail investor did not exist prior to India infoline. India infoline leveraged technology to bring the convenience of trading to the investors location of preference (residence or office) through computerized access. India infoline made it possible for clients to view transaction costs and ledger updates in real time.

Working of the Stock Exchange.

Settlement of shares Settlement of money Detailed explanation with example:Buyer-B of Broker-B purchases 100 shares Reliance from Broker-A at the same time Seller-A sells 100 shares of Reliance to Broker B through Broker-A then following procedure take place B pays to broker-B the amount due on the shares purchased by him. Broker-B pays the settlement amount to NSE (Funds Pay in) NSE pays the amount to the Seller Broker-A Then Seller Broker-A pays the amount to seller-A (Funds Pay out) simultaneously Seller-A delivers 100 Reliance to Broker-A in his depository account (Shares Pay in) Broker-A delivers the shares to NSDL through his Depository Participant. NSDL then gives the shares to Broker-B Finally Broker-B delivers the shares to Buyer-B (Shares Payout) Buyer-A/ Seller-A Depository

Participant, Broker- A NSE Broker-B Buyer-B/Seller-B Client NSDL Depository Participant An investor who wants to hold his securities in electronic form he has to approach a Depository Participant and through him open an account at NSDL. After getting Client I.D. no. from NSDL then client goes to a registered broker of NSE/BSE for investing in the shares. The client gives the order to the operator seating on the NEAT software (National Exchange for Automated Trading) for particular scrip at a specific price when the bid matches on the screen the confirmation tag blinks with the scrip ISIN no.(International Securities Identification Number) for which he has to take the delivery and make the payment on T+2 basis, if he doesnt t make the payment it goes to Auction and he has to pay the penalty and the auction price for the shares traded. Existing Depositories in India Presently there are two depositories in the country, namely National Securities Depositories Limited (NSDL) and Central Depositories Services Limited (CDSL). NSDL was set up as the first depository company in the country; it has been sponsored by the Unit Trust of India, NSE, and State Bank of India, Bank and City Bank. Its performs the following functions through depository participants enables the surrender and withdrawal of securities to, and from, the depository; it maintains investors holdings in the electronic form; effects settlement of securities traded on the exchanges; it carries out settlement of trades not done on the stock exchange (off market trades); transfers of securities; electronic credit in public offerings of companies; receipt of non-cash corporate benefits like bonus, rights, and so on in electronic form; Stock lending and borrowing. The Mumbai Stock Exchange in association with the Bank of Baroda, State Bank of India and HDFC Bank have promoted CDSL as a secondary depository in India for dealing in securities, in the electronic form, by the name of Central Depository Services (India) Limited (CDSL). The main objectives are as to accelerate the growth of scripless trading; to make a major trust in the individual investors participation in the depository, to create a competitive environment which will be responsive to the user is interests and demands, to enhance liquidity.

Accounting Period Settlement It is the settlement where the trade pertaining to a period stretching over more than one day is settled. Rolling Settlement The execution made during the day is settlement i.e. by squaring off the position by either taking delivery or giving the delivery. The trades pertaining to the rolling settlement are settled on a T+2. Meaning of T+2 basis T+2 basis means for e.g. if the transaction has taken place on say Monday then the pay in and pay out of that settlement will take place on Wednesday. Securities Transaction Tax (STT) STT is a tax being levied on all transactions done on the stock exchange at the rates prescribed by the Central Government from time to time. Pay in day and Pay out day Pay in day is the day when the brokers shall make payment or delivery of securities to the exchange. Pay out of the day is the day when the exchanges make payment or delivery of securities to the broker. Settlement cycle is on T+2 rolling settlement bases. The exchanges have to ensure that the payout of funds and securities to the clients is done by the broker with in 24 hours of the payout. The pay in and pay out days for funds and securities are prescribed as per the settlement Cycle. Like a Typical Settlement of Normal Settlement is as followsActivity Day Trading Rolling Settlement Trading T Clearing Custodial

Confirmation T+1working days Delivery Generation T+1working days Settlement Securities and Funds Pay in T+2working days Securities and Funds Payout T+2working days Post Settlement Valuation Debit T+2working days Auction T+3working days Bad delivery Reporting T+4working days Auction Settlement T+5working days Close out T+5working days Rectified bad delivery Pay in and payout T+6working days Re-bad delivery reporting and pick up T+8working days Close out of re-bad Delivery T+9working days Brokerage and other charges Minimum brokerage is 1 new paisa Maximum brokerage is .25% Service tax @ 8.5 of the brokerage Transaction charges as levied by the NSE. SEBI fees on turnover is 0.01% Contract Notes

It is the confirmation note of the trade done on a particular day for a client, which is being issued in the format and manner prescribed by NSE and has to be acknowledged by the client on getting the duplicate. Screen Reading NEAT is the name of the Software used for online trading of NSE so it is important to be able to read and understand the NSE s screen as it shows which trades are being carried out, if the operator puts a transaction purchase then a red strip arises in front of that scrip which is demanded by the client. Important Keys Used for various purposes likeF1 - For placing order for buying the shares. F2 For placing order for selling the shares. F3 Outstanding order. F4 Scrip update. F6 Market by 1st five buys. F7 Market by order (active log). F8 Previous trades. F9 Snap quote. F10 Full message display. F11 Market inquiry. F12 Supplementary menu. Alt F6 Net position. Alt F7 Online Back-up. Ctl F3 Index.

Interferences of Government on Stock Market

Regulatory Framework in place:As the maker and enforcer of laws in a society, the government has the responsibility for regulating the financial system. The two major regulatory arms

of the Government of India are the Reserve Bank of India and the Securities Exchange Board of India.

Securities Exchange Board of India:The Securities Exchange Board of India (SEBI) which was established on April 12, 1988 through an Extraordinary Notification of the Government of India in the Gazette of India was given statutory recognition with the promulgation of the Securities and Exchange Board of India Ordinance on January 30, 1992 and the Board was statutorily set up on February 21, 1992. The SEBI Act from April 4, 1992 replaced the Ordinance. The Board consists of a Chairman and five other members, one each from the Ministry of Finance and the Ministry of Law, Justice and Company Affairs, one from the Reserve Bank of India and two others to be appointe3d by the Central Government. The basic aim of the SEBI is to regulate the capital market to protect the interests of investors.

Organization of SEBI:After it became a statutory body, SEBI restructured its organization and rationalized it in line with its activities into five operational departments, each headed by an Executive Director, Apart from these, there are two other departments viz. Legal and Investigations Department. Following are the five operational departments:Primary Market Development. The Issue Management Department. The Institutional Investment Department. The Investigation Department. SEBI also has two advisory committees, one each for the primary and secondary markets, to provide advisory inputs in framing the policies and regulations. These are constituted firm among the market players recognized investors associations and eminent persons associated with the capital market. The committees are however non-statutory in nature and SEBI is not bound by their advisory committees. The SEBI of India has been entrusted with the responsibilities of dealing with various matters relating to the capital market. The SEBI is the regulatory authority established under section 3 of SEBI ACT 1992 to protect the interests of the

investors in securities and to promote the developments of, and to regulate, the securities market and for matters connected therewith and incidental there to. SEBI has principal tasks are to:Regulate the business in stock exchange and any other securities markets. Register and regulate the capital market intermediaries (brokers, portfolio managers etc. Register and regulate the working of mutual funds. Promote and regulate self-regulatory organizations. Prohibit fraudulent and unfair practices in securities markets. Promote investors education and training of securities markets. Prohibit insider trading in securities. Regulate substantial acquisition of share and takeovers of companies. Perform such other functions as may be prescribed.

Formation of Self Regulatory Organizations:The Legislative scene depicted above notwithstanding, SEBI has been advocating a self-regulatory set up for regulation of capital markets, and in this connection, the stock exchanges have designated to play the role of self regulatory organizations for brokers/sub brokers etc. There are at percent 23 stock exchanges in India, in addition to OTC Exchange. Similarly, the Association of Merchant Bankers of India, (AMBI) a representative organization of merchant bankers is being established as a self-regulatory organization, where after SEBI will consider grant of recognition to it. Role of Stock Exchanges :The Stock Market is an open auction market, where the buyer and sellers meet to deal in securities. Stock exchange provides a regular and continuous market for buying and selling of securities. The usual procedure is that when an enterprise is in need of funds, it approaches the investing public, both individuals and institutions, to subscribe to its issue of funds; it approaches the investing public, both individuals and institutions, to subscribe to its issue of capital. The securities thus floated are subsequently purchased and sold among the individual and institutional investors. There are, in other words, two stages involved in the purchase and sale of securities. In first stage, the securities are acquired from the issuing companies them selves and these are, in the second stage, purchased and

sold continuously among the investors without any involvement of the companies whose securities constitute the stock-in-trade except in the strictly limited sense of registering the transfer of ownership of the securities. The importance of stock exchanges can be well deciphered from the fact that it imparts liquidity to the scripts held. It provides price continuity to the shares traded on the stock exchange, the market price of shares reflects the intrinsic value of the security and the trading is conducting under the supervision of the stock exchange authorities, thereby providing reasonable degree of safety and fair dealings to the investors. The stock exchanges have exhibited a perceptible change in the level of activities during the 1980 s and particularly during the second half of the decade. The growth is evident from the dramatic increase in the amounts of funds raised from the markets annually and from the volume of turnover in the secondary markets. The developments in the markets also include establishment of new financial institutions to meet requirements of the growing economy, and use of innovative financial instruments to sub serve the needs of investors at whom these instruments are aimed. With all the above developments, Capital Market has now developed to cater to the needs of growing corporate sector. The secondary market in India has also shown maturity by registering enormous growth in the recent years in terms of the number of listed companies, market capitalization, market value of listed companies to gross national product, number of shareholders, and so on. There are 23 recognized stock exchanges in the country. The organization of the exchange varies: 14 are public limited companies, 6 are companies limited by guarantee and 3 are companies limited by guarantee and 3 are voluntary non-profit organizations. The Government of India/SEBI ensures broad uniformity in the structures while granting recognition; only 9 stock exchanges have got permanent recognition, other have to renew it every year until permanent recognition is granted. All Stock Exchanges are managed by a governing body which consists of elected broker-directors, public representatives and Government /SEBI nominees. The number of stock broker-directors members has now been reduced to about 40%. For regulation and control of transactions, each stock exchange has bye-laws and regulations which are more or less uniform in all stock exchanges. The most active of the stock exchanges are located at Bombay, Calcutta, Madras, Delhi and Ahemdabad. The number of listed companies increased from 3118 in 1983 to over 9800 during 1999-2000. The total market capitalization of all companies listed on the Stock Exchange Mumbai was 5853 indicating a rise of 20.78%. The Government too, with a view to encourage the corporate to approach the capital markets to meet their requirements for funds, has initiated policy measures to open up the capital markets. These policy measures include steps to streamline the procedures and to impart transparency to operations at the stock exchanges.

Although by international standards, the Indian capital markets are still immature, they have certainly developed to cater to the needs of the growing corporate sector. The developments in the stock markets are reflected through: Heightened state of activity reflected through sharp rise in both resources mobilized through corporate securities and investments and investments schemes of mutual funds. Increased trading activity at the secondary markets. Emergence of mega issues Progressive role of institutional investors at the capital markets. Indian Securities Market has undergone a complete transformation. In recent years with a broadening of the money market and capital markets significant institutional developments has been noticed in the Indian markets. Following are the details of the institutions and their functions:Discount and Finance House of India:The RBI jointly with the public sector banks and financial institutions on the recommendations of the working group on money market, set up an apex body named Discount and Finance House of India . The main objective of DFHI is of imparting liquidity to such instruments like treasury bills etc. Credit rating and information Services of India Ltd. (CRISIL):It is first credit rating agency in the country to evaluate debt obligations of the companies, depending on their ability to service these obligations and assigns rating to them expressed as numeric and alphabetical symbols. The ratings convey the credit agency s opinion on the risk associated with a particular debt obligation. The credit rating is however not the recommendation of the credit rating agency to the investor to buy or sell the securities. Investment Information and Credit Rating Agency of India Ltd.(ICRA):The ICRA has been set up with the primary objective of providing guidance to the investors/ creditor in determining the credit risk associated with a debt instrument/ credit obligation. Credit Analysis and Research LTD. (CARE):Its main objective is of rating of all types of debt for the benefit to the investors. It is the third Credit Rated Agency in India.

National Stock Exchange (NSE):Inaugurated in 1994, the National Stock Exchange seeks for:1. Establish a notion-wide trading facility for equities, debt, and hybrids. 2. Facilitate equals access to investors across the country. 3. Impact fairness, efficiency, and transparency to securities. 4. Shorten settlement cycle. 5. Meet international securities market standards. The NSE, besides operating the traditional market for equities, convertible debentures, non-convertible debentures etc., also operate a wholesale debt market, is a separate segment of the NSE as distinct from the capital market segment. The NSE has adopted fully automated screen based trading system, which allows trading members to trade from their offices through a communication network. Besides there is flexibility with regards to price, time and volume conditions.

Features of National Stock Exchange:Nation-wide Access The NSE provides nation-wide trading facilities and equal access to investors all over the country. High quality services to members are maintained through efficient, transparent and fair trading systems and procedures. Automation-Screen Based Trading. The NSE market is a fully automated screen based trading environment. There is no trading floor as is prevalent in the traditional stock exchanges, nor do the dealers use the telephone to arrange money market deals as was the practice. Rather the market will operate with all market participants stationed at their offices and making use of computer terminals, to enter orders, to receive the current market status, the traders executed and other market related information. Anonymity of the Trading Member is Identity. The identity of the trading member placing the order is not disclosed in the NSE computer trading system. By enabling the trading members and participants to hide their identity, it allows placing large orders into the system by the big players, without fear of large orders influencing the price of the market. Complete Transparency The system provides complete transparency of trading operations. Investors can know whether their orders have been placed into the system, the rate at which their deal has taken

place the counter party and the time at which the trade was executed. The trading system also provides complete market information online through various inquiry facilities. The system at any point of times gives the member complete information on the total order depth for a security, the best buys and sells available in the market the quantity traded in that security etc. All these information are updated online, enabling the member to make better decisions. All the key information is updated on a real time basis. The response time is very quick. As a result it is possible for the investors to know the actual position of the market before placing the orders. Investors can also know the fate of the orders almost as soon as they are placed with trading members. The trading system is top on the line and user friendly. Some of its new features include a corporate hierarchy which gives the trading members an opportunity to set up a network of branches and exercise control on their orders. Flexibility in trading The trading system provides enormous flexibility to trading members. When entering an order, a trading member can place various conditions in terms of price, time or size. Order Matching Principle Orders are matched automatically by the exchange computer system. All orders received are stacked in price-time priority i.e. the computer sorts order as when they are received they are received in terms of the price ofeach security and the time at which orders are entered. Subject to the conditions placed on an order by the trading member the computer system will automatically search for the best match. As soon as it finds a suitable match, the deal is stuck. If it does not find the match immediately as may happen in the case of less liquid securities, the order is kept pending in the computer unless specified otherwise by the trading member. Counter party Exposure Limits The system has built-in flexibility to allow whole sale debt market participants to set the exposure limits specified by their management so that all transactions on behalf of such members are subject to pre-set exposure limits of the respective counter party, even if all other parameters such as price and volume can match. These limits are not accessible to or transparent to other members. As before, if the order is kept pending in the system for a counter offer unless specified otherwise by the trading member.

Efficient and Fair The automated trade matching system is a highly efficient trading member can put in a large number of transactions and complete a high volume of business efficiently. It also ensures that participants secure the best price available at any point of time.

Benefits from NSE:To Investors The investor is assured of the best price in the market. Price and brokerage are separately shown on contract notes. Date and time of trade are indicated. The system will be better monitored and regulated ensuring a fair deal to investors. Safety of securities is enhanced in a depository and there is no problem of bad delivery, loss, theft or forgery. To Trading Members They can provide efficient service to their clients. Their back office load is reduced considerably as the system generates details of trade undertaken. They can benefit from high growth in trading volumes which typically takes place when on automated trading system is introduced. They can trade from their respective offices and can make use of full back office support for trading. There is no need to occupy office premises near a stock exchange unlike what was previously required this can lead to reduced establishment costs. They can install a computer network of their own to receive their own client orders, which they can interface with the exchange, leading to a large increase in business. Large growth opportunities also emerge on the NSE, as Foreign

Financial institutions prefer the automated and regulated market.

Benefits to the Issuer

By a single listing they can provide nationwide access to their investors. As a result their listing costs are reduced considerably. Issuers have high visibility.

Bombay Stock Exchange (BSE):Established in 1875, the Bombay Stock Exchange (BSE) is one of the oldest organized exchanges in the world with a long, colorful, and checkered history. Its distinctive features are as follows:The BSE switched from the open outcry system to the screen based System in 1995. It accelerated its computerization programmed in response to the threat from NSE. Jobbers play an important role on the BSE. A jobber is a broker who trades on his own account and hence offers a two-way quote. The bid price reflects the price at which the jobber is willing to sell. Investors have to transact via a broker. The broker feeds his buy/sell quotes in his terminal, which is linked, to the main server at the BSE, because of this NSE has adopted a quote driven system and an order driven system. Shares listed on the BSE are classified into two groups, viz. Specified and cash, also referred to as A and B groups. The A group comprises equity shares of such companies, which have a large volume of business in the secondary market. Presently, about 150 shares have been classified as A group shares the rest belong to B group. The stock Market is broadly divided into two parts primary market and a secondary market. New securities are issued in the primary market and outstanding securities are traded in the secondary market. The secondary market in India comprises about 23 stock exchanges recognized by the government under Securities Contract Regulation Act. The principal exchanges are the National Stock Exchange and Bombay Stock Exchange, accounting for the bulk of the trading on the Indian Stock Exchange.

Back office functioning

This report is about the study undertaken by me during a period of two months for my summer project in India Infoline limited. The Back office function acts as a back bone of any share broking firm as the work which the personnel in back office has to perform is very crucial and important for the client as well as the firm. Any mistake from the personnel might become a liability for the firm, for e.g. if there is short delivery or pay in of clients share then for those shares auction takes place for which they have to pay the price for the same. Hence the back office function calls for the full concentration level of the personnel while doing his or her work. If the back office section detects any error it should draw the attention of the higher authority for the corrective action. Basically the back office function includes responsibilities like transaction processing, settlement and other administration functions. So the key result activity in a share broking firm is the back office function which operates through different department like Crd department, Delivery department, Accounts Department, Compliance department etc. Departments 1. Client registration Department (CRD) In order to trade in the market the client has to fill up the agreement between the Client-Broker-Sub broker which is know as tripartite agreement and also know your client forms with necessary requirement attached to it, has to been send to CRD. In the mean while the client or sub broker has to feed the all information in masters and has to submit it in s/w which can viewed by the client broker and sub brokers end. After receiving the forms the employees in the CRD verifies it and checks with the master, and everything is matched, it gives instructions for the activation of the client to the surveillance department. And once it get activated CRD informs to client by putting the details in the ftp site which can be viewed at their end and can start trading.

And if the details do not match or any particular attachment is not there then they inform through ftp site where the client and sub broker can view the current status. If any changes has to made like change in name or address or in brokerage they have to inform to CRD and they get it changed. 2. Delivery and Accounts Department Basically the employees in the Delivery department have to look after the pay in and pay out of shares and Accounts department has to look after the pay in and pay out of funds. a. Pay in of shares Now a days pay in of the shares is done automatically which is known auto delivery out. NSE/BSE has the record of how much pay in of shares is due from the seller s broker. The bank in which the broker has his account, which is only for clearing member, the download of auto delivery out is taken through the NSE s site. Then the broker gets the print out of the delivery out report which shows whether nsdl/cdsl has received the pay in correctly or not. After confirming it from the bank the shares are sent from IIFL account to nse/bse and confirm the pay in. Suppose if they are any short delivery of shares then nse/bse gives debit to the IIFL account and similarly brokers debit it to sub brokers/clients account and then nse/bse can charge penalty for short pay in. b. Pay out of shares and funds When shares are purchased by the client then he gives money to sub broker which he delivers to IIFL and IIFL sends to nse/bse as funds pay in against which nse/bse gives payout of funds and also gives delivery of shares to IIFL and in return IIFL gives the pay out of shares and payout of funds to the respective sub brokers at present T+2 basis, which means the day of trade plus two days within which the pay in and pay out of shares and funds should take placesimultaneously. c. Intersettlement transaction Intersettlement transaction are the necessary adjustments between the broker and the client for which client has to give request to the broker, for e.g. if the client has sold 20 share of reliance in settlement number 154, but if the client request to broker/ sub broker to adjust this pay in against the payout in settlement number 158 then it is called as inter settlement transaction. c. Cash management and transfer of funds Cash/ fund

It is the lifeblood of any organization so management of cash and transfer of funds form a very important aspect of the accounts department. This includes constant check and reconciliation of the bank account of the sub broker. d. Preparation Bank Reconciliation statement Bank reconciliation state is very important as it helps the accountant to understand the balance of cash in the respective bank account and if there is any difference between in balance as per the sub brokers book and as per our books it has to be rectified immediately and should be informed immediately. There could be many reasons because of which there can be indifference in cash and bank balances and doing bank reconciliation statement can rectify these difference. e. Preparing the cash statement This statement gives the details of the transactions of previous days. It shows all the debits and credits given to each and every client, margin from the sub broker, net balances, net stock payment(normal/auction) and net stock receivable(normal/auction). f. Checking the Daily Funds Statements Daily funds give the details of pay in and pay out of funds and also show whether it was normal or auction. This report has to be checked by the accountant and find whether there is any short delivery, if yes then get the short delivery report from the delivery department. h. Undertake the work of recovery as well The job of recovery is very is very difficult and this is one of the important functions of the accounts personnel for this he has to be very shred person and see that the job is done.

3. Compliance Department Compliance has acquired a lot of importance these days as there are penalties if you fail to comply as per the requirement of NSE. For those purpose of compliance IIFL has to submit a compliance report to NSE is inspection and investigation department signed by the Managing director on the behalf of the company under the common seal. They have to inform to sub broker regarding the inspection or meetings which are duly held like AGM, has to prepare minutes of the meeting, has to inform any changes in rules, regulations and laws etc. 4. Surveillance Department

As the securities transactions are prone to verity of manipulations, the NSE has instituted a strong surveillance mechanism to protect market integrity. It includesOnline monitoring - The National Securities Clearing Corporation Ltd. has in place an online monitoring and surveillance system whereby exposure of the member is monitored on a real time basis. A system of alerts has been built in so that both the member and NSCCL are altered as per pre-set levels (reaching 70, 85, 95, and 100 percent) when the members approach their allowable limits. The system enables the NSCCL to further check the micro details of members positions, if required, and take proactive action. The online surveillance mechanism also generates various alerts/ reports on any price/volume movement of securities not in line with past trends/patterns. For this purpose, the NSE has put in place a system that generates alerts. Alerts are scrutinized and are taken up for follow up action. Open positions of securities are also analyzed. Besides this, rumours in the print media are tracked and, where they are sensitive, companies are contacted for verification. Replies are informed to the members and the public. Investigation and inspection As per regulatory requirements, a minimum of 10% of the active trading members are to be inspected every year to verify the level of compliance with various rules, byelaws and regulations of the NSE. Usually, inspection of more members than the regulatory requirement is under taken every year. The inspection randomly verifies if investor interests are being compromised in the conduct of business by members. The investigation is based on various alerts which require further analysis. If the analysis suggest any possible irregular activity which deviates from trends/patterns and concentration of trading at the NSE, at the member level, then a more detailed investigation is undertaken. If the detailed investigation establishes any irregular activity, then disciplinary action is initiated against the member. If the investigation suggests possible irregular activity across the exchange and/ or possible involvement of clients, then the same is informed to the SEBI. 5. Depository participant (DP) Once the trade is done on the stock exchange, client/sub broker gets reports of their net obligation. A clearing member (CM) has to open a clearing and settlement of trades with a DP. On opening of such account an account, the depositories allots a

number identified as CM- Business partner- Id. The DP opens an account and the CM is allotted a number (Client ID). The delivery account consists of three parts pool a/c; delivery a/c; receipt a/c, to facilitate easy book keeping. The role of the pool Account in clearing of securities is twofolda.) The selling client of the CM transfers securities from his client account to the pool a/c of the CM Before pay in and b.) after payout, the CM transfers securities(to the extent of his obligation to the clearing operation) from the pool a/c to the delivery a/c , before pay in. On pay in day the depository flushes out the securities in the delivery a/c and transfers the same to CC automatically. On pay out day, the CC transfers securities to the pool a/c (to extent of the net receipt) through the receipt a/c. This account can be used to trace the details of settlement-wise receipt into the clearing. On off market trades, these include trades where the seller and buyer deal directly with each other, without any intervention of the CC. The seller would give his DP a delivery instruction slip instructing him to debit his account with the transacted securities and the buyer would give his DP a receipt instruction slip to credit his account. Both the instructions would have the same execution date. The transaction would match at the depository, and credit and debit would be given by the DPs to their respective Client account.

Observations and Findings

During the actual two months period of doing this project I was able to observe some important elements in favor of India Infoline limited and some against them and in order to put it in a better way I carried out a swot analysis which is as under Strength of IIFL good and highly qualified and cooperating Staff Weakness of IIFL Less Manpower. Opportunities The Company has made an application to NSE for the F & O membership, for which approval is awaited. The exchange is planning to commence Investors Service Centers in Satara, Sangli and Kolhapur to provide services relating to Capital Market to the investors in these cities and around Threats to IIFLSL Threats from competitors like icicidirect.com

Recommendations and Suggestions:

Findings and suggestions

Findings: At the time of doing my project in IIFL I found that there could be time saving as number of employees working over there were less in each department so depended was more on these employees and at that time some of the well set expert employees working over there were leaving the job due to their future growth or personal reasons, and work load was huge so it was pretty difficult for employee over their, as they have stand by longer time, much pressure were on them for the completion of job and there is always a state were at the end of day some of otherthing used to be pending. And few people who were newly joint in the IIFL at that moment were not that much trained and were not much confident as they are well qualified but didn t had experience in this field. So lots of time used to be wasted in order to build confidence by themselves and grasp the knowledge. Other things were, in IIFL they do not have HR department so that employees can tell their problems, need and demands to them and if they had also they used to tell to DGM or to AGM or to the Director and if they get time they used to solve it or it used to be on priority basis and they didnt had canteen facilities also. Suggestions Instead of employing the no experienced employees or fresher, they should have employed experienced employees in the departments at that moment of time, so work load could have been reduced and could not had been much pending work and tension also. There are lots of requirement of employees in each department so that work can be evenly distributed and their will be flow in the work and doesnt

have to depend on anybody. Their should be a HR department on high priority basis because they can understand the nature of employees, their need and demands or requirements, can try to understand their problem or any grievances and can give immediate solutions to it, and can create working atmosphere for the employee so that they can work smoothly and happily without any tension or fear in mind.

A Conceptual Framework of How The Financial System Works:The Financial System The financial system performs the following interrelated functions that are essential to a modern economy: It provides a payment system for the exchange of goods and services. It enables the pooling of funds for undertaking large-scale enterprises. It provides a mechanism for managing uncertainty and controlling risk. It generates information that helps in coordinating decentralized decision making. It helps in dealing with the incentive problem when one party has an information advantages. Need for Regulatory Framework:There were major policy changes like the opening up of the economy and greater role of the private sector, when the Sixth five-year Plan was launched in 1985. The need to set up a regulatory agency for the stock and capital markets was recognized at that time. The malpractices prevailing in these markets reduced the confidence of investors. This in turn created obstacles in mobilizing the funds. The entire edifice of capital market is based on the trust in the financial system of the country. The scams in the resent past are a testimony to the importance of a sound financial system. Loss of trust and confidence of the investor in the working of the system and the ability of regulatory framework to vouch safe the same from the predators can bring the untold misery and the whole edifice can fall like a castle of cards.

The Chronological Order

This report has been prepared in a chronological sequence explaining the flow of work logically which is as under 1. The Indian Financial System. 2. Stock Exchange as a part of the whole financial system.

3. Role of Stock Exchange. 4. Need for the regulation and control.

5. Role of SEBI as a regulating and controlling authority. 6. Broker as a part of stock exchange s working.

7. Importance of back office functions in a share broking firm.

Conclusion
In the present scenario every individual who is searching for the job, wants to do a front office job, but they don t realize how important the Back Office Function is. In a share broking firm like India Infoline Limited where I did my project, the back office function is highly important, as many things are dependent on performance of back office and if it is not performed with full understanding and concentration, it could lead to blunder mistake and can put any broker into monetary loss, so after completing the project I could understand functioning of any broking firm lies in the hands of back office personnel this shows how important is the back office function. The whole project is based on the back office function and its importance implications in the routine of IIFL is functioning and after completing the project I can confidently say that I have got a glim IIFL of the working in a share broking firm. On the basis of the whole project, as a part it suggests a systematic way to India Infoline Limited to increase the efficiency of back office function, considering the time factor.

Bibliography
1. Website of RBI, SEBI and NSE. 2. Financial Management Module of ICFAI. 3. C.S. Module (for few definitions) 4. The Economic Times (newspaper) 5. Book Reference a. Indian Financial System b. Advance Financial System 6. Discussion with the senior staff of IIFL.

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