A RESEARCH REPORT

ON

COMPARATIVE ANALYSIS OF ONLINE TRADING

SUBMITTED TOWARDS THE PARTIAL FULFILLMENT

OF

MASTER OF BUSINESS ADMINISTRATION

GAUTAM BUDH TECHNICAL UNIVERSITY,

LUCKNOW

SUBMITTED TO : SUBMITTED BY :

Dr. Anish Kaushik SWATI YADAV (ASST. Professor) MBA 4th SEM. Management Detp. SDCMT Roll. No. 0924070051 (BATCH NO-2009-2011)

SUNDERDEEP ENGINEERING COLLEGEGHAZIABAD

SUNDER DEEP ENGINEERING COLLEGE

GHAZIABAD

CERTIFICATE

This is to certify that. Swati Yadav, D/O Mr. R.K.Yadav is a bonafide

student of MBA-2nd Year under the Roll NO. 0924070051 in Sunder Deep

Engineering College, Ghaziabad. The topic of her Research Project is

“COMPARATIVE ANALYSIS OF ONLINE TRADING”.

Dr. Anish Kaushik

Faculty Guide

2

DECLARATION

I SWATI YADAV a student of M.B.A. IV semester of sunderdeep

engineering college Ghaziabad (10-11) bearing Roll. No. 0924070051

hereby declares that the dissertation project report titled COMPERATIVE

ANALYSIS BETWEEN TRADITIONAL SECURITY TRADING &

ONLINE SECURITY TRADING is the outcome of my own work and the

same has not been submitted to any university/ institution for the award of

any degree or any professional diploma.

DATE:

3

CONTENTS

WHAT ARE SECURITIES

Types of securities

Terms related to securities

INTRODUCTION TO SECURITY MARKET

Primary market

Secondary market

NEW DIRECTIONS IN MARKET

TRADITIONAL SECURITY TRADING

How trading is done

Types of trading and orders

Buying and selling of securities

ON LINE SECURITY TRADING

Introduction

Profile

How trading done on line

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Dematerialization of securities

ON LINE TRADING PROVIDERS

RESEARCH METHODOLOGY

Research design

Data collection techniques

COMPERATIVE ANALYSIS WITH RESPECT TO

CONSUMER PROSPECT

FINDINGS & RESULTS

CONCLUSION

REFRENCES AND BIBLIOGRAPHY

ANNEXURE

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ACKNOWLEDGEMENT

The making of this dissertation report calls for the contribution &

cooperation from many other besides an individual. I deem it a

privilege to express my heart felt gratitude & thank to all the

esteemed persons who have helped me a lot to structure this project.

It is a result of meticulous efforts put in by many minds who

contributed to final report formulation.

This project report is the outcome of my own collected information

which leaves an important, impact on my knowledge.

I convey my sincere thanks to my mentor Dr. ANISH

KAUSHIK .His excellent guidance, advice & directions are

invaluable.

Nevertheless whether quoted or not everyone whom I asked for

helped me with useful advice. I gained insight from every

conversation & deeply appreciated the tine they took out for me

from their busy hours of work.

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PREFACE

Practical training & focus is considered to be an immensely essential

part of all the professional institution & those who are aspiring for

M.B.A. program. This project is done in the field of finance.

As aspect of management education, which is receiving attention in

the evaluation of the practical training is to bring actual requirement

in touch of student of management. This project has been done with

an aim to study & understand the comparison between on line

trading and traditional security trading with the customer prospect.

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EXECUTIVE SUMMARY

It was a great privilege & learning experience for me to undergo

dissertation project. The summary of this study are as follows:-

To study the types of securities.

To study how securities are traded in the market.

To know how securities are traded on line (internet).

To know the benefits of on line trading.

To compare the online trading & traditional trading.

To know the customer awareness about online trading.

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What are securities?

Securities or shares are generic terms that stand for instrument of ownership

like shares. As well as instruments of lending like debentures, which are

issued publicly. Various types of securities are traded in the market. Broadly

securities represent evidence to property right. Security provides a claim on

an asset and any future cash flows the asset may generate. Commonly we

think of securities as shares & debentures. According to the securities

contracts regulation act 1956, securities include shares, scrips, stocks,

bonds, debentures or other marketable securities of any incorporated

company or other body corporate, or government.

Securities can be classified on the following basis:

1. Return and source of issue.

2. Fixed or variable income securities.

Types of securities

Equity shares - equity shares means common stock or ordinary

shares. Equity shares holders has a right to share in profit in the

form of dividend and bonus shares. Equity shares contains

following types of shares.

1. Non voting share

2. Right shares

3. Bonus shares

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Preference shares - preference shares are hybrid in nature. Its

features resemble the bond and equity shares.prefrence share

holders receive fixed dividend. It is the perpetual liability of the

corporate. The preference shares are of following types.

1. Cumulative preference shares

2. Non Cumulative preference shares

3. Convertible preference shares

4. Redeemable preference shares

5. Irredeemable preference shares

6. Cumulative Convertible preference shares

Debentures -According to companies act 1956“Debentures

includes debenture stock, bonds and any other securities of

company, whether constituting a charge on the assets of the

company or not.” Debentures are generally issued by the

private sector. Interest is paid on debenture. Debentures are

classified on the basis of security and convertibility.

1. Secured or unsecured

2. Fully convertible debenture

3. Partly convertible debenture

4. Non convertible debenture

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Bonds- Bonds is along term debt instrument that promises to

pay a fixed sum as interest for specified period of time. Bonds

have face value or par value. Bonds are traded in stock market.

Bonds may be traded at premium at par or at discount. Types of

bonds are following:

1. Secured bonds & unsecured bonds

2. Perpetual bonds & redeemable bonds

3. Fixed interest rate bonds & floating interest rate

bonds

4. Zero coupon bonds

5. Deep discount bonds

6. Capital indexed bonds

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Terms related to securities

Speculation- Involves short term buying and selling activities with the hope

of getting high profit from price fluctuation.

Sweat equity- Part of equity share capital. Issued at discount to employees

& directors of the company for the consideration other than cash.

Share certificate- A certificate under the common seal of the company

specifying the no. of shares held by any member.

Share warrants- Is a bearer document of title to buy specified number of

equity shares at a specified price.

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Security market

Security market is the place where securities are traded. Security market is

the place where buying and selling of securities takes place. Securities are

freely traded in security market. Security market classified as:

o New issue market (primary market)

o Secondary market

About new issue security market

In this market securities are offered for the first time. The

functions & organization are different from secondary market.

The new issue is offered through prospectus which is drafted

according to SEBI guidelines.

In the new issue the lead managers manage the issue, the

underwriters assures to take up unsubscribed portion according

to his commitment for a commission and the banker take up the

responsibility of collecting the application form and money.

Advertising agencies promote the new issue through

advertising.

Government agencies regulate the issue.

Norms are given by SEBI to price the issue. Proportionate

allotment method is adopted in the allocation of the share

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About secondary market

Investors can buy and sell securities through stock exchange. Stock exchange maintains active trading.

Stock exchange is regulated by the ministry of finance and SEBI.

Stock exchange regulates the fixation of prices of securities.

Stock exchange ensures safe and fair dealing.

Stock exchange facilitates dissemination of information.

Stock exchange acts as performance inducer.

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New Directions in the Markets

The capital markets have seen momentous changes since 1993. What are the

important new aspects of the capital markets that the investor should know

and pay attention to?

Liquidity

While stock market liquidity is much improved in India today as compared

with previous years, it remains important for investors to be aware of the

costs of trading and how to avoid them.

The word liquidity is used often and misunderstood often. The simplest way

to measure liquidity is to look at the difference between buy and sell prices.

If a share quotes at 10/11, i.e. that buyers pay Rs.11 while sellers get Rs.10,

then it is quite illiquid. These quotes mean that when you buy the shares at

Rs.11, you are immediately one rupee poorer, because the sale value of the

shares is only Rs.10. This difference of one rupee is called the "bid--ask

spread".

The spread is very important to traders. When you think that a price is going

to go up, you buy at Rs.11. Whether you are right or wrong in your forecast,

you will lose the spread. Many traders work hard to find the brokerage

company which charges the least brokerage. They should pay even more

attention to the spread, because it is generally bigger than the brokerage

fees!

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With floor--based trading, it was impossible for the investor to know the true

spread and this was the basis of much malpractice. Today, with

computerised trading, the investor can go to the NSE or BSE screen and see

the quotes for himself.

Good liquidity is now found on the bigger stocks of the country. On NSE,

the spread for stocks like Reliance and State Bank is often as small as five or

ten paisa (much less than was ever observed in the earlier days, even when

badla was available). In general, we say that liquidity is "good" when the

spread is less than 0.5% of the price. Such liquidity is good for both long--

term investors and traders, but the competition in trading is very heavy in

such stocks. When the spread is small, lakhs of traders using NSE terminals

around the country are competing to be first in catching news about

prospects of companies. This makes profitable trading extremely difficult.

Inferior liquidity is present in most stocks of the country. However, these are

the stocks where competition in trading is less, with greater opportunities for

identifying undervalued or overvalued stocks. In such stocks, both traders

and investors are advised to place "limit orders" insisting on a good price.

For example, if a stock has quotes of 10/11, then the buyer (who would

normally pay 11) should put a limit order at Rs.10.90, and the seller (who

would normally get 10) should put a limit order at Rs.10.10. This will take a

little more time to execute, and might sometimes fail to execute, but such

methods will significantly improve the prices obtained when buying or

selling. Traders can also earn profits from doing "market making", e.g.

placing limit orders at 10.10/10.90. This earns revenue of 80 paisa on each

cycle of buying and then selling (or selling and then buying).

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Depository

The most significant development in the markets of the last two years is the

depository (NSDL) which has been started by IDBI, UTI, NSE and SBI.

Especially for investors who are not in Bombay, the costs suffered through

dealing with registrars, having certificates and dividend checks stolen,

courier charges, etc. are enormous.

The depository is a great advance for the stock market. The depository does

to shares what banks do to currency notes. When one person needs to give

Rs.10, 000 to another, he can give currency notes, or he can deposit the

currency notes in a bank and write a cheque. In exactly the same manner,

instead of one person giving shares to another, he would deposit the shares

at the depository and then write a "cheque" enabling transfer of securities.

The transfer takes place within one day, the buyer never loses dividends or

bonus shares through delays in transfer, and the buyer never gets fake

certificates.

For many investors who have been avoiding the stock market owing to the

extremely painful paperwork and bad experiences with fake certificates, the

depository is a reason to return to equity investment.

The shares of more than 90 companies are available for trading through the

depository, and 5,000 investors have converted Rs.9, 000 crore of securities

from physical shares into electronic holdings. Every investor in the country

should now go to the nearest depository participant and open his account.

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Derivatives

The most important change expected in the next one year in the capital

markets will be the launch of derivatives trading.

Futures and options are tools which are used all over the world for both

hedging (reducing risk) and trading (taking positions based on forecasts).

They have been found to be safe and effective instruments.

People often compare derivatives against badla. This comparison is not

accurate. Badla is merely a method for borrowing shares or money.

Derivatives on the index allow for hedging (reducing risk) of any portfolio,

and for trading. Derivatives will help investors do better planning when they

expect that they will receive or have to pay money in the future.

Derivatives will enable fascinating arbitrage strategies. Today, arbitrage of a

simple nature takes place: traders buy on the NSE and sell on the BSE. With

index futures, arbitrage will take place between the present and the future --

for example, a trader may choose to buy the index in the present (on the cash

market) while selling the index in the future (on the futures market).

The risk of equity investment will come down once derivatives are available.

This will help the investment culture in the country. Derivatives will also

make taking positions on the index possible, which is currently not available.

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The End of "Free" Speculation

In the earlier days, in India, markets offered methods for "free" trading,

where a person could take positions, even very large positions, without any

connection to the kind of losses that he could bear.

This style of functioning led to everyone getting hurt from time to time.

Traders who made losses which were bigger than their capacity to pay for

them, which led to payments crises, which led to delays and losses for

everyone on the market. In the modern world, the solution adopted uses the

"clearing corporation". The clearing corporation makes itself to be the legal

counterparty to every buyer or seller on the market. Hence if the buyer goes

bankrupt, the seller still sees his position go through without any delays or

problems. Hence the payments problems faced by the entire market are now

eliminated.

Many people would still like to go back to the old world, where they could

just take positions and not face any constraints in doing so. We have to

become very clear that the days of "free" trading are over. Markets which

allow free trading will not survive, and wise regulators will not allow such

markets to exist. The new way of functioning is twofold: (1) before taking a

position, the trader will have to pay up a deposit, which is called "initial

margin", and (2) the trader will have to pay up all losses made on an open

position on a day to day basis. The initial margin that is currently used on

many cash markets in India as of today is actually on the low side, and is

likely to rise in the future as the understanding of these problems improves.

The upcoming derivatives markets will also require payment of initial

margin.

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This discipline is used on all well--functioning markets in the world. It

ensures that payments crises do not develop on the market. It reduces the

potential for market manipulation. Without this discipline, the smooth

functioning despite massive volumes of a market like NSE would not be

possible.

We should understand that the days of "free" trading are over and the days

of paying initial margin before taking a position are here. The organization

of markets in India is increasingly going to reflect this reality.

Trading in Corporate Bonds

Many people buy corporate bonds to hold till maturity. One new feature in

the country is the increasing interest in trading corporate bonds.

When interest rates go up, bond prices go down. When bad news appears for

a company, which increases the risk of failure in servicing the bond, bond

prices go down. Traders work on forecasting interest rates and on watching

the level of distress of a company and trade in corporate bonds. Some bonds,

like the TISCO SPN are already highly active in secondary market trading.

Prior to the liberalization, interest rates were fixed by the RBI, and few large

bond issues took place. Hence the traditional focus amongst traders is in

equity. However, today interest rates are mostly market determined, and

fluctuate every day. Large bond issues are taking place on a regular basis.

The total volume of bonds which are currently available for trading is

around Rs.75, 000 crore.

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This has two consequences, for investors and for traders. For investors,

corporate bonds can increasingly be viewed as liquid, as part of the portfolio

which can be liquidated when money is needed -- the investor is not forced

to hold the bond till maturity. For traders, corporate bonds are now

something to trade on, in addition to the traditional interest in trading on

equity.

Index Funds

Investors in mutual funds have generally noticed that mutual funds do badly.

Most mutual funds, in all countries, deliver inferior returns to the market

index after their risk is taken into account.

Hence a new concept called the "index fund" has come up. In the index

fund, the fund manager makes no attempt to outperform the index. He

simply buys and holds all the shares in the index, in correct proportions.

Wherever index funds have come, they have done better than 80% of the

mutual funds which are competing against them.

This approach has several benefits. The fund manager does not waste money

on doing research. He does not waste money on trying to trade actively. The

investor is not worried about the kinds of stocks that the manager is putting

into the portfolio, about the kind of brokerage firms which the fund manager

is using, etc. The investor buys the index fund in full confidence that his

interests are protected. The investor has a simple way to check whether the

fund manager is doing a good job: he has to simply compare the returns on

the index fund against the returns on the index. If the scheme is not

performing as well as the index, the investor should move his money to

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another index fund. This kind of day to day monitoring of the fund manager

is not possible with mutual fund schemes which are not index funds, where

the investor has no way to get day to day feedback on what the manager is

doing with his money.

For these reasons, all over the world, investors have found index funds to be

very valuable to them. In countries like the US, a full 40% of the total

investment in mutual funds is now in index funds!

Index funds are a new idea in India. This is partly because good market

indexes were not available, where index funds could be properly

implemented. The NSE-50 index is the first index which can be

meaningfully used for making index funds. It has helped make possible

India's first index fund, the "India Access Fund", an index fund based on the

NSE-50 (Nifty) which has been launched offshore by UTI, SBC Warburg

and Commercial Union. This fund now has $75 million invested in it.

Several companies, including IDBI Mutual Fund, have plans to launch index

funds aimed at domestic investors. This is likely to be a very important new

avenue for investment for investors.

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How shares are traded in the market?

Securities are traded in three different different ways in stock exchange in

India:

1. spot basis

2. cash basis

3. Settlement basis.

Only a few select frequently traded ordinary shares are eligible for being

traded on the settlement basis. These are known as specified shares or

category A shares. All other ordinary shares, preference shares,

debentures, government securities have to be traded on cash basis. The

ordinary shares which cannot be traded on settlement basis are known as

non-specified or category B shares. Category B shares are also said to

be on the cash list and are known as cash securities. Shares may be

moved from specified list to cash list and vice versa within a stock

exchange. Also, a security may be on specified list in one stock exchange

and on cash in another. All the securities may be traded on spot or cash

basis as well.

Spot trading: under this method the seller of a share must deliver the

share certificate within 48 hours to the buying broker. As such the seller

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receives the selling selling price immediately upon the delivery of the

security certificate and payment of cash are more or less immediate.

Cash trading: In this method, notwithstanding the term ‘cash basis’, the

securities are not exactly traded for cash. Actually delivery of certificate

and the payment of cash must take place before the next settlement date

meant for transactions,

Settlement trading: This system facilitate the buying and selling of

shares without payment of cash or delivery of shares at short notice, it

requires the buyers and sellers to go round hunting for suitable lenders of

money and share certificates respectively.

Types of orders

Buy and sell orders are placed with the member of stock exchange by the

investor. The orders are of following types.

Limit orders: orders are limited by a fixed price.

Best rate order: here, the buyer and seller givers the freedom to the broker

to execute the order at the best possible rate quoted on that particular date

for buying.

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Discretionary order: the investor gives the range of price for purchase and

sale.

Stop loss order: the orders are given to limit the loss due to unfavorable

price fluctuation in the market.

Buying and selling of securities

1. To buy and sell the shares the investor has to locate a registered

broker or sub-broker who can render prompt and efficient services.

2. Then the order to buy and sell the shares the specified numbers of

shares of the company of the investor’s choice are placed with the

broker.

3. After execution of the order the broker delivers the contract note to

the investor containing the name of the company, number of shares

bought, price, brokerage and the date of delivery.

4. Broker also delivers the share certificate and transfer deed to the

customer which he gets from clearinghouses.

5. Investor fills the transfer deed and stamp it. Stamp duty is one half

percentage of purchase consideration.

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On line trading system – An Introduction

The net is used as a medium of the trading in internet trading. Orders are

communicated to the stock exchange through website. Internet trading is

started in India on 1st April 2000 with 79 members seeking permission for

online trading. The SEBI committee on internet based securities trading

services has allowed the net to be used as an order routing system (ORS)

through registered stock brokers on the behalf of their clients for execution

of transaction.

Under the ORS the client enters his requirements (security, quantity, price

and buy/sell) in broker’s site. They are checked electronically against the

clients account and routed electronically to the appropriate exchange for the

execution by the broker.

1. The user should have the user id & password to enter into the

electronic ring. He should also have a demat a/c & bank a/c. this

system permit only a registered client to log in the using user id &

password. Order can be placed using place order window of the

website.

2. The client has to enter stock code & other parameters such as quantity

& price of the scrip on the place order windows.

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3. The client can review the order placed by clicking the review option.

He can also reset to clear the values.

4. Satisfactory orders can be sent by clicking the send option.

5. The client receives an order confirmation message with order number

and value of the order.

6. If the order is rejected by the broker or stock exchange for certain

reasons such as invalid price limit, a related message appears at the

bottom of the screen. The time taken to execute the order is 10

seconds.

7. When the trade is executed, the broker asks for the transfer of funds

by investor to his account. Stocks are credited/debited according to

the buy/sell order in the demat.

Internet trading provides total transparency between a broker and an investor

in the secondary market. In the open outcry system, only the broker knew

the actually transacted price. Screen based trading investors can see

themselves the price at which the deal takes place.

Confirmation &execution of trade reaches the investor within the least

possible time, mostly within 30 seconds. Instant feedback is available about

the execution. Some of the websites also offer:

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News and research report

BSE and NSE movements

Stock analysis

Freebies

IPO & mutual fund centers

Movements of international stock trading.

Internet trading in stocks eliminates the hassles of running around the

broker, uncertainty over the exact price of purchase, writing out cheques and

giving instructions to depository participants (a broker with a demat

account). An investor can do his own research on the Net before making a

deal. The websites offering e-broking have all the information needed to

make an informed purchase or sale. Till recently, such information was the

exclusive preserve of big investors. Internet trading in India is expected to

account for 10 per cent of the trading volume of the stock exchanges in a

year and would grow to 25 to 30 per cent in the next few years.

The sale or purchase of shares involves three steps: placement of order (for

sale or purchase), payment (for purchase) and delivery of shares."

Online brokerage houses in India might offer folio services sooner than most

people expected. It is predicted that with net trading becoming important, we

could be a year away from active trading. And another year away from

online traders moving into sophisticated activities like folio services.

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Online brokerage houses abroad are already offering folio services.

Foliofn.com, a foreign online brokerage firm, for instance, allows its

investors to buy fractional shares and treats a portfolio trade as a single

order. Unlike the conventional portfolio management services, these are less

expensive. These are charged like any other stock trading services.

While substantial progress has been made by stock exchanges and SEBI

with screen based trading and dematerialization, a typical retail investors

still feels the pinch of high brokerage. With his regular broker, sitting in and

brick and mortar set-up, he did not have access to real time, quality research

and information. E-broking is yet another milestone in trading, which has

substantially reduces brokerage charges and transaction costs to the

investors. The online brokerage houses play on volumes, not margins and

brokerage.

Flexible systems with high levels of connectivity are vital to e-broking. But

with increasing bandwidth and laying of optical fibers for transmission of

data, this problem will also solved.

Traditional broking was previously a personalized industry with individual

brokers operating through firms. Then the business went through a process

of corporatisation.

According to Forrester Research, by 2003, 9.7 million US households will

manage more than $3 trillion in 20.4 million on-line accounts. Jupiter

Communications estimates that, by 2003, 20.3 million households will trade

on-line and also puts total on-line account assets at more than $3 trillion.

Professional Management

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Mutual Funds provide the services of experienced and skilled professionals,

backed by a dedicated investment research team that analyses the

performance and prospects of companies and selects suitable investments to

achieve the objectives of the scheme. But the failure of many mutual funds

in the past has proved that even fund managers are not fully immune to

market vagaries despite their knowledge and experience. Further with the

regulation of sharing all information given to analysts, with the general

public, the information edge of the institutions has disappeared.

Diversification

Mutual Funds invest in a number of companies across a broad cross-section

of industries and sectors. This diversification reduces the risk because

seldom do all stocks decline at the same time and in the same proportion.

Investors can achieve this diversification through a Mutual Fund with far

less money than they can on their own. But sector based funds like Birla IT

fund, Kotak Mahindra K Technology, Kothari Pioneer Pharma fund- have

been very polular with investors, indicating their willingness to take

exposure in a specific sector to reap the benefits if high growth rate of the

sector, hence achieving high returns.

Here, mutual fund does score over the online brokerage but in recent times

investors have referred high returns to diversification.

Return Potential

30

Over a medium to long-term, Mutual Funds have the potential to provide a

higher return as they invest in a diversified basket of selected securities. But

for short term investors, mutual funds are not such an attractive avenue.

Here online brokerage houses have a big advantage over the mutual funds.

They have led to the birth of a new class of investors hitherto unknown in

India: day traders.

Low Costs

Mutual Funds are a relatively less expensive way to invest compared to

directly investing in the capital markets because the benefits of scale in

brokerage, custodial and other fees translate into lower costs for investors.

There is 1% expense fee levied in the investment, along with custodial, asset

management and other fees. But with the brokerages falling through the roof

the cost advantage of mutual funds is also lost. Online brokerages in India

are among the lowest the world over.

Liquidity

In open-end schemes, the investor gets the money back promptly at net asset

value related prices from the Mutual Fund. In closed-end schemes, the units

can be sold on a stock exchange at the prevailing market price or the

investor can avail of the facility of direct repurchase at NAV related prices

by the Mutual Fund, though very few close ended schemes are in existence

now. Trading in open-ended schemes is not an issue as they can be sold to

the scheme itself anytime the investor wants to liquidate his position. But

with online broking, and dematerialised environment in the capital markets

now, liquidity of stocks is no more a problem.

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Transparency

Though mutual fund managers promise regular information on the value of

the investment in addition to disclosure on the specific investments made by

the scheme, the proportion invested in each class of assets and the fund

manager's investment strategy and outlook, this has not been a common

practice. The example of UTI illustrates this point. This works as a big

disincetive to the people planning to invest in mutual funds.

Flexibility

Through features such as regular investment plans, regular withdrawal plans

and dividend reinvestment plans, investor can systematically invest or

withdraw funds according to his needs and convenience in mutual funds. But

what more ease then to do the trade yourself without any human interaction.

Online brokerage offers you the service of being able to do all the trading as

per your own wishes without any human interface.

Affordability

Investors individually may lack sufficient funds to invest in high-grade

stocks. A mutual fund because of its large corpus allows even a small

investor to take the benefit of its investment strategy.

Choice of Schemes

The ease of setting up on-line broking operations has driven down

commissions. Even though online brokerage houses are making losses in the

short run, they are confident of the future of e-broking. Also, most of the

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online brokerage houses have been set up by existing brick-and-mortar

brokers, to supplement their existing business and increase their reach.

Currently, Indian broking firms charge an average of 0.85 to 1.25 per cent as

commission, which is lower than in many other markets.

The fierce competition in on-line broking and the increase in trading

volumes are certain to drive these rates down further. The transaction costs

will be significantly lower. The first clutches of brokers are charging

between 0.75 per cent and 0.40 percent for delivery trades depending on the

size of transactions.

All the online brokers are targeting large volumes of trade to make money.

While some of them admit they will make losses in the short-term, they

remain optimistic about overcoming them with sufficient volumes.

To survive, brokers must specialize, diversify, or face being swallowed by

retail banks or sunk by market forces. Thus, successful on-line brokers may

be the ones that are niche providers, aiming their specialized products at

highly profitable segments like high net worth active traders or,

alternatively, those who decide to become infomediaries, offering a wide

range of products and services. The winners will be those brokerage houses

that provide an entire spectrum of products and services for the investor, and

have the technology to scale up their systems to cope with the increasing

volumes of trades on-line.

The stock exchanges too are gearing up their infrastructure to facilitate

Internet trading. The NSE has not just put a comprehensive e-trading system

33

in place; it is in the process of connecting the system to the bank interface

for online payments.

Popularity among investors

The outpouring of small investor interest testifies that. The website of

Motilal Oswal Securities, one of the firms licensed to provide online

broking, gets 7,000-8,000 enquiries a month about online trading. This

shows the rising interest of retail investors in using the facility of e-broking.

The firm expects at least 25 per cent of these enquiries to convert into

clients. The investors will gain from a fall in brokerage fee from 1-2 per cent

(of the purchase or sale deal) to just 0.75 per cent. E-broking will take the

stock markets right to the small investors' doorstep.

But the real winner in the cyber-broking sweepstakes will, of course, be the

investor who can, more easily than ever before, not only know where to put

his money, but when and why. And all of this with just a few clicks of the

mouse.

Conclusion

Hence, an informed investor who is looking for convenience in active day

trading will find online brokerage services of great use. But investors

looking for medium term a long term horizons may still be willing to put

their money in hands of mutual fund managers or investing through their

local brokers.

34

The mode of payment and fund transfer still remains an issue to be tackled

in e-broking.

35

PROFILE

Trading in shares:

on line trading offers you various options while trading in shares.

Cash Trading : This is a delivery based trading system, which is generally

done with the intention of taking delivery of shares or monies.

Margin Trading : You can also do an intra-settlement trading up to 3 to 4

times your available funds, wherein you take long buy/ short sell positions

in stocks with the intention of squaring off the position within the same day

settlement cycle.

Margin PLUS Trading : Through Margin PLUS you can do an intra-

settlement trading up to 25 times your available funds, wherein you take

long buy/ short sell positions in stocks with the intention of squaring off the

position within the same day settlement cycle. Margin PLUS will give a

much higher leverage in your account against your limits.

Spot Trading : This facility can be used only for selling your demat stocks

which are already existing in your demat account. When you are looking at

an immediate liquidity option, 'Cash on Spot' may work the best for you, On

selling shares through "cash on spot", money is credited to your bank a/c the

same evening & not on the exchange payout date.

36

BTST : Buy Today Sell Tomorrow (BTST) is a facility that allows you to

sell shares even on 1st and 2nd day after the buy order date, without you

having to wait for the receipt of shares into your demat account.

Customer care services: Customer care services allow you to call on a

local number in your city & trade on the telephone through our Customer

Service Executives.

Trading on NSE/BSE: Through on line trading you can trade on NSE as

well as BSE.

Market Order: You could trade by placing market orders during market

hours that allows you to trade at the best obtainable price in the market at

the time of execution of the order.

Limit Order: Allows you to place a buy/sell order at a price defined by

you. The execution can happen at a price more favorable than the price,

which is defined by you, limit orders can be placed by you during holidays

& non market hours too. 

2. TRADE IN DERIVATIVES:

FUTURES

Through on line trading, you can now trade in index and stock futures on the

NSE. In futures trading, you take buy/sell positions in index or stock(s)

contracts having a longer contract period of up to 3 months.

37

Trading in FUTURES is simple! If, during the course of the contract life, the

price moves in your favor (i.e. rises in case you have a buy position or falls

in case you have a sell position), you make a profit.

Presently only selected stocks, which meet the criteria on liquidity and

volume, have been enabled for futures trading.

Calculate Index and Know your Margin are tools to help you in

calculating your margin requirements and also the index & stock price

movements.

OPTIONS:

An option is a contract, which gives the buyer the right to buy or sell shares

at a specific price, on or before a specific date. For this, the buyer has to pay

to the seller some money, which is called premium. There is no obligation

on the buyer to complete the transaction if the price is not favorable to him.

To take the buy/sell position on index/stock options, you have to place

certain % of order value as margin. With options trading, you can leverage

on your trading limit by taking buy/sell positions much more than what you

could have taken in cash segment.

The Buyer of a Call Option has the Right but not the Obligation to

Purchase the Underlying Asset at the specified strike price by paying a

premium whereas the Seller of the Call has the obligation of selling the

Underlying Asset at the specified Strike price.

The Buyer of a Put Option has the Right but not the Obligation to Sell the

Underlying Asset at the specified strike price by paying a premium whereas

38

the Seller of the Put has the obligation of Buying the Underlying Asset at

the specified Strike price.

By paying lesser amount of premium, you can create positions under

OPTIONS and take advantage of more trading opportunities.

3. Investing in Mutual funds:

On line trading brings you the same convenience while investing in Mutual

funds also - Hassle free and Paperless Investing.

With the inclusion of Standard Chartered MF, you can now invest on-line in

10 mutual Funds. Prudential ICICI MF, JM MF, Alliance MF, Franklin

Templeton MF, Sundaram MF, Birla Sun Life MF, HDFC MF, Principal

MF and IL & FS MF are the Mutual Funds available for investment. You

can invest in mutual funds without the hassles of filling application forms or

any other paperwork. You need no signatures or proof of identity for

investing.

Once you place a request for investing in a particular fund, there are no

manual processes involved. Your bank funds are automatically debited or

credited while simultaneously crediting or debiting your unit holdings.

You also get control over your investments with online order confirmations

and order status tracking. Get to know the performance of your investments

through online updation of MF portfolio with current NAV.

On line trading offers you various options while investing in Mutual

Funds:

39

Purchase: You may invest/purchase Prudential ICICI MF, JM MF, Alliance

MF, Franklin Templeton MF, Sundaram MF, Birla Sun Life MF, HDFC

MF, Principal MF, IL & FS MF and Standard Chartered MF without the

hassles of filling application forms.

Redemption: In addition to giving hassle-free paperless redemption, on line

trading offers faster liquidity. You can redeem the mutual fund units through

on line trading. The money will be credited to your bank account

automatically 3 days after the order placement date.

Switch: To suit your changing needs you may wish to shift monies between

different schemes. You can switch your monies online from one scheme to

another in the same fund family without any hassles.

Systematic Investment plans (SIP): SIP allows you to invest a certain sum

of money over a period of time periodically. Just fill in the investment

amount, the period of investment and the frequency of investing and submit.

On line trading will do the rest for you automatically investing periodically

for you.

Systematic withdrawal plan: This allows you to withdraw a certain sum of

money over a period of time periodically.

Transfer-in: You can convert your existing Mutual funds into electronic

mode through a transfer-in request.

Online Mutual Fund Plaza

In the physical world, an investor in a Mutual Fund scheme will have to

contact an empanelled broker, fill a physical application form, draw a

40

cheque and wait for confirmation from the Mutual Fund. If the process gets

delayed, the investor may miss out on that day's NAV.

Similarly, in case of redemptions/dividend pay-outs, the time taken to

receive the moneys would also be dependent on the level of banking

facilities available to the Investor as well as to the Mutual Fund. Further, in

case of queries and delays, valuable time may also be spent in just

contacting the Mutual Fund.

In contrast to the existing method of investing in mutual funds, the

advantages of investing through internet are multi-faceted. The customer

would have a variety of mutual fund schemes to choose from and can invest

at a click of the mouse.

In line with its unique technology-based service to its customers, on line

trading offers a seamless mutual fund investing experience through online

linkages to the Mutual Fund and the customer's Bank account. Investment

can start as soon as bank funds are allocated by the customer specifically for

Mutual Fund transactions.

The customer gets to know the scheme details and the NAV, entry and exit

load upfront. Further, transactions are sent to the registrar the same day for

processing (if they are entered into prior to the scheme specific cut-off time),

so as to get the same day's NAV.

The dividend reinvestment/payout option for each scheme is just a click of

the mouse away, and the dividend will be reinvested/paid and units will be

allotted to the customer automatically.

41

The SIP and SWP are highly customer friendly and simple enough as the

transactions will be processed as desired by the customer on the assigned

dates. The customer will also be intimated 7 days in advance by e-mail to

fund the bank account before the next installment for SIP becomes due.

The customer does not face any hassles of drawing cheques /making demand

drafts and depositing warrants as all the financial transactions are completely

automatic without any act on the part of the customer. The proceeds/units

are debited/credited automatically.

With this, the customer need not keep tab of anything other than his e-

brokerage account number and on line trading will be the single point

contact for the customer. on line trading will answer all the customer queries

relating to investments in any Mutual Fund offered through it.

Continuing its focus on customer needs, on line trading would add more and

more mutual funds on its plaza, to enable the customer to choose from a

variety of Mutual Funds and schemes to suit his/her investment objectives.

  4. IPOs and Bonds Online:

You could also invest in Initial Public Offers (IPOs) and Bonds online

without going through the hassles of filling ANY application form/

paperwork.

Get in-depth analyses of new IPOs issues (Initial Public Offerings) which

are about to hit the market and analysis on these. IPO calendar, recent IPO

listings, prospectus/offer documents, and IPO analysis are few of the

features, which help you, keep on top of the IPO markets.

42

5. Content Features:

There are a host of features of on line trading that shall help you make

informed investment decisions.

We provide you with the indices of major world markets, nifty futures and

ADR prices of Indian scrip. Get daily share prices of all scrips, monthly and

yearly high/lows etc through Market Watch.

Get breaking news from CNBC and Reuters. Catch a glimpse of News

Headlines through our scrolling Direct News Headlines.

Get a snapshot of the latest developments in the markets through the day

using Market Commentary. You can get weekly snapshots also. Use Pick

of the week which focuses on fundamental stocks with sound prospects.

Catch interviews, reactions and comments from industry leaders with CEO

Call. Track the movement of leading scrips within a sector across 12 sectors

using Market@Desktop.

Equip yourself with our barometers. Market Barometer gives you in-depth

information of the weightages of shares on Nifty and Sensex. Get a glimpse

of the performance of various industry sectors through Industry

Barometer.

Direct Technical Charts offer interactive charting with advanced

indicators. Gets a bird’s eye view of over 5000 companies at a single click

using Company Snapshot. Glance through analyst recommendations using

Multex Global Estimates.

43

In case, you are not too comfortable with share trading, try our Learning

Centre, which is a tutorial on investments and My Research, that helps you

to research a stock better.

6. Personal Finance:

Use our Personal Finance section and get hold of tools that can help you

plan your investments, retirement, tax etc. Analyze your risk profile through

the Risk Analyzer and get a suitable investment portfolio plan using

Asset Allocator.

7. Customer Service Features:

With on line trading you can trouble shoot all your problems online.

Address your trading queries on-line through "Easy Mail". You can view

and change your profile or password on-line through General Profile

option.

View your Account Statement and Bill Summary of your transactions online

using bills & accounts.

View your Digital Contract Notes instantly. View various charges through

the Fee Schedule option

Give your feedback or viewpoint through the Viewpoint online.

1. Investing in Mutual funds: Internet brings you the online convenience

while investing in Mutual funds also - Hassle free and Paperless Investing.

44

You can now invest on-line in 15 mutual Funds.

Alliance MF IL & FS MF Prudential ICICI MF

Birla Sun Life MF ING Vysya MF Reliance Capital MF

DSP Merrill Lynch MF JM MF Standard Chartered MF

Franklin Templeton MF Kotak Mahindra MF Sundaram MF

HDFC MF Principal MF Tata MF

You can invest in mutual funds without the hassles of filling application

forms or any other paperwork. You need no signatures or proof of identity

for investing.

Once you place a request for investing in a particular fund, there are no

manual processes involved. Your bank funds are automatically debited or

credited while simultaneously crediting or debiting your unit holdings.

You also get control over your investments with online order confirmations

and order status tracking. Get to know the performance of your investments

through online updation of MF portfolio with current NAV.

on line trading offers you various options while investing in Mutual Funds:

Purchase: You may invest/purchase mutual fund units without the hassles

of filling application forms.

Redemption: In addition to giving hassle-free paperless redemption, on line

trading offers faster liquidity. You can redeem the mutual fund units through

on line trading. The money will be credited to your bank account

45

automatically 3 days after the order placement date.

Switch: To suit your changing needs you may wish to shift monies between

different schemes. You can switch your monies online from one scheme to

another in the same fund family without any hassles.

Systematic Investment plans (SIP): SIP allows you to invest a certain sum

of money over a period of time periodically. Just fill in the investment

amount, the period of investment and the frequency of investing and submit.

Systematic withdrawal plan: This allows you to withdraw a certain sum of

money over a period of time periodically.

Transfer-in: You can convert your existing Mutual funds into electronic

mode through a transfer-in request.

2. IPOs:

You could also invest in Initial Public Offers (IPOs) online without going

through the hassles of filling ANY application form/ paperwork.

Get in-depth analyses of new IPOs issues (Initial Public Offerings), which

are about to hit the market, are analysis on these. IPO calendar, recent IPO

listings, prospectus/offer documents, and IPO analysis are few of the

features, which help you, keep on top of the IPO markets.

3. GOI Savings and Tax Saving Bonds: You could invest Bonds online

without going through the hassles of visiting different offices, following up

with brokers, filling ANY application form/ paperwork or writing cheques.

46

4. Content Features:

There are a host of features of on line trading that shall help you make

informed investment decisions. You will also receive regular communication

from us guiding you on the ideal investment options.

5. Personal Finance:

Use our Personal Finance section and get hold of tools that can help you

plan your investments, retirement, tax etc. Analyze your risk profile through

the Risk Analyzer and get a suitable investment portfolio plan using Asset

Allocator.

6. Customer Service Features:

With on line trading you can trouble shoot all your problems online.

Address your investment queries on-line through "Easy Mail". You can view

and change your profile or password on-line through General Profile option.

Give your feedback or viewpoint through the Viewpoint online.

47

DEMATERIALISATION

Dematerialized securities are securities that are not on paper and a certificate

to that effect does not exist. They exist in the form of entries in the book of

depositories. Essentially, unlike the traditional method of possessing a share

certificate to the effect of ownership of shares, in the demat system, the

shares are held in a dematerialized form. This system works through a

depository who is registered with the Securities and Exchange Board of

India (SEBI) to perform the functions of a depository as regulated by SEBI.

Under Section 68 B of the Companies Act, inserted by the Companies

(Amendment) Act, 2000, it is mandated that every initial public offer made

by a listed company in the excess of Rs 10 Crores has to be issued in

dematerialized form by complying with the requisite provisions of the

Depositories Act, 1996.

Depository system

A major weakness in the Indian stock market has been the lack of depository

services on modern lines. Depositories provide for maintenance of

ownership records in a book entry form. Before the Depositories Ordinance

introduced the depositories system in India, every share transfer required to

be accomplished by a physical movement of share certificates to, and the

registration with the company concerned.

48

Two types of ownership are contemplated under the depository

system and can be briefly put forth as follows:

1. A registered owner is the depository who holds the securities in his name.

2. A beneficial owner is the person whose name is recorded as such with the

depository. Though the securities are registered in the name of the

depository actually holding them, the rights, benefits and liabilities in

respect of the securities held by the depository vest in the beneficial owner.

The depository model is based on the deposit of securities by the owner of

the securities with a certified depository. Subsequently, an entry is made in

the name of the said owner, manifesting his ownership of the securities upon

which the person depositing the securities becomes the beneficial owner in

respect of the said securities. The service provided in relation to this by the

depository is that of recording of allotment of securities or transfer of

ownership of securities in the

record of the depository.

Process of conversion of securities into the demat form

Securities specified as being eligible for dematerialization by the depository

in its bye laws and as under the SEBI (Depositories and Participants)

Regulations, 1996 (the Regulations) can be converted or issued in a

dematerialized form. The process of conversion of securities into a

49

dematerialized form or the issuance of the same in a dematerialized form can

be explained thus:

1. Firstly, the issuer company, whose securities are eligible for

dematerialization, has to enter into an agreement with a depository for

dematerialization of securities already issued, or proposed to be issued to the

public or existing shareholders .

2. The investor is given an option to hold the securities in a dematerialized

form and it is his prerogative to exercise the option to hold the securities in

that manner.

3. The depository enters into an agreement with the participants who are the

agents of the depository and co-functionaries in the process of

dematerialization of securities.

4. Any person can then enter into an agreement, through the participant, with

the depository for availing the services provided by the depository.

5. Upon the entering into such agreement with the depository, the person has

to surrender the certificate pertaining to the securities sought to be

dematerialized to the issuer. This surrender is effected in the following

manner:

(i) The person (beneficial owner) who has entered into an agreement with

the participant for dematerialization of the securities has to inform the

participant about the details of the certificate of such securities.

(ii) The beneficial owner has to then surrender the said certificate to the

participant.

(iii) The participant informs the depository about the particulars of the

50

securities to be dematerialized and the agreement entered into between him

and the beneficial owner.

(iv) The participant then transfers the certificate pertaining to the said

securities to the issuer along with the details and particulars of the securities.

(v) These certificates are mutilated upon receipt by the issuer and substituted

in the records against the name of the depository, who is the registered

owner of the said securities. A certificate to this effect is sent to the

depository and all stock exchanges where the security is listed.

(vi) Subsequent to this, the depository enters the name of the person who has

surrendered the certificate of security as the beneficial owner of the

dematerialized securities.

(vii) The depository also enters the name of the participant through whom

the process has been carried out and sends an intimation of the same to the

said participant.

6. Once the aforesaid process of dematerialization is carried out, the

depository has the responsibility to maintain all the records pertaining to the

securities that have been dematerialized.

Advantages of Dematerialization

The advantages of dematerialization of securities can be summarized as

follows:

A. Share certificates, on dematerialization, are cancelled and the same will

not be sent back to the investor. The shares, represented by dematerialized

share certificates are fungible and, therefore, certificate numbers and

51

distinctive numbers are cancelled and become non-operative. The depository

system and dematerialized securities offer paperless trading and transfer of

shares through the use of technology.

B. It enables processing of share trading and transfers electronically without

involving share certificates and transfer deeds, thus eliminating the paper

work involved in scrip-based trading and share transfer system.

C. Transfer of dematerialized securities is immediate and unlike in the case

of physical transfer where the change of ownership has to be informed to the

company in order to be registered as such, in case of transfer in

dematerialized form, beneficial ownership will be transferred as soon as the

shares are transferred from one account to another.

D. The investor is also relieved of problems like bad delivery, fake

certificates, shares under litigation, signature difference of

transferor and the like.

E. There is no need to fill a transfer form for transfer of shares and affix

share transfer stamps.

F. There is saving in time and cost on account of elimination of posting of

certificates.

G. The threat of loss of certificates or fraudulent interception of certificates

in transit that causes anxiety to the investors, are

eliminated.

Disadvantages of Dematerialization

The disadvantages of dematerialization of securities can be summarized as

follows:

A. Trading in securities may become uncontrolled in case of dematerialized

52

securities.

B. It is incumbent upon the capital market regulator to keep a close watch on

the trading in dematerialized securities and see to it that trading does not act

as a detriment to investors. The role of key market players in case of

dematerialized securities, such as stock-brokers, needs to be supervised as

they have the capability of manipulating the market.

C. Multiple regulatory frameworks have to be confirmed to, including the

Depositories Act, Regulations and the various Bye Laws of various

depositories. Additionally, agreements are entered at various levels in the

process of dematerialization. These may cause anxiety to the investor

desirous of simplicity in terms of transactions in dematerialized securities.

However, the advantages of dematerialization outweigh its disadvantages

and the changes ushered in by SEBI and the Central Government in terms of

compulsory dematerialization of securities are important for developing the

securities market to a degree of advancement. Freely traded securities are an

essential component of such an advanced market and dematerialization

addresses such issues and is a step towards the advancement

53

On line trading providers

www.hdfcsec.com . Online trading website of HDFCBank. www.beseindia.com .Official website of Bombay Stock Exchange. www.ndsl.com . Official website of National Depository Services

Ltd.

www.nsdl.com . Official website of National Securities Depository Ltd.The apex depository body.

www.online.stockholding.com . Online stock trading services offered by Stock Holding Corporation Ltd.

www.sharekhan.com . Online stock trading services site. www.equitymaster.com . Online stock trading services site. www.5paisa.com Online stock trading site. www.icicidirect.com Online stock trading site of ICICI Bank. www.midirect.com Online stock trading site. www.bizfinance.com Online stock trading site. www.debtonthenet.com Online stock trading site. www.ecoins.net Online stock trading site. www.jpmorgan.com Online stock trading site. www.equis.com Online stock trading site. www.kotakstreet.com Online stock trading site. www.cybercash.com Online stock trading site. www.moneypore.com Online stock trading site.

54

RESEARCH METHODOLOGY

An exploratory research has been carried out to study the behavior of

customers. To meet the research objective a research formats, to collect

information from the respondents was made & the information was collected

through individual interaction with the researcher. The data was collected

using scientific method as per the questionnaire sample elements have been

chosen by observation techniques.

Research Design

Research was conducted to know the scope of on line trading, so it was

designed as Analytical.

1. Survey of the city- Ghaziabad

2. Survey of the area- urban area

Data collection techniques

Data for this study has been collected by conducting personal interviews

with questionnaire responses.

Survey

The data was collected from the different categories of the customer by

personal interviews through questionnaire to evaluate the potential of the

product.

Primary data

Primary data was collected with the help of:

55

1. Questionnaire: A prepared questionnaire has been given to the

respondent to get the information. This method helps in collecting the inner

view of the respondent & their suggestion about the product.

2. Personal Interviews: personal interview was conducted. A mixed

type of questions was asked.

Sample Design

Data for this study has been collected from primary sources. For the

collection of data CONVENIENCE SAMPLING has been used.

Sample Size

Sample size for the study was 50 for the universe of the urban area of

Ghaziabad

56

COMPERATIVE ANALYSIS OF DATA

Data was analyzed according to the questions that were asked. Each

Question gave some result so analysis is shown as under:

Age of customer also plays an important in marketing decision of any

product or services. In case of web trading, which based on acceptability

of new technology among the users, is directly related to the age.

Age group of respodents

15%

45%

40%

above 50 35-50 18-35

The chart shows that youths have vital interest in web trading. Since it is

taken as investment for future also, that’s why at the age of 30 to 45 years

people likes to invest in this way. One more reason for such behavior of this

age is the acceptability of the new technology.

57

To mention the sex is important, since in our society the investment

decisions are taken by the males. It also reflects in our study. Most of the

respondents to the information form were the males, i.e. 87%. And rests

were the females; they are related to commercial field by this or that way.

sex factor on Idirect

male87%

female13%

On the basis of Occupation:

2% 2%0.50%

16%

22%

10%

24% 24%

0%

5%

10%

15%

20%

25%

30%

Retired

Housewive

s

Stude

nt

Busin

essm

en

Profe

ssion

al

Sole tr

ader

Govt.

Employe

e

Private

emplo

yee

58

Web trading attracts Govt. and private employees the most in Ghaziabad.

Professionals are 1st runner up of this race of trading through internet.

Businesspersons do it but not eager about this.

Household income of the respondents was also being considered for the

study of on line trading. The survey came along with the fact that most of

the positive respondents to the online trading were of the income group

of Rs 1 to 5 lacs.

Rs. 5 - 10 lacs , 15%

Rs1 - 5 lacs, 65%

below Rs 1 lac, 9%above Rs. 10

lacs, 11%

59

On the basis of Investment per year by an individual, it is shown that

person investing below Rs one lac are the more courageous to go for the

on line trading.

below Rs 1 lac, 69%

Rs1 - 5 lacs, 17%

above Rs. 5 lacs, 14%

Are you aware of internet? Yes/ No

60

32%

68%

yes

no

In Ghaziabad, I have found that out of 50 users 32% uses internet. During

Personal Interview, it is also observed that 10% users use internet daily, 26%

use twice a week and 64% monthly.

Are you aware with all the benefits of on line trading? Yes/

No

72 % of users are aware of all the benefits of on line trading. Only 28%

of respondents are not aware of all the benefits.

61

yes, 72%

no, 28%

62

FINDINGS AND RESULT

The data collected from customers give an understanding into various

aspects. It helps us to identify the scope of on line trading. In Ghaziabad

and reason as to how people are aware of the products of on line trading.

Major inferences drawn from the collected data are as follows:

Mostly people invest in share and trade with the help of broker and

other on line trading.

The reason of possessing share and trade with the help of broker.

Mostly people are engaged in trading more than two years what they

are professional traders, they are from service class.

They get their quoted price by broker.

Most of the customers know the on line trading but not a clear

concept.

Opening charges is the most important factor in opening up of the on

line trading a/c for those who possess the share just for investment purpose

and they does not transact frequently.

Service standards are expected to be high, but the customers are very

well aware of competition.

Advertising needs to be given consideration. It should be more

towards educating the customers about the product and only for brand

building.

63

Most of the respondents consider convenience and safety to be and

advantage in on line trading but they are still in doubt about the processing

of the transaction of share.

Most of the respondents find this concept to be more expensive.

The biggest problem faced by the respondents while applying for on

line trading is that it takes too much time.

Most of the customers are comfortable with online trading.

64

Conclusion

In a nation with a middle class population of 200 million, most of whom

dream of a better, financially comfortable tomorrow, the stock market is

obviously seen as the perfect place to invest—especially when you consider

that stock markets can make you considerably rich in a short span of time,

provided you play your cards right.

However, India’s scam-scarred bourses haven’t exactly inspired trust with

retail investors who want to strike it rich, but who aren’t too well-versed

with the rules of the game. The last few years of the last century and the first

year of the 21st century though have seen a wave of technology

enhancements sweeping though the Indian share markets, wiping out archaic

conventions. This has seen issues like badla going out, while on the other

hand we have seen processes like online trading gradually coming to India.

The National Stock Exchange (NSE) has been the most proactive in bringing

about most of these technological innovations, including online trading. It

started way back in February 2000 with the Kochi-based Geojit Securities

conducting the first Net transaction when 100 shares of Reliance was traded

by SEBI chairman D R Mehta for Geojit chairman A P Kurian. Much water

has flown under the bridge since then. From a base of about Rs 3 crore in

April 2000, volumes for online trading have risen to nearly Rs 1,500 crore

per month in January 2001. A Nasscom-BCG study estimates the market

will grow to Rs12,000 crore per month by 2005. In spite of these optimistic

numbers, online trading in India is at a very nascent stage (about 2 percent of

total traded volumes) compared to countries like South Korea (60 percent),

US (40 percent) and UK (20 percent). Online trading in the year 2000-2001

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accounted for only Rs 50,170 crore out of total traded volume of Rs

25,08,445 crore.

Playing the online game

There are currently close to 50 online brokerages in India with ICICIDirect,

Home Trade, KotakStreet, Sharekhan, Motilal Oswal, IndiaBulls and 5Paisa

being some major players. However, due to limited volumes, no online

brokerage is currently making money and a shakeout is imminent in the near

future. The going is expected to get tougher with the advent of capital

account convertibility. Players such as TD Waterhouse have already entered

the Indian market, while others such as Schwab are expected shortly. On an

average, Rs 40 crore per day (Rs 1,000 crore per month) is likely to be the

threshold breakeven for online brokerages. However Hiren Gada, senior VP,

Home Trade is not unduly perturbed. “We at Home Trade believe there is

scope for multiple players as the entire segment is in a growth stage. Hence,

notwithstanding the current sentiment in the market, potential for online

trading is still immense in India.” Says Manish Shukla, VP, Internet broking,

Motilal Oswal, “By mid-2002 we should be able to see substantial volumes

in the domestic market for Internet-based

stock trading. In the next 18 months a lot of players will get in, the market

will change form and shape, and many people will get out. You will have the

survivors and stable volumes.”

But why has online trading not taken off as expected in India? Jaideep

Arora, head, online channel, Sharekhan, tries to provide an answer:

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“Unfortunately, the period when online trading was launched in India

coincided with the steep decline in the markets. Historically, online trading

has succeeded in countries when the market was in a bull phase.” However,

apart from the prevailing bear market, another major issue has been

awareness and the mental acceptability factor. Not only is consumer

awareness at a very low level, but even brokers have not been forthcoming

in accepting Internet trading. Only first-time investors grappling to

understand market dynamics seem to have adopted it whole-heartedly.

Unfortu-nately, this section contributes only a small chunk of volumes.

While there are many factors that need to be understood to justify this

assertion, one simple fact is worthy of note. The average age of the Indian

Internet user as cited by a recent IDC survey is 27 years. The average age of

the head (and financial decision taker) of the Indian equity-investor

household, as revealed by the SEBI-NCAER study of Indian investors in

2000 is 45 years. The older, experienced equity investor is not online today

and the fact that older, mature investors are not ‘tech-positive’ and hence

unlikely to move to online trading is a major barrier to the growth of e-

broking in India.

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The Indian problem

Some other structural aspects need to be kept in mind while analysing the e-

broking scenario in India. The breadth of participation in the stock market in

India is significantly lower as compared to Western markets with only 12.1

million equity-owning households and three million depository accounts.

Brokerage rates in India are significantly lower than US rates, with Indian

brokers charging commissions of 0.85 per cent to 1.25 percent per trade. For

ICICIDirect, the pricing strategy for e-broking for the retail segment is as

follows: for the cash segment, the brokerage charged varies from 0.40

percent to 0.85 percent based on the volume of trade done per quarter while

for the margin segment, the brokerage charged varies from 0.10 percent to

0.15 percent based on the volume of trade done per quarter. The above

charges are inclusive of depository charges and all other statutory charges.

For Motilal Oswal, the charges for online service is 0.15 percent of value

and offline is 0.75 percent.

The scope for expansion of the market through reduction in brokerage is

thus far lower than the US. Adds Anup Baghci, chief operating officer,

ICICI-Direct.com, “A reason for the popularity of online trading in the US

was that a lot of people took to day trading. In India, speculative trading is

already rampant and it is estimated that delivery is taken for only 15 percent

of the total traded volume. Hence, the surge in volumes due to day trading

may not be of the same magnitude.” Internet-based trading typically takes

place through a bank account with an online bank. Here, the number of

banks with a strong online presence is very few-again, dominated by new

private banks and foreign banks. Both have lesser reach owing to a smaller

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network in the country. The relative inability of large public-sector banks to

offer-facilities for Internet banking is a barrier in this

regard. Besides, Internet penetration in India is still very low and concerns

about security also tend to predominate. In markets like the US, online

brokerages are advertised very heavily. Online trading in India has so far not

seen similar levels of aggressive advertising, with the exception of

ICICIDirect and Home Trade. Besides, only scrips that have been

compulsorily dematerialised can be traded on the Net here. These number

nearly 600 (about 1,500 and 6,000 scrips are traded on the national stock

Exchange (NSE) and the Bombay Stock Exchange (BSE), respectively).

However, even technology bottlenecks are responsible for online trading

having not taken off the ground. The usual suspect—poor bandwidth—

figures prominently as one of the main reasons why online broking hasn’t

taken off. Though players like Reliance and Bharti have announced

broadband services, till the last-mile problem is solved, online broking will

suffer from the bandwidth problem. Agrees Bagchi, “The three main

technology obstacles which have prevented Internet broking from taking off

are lack of Internet penetration, bandwidth infrastructure and poor quality of

ISP infrastructure.” Argues Shukla, “Most investors are not sure of

executing a trade online. A physical presence is a must for any Indian

investor as the average Indian investor even after executing a order on the

Net, will still call up the broker to confirm the order. When this happens, the

purpose of online broking is lost.” Most online investors we spoke to said

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that there is no failsafe method for closing a trade if a customer’s connection

cuts out midway.

Online or offline?

Ergo, unless the online broker has a physical presence, a customer cannot

know the status of his trade-again defeating the purpose itself. One common

fact on which even online brokers agree on is that a pure play online broking

firm cannot succeed on its own. A physical presence is crucial for any

brokerage firm in India.

Home Trade for instance provides a trading platform that offers the

flexibility to transact either online or through the more conventional

telephone channel. Both modes have a world-class service offering built

around them, and are backed by a state-of-the-art technology backbone and

centralised call centre. Explains Gada, “Home Trade is harnessing

convergence technologies to give the consumer a seamless financial

experience.” Even Bagchi agrees, “Online investors prefer multi-channel

delivery, even if they intend to execute most trades over the Web.” Multi-

channel delivery provides both flexibility and security. Clients can opt to

call to execute trades when they are unable to access the Web.

Anyone operating in the e-broking space has to have deep pockets. For

example, a bank like ICICI Bank has a tremendous opportunity to bundle a

bank account with a depository account. The same customer could then be

migrated to the e-broking platform. Explains Arora of Sharekhan, “To

provide flexibility to our clients, we at Sharekhan have tie-ups with leading

banks like HDFC, Citibank and Global Trust Bank.”

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Added to these problems, India’s banking, broking and depository platforms,

though all linked to the same trade, function on entirely different platforms.

Integration of the these three is a major technology obstacle as only a few of

the players like ICICI have managed this feat.

There’s also the question of the capability of Indian firms to stand up to

foreign competition. Claims Gada, “Indian financial services companies

compare well with international competitors as we have access to the best of

technology and human resources, just as much as they do. However we

enjoy the advantage in that we have a much stronger knowledge of the local

market and a deeper insight into the investing habits of the Indian investing

population.”

Future roadmap

In spite of the problems and issues, the future looks bright. Explains Shukla,

“All hope is not lost as players like Reliance and Bharti have started laying

optic fibre across the length and breadth of the country, and in a matter of

say two years, the last mile connectivity issue will be solved.” Adds Gada,

“The solution lies in balancing a technology-centric approach to transactions

with the human touch factor which will be a key factor in making the

transition from the traditional method of broking to e-broking.”

Organisations like ICICI-Direct have a very rosy view of the future too. Says

Bagchi, “We are pleasantly surprised by the acceptance of online trading by

our customers over the last 18 months. At ICICIDirect, we are routinely

processing about 12,000 trades per day even in these market conditions. The

risk appetite of the investors has come down but the participation levels have

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stabilised as shown by our growing customer base of over 135,000

customers.”

Gada adds, “Online trading is a certainty and this is endorsed by its rapid

acceptance in developed and structured capital markets. We do not believe

anything has gone wrong with trading online in particular.” While the

numbers may not match up to growth figures of online trading made last

year, viewed from the overall context of the depressed market sentiment the

world over, the increase in both, brokers providing online services and

investors who are trading online is indeed a reinforcement of the increasing

acceptance of online trading.

Brand building, assurances of security, developing multiple delivery

channels with anytime telephonic grievance redressal options are some

directions which may be of use for the immediate future. Online trading

firms can also market themselves aggressively to students who are entering

the professional arena, ensuring that their entry into equity happens online.

One of the major issues governing trading is the prevailing uncertainty in the

market. A sustained bull phase would accelerate the growth of online

trading.

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References and Bibliography

Websites

www.google.com

www.nsc.com

www.ncfm.com

Newspaper and magazines

The Economic Times

Business World

Books

Stock exchange & investments - V Raghunathan

Security analysis - Punithavathy Pandian

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Annexure-1: RESPONDENT'S INFORMATION FORM

Name of Respondent:          Address:          

                  

Contact No.          Email ID:          

Age:          Sex:          

Occupation: Businessperson   Professional  Sole Trader   Govt. Employee  Self Employed   Private Employee  Housewife   Farmer  Student   Retired  

Education: Graduduate/Post graduate Professional  Graduduate/Post graduate General  HSC/ SSC  Illiterate  

Average House Hold Income: < One Lac   1-5 lac  5-10 lacs   Above 10 lacs  

How much amount invested in a year:

< One Lac   1-5 lac   above 5 lacs  

Are you aware with internet? Yes   No   

Are you aware of benefits of online trading? yes   No  

Which type of trading you prefer? A. online tradingB. traditional trading

Why?

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