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Development Credit Bank Ltd.

Project Report On

Revival And Relaunch of Smart Trade Online Trading PlatformUNDER THE GUIDANCE OF Mr.Pankaj Sood Vice President Head-Retail Liabilities Development Credit Bank SUBMITTED BY Amey Bhonslay PGDM-Finance ACADEMIC YEAR 2009-11


Revival and Renewal of Smart Trade Online Trading Platform 1

Development Credit Bank Ltd.

AcknowledgementI take this opportunity to express my deep and sincere gratitude to Mr. Pankaj Sood, Vice President-Retail Liabilities Product DCB for his valuable inspiration and encouragement in implementing this project. It is because of his support that I could synchronize the efforts in converting the manifold features of the project. I would also like to thank Mr. Pradeep Kumar for his constant support and guidance throughout the making of the project. I would also like to extend my gratitude to Development Credit Bank Ltd. for assigning this Project as a Summer Intern. It helped me to understand the Retail Banking and the Online Trading Industry. Moreover to understand the DCBs Online Trading platform (DCB Smart Trade) on a whole and various features and benefits attach to it. Date: 29th June 2010

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Development Credit Bank Ltd.

Letter of Transmittal

Dear Sir, As per your directions, I have completed research on the Revival And Relaunch of Smart Trade Online Trading Platform. The report is based on the careful study and comparison of the various Online trading platforms and Demat services provided in the industry. The project was carried from 28th April 2010 to 30th June 2010.The complete methodology and conclusions derived on the basis of the comparison is described in the report. I believe you will find the results mentioned in the report to be interesting and certainly useful. Sincerely, Amey Bhonslay NLDIMSR

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Development Credit Bank Ltd.

Executive SummaryThe report gives a brief analysis of the financial services sector of India. It, especially, gives in-depth analysis of the financial services called demat and online trading facility provided by DCB along with various financial organizations in India. These include both types of online trading companies one is the banking online trading companies which are banks having their own DP and Online platform and the other is non-banking trading organizations providing these services. The report starts with giving a brief introduction about the various financial services provided by various types of financial organizations in India. It also gives some important statistics about the financial services sector of India, present status in India and reasons for the growth prospects of the financial services sector in India. The report gives brief introduction about the requisition for opening both demat and online trading accounts. It also gives information about the dematerialization, its need, process, benefits and parties involved. It also gives information about the online securities trading process in India and also about their benefits. An important mention of the dematerialization parties like depository and the depository participant is also made. It also gives information about the online stock trading and settlement of shares done in India. The report gives an In-depth insight into the various online trading platforms and depository services provided by DCBs competitors in the industry on the basis of the Cost Structure, Current Product Proposition and the Various features and additional services provided by them vis--vis DCB. From the point of view of finance student, the report gives information about the working of Online trading industry, the different participants of the online trading industry, how it is being regulated and how online trading is importance and beneficial to retail customers at large. Finally, the report gives the list of findings that differentiates DCBs Smart Trade with Online trading and DP services provided by its competitors. At the end there are some suggestions and recommendations made that can be taken into consideration by DCB to make the relaunch of Smart Trade a success. Revival and Renewal of Smart Trade Online Trading Platform 4

Development Credit Bank Ltd.

Project Justification:The project undertaken mainly to help DCB revive its Online trading business which will help them to provide their existing customers with additional services along with other Core Banking Solutions and to attract new prospects so as to help provide all financial services under one roof and become the best neighborhood bank in the regions they are operating. It also helped me to get an overview of growth and development of online trading in India since its inception in the year 2000. Due to subprime mortgage crisis in year 2008 NASDAQ and S&P 500, two major stock exchange of the world entered into the bearish market. it also affected the stock market all over the world including India. Now with investors confidence slowly returning in capital markets, it is the challenge for firms providing Broking and DP services to improve on their margins. The project helped me to analyze various firms providing broking services and help DCB to restructure their online trading business. As per the title suggest the project report has been prepared with a view to help Development Credit Bank (DCB) in revival and relaunch of its Online Trading Platform.

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Development Credit Bank Ltd.

Table of Contents Sr. No.1 2 3 4 5 6 7

ParticularsIntroduction to Stock Market Online Stock Trading Demat Account Depository & Depository Participant (DP) About Development Credit Bank DCB-A Historical Perspective Online Trading Platforms I. HSBC InvestDirect II. ShareKhan III. Geojit BNP Paribas IV. Axis Bank Online Trading V. Motilal Oswal VI. SBI Online Trading VII. Religare Securities VIII. SMC Securities

Pg. No.7 11 16 17 22 23 25 25 29 32 35 36 39 40 42 48 65 69 72

8 9 10 11

Comparative Analysis DCB Smart Trade Recommendations & Conclusion Bibliography

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Development Credit Bank Ltd.

Introduction To Stock Markets and Emergence of Online Trading in IndiaThe emergence of stock market can be traced back to 1830. In Bombay, business passed in the shares of banks like the commercial bank, the chartered mercantile bank, the chartered bank, the oriental bank and the old bank of Bombay and shares of cotton presses. In Calcutta, Englishman reported the quotations of 4%, 5%, and 6% loans of East India Company as well as the shares of the bank of Bengal in 1836. This list was a further broadened in 1839 when the Calcutta newspaper printed the quotations of banks like union bank and Agra bank. It also quoted the prices of business ventures like the Bengal bonded warehouse, the Docking Company and the storm tug company. Between 1840 and 1850, only half a dozen brokers existed for the limited business. But during the share mania of 1860-65, the number of brokers increased considerably. By 1860, the number of brokers was about 60 and during the exciting period of the American Civil war, their number increased to about 200 to 250. The end of American Civil war brought disillusionment and many failures and the brokers decreased in number and prosperity. It was in those troublesome times between 1868 and 1875 that brokers organized an informal association and finally as recited in the Indenture constituting the Articles of Association of the Exchange. On or about 9th day of July, 1875, a few native brokers doing brokerage business in shares and stocks resolved upon forming in Bombay an association for protecting the character, status and interest of native share and stock brokers and providing a hall or building for the use of the members of such association. As a meeting held in the broker Hall on the 5th day of February, 1887, it was resolved to execute a formal deal of association and to constitute the first managing committee and to appoint the first trustees. Accordingly, the Articles of Association of the Exchange and the Stock Exchange was formally established in Bombay on 3rd day of December, 1887. The Association is now known as The Stock Exchange. The entrance fee for new member was Re.1 and there were 318 members on the list, when the exchange was constituted. The numbers of members increased to 333 in 1896, 362 in Revival and Renewal of Smart Trade Online Trading Platform 7

Development Credit Bank Ltd. 1916and 478 in 1920 and the entrance fee was raised to Rs.5 in 1877, Rs.1000 in 1896, Rs.2500 in 1916 and Rs. 48,000 in 1920. At present there are 23 recognized stock exchanges with about 6000 stock brokers. Organization structure of stock exchange varies. 14 stock exchanges are organized as public limited companies, 6 as companies limited by guarantee and 3 are non-profit voluntary organization. Of the total of 23, only 9 stock exchanges have been permanent recognition. Others have to seek recognition on annual basis. These exchange do not work of its own, rather, these are run by some persons and with the help of some persons and institution. All these are down as functionaries on stock exchange. These are 1.) Stockbrokers Stock brokers are the members of stock exchanges. These are the persons who buy, sell or deal in securities. A certificate of registration from SEBI is mandatory to act as a broker. SEBI can impose certain conditions while granting certificate of registrations. It is obligatory for the person to abide by the rules, regulations and the bylaw. Stock brokers are commission broker, floor broker, arbitrageur etc. 2.) Sub-broker A sub-broker acts as agent of stock broker. He is not a member of a stock exchange. He assists the investors in buying, selling or dealing in securities through stockbroker. The broker and sub-broker should enter into an agreement in which obligations of both should be specified. Sub-broker must be registered SEBI for a dealing in securities. For getting registered with SEBI, he must fulfill certain rules and regulation. 3.) Market Makers Market maker is a designated specialist in the specified securities. They make both bid and offer at the same time. A market maker has to abide by bye-laws, rules regulations of the concerned stock exchange. He is exempt from the margin requirements. As per the listing requirements, a company where the paid-up capital is Rs. 3 crore but not more than Rs. 5 crore and having a commercial operation for less than 2 years should appoint a market maker at the time of issue of securities.

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Development Credit Bank Ltd. 4.) Portfolio consultants A combination of securities such as stocks, bonds and money market instruments is collectively called as portfolio. Whereas the portfolio consultants are the persons, firms or companies who advise, direct or undertake the management or administration of securities or funds on behalf of their clients. As the complexities and the Volume and Value of trade increased a need was felt to automate the entire process of stock market trading. This led to emergence of online exchanges, NASDAQ being the first completely online automated exchange to start operation in 1971. The emergence of online exchanges has facilitated faster transactions by providing online trading portals and brokerage houses ease and flexibility. The Internet has indeed opened up new opportunities for conducting the business. The worldwide stock exchanges has made a major shift from the traditional method of trading and now conduct a bulk of its business online through its brokers and partners. In the developed countries majorly all the exchange transactions are conducted online. The trend took off slowly in India and the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) two of the largest exchanges in India have been conducting online trade successfully for some time. The Indian exchanges and brokering houses have been very slow in moving their transactions online and the major reason has been the lot government regulations. The initial delay was due to laying down the specifications for creating Closed User Groups (CUGs). This issue was resolved between the Department of Telecommunications (DoT) and the Finance Ministry around 1998. The NSE and BSE are among the largest exchanges in the country handling very large daily trading volumes, support large amounts of data traffic, and have a very large nationwide network. The trading volume in year 2000 was huge with the average daily turnover in the capital markets segment at NSE is around Rs 2300 crore and in the derivatives segment, around Rs 1300 crore. The average daily traffic volume was around one million trades per day in the capital markets segment and around 50,000 trades per day in the derivatives segment and there were around 13,000 registered users in both segments and an average of around 9500 users is logged in at a time. At BSE the average daily turnover in 2001-2002 (AprilRevival and Renewal of Smart Trade Online Trading Platform 9

Development Credit Bank Ltd. March) was Rs 1244.10 crore and the number of average daily trades was Rs 5.17 lakh. The Average daily turnover in the cash markets alone on BSE and NSE together stood at Rs 22,038 crores in 2009 and the Average daily F&O turnover at the NSE was 2,104,045 contracts in 2009. Today the central computer located at the Exchange is connected to the workstations of the Brokers through satellite using Very Small Aperture Terminals (VSATs). Orders placed at the Brokers' workstations reach the central computer and are matched by the computer based on price and time priority. Both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE On Line Trading) and NEAT (National Exchange Automated Trading) System. It facilitates more efficient processing, automatic order matching, faster execution of trades and transparency. Any online exchange should always be-on, safe, secure, redundant and should have adequate backup & recovery processes. The Vice President of NSE-IT G.M Shenoy tells that the basic design objective of NSE was to provide fair, equal and transparent access across all NSE nationwide locations and to provide connectivity to the trading members as soon as possible. However, even now Online trading has not still grasped the market, but has done a very important amount of progress in the past years and the future of online trading is bright. That is why many new companies are coming into this form of business structure and the existing companies are changing to this new format besides offline...