study on derivatives in futures

8/18/2019 Study on Derivatives in Futures

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Declaration

I here declare that this project Report titled: “An analytical study of Derivatives in Futures atINDIA INFOLINE ltd.” Submitted by me to the department of Institute of Public Enterprise, is a

Bonafide work undertaken by me and it is not submitted to any other University or Institution for

the award of any degree diploma/certificate or published any time before.

.

Name: Pawan Kumar .Ch

Date:

Signature of Student


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ACKNOWLEDGEMENT

I take this opportunity to acknowledge, all the people who rendered their valuable advice in

completing my project. I take privilege to thank MR. M.J.RAMA KRISHNA, Professor for

guiding and supporting me to carry out the project work very smoothly. I extend my sincere thanks

and gratitude to the person, who has been kind in giving me an Opportunity to do a project work

in INDIA INFOLINE LTD. Mr. P. KRISTAPPA, Relationship Manager-Advisory). Last but not

least, I am thankful to my parents and to all my friends for their wholehearted support and

suggestions, which helped me in completing this project

PAWAN KUMAR.CH


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ABSTRACT

The emergence of the market for derivatives products, most notably forwards, futures , can

be traced back to the willingness of risk-averse economic agents to guard themselves against

uncertainties arising out of fluctuations in asset prices. Derivatives are risk management

instruments, which derive their value from an underlying asset.

The following are three broad categories of participants in the derivatives market Hedgers,

Speculators and Arbitragers. Prices in an organized derivatives market reflect the perception

of market participants about the future and lead the price of underlying to the perceived

future level. In recent times the Derivative markets have gained importance in terms of their

vital role in the economy. The increasing investments in stocks ( domestic as well as

overseas ) have attracted my interest in this area. Numerous studies on the effects of futureand options listing on the underlying cash market volatility have been done in the developed

markets. The derivative market is newly started in India and it is not known by

every investor, so SEBI has to take steps to create awareness among the investors

about the derivative segment. In cash market the profit/loss of the investor depends on the

market price of the underlying asset. The investor may incur huge profit or he may incur

huge loss. But in derivatives segment the investor enjoys huge profits with limited downside.

Derivatives are mostly used for hedging purpose. In order to increase the derivatives market

in India, SEBI should revise some of their regulations like contract size, participation

of FII in the derivatives market. In a nutshell the study throws a light on the derivatives

market.


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TABLE OF CONTENTS

CHAPTER PAGE NUMBER

1. INTRODUCTION Introduction 6 Objectives of the Study 7 Need for the Study 8 Methodology 9 Limitations of the Study 9

2. REVIEW OF LITERATURE Futures 11 Trading

3. INDUSTRY PROFILE 39

4. COMPANY PROFILE 45

5. DATA ANALYSIS & PRESENTATION 81 Presentation and Analysis Findings of Market

6. CONCLUSIONS & SUGGESTIONS 92 Summary & conclusions

GLOSSARY 93

REFERENCES 96


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Chapter - 1

Introduction


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Introduction

A Derivative is a financial instrument that derives its value from an underlying asset. Derivative

is an financial contract whose price/value is dependent upon price of one or more basic underlying

asset, these contracts are legally binding agreements made on trading screens of stock exchanges

to buy or sell an asset in the future. The most commonly used derivatives contracts are forwards,

futures and options, which we shall discuss in detail later.

The main objective of the study is to analyze the derivatives market in India and to analyze the

operations of futures and options. Analysis is to evaluate the profit/loss position futures and

options. Derivates market is an innovation to cash market. Approximately its daily turnover

reaches to the equal stage of cash market

In cash market the profit/loss of the investor depend the market price of the underlying asset.

Derivatives are mostly used for hedging purpose. In bullish market the call option writer incurs

more losses so the investor is suggested to go for a call option to hold, where as the put option

holder suffers in a bullish market, so he is suggested to write a put option. In bearish market thecall option holder will incur more losses so the investor is suggested to go for a call option to write,

where as the put option writer will get more losses, so he is suggested to hold a put option.


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OBJECTIVES OF THE STUDY

To study the various trends in derivatives market.

To study the role of derivatives in India financial market

To study in detail the role of futures with specific reference to TECH MAHINDRA, ICICI

BANK, NMDC, HINDPETRO LTD.


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NEEDS FOR THE STUDY

The present study on futures and options is very much appreciable on the grounds that it gives

deep insights about the F&O market. It would be essential for the perfect way of trading in F&O.

An investor can choose the fight underlying or portfolio for investment 3which is risk free. The

study would explain the various ways to minimize the losses and maximize the profits. The study

would help the investors how their profit/loss is reckoned. The study would assist in understanding

the F&O segments. The study assists in knowing the different factors that cause for the fluctuations

in the F&O market. The study provides information related to the byelaws of F&O trading. The

studies elucidate the role of F&O in India Financial Markets.


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METHODOLOGY

The data had been collected through primary and secondary source.

Secondary data:

The data had been collected through INDIA INFOLINE staff, Project guide and Stock brokers.On the FUTURES data of companies HINDUSTAN PETROLEUM LTD, NMDC LTD, ICICIBANK, TECH MAHINDRA.

LIMITATIONS OF THE STUDY

The study is confined to only one week trading of July month contract

The sample size chosen is limited to futures of HINDPETRO, ICICI BANK, NMDC,

TECH MAHINDRA Underlying Scrip’s.

The study does not take any Nifty Index Futures and Options and International Markets

into the consideration.

This is a study conducted within a period of 45 days.

During this limited period of study, the study may not be a detailed, Full – fledged and

utilitarian one in all aspects.

The study contains some assumptions based on the demands of the analysis.

The study does not provide any predictions or forecast of the selected scripts.


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Chapter - 2

REVIEW OF LITERATURE


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Derivatives

The emergence of the market for derivative products, most notably forwards, futures and options,

can be traced back to the willingness of risk-averse economic agents to guard themselves against

uncertainties arising out of fluctuations in asset prices. By their very nature, the financial markets

are marked by a very high degree of volatility. Through the use of derivative products, it is possible

to partially or fully transfer price risks by locking – in asset prices. As instruments of risk

management, these generally do not influence the fluctuations in the underlying asset prices.

However, by locking-in asset prices, derivative products minimize the impact of fluctuations in

asset prices on the profitability and cash flow situation of risk-averse investors.

Derivatives are risk management instruments, which derive their value from an underlying asset.

The underlying asset can be bullion, index, share, bonds, currency, interest etc. Banks, securities

firms, companies and investors to hedge risks, to gain access to cheaper money and to make profit,

use derivatives. Derivatives are likely to grow even at a faster rate in future.

DEFINITION:

Derivative is a product whose value is derived from the value of an underlying asset in a

contractual manner. The underlying asset can be equity, forex, commodity or any other asset.

Securities Contracts (Regulation) Act, 1956 (SC(R) A) defines “derivative” to include –

1. A security derived from a debt instrument, share, loan whether secured or unsecured, risk

instrument or contract for differences or any other form of security.

2. A contract which derives its value from the prices, or index of prices, of underlying securities.


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PARTICIPANTS

The following three broad categories of participants in the derivatives market.

HEDGERS:

Hedgers face risk associated with the price of an asset. They use futures or options markets to

reduce or eliminate this risk.

SPECULATORS:

Speculators wish to bet on future movements in the price of an asset. Futures and options contracts

can give them an extra leverage; that is, they can increase both the potential gains and potential

losses in a speculative venture.

ARBITRAGEURS:

Arbitrageurs are in business to take advantage of a discrepancy between prices in two different

markets. If, for example, they see the futures price of an asset getting out of line with the cash price, they will take offsetting positions in the two markets to lock in a profit.


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FUNCTIONS OF DERIVATIVES MARKET:

The following are the various functions that are performed by the derivatives markets. They are:

Prices in an organized derivatives market reflect the perception of market participants about

the future and lead the prices of underlying to the perceived future level.

Derivatives market helps to transfer risks from those who have them but may not like them to

those who have an appetite for them.

Derivative trading acts as a catalyst for new entrepreneurial activity.

Derivatives markets help increase savings and investment in the long run.

TYPES OF DERIVATIVES:

The following are the various types of derivatives. They are:

FORWARDS:

A forward contract is a customized contract between two entities, where settlement takes place

on a specific date in the future at today’s pre-agreed price

FUTURES:

A futures contract is an agreement between two parties to buy or sell an asset at a certain time in

the future at a certain price.

OPTIONS:

Options are of two types - calls and puts. Calls give the buyer the right but not the obligation to

buy a given quantity of the underlying asset, at a given price on or before a given future date. Puts

give the buyer the right, but not the obligation to sell a given quantity of the underlying asset at a

given price on or before a given date.


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WARRANTS:

Options generally have lives of up to one year; the majority of options traded on options

exchanges having a maximum maturity of nine months. Longer-dated options are called warrants

and are generally traded over-the-counter.

LEAPS:

The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options having

a maturity of up to three years

BASKETS:

Basket options are options on portfolios of underlying assets. The underlying asset is usually amoving average of a basket of assets. Equity index options are a form of basket options.

SWAPS:

Swaps are private agreements between two parties to exchange cash flows in the future according

to a prearranged formula. They can be regarded as portfolios of forward contracts. The two

commonly used swaps are

Interest rate swaps:

These entail swapping only the interest related cash flows between the

Parties in the same currency.

Currency swaps:

These entail swapping both principal and interest between the parties, with the cash flows in one

direction being in a different currency than those in the opposite Direction.

Swaptions:

Swaptions are options to buy or sell a swap that will become operative at the expiry of the options.

Thus a Swaptions is an option on a forward swap.


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RATIONALE BEHIND THE DEVELOPMENT OF DERIVATIVES:

Holding portfolio of securities is associated with the risk of the possibility that the investor may

realize his returns, which would be much lesser than what he expected to get. There are various

factors, which affect the returns:

1. Price or dividend (interest).

2. Some are internal to the firm like –

Industrial policy

Management capabilities

Consumer’s preference

Labor strike, etc.

These forces are to a large extent controllable and are termed as non Systematic risks. An investor

can easily manage such non-systematic by having a well – diversified portfolio spread across the

companies, industries and groups so that a loss in one may easily be compensated with a gain in

other.

There are yet other types of influences which are external to the firm, cannot be controlled and

affect large number of securities. They are termed as systematic risk. They are:

1. Economic

2. Political

3. Sociological changes are sources of systematic risk.

For instance, inflation, interest rate, etc. their effect is to cause prices of nearly all individual stocks

to move together in the same manner. We therefore quite often find stock prices falling from time

to time in spite of company’s earnings rising and vice versa.

Rationale behind the development of derivatives market is to manage this systematic risk, liquidity

and liquidity in the sense of being able to buy and sell relatively large amounts quickly without

substantial price concessions.


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In debt market, a large position of the total risk of securities is systematic. Debt instruments are

also finite life securities with limited marketability due to their small size relative to many common

stocks. Those factors favor for the Purpose of both portfolio hedging and speculation, the

introduction of a derivative security that is on some broader market rather than an individual

security.

India has vibrant securities market with strong retail participation that has rolled over the years. It

was until recently basically cash market with a facility to carry forward positions in actively traded

‘A’ group scrips from one settlement to another by paying the required margins and borrowing

some money and securities in a separate carry forward session held for this purpose. However, a

need was felt to introduce financial products like in other financial markets world over which are

characterized with high degree of derivative products in India.

Derivative products allow the user to transfer this price risk by looking in the asset price there by

minimizing the impact of fluctuations in the asset price on his balance sheet and have assured cash

flows.

Derivatives are risk management instruments, which derive their value from an underlying asset.

The underlying asset can be bullion, index, shares, bonds, currency etc.

ANY EXCHANGE FULFILLING THE DERIVATIVE SEGMENT AT NATIONAL

STOCK EXCHANGE:

The derivatives segment on the exchange commenced with S&P CNX Nifty Index futures on June

12, 2000. The F&O segment of NSE provides trading facilities for the following derivative

segment:

1. Index Based Futures

2. Index Based Options

3. Individual Stock Options

4. Individual Stock Futures


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REGULATORY FRAMEWORK:

The trading of derivatives is governed by the provisions contained in the SC (R) A, the SEBI Act

and the regulations framed there under the rules and byelaws of stock exchanges.

Regulation for Derivative Trading:

SEBI set up a 24 member committed under Chairmanship of Dr.L.C.Gupta develop the appropriate

regulatory framework for derivative trading in India. The committee submitted its report in March

1998. On May 11, 1998 SEBI accepted the recommendations of the committee and approved the

phased introduction of Derivatives trading in India beginning with Stock Index Futures. SEBI

also approved he “Suggestive bye-laws” recommended by the committee for regulation and

control of trading and settlement of Derivatives contracts.

The provisions in the SC (R) A govern the trading in the securities. The amendment of the SC (R)

A to include “DERIVATIVES” within the ambit of ‘Securities’ in the SC (R ) A made trading in

Derivatives possible within the framework of the Act.

1. Eligibility criteria as prescribed in the L.C. Gupta committee report may apply to SEBI for

grant of recognition under Section 4 of the SC ( R ) A, 1956 to start Derivatives Trading.

The derivatives exchange/segment should have a separate governing council and

representation of trading / clearing members shall be limited to maximum of 40% of the

total members of the governing council. The exchange shall regulate the sales practices of

its members and will obtain approval of SEBI before start of Trading in any derivative

contract.

2. The exchange shall have minimum 50 members.

3. The members of an existing segment of the exchange will not automatically become the

members of the derivative segment. The members of the derivative segment need to fulfill

the eligibility conditions as lay down by the L.C.Gupta Committee.


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4. The clearing and settlement of derivates trades shall be through a SEBI

Approved Clearing Corporation / Clearing house. Clearing Corporation /

Clearing House complying with the eligibility conditions as lay down

By the committee have to apply to SEBI for grant of approval.

5. Derivatives broker/dealers and Clearing members are required to seek registration from

SEBI.

6. The Minimum contract value shall not be less than Rs.2 Lakh. Exchanges should also

submit details of the futures contract they purpose to introduce.

7. The trading members are required to have qualified approved user and sales person who

have passed a certification programmed approved by SEBI.


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Futures


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DEFINITION

A Futures contract is an agreement between two parties to buy or sell an asset at a certain time in

the future at a certain price. To facilitate liquidity in the futures contract, the exchange specifies

certain standard features of the contract. The standardized items on a futures contract are:

Quantity of the underlying

Quality of the underlying

The date and the month of delivery

The units of price quotations and minimum price change

Locations of settlement

Types of futures:

On the basis of the underlying asset they derive, the futures are divided into two types:

Stock futures:

The stock futures are the futures that have the underlying asset as the individual securities. The

settlement of the stock futures is of cash settlement and the settlement price of the future is the

closing price of the underlying security.

Index futures:

Index futures are the futures, which have the underlying asset as an Index. The Index futures are

also cash settled. The settlement price of the Index futures shall be the closing value of the

underlying index on the expiry date of the contract.

PARTIES IN THE FUTURES CONTRACT:

There are two parties in a future contract, the Buyer and the Seller. The buyer of the futurescontract is one who is LONG on the futures contract and the seller of the futures contract is one

who is SHORT on the futures contract.The pay off for the buyer and the seller of the futures

contract are as follows


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PAYOFF FOR A BUYER OF FUTURES:

CASE 1:

The buyer bought the future contract at (F); if the futures price goes to E1 then the buyer gets the

profit of (FP).

CASE 2:

The buyer gets loss when the future price goes less than (F), if the futures price goes to E2 then

the buyer gets the loss of (FL).

LOSS

PROFIT

F

L

P

E

E

2


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PAYOFF FOR A SELLER OF FUTURES:

F – FUTURES PRICE

E1, E2 – SETTLEMENT PRICE.

CASE 1:

The Seller sold the future contract at (f); if the futures price goes to E1 then the Seller gets the

profit of (FP).

CASE 2:

The Seller gets loss when the future price goes greater than (F), if the futures price goes to E2 then

the Seller gets the loss of (FL).

F

LOSS

PROFIT

E

P

E

2

L


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MARGINS:

Margins are the deposits, which reduce counter party risk, arise in a futures contract. These

margins are collected in order to eliminate the counter party risk. There are three types of margins:

INITIAL MARGIN:

Whenever a futures contract is signed, both buyer and seller are required to post initial margin.

Both buyer and seller are required to make security deposits that are intended to guarantee that

they will infact be able to fulfill their obligation. These deposits are Initial margins and they are

often referred as performance margins. The amount of margin is roughly 5% to 15% of total

purchase price of futures contract.

MARKING TO MARKET MARGIN:

The process of adjusting the equity in an investor’s account in order to reflect the change in the

settlement price of futures contract is known as MTM Margin.

MAINTENANCE MARGIN:

The investor must keep the futures account equity equal to or greater than certain percentage of

the amount deposited as Initial Margin. If the equity goes less than that percentage of Initial

margin, then the investor receives a call for an additional deposit of cash known as Maintenance

Margin to bring the equity up to the Initial margin.


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ROLE OF MARGINS:

The role of margins in the futures contract is explained in the following example.

S sold a Satyam June futures contract to B at Rs.300; the following table shows the effect of

margins on the contract. The contract size of Satyam is 1200. The initial margin amount is say

Rs.20000, the maintenance margin is 65% of Initial margin.

DAY PRICE OF SATYAM EFFECT ON

BUYER (B)

EFFECT ON

SELLER (S)

REMARKS

1

2

3

4

300.00

311(price increased)

287

305

MTM

P/L

Bal. in Margin

+13,200

-28,800+15,400

+21,600

MTM

P/L

Bal. in Margin

-13,200+13,200

+28,800

-21,600

Contract isentered andinitial margin isdeposited.

B got profit andS got loss, Sdepositedmaintenancemargin.

B got loss anddepositedmaintenancemargin.

B got profit, Sgot loss.Contract settledat 305, totally Bgot profit and Sgot loss.


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Pricing the Futures:

The fair value of the futures contract is derived from a model known as the Cost of Carry model.

This model gives the fair value of the futures contract.

Cost of Carry Model:

F=S (1+r-q) t

Where

F – Futures Price

S – Spot price of the Underlying

r – Cost of Financing

q – Expected Dividend Yield

T – Holding Period.

Futures terminology:

Spot price:The price at which an asset trades in the spot market.

Futures price: The price at which the futures contract trades in the futures market.

Contract cycle:

The period over which a contract trades. The index futures contracts on the NSE have one-month,

two-months and three-month expiry cycles which expire on the last Thursday of the month. Thus

a January expiration contract expires on the last Thursday of January and a February expiration

contract ceases trading on the last Thursday of February. On the Friday following the last

Thursday, a new contract having a three-month expiry is introduced for trading.

Expiry date:

It is the date specified in the futures contract. This is the last day on which the contract will be

traded, at the end of which it will cease to exist.


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Contract size:

The amount of asset that has to be delivered under one contract. For instance, the contract size on

NSE’s futures market is 200 Nifties.

Basis:

In the context of financial futures, basis can be defined as the futures price minus the spot price.

There will be a different basis for each delivery month for each contract. In a normal market, basis

will be positive. This reflects that futures prices normally exceed spot prices.

Cost of carry:

The relationship between futures prices and spot prices can be summarized in terms of what is

known as the cost of carry. This measures the storage cost plus the interest that is paid to finance

the asset less the income earned on the asset.

Open Interest:

Total outstanding long or short positions in the market at any specific time. As total long positions

for market would be equal to short positions, for calculation of open interest, only one side of the

contract is counted.


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Trading


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TRADING INTRODUCTION

The futures & Options trading system of NSE, called NEAT-F&O trading system, provides a fully

automated screen-based trading for Nifty futures & options and stock futures & Options on a

nationwide basis as well as an online monitoring and surveillance mechanism. It supports an

order driven market and provides complete transparency of trading operations. It is similar to that

of trading of equities in the cash market segment.

The software for the F&O market has been developed to facilitate efficient and transparent trading

in futures and options instruments. Keeping in view the familiarity of trading members with the

current capital market trading system, modifications have been performed in the existing capital

market trading system so as to make it suitable for trading futures and options.

On starting NEAT (National Exchange for Automatic Trading) Application, the log on (Pass

Word) Screen Appears with the Following Details.

1) User ID

2) Trading Member ID

3) Password – NEAT CM (default Pass word)

4) New Pass Word

Note: -

1) User ID is a Unique

2) Trading Member ID is Unique & Function; it is Common for all user of the Trading Member

3) New password – Minimum 6 Characteristic, Maximum 8 characteristics only 3 attempts are

accepted by the user to enter the password’ to open the Screen

4) If password is forgotten the User required informing the Exchange in writing to reset the

password

TRADING SYSTEM

Nation wide-online-fully Automated Screen Based Trading System (SBTS)

Price priority

Time Priority

Note: - 1) NEAT system provides open electronic consolidated limit orders book (OECLOB)

2) Limit order means: Stated Quantity and stated price


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Before Opening the market

User allowed to set Up 1) Market Watch Screen

2) Inquiry Screens Only

Open phase (Open Period)

User allowed to 1) Enquiry

2) Order Entry

3) Order Modification

4) Order Cancellation

5) Order Matching

Market closing period

User Allowed only for inquiries

Surcon period

(Surveillance & Control period)

The System process the Date, for making the system, for the Next Trading day.

Log of the Screen (Before Surcon Period)

The screen shows :- 1) Permanent sign off Not allowed inquiry

2) Temporary sign off and

3) Exit Order Placing

Permanent sign off: - market not updates.

Temporary sign off: - market up date (temporary sign off, after 5 minutes Automatically Activate)

Exit: - the user comes out sign off Screen.

Local Database

Local Database is used for all inquiries made by the user for Own Order/Trades Information. It is

used for corporate manger/ Branch Manager Makes inquiries for orders/ trades of any branch

manager /dealer of the trading firm, and then the inquiry is Serviced By the host. The local

database also includes message of security information.


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Ticker Window

The ticker window displays information of All Trades in the system.

The user has the option of Selecting the Security, which should be appearing in the ticker window.

Market watch Window

Title Bar: Title Bar Shows: NEAT, Date & Time.

Market watch window felicitate to set only 500 Scrip’s, But the User set up a Maximum of 30

Securities in one Page.

MBP (Market by Price)

MBP (F6) Screen shows Total Out standing Orders of a particular security, in the Market,

Aggregate at each price in order of Best 5 prices.It Shows: - RL Order (Regular Lot Order)

SL Order (Stop Loss Order)

ST Order (Special Term Orders)

Buy Back Order with ‘*’ Symbol

P = indicate Pre Open Position

S = Indicate Security Suspend

Report Selection Window

It facilitates to print each copy of report at any time. These Reports are

1) Open order report :- For details of out standing orders

2) Order log report:-For details of orders placed, modified & cancelled

3) Trade Done-today report :- For details of orders traded

4) Market Statistics report: - For details of all securities tradedInformation in a Day

Internet Broking

1) NSE introduced internet trading system from February 2000

2) Client place the order through brokers on order routing system


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WAP (Wireless Application Protocol)

1) NSE.IT Launches the from November 2000

2) 1st Step-getting the permission from exchange for WAP

3) 2nd step-Approved by the SEBI(SEBI Approved only for SEBI registered Members)

X.25 Address check

X.25 Address check, is performed in the NEAT system, when the user log on into the NEAT,system & during report down load request.

FTP (File Transfer protocol)

1) NSE Provide for each member a separate directory (File) to know their trading DATA, clear

DATA, bill trade Report.

2) NSE Provide in Addition a “Common” directory also, to know circulars, NCFM & Bhava

Copy information.

3) FTP is connected to each member through VSAT, leased line and internet.

4) VSAT (FROM 4:15PM to 9:30AM), Internet (24 Hours).

Snap Shot Data Base

Snap shot data base provides Snap shot of the limit order book at many time points in a day.

Index Data Base

Index Data Base provides information about stock market indexes.

Trade Data Base

Trade Data Base provides a data base of every single traded order, take place in exchange.

BASKET TRADING SYSTEM

1) Taking advantage for easy arbitration between future market and & cash market difference,

NSE introduce basket trading system by off setting positions through off line-order-entry facility.

2) Orders are created for a selected portfolio to the ratio of their market

Capitalization from 1 lake to 30 corers.


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3) Offline-order-entry facility: - generate order file in as specified format out side the system &

up load the order file in to the system by invoking this facility in Basket trading system.


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TRADING NETWORK

NSE MAIN FRAME

HUB ANTENNA

SATELLITE

ROKER’S PREMISES


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Holding of Shares (Voting Right) disclosing obligation

1) Any person or Director or officer or the company

2) More than 5% share or voting Right

3) With in 4th day inform to company is necessary

4) Company inform with in 5th day to stock exchange is compulsory

First Started

Future trading: Chicago Board of Trading 1848

Financial Future Trading: CME (Chicago Mercantile Exchange 1919)

Stock Index Futures: kansas City Board of trade

Option First Trade: Holland - Tulip Balabmania

BROKER (Trading Member)

(Broker means a member in recognized stock exchange)

Eligibility: 21 tears, graduation, 2 years experience in stock market relative Affairs and

30 Lakhs paid up capital

100 lakhs net worth

125 lakhs interest free security deposit 25 lakhs collatery security deposit

1 lakh annual business subscription

BROKER & CLIENT RELATION SHIP

1) Fill the client Registration Application form (for all details of clients).

2) Agreement on non-judicial form (Specified by SEBI that form)

3) PAN, Pass Port, Driving License or voter Identity card (SEBI Registration Number in case

of FII’s) - Pan Cards is must to future and option trading.


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4) And than Allot-Unique client code

5) Take copy of instruction in writing before placing order, cancellation & modification.

6) If order values exceed 1 lakh maintain the client record for 7 years.

7) On conformation any order, issue contract note within 24 hours.

8) Collect margin of 50,000 & multiple with 10,000.

NOTE: - PAN is compulsory if the transaction cost exceed Rs.1 lakh.

9) Issuing the “know your client “form is must.

For Continuing Membership-Trading Member

Fulfill the following documents.

1) Audited two important Financial Statements (profit & Loss account, balance Sheet)2) Net worth certificate (Certificate by CA)

3) Details of Directors, share holders (certificate by CA)

4) Renewal insurance covering proof.

SUB BROKER

1) Eligibility: - 21 years, 10+2 qualification and paid up capital 5 lakhs.

2) Not convicted involving fraud and dishonesty.

3) Not debarred by SEBI previously.

4) 51% of shares as dominant promoters his/her and his/her spouse.

5) First application to stock exchange-Stock exchange send his application to SEBI-SEBI

satisfied issued Certificate Registration.

6) A registered sub-broker, holding registration, granted by SEBI on the Recommendations of a

trading member, can transact through the member (broker) who had recommend his

application for registration.

7) Maximum Brokerage Commission 2%.f

8) Purchase note and sales note issued by the sub broker with 24 hours.


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Investor protection Fund

1) Investor protection fund setup under Bombay public trust Act 1950.

2) IPF maintained by NSE Exact name of this fund is NSE Investors Protection Fund Trust.

3) Any Member defaulted the IPF paid maximum 10 lakhs only to each investor.

4) Client against default member, customer have right to apply within 3 months from the date

of Publishing notice by a widely circulated minimum one daily News paper.

DEMAT of the Shares

1) Agreement with depository by security holder (at the time opening the demat account)

2) Surrender the security certificates to “issuer” (Company)for cancellation

3) Issuer (company) informs the “depository” about the transfer of the shares.

4) Participant (Company) informs the “depository” about the transfer of the shares.

5) “Depository” records the “transferee” name as “beneficial owner” in “book entry form” in

his records.

6) Each custodian/clearing member is requiring maintaining a Clear pool account with

depositaries.

7) The investor has no restriction and has full right to open many (number of) depository

accounts

8) Shares or securities are transferred from one account to another account only on the

instruction of the beneficial owner.

ISIN (International Securities Identification Number)

Any company going to foe dematerialized with shares that company get this ISIN for

demat shares.

ISIN is assigned by SEBI.

ISIN is allotted by NSDL.

Main Objectives of DEMAT Trading

1) Freely transferability

2) Dematerialized in depository mode

3) Maintenance of ownership records in book entry form


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Chapter - 3

INDUSTRY PROFILE


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HISTORY OF STOCK EXCHANGE

The only stock exchanges operating in the 19th century were those of Bombay set up in 1875 and

Ahmedabad set up in 1894. These were organized as voluntary non profit-making association of

brokers to regulate and protect their interests. Before the control on securities trading became

central subject under the constitution in 1950, it was a state subject and the Bombay securities

contracts (control) Act of 1925 used to regulate trading in securities. Under this act, the Bombay

stock exchange was recognized in 1927 and Ahmedabad in 1937.

During the war boom, a number of stock exchanges were organized in Bombay, Ahmedabad and

other centers, but they were not recognized. Soon after it became a central subject, central

legislation was proposed and a committee headed by A.D. Gorwala went into the bill for securities

regulation. On the basis of the committee’s recommendations and public discussion, the securities

contracts (regulation) Act became law in 1956.

DEFINITION OF STOCK EXCHANGE

“Stock exchange means any body or individuals whether incorporated or not, constituted for the

purpose of assisting, regulating or controlling the business of buying, selling or dealing in

securities”.

It is an association of member brokers for the purpose of self-regulation and protecting the interests

of its members.

It can operate only if it is recognized by the Government under the securities contracts (regulation)

Act, 1956. The recognition is granted under section 3 of the Act by the central government,

Ministry of Finance.


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BY LAWS

Besides the above act, the securities contracts (regulation) rules were also made in 1975 to

regulative certain matters of trading on the stock exchanges. There are also bylaws of the

exchanges, which are concerned with the following subjects.

Opening / closing of the stock exchanges, timing of trading, regulation of blank transfers,

regulation of Badla or carryover business, control of the settlement and other activities of the stock

exchange, fixating of margin, fixation of market prices or making up prices, regulation of taravani

business (jobbing), etc., regulation of brokers trading, brokerage chargers, trading rules on the

exchange, arbitrage and settlement of disputes, settlement and clearing of the trading etc.

REGULATION OF STOCK EXCHANGES

The securities contracts (regulation) act is the basis for operations of the stock exchanges in India.

No exchange can operate legally without the government permission or recognition. Stock

exchanges are given monopoly in certain areas under section 19 of the above Act to ensure that

the control and regulation are facilitated. Recognition can be granted to a stock exchange provided

certain conditions are satisfied and the necessary information is supplied to the government.

Recognition can also be withdrawn, if necessary. Where there are no stock exchanges, the

government licenses some of the brokers to perform the functions of a stock exchange in its

absence.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI).

SEBI was set up as an autonomous regulatory authority by the government of India in 1988 “to

protect the interests of investors in securities and to promote the development of, and to regulate

the securities market and for matter connected therewith or incidental thereto”. It is empowered

by two acts namely the SEBI Act, 1992 and the securities contract (regulation) Act, 1956 to

perform the function of protecting investor’s rights and regulating the capital markets.


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BOMBAY STOCK EXCHANGE

This stock exchange, Mumbai, popularly known as “BSE” was established in 1875 as “The Nativeshare and stock brokers association”, as a voluntary non-profit making association. It has an

evolved over the years into its present status as the premiere stock exchange in the country. It may

be noted that the stock exchanges the oldest one in Asia, even older than the Tokyo stock exchange,

which was founded in 1878.

The exchange, while providing an efficient and transparent market for trading in securities,

upholds the interests of the investors and ensures redressed of their grievances, whether against

the companies or its own member brokers. It also strives to educate and enlighten the investors by

making available necessary informative inputs and conducting investor education programs.

A governing board comprising of 9 elected directors, 2 SEBI nominees, 7 public representatives

and an executive director is the apex body, which decides is the apex body, which decides the

policies and regulates the affairs of the exchange.

The Exchange director as the chief executive offices is responsible for the daily today

administration of the exchange.

BSE INDICES:

In order to enable the market participants, analysts etc., to track the various ups and downs in the

Indian stock market, the Exchange has introduced in 1986 an equity stock index called BSE-

SENSEX that subsequently became the barometer of the moments of the share prices in the Indian

stock market. It is a “Market capitalization weighted” index of 30 component stocks representing

a sample of large, well-established and leading companies. The base year of sensex 1978-79. The

Sensex is widely reported in both domestic and international markets through print as well as

electronic media.


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Sensex is calculated using a market capitalization weighted method. As per this methodology the

level of the index reflects the total market value of all 30-component stocks from different

industries related to particular base period. The total market value of a company is determined by

multiplying the price of its stock by the nu7mber of shared outstanding. Statisticians call index of

a set of combined variables (such as price and number of shares) a composite Index. An indexed

number is used to represent the results of this calcution in order to make the value easier to go

work with and track over a time. It is much easier to graph a chart based on Indexed values than

on based on actual valued world over majority of the well-known Indices are constructed using

“Market capitalization weighted method”.

In practice, the daily calculation of SENSEX is done by dividing the aggregate market value of

the 30 companies in the index by a number called the Index Divisor. The divisor is the only link

to the original base period value of the SENSEX. The Devisor keeps the Index comparable over a

period value of time and if the references point for the entire Index maintenance adjustments.

SENSEX

Is widely used to describe the mood in the Indian stock markets. Base year average is changed as

per the formula new base year average = old base year average*(new market value / old market

value).

NATIONAL STOCK EXCHANGE

The NSE was incorporated in Nov, 1992 with an equity capital of Rs.25 crs. The international

securities consultancy (ISC) of Hong Kong has helped in setting up NSE. ISC has prepared the

detailed business plans and initialization of hardware and software systems. The promotions for

NSE were financial institutions, insurances, companies, banks and SEBI capital market ltd,

Infrastructure leasing and financial services ltd and stock holding corporations ltd.

It has been set up to strengthen the move towards professionalisation of the capital market as well

as provide nation wide securities trading facilities to investors.


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NSE is not an exchange in the traditional sense where brokers own and manage the exchange. A

two tier administrative set up involving a company board and a governing aboard of the exchange

is envisaged.

NSE is a national market for shares PSU bonds, debentures and government securities since

infrastructure and trading facilities are provided.

NSE-NIFTY:

The NSE on Apr22, 1996 launched a new equity Index. The NSE-50. The new Index which

replaces the existing NSE-100 Index is expected to serve as an appropriate Index for the new

segment of future and option.

“NIFTY” mean National Index for fifty stocks. The NSE-50 comprises fifty companies that

represent 20 board industry groups with an aggregate market capitalization of around Rs 1, 70,000

crs. All companies included in the Index have a market capitalization in excess of Rs. 500 crs each

and should have trade for 85% of trading days at an impact cost of less than 1.5%.

The base period for the index is the close of price on Nov 3 1995, which makes one year of

completion of operation of NSE’s capital market segment. The base value of the index has been

set at 1000.

NSE-MIDCAP INDEX:

The NSE madcap index or the junior nifty comprises 50 stocks that represent 21 board industry

groups and will provide proper representation of the midcap segment of the Indian capital market.

All stocks in the Index should have market capitalization of more than Rs.200 crs and should have

traded 85% of the trading days at an impact cost of less than 2.5%.


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The base period for the index is Nov 4 1996, which signifies 2 years for completion of operations

of the capital market segment of the operations. The base value of the Index has been set at 1000.

Average daily turn over of the present scenario 258212 (Laces) and number of average daily trades

2160(Laces). At present there are 24 stock exchanges recognized under the securities contract

(regulation Act, 1956).


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Chapter – 4

Company profile


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COMPANY PROFILE

INDIA INFOLINE LIMITED:

IIFL Holdings Limited is the apex holding company of the entire IIFL Group, which is a leading

financial services company in India, promoted by first generation entrepreneurs. We have a

diversified business model that includes credit and finance, wealth management, financial product

distribution, asset management, capital market advisory and investment banking.

We have a largely retail focused model, servicing over 2 million customers, including several lakh

first-time customers for mutual funds, insurance and consumer credit. This has been achieved due

to our extensive distribution reach of close to 4,000 business locations and also innovative methods

like seminar sales and use of mobile vans for marketing in smaller areas.

Our evolution from an entrepreneurial start-up to a market leadership position is a story of steady

growth by adapting to the changing environment, without losing the focus on our core domain of

financial services. Our NBFC and lending business accounts for 68% of our consolidated income

in FY13 and has a diversified product portfolio rather than remaining a mono-line NBFC. We are

a leader in distribution of life insurance and mutual funds among non-bank entities. Although the

share of equity broking in total income was only 13% in FY13, IIFL continues to remain a leading

player in both, retail and institutional space.

3.1. HISTORY:The Shree Yantra is regarded in India as the most powerful and mystically beautiful of all yantras

(Sanskrit word for a symbol used to focus the mind). It predates the Vedas and is supposed to be

the favourite Yantra of Lakshmi, the Goddess of Wealth and Prosperity. This powerful symbol,

said to promote harmony and tranquility as well, has endured for many centuries. IIFL is engaged


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in the business of creating wealth and the adoption of the Shree Yantra as its logo was but natural.

BOARD OF DIRECTORS: Mr. Nirmal Jain

Chairman, IIFL Holdings Ltd.

Mr. Nirmal Jain is the founder and Chairman of IIFL Holdings Ltd. He is a PGDM (Post

Graduate Diploma in Management) from IIM (Indian Institute of Management) Ahmedabad, a

Chartered Accountant and a rank-holder Cost Accountant. His professional track record is

equally outstanding.

He founded Probity Research and Services Pvt. Ltd. (later re-christened India Infoline) in 1995;

perhaps the first independent equity research Company in India. His work set new standards forequity research in India. Mr. Jain was one of the first entrepreneurs in India to seize the internet

opportunity, with the launch of www.indiainfoline.com in 1999. Under his leadership, India

Infoline not only steered through the dotcom bust and one of the worst stock market downtrends

but also grew from strength to strength.

Mr. R. Venkataraman

Managing Director , IIFL Holdings Ltd.

Mr. R Venkataraman, Co-Promoter and Managing Director of IIFL Holdings Ltd, is a B.Tech

(electronics and electrical communications engineering, IIT Kharagpur) and an MBA (IIM

Bangalore). He joined the IIFL Holdings Ltd Board in July 1999. He was also the Assistant Vice

President with G E Capital Services India Limited in their private equity division, possessing a

varied experience of more than 19 years in the financial services sector


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Mr. Arun Kumar Purwar

Independent Director of IIFL Holdings Ltd since March 2008

Mr. Purwar was the Chairman of State Bank of India, the largest bank in the country from

November 2002 to May 2006 and held several important and critical positions like Managing

Director of State Bank of Patiala, Chief Executive Officer of the Tokyo branch.He is currently the

Chairman of IndiaVenture Advisors Private Limited, the equity fund sponsored by the Piramal

Group and independent director in many listed companies in India including Engineers India

Limited, Reliance Communications Limited, among others.

Mr. Chandran Ratnaswami

Non Executive Director of IIFL Holdings Ltd since May 2012

Mr. Chandran Ratnaswami is a Managing Director of Hamblin Watsa Investment Counsel

Limited, a wholly-owned investment management company of Fairfax Financial Holdings

Limited, Canada. Mr. Ratnaswami serves on the Boards of ICICI Lombard General Insurance

Company Limited.

Mr. Kranti Sinha

Independent Director of IIFL Holdings Ltd since January 2005

Mr. Kranti Sinha served as the Director and Chief Executive of LIC Housing Finance Limited

from August 1998 to December 2002 and concurrently as the Managing Director of LICHFL Care

Homes. He is an independent director on the Board of Cinemax India Limited and Hindustan

Motors Limited.

Mr. Mahesh Narayan Singh

Independent Director of India Infoline Finance Limited since September 2009

Mr. Singh, IPS (Retd.), joined the Indian Police Service in 1967. He has, in his public service

career spanning over a period of 35 years, worked as the chiefs of the crime branch of Mumbai

Police, State CID and Anti-Corruption Bureau. He was the Commissioner of Police, Mumbai

during period 2000-2002. He is also on the Board of Invent Asset Securitisation and

Reconstruction Private Limited and LIC Pension Fund Limited.

Mr. Nilesh Vikamsey

Independent Director of IIFL Holdings Ltd & India Infoline Finance Limited since February

2005


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Mr. Nilesh Vikamsey is a Senior Partner at M/s Khimji Kunverji & Co., Chartered Accountants,

a member firm of HLB International, a worldwide organisation of professional accounting firms

and business advisers, ranked amongst the top 12 accounting groups globally. Mr. Vikamsey is an

elected member of the Central Council of Institute of Chartered Accountant of India (ICAI). Mr.

Vikamsey is also on the Board of a number of companies like Federal Bank Limited, and SBI Life

Insurance Company Limited, among others.

Mr. Sunil Kaul

Non Executive Director of IIFL Holdings Ltd & India Infoline Finance Limited since November

2011

Mr. Sunil Kaul a Managing Director for Carlyle’s Asia Buyout fund focused on investments in the

financial services sector across Asia. Prior to joining Carlyle, Mr. Kaul served as the President of

Citibank Japan and Chairman of Citi's credit card and consumer finance companies in Japan.

Dr. Subbaraman Narayan

Independent Director of IIFL Holdings Ltd since July 2012

Dr. Narayan, IAS (Retd.), served the Government of India as Finance and Economic Affairs

Secretary. He was also Secretary in the Departments of Revenue, Petroleum and Industrial

Development. Retired as Economic Advisor to the Prime Minister of India, he has rich experience

in implementation of economic policies and monitoring of the special economic agenda of the

Cabinet on behalf of the Prime Minister`s Office. He is also on the Board of other public limited

companies like Apollo Tyres Limited, Dabur India Limited and Godrej Properties Limited, among

others.

Mr. Vijay Kumar Chopra

Independent Director of India Infoline Finance Limited since June 2012

Mr. Chopra has over 30 years of experience in the banking sector. He started his career as an

Officer in Central Bank of India in 1969 where he served in various capacities. He was also

Chairman and Managing Director of SIDBI and Corporation Bank. He is a fellow member of the

Institute of Chartered Accountants of India (ICAI) by profession and is a Certified Associate of

Indian Institute of Bankers (CAIIB)


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3.2. BACKGROUND AND INCEPTION OF THE COMPANY:

A small group of professionals formed an Information Services Company

The company was formed in October 1995 with a vision to produce high quality, unbiased,

independent research on the Indian economy, business, industries and corporates.

The company was originally incorporated as Probity Research and Services Pvt.Ltd. The

name of the company was later changed to India Infoline Ltd.

The launch of www.indiainfoline.com

Up popped a crazy idea – if all this research were to be available free on the internet, the

number of users could well leap straight from hundreds to millions. We took the plunge

and thus www.indiainfoline.com was born! CDC(now Actis) was the first private equity

firm to invest US$1mn.

3.3. NATURE OF THE BUSINESS CARRIED

IIFL Group offers credit & finance facilities through its subsidiaries:

India Infoline Finance Ltd (98.87% subsidiary), and

India Infoline Housing Finance Ltd (Wholly owned subsidiary).

The NBFC has a high quality loan book of close to Rs10,000 crores, with a diversified portfolio

including:

Home loans


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SME & Trader loans

Healthcare & Equipment financing

Loans secured against Gold

Commercial Vehicle financing

Loans secured against Property

Loans secured against Shares

IIFL have chosen to be a diversified portfolio company rather than a mono-line NBFC.

We exercise utmost prudence in credit selection, monitoring and avoid concentration. Our credit

evaluation process not only takes into account the value and quality of the collateral, but also the

cash-flows of the potential borrower. Backed by a diversified portfolio, robust credit

assessment, effective risk management techniques and an efficient collection mechanism, the net

NPAs are kept well under control at less than 0.2%.

The NBFC and lending business accounted for 68% of our consolidated income in FY13.

IIFL Group offers wealth advisory services through its subsidiary IIFL Wealth Management Ltd

(82.44% subsidiary).


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There is an increasing need for a comprehensive wealth management solution as opposed to

disparate services to address complexity related to treasury, personal portfolio, cashflows and

long-term investments. We are amongst the leading wealth management companies with Assets

under Advice (AuA) of more than Rs40,000 crores with a HNI client base of over 4,000

families.

Our fixed income practice coupled with a large bond desk facilitates direct access to sovereign,

corporate and collateralised debt.

The business grew revenues from Rs180 million in 2008-09 to Rs2 billion in 2012-13.

We have managed the five significant constituents that go into successful wealth

management and advisory services:

IIFL pioneered internet broking in India and rationalised brokerage rates from 150 basis points in

the late nineties to 5 basis points. Although the share of equity broking in total income was only

13% in FY13, we continue to remain a leading player in both, retail and institutional space.

Our extension into commodities and currency advisory reconciles with its vision to emerge as a

one-stop-shop financial intermediary. We are in the process of building a culture of advisory and

financial planning to move away from pure execution and de-risk our business further.

IIFL Capital, the institutional equities division of the IIFL Group, is the first port of call for most

leading foreign institutional investors and mutual funds that invest in India. Our unmatched

block placement capability is renowned and is underpinned by our reputation for integrity and

client confidentiality.

Revenues increased 2.3% to Rs552.53 cr in 2012-13.


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IIFL launched our Mutual Fund business to offer niche products. The IIFL Nifty ETF, our

maiden scheme, carries the lowest expenses of any equity ETF in India.

Our passively managed Dividend Opportunities ETF has been ranked the second best performer

by Value Research.

A total of six schemes have been launched, including four close-ended debt schemes and two

open-ended equity schemes. Total assets under management (AUM) stood at Rs3,271 million as

on March 31, 2013.

Our strength lies in gauging the market pulse and launching niche products with low churn and

operational efficiency, thereby keeping costs low.

Nature of business of IIFL:

Online Back office:

You can view your demat account over the Internet and avail a host of

services. This facility empowers clients to view, download, and print updated holdings with

respective valuations

De-materialization:

Clients can submit physical shares at the Tata securities branch for dematerialization into

electronic form.

Re-materialization:

Clients can also request for Re-materialization which enables than to convert the dematerialized

shares into physical form.

Transfer:

Inter and intra depository services are available through which clients can transfer shares.

Offline trading:

This is the most traditional way of carrying out trading in financial markets. Clients can place their

orders with our nearest branch by visiting them personally or on the phone.


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Online trading:

Online trading offers the convenience to trade from the comfort of your home / office. They

provide trading software which can be downloaded by the client on any system. Through their user

ID & password, clients can start trading online.

Alternatively, they also provide the facility to trade through our browser based application

Corporate Actions:

While holding stock in demat account, in case clients are eligible for any bonus and rights issues

the allotment would be transferred to that demat account.

3.4. VISION AND MISSION STATEMENT:

Vision:

“To become the most respected company in the financial services space in India”

Mission:

Providing complete financial care driven by the core values of diligence and transparency.

To exemplify those core values in the financial sector and become the leading financial

solutions partner in India, with a global footprint.

To become a pioneering and forward-looking organization that is collaborative, nimble,

innovative and responsive to the changing financial needs of our clients.

To be a reliable and a result-oriented custodian of our clients’ finances. To create an amicable atmosphere of collaboration, understanding and unity.

To ensure happy, motivated and engaged employees.

To be trusted, admired and respected amongst all our stakeholder: clients, employees,

regulators, shareholders and the community at large.

To achieve our vision by only doing what’s right.

3.5. THE SERVICE PROFILE OF IIFL:

Retail Broking:

Looking at the opportunities in market and the growth of our country, they believe it is high time

investors are educated about the nuances of investments. The knowledge and awareness gained

will empower investors and help them create wealth. They firmly believe brokers, media and


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regulators have a pivotal role in assisting the individuals to become wealthy. They offer a 3-in-1

account which brings to you a seamless platform for trading in Equities and investing in Mutual

Funds and IPOs at very attractive brokerage rates.,

Advisory Services:

It provides advisory services to a cross-section of customers. The service is backed by team of

dedicated and expert professionals with varied experience and background in handling investment

portfolios. They are continually engaged in designing the right investment portfolio for each

customer according to individual needs and budget considerations with a comprehensive support

system that focuses on trading customer’s portfolios and providing valuable inputs, monitoring

and managing the portfolio through varied technological initiatives. IIFL cover the latest of market

news, trends, investment schemes and research-based opinions from experts in various financial

fields.

Distribution of Financial Products:

The paradigm shift from pure selling to knowledge based selling drives the business today. With

wide portfolio offerings, company occupies all segments in the real financial services industry.

Teams of highly qualified and dedicated professional drawn from the best of academic and

professional backgrounds are committed to maintain high levels of client services delivery. This

has propelled company to a position among the top distributors for equity and debt issues with an

estimated market share in terms of application mobilized, besides being established as the leading

procurer in all public issues.

Mutual fund services:

IIFL have attained a position of immense strength as a provider of across the board transfer agency

services, distributors and investors. Besides providing the entire back office processing, IIFL

provides the link between various mutual funds and the investor, including services to the

distributor, the prime channel in this operation. Carrying the ‘limitless’ ideology forward, IIFL has

explored new dimensions in every aspect of Mutual fund servicing right from volume

management, cost effective pricing, delivery in the least turnaround time, efficient back office and

front office operations to customized service. IIFL has been with clients every step of the way,

helping them serve their investors better by offering them a diverse and customized range of

services. IIFL service enhancements such as full-fledged call Centre, a top-line website,


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(www.indiainfoline.com), the m-investor and many more, creating a galaxy of customer

advantage.

Institutional Broking:

Institutions and Corporate have surplus funds to manage on daily basis as well as investible surplus

for a defined period. The risk differs for Institution and Corporate subject to their preferences. The

reward by way of return is always in proportion to the risk taken. IIFL advise and manage the same

by blending caution with aggression in the desired proportion to teach client. The range of services

include Equity Broking with customized research, advisory and distribution services for

investment in Mutual Funds, Debt/Bonds, Equity IPOs to placement if Equities etc.


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3.6. AREAS OF OPERATION:

Capital Market Related Employees 14,000+ Business locations Around 4,000 locations in

900 cities and towns Global reach Singapore, Dubai, New York, Mauritius, UK, Hong

Kong, Switzerland Listings NSE, BSE Listing

3.7. COMPETITOR’S INFORMATION OF IIFL:

IIFL encounters intense competition in all aspects of its business and competes directly with many

other brokerage companies for clients. Many of IIFL competitors have significantly greater

financial, technical, marketing and other resources than those available to IIFL.

Corporate Office:

IIFL CentreB Wing,Trade CentreKamala Mills Compound,Off Senapati Bapat Marg,Lower Parel,Mumbai - 400013


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The national retail firms such as Merill Lynch, Religare, BMA Wealth Creators and Citigroup

Global markets Inc. are highly prominent in the industry. Tata Securities Limited also face

competition from small traditional brokers and from Pan-India brokers such as:

Kotak Securities Limited:

A subsidiary of Kotak Mahindra Bank, Kotak Securities Limited is one of the oldest and largest

stock brokers in the Industry. Their offerings include stock broking services for stock trading

through the branch and Internet, Investments in IPO, Mutual funds and Portfolio management

services. The other attractive services they offer are: research, SMS alerts trinity accounts,

competitive brokerages, call and trade, Keat Pro X, mobile stock trader, kotak securities news,

twin advantage.

Angel Broking:

While opening a demat account the services which they provide are:Online trading platform for

online investment in equity, derivatives, mutual funds and commodities, competitive intraday

brokerage and delivery brokerage rates, free intraday trading tips and fundamental stock ideas

covering BSE and NSE cash market and derivatives (both futures and options), free SMS alerts

for share market intraday tips, trade confirmations. latest share price quotes, share market news on

mobile.

BMA Wealth Creators:

They are into online trading platform for equity, derivatives, mutual funds, commodities. They are

promoting their service by charging only 0.1 paisa per trade for unlimited trading, giving an edge

to the rest of the competitors in the market.


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India Bulls Securities:

India Bulls Securities is a pioneer of on-line securities trading in India. India Bulls Securities in

house trading platform is one of the fastest and most efficient trading platforms in the country.

India Bulls Securities has been assigned the highest rating BQ-1 by CRISIL.

There are other small firms as well like Motilal &Sons, who are also coming up with new and

attractive services and S.S. Kantilal Ishwarlal Securities Private Limited.

Today most of the banks are giving such services for their customers and most of the customers

are also using their services as they feel that they are trustworthy and would not let their money

get wasted. The other reason why people go to banks only to avail these services is because they

feel that they can do away with all their transactions from one place, they do not have to approach

different people or different organizations for their transactions.

The only time when traders change their broking firms is when they are not satisfied with their

services, like when they want their brokers to provide correct information and advice to them at

correct point of time and they are not fulfilling their expectations. With just Rs.500 or even less

than that they can avail the facility of having an account with any of the broking firms and can

trade with that account.

In addition, a number of firms offer discount brokerage services to retail customers and generally

effect transactions at substantially lower commission rates on an “execution only” basis, without

offering other services such as investment recommendations and research.

3.8. INFRASTRUCTURAL FACILITIES:

IIFL has good infrastructure facilities towards the technical and fundamental activities to customer

and employees. The infrastructural facilities of the company comprises of well-equipped rooms

for each for different departments, around 20 computers are connected to NEAT terminal which

facilitates trading.

A Unique Customer Centric Business Model:

IIFL aims to build itself into a customer centric organization and thus supports a front end

which is truly based on customer convenience.

Integration of online trading + Bank + Demat account.

Instant cash transfer facility against purchase and sale of shares.

Instant order and trade conformation by e-mail.


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All products and services of IIFL are offered to the Retail, Corporate and Institutional

customers via a unique common sales and service structure for the customer, servicing his

entire financial requirements through a ‘single window’.

Live portfolio valuation on client’s holdings.

Graphical representation of portfolio.

Price alert via SMS & e-mail.

In - House Training Center - Improved Staff Efficiency: Each branch is having a training

department, where the work of this department is to provide training to employees, by

upgrading their knowledge by all recent developments and changes happening in market.

And also providing the training to use the software applications.

3.9. ACHIEVEMENT AND AWARDS:

Best Customer Service in Financial Services, 2013 - Retailer Customer Service

Awards

Best Commodities Investment, 2012 – Euro Money

Top Performer, Equity (FI Category), 2012 – BSE

Best Broking House with Global Presence, 2011 & 2012 – D&B

No. 1 in Fixed Income Portfolio Management in India, 2012 – Euro Money


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3.10. WORK FLOW MODEL (END TO END):

3.11. FUTURE GROWTH AND PROSPECTS:

The company is exploring all steps to improve business through extensive efforts. Since growth of

capital market in general has opened up increased opportunities.

Focus on insurance advisory service and currency trading.

Focusing more on retail and institutional investor by providing more services.

Focusing on building a strong research team in technical and fundamental analysis.


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New initiatives – Portfolio Management Services & Commodities trading.

IIFL is planning to expand its distribution network across south India.

MCKINSY’S 7S FRAME WORK WITH SPECIAL REFERENCE TO IIFL

Strategy: The plan devised to maintain and build competitive advantage over the

competition.

Structure: The way the organization is structured and who reports to whom.

Systems: The daily activities and procedures that staff members engage in to get the job

done.

Style: The style of leadership adopted.

Staff: The employees and their general capabilities.

Skills: The actual skills and competencies of the employees working for the company.

Shared Values: The core values of the company that are evidenced in the corporate culture

and the general work ethic.

Strategy:

There are different types of strategy followed by IIFL and some of them are explained below:

Steady growth by adapting to the changing environment, without losing the focus on our core

domain of financial services.

De-risked business through multiple products and diversified revenue stream.


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Knowledge is the key to power superior financial decisions.

Keep costs low and continuously strive for innovation.


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3.12. Structure of IIFL

The organization structure of IIFL at the head office level as well as branch office level is show in

respectively. IIFL organizational structure is a combining functional and hierarchical structure.

The company has adopted a free form organization devoid of hierarchies. Everyone is known as

associates irrespective of his position in the company. The company operates from various

branches situated across the nation. The headquarters is located in MUMBAI city, India. The

information and orders are disseminated from the head office to all the support and service

branches prevailing.

3.12.1. At Head Office Level:


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3.12.2. At Branch Office Level

System:

The organization follows strict rules and regulations for the employees. It follows specific entry

and exit timing for its employees. All junior members will have to report to the designed senior

staff member daily attendance register to the concerned department the company has its regional

office, which is headed by regional manager.

Accounting System: Organized set of manual and computerized accounting methods, procedures,

and controls established to gather, record, classify, analyze, summarize, interpret, and present

accurate and timely financial data for management decisions.

System Control: Provides various security-related, parameter-driven functions which allow IIFL

to customize the system to suit operation and management needs.

Style:

The style of an organization becomes evident through the patterns of action of the top management

team over a period of time, the emphasis laid on aspects of business, reporting relationships and

aspects of organizational culture.

IIFL is basically a participating type of leadership style. Before taking any decision a meeting is

conducted and the final decision is taken with the consent of all. Every employee gets chance to

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file his/her opinion. Every employee can participate in decision making of the organization. The

final decision is taken with consent of all. It does not take any decision unilaterally.

Leadership style of managers in IIFL is to treat customers with dignity, respect and care and

consistent efforts to improve our skill and services to serve the customers better.

Staff :

Each incumbent should have a specific academic qualification to match the position he is going to

hold and also necessary skills to execute the assignment. Marketing/Sales people should possess

at least degree and a management degree is preferred and should possess necessary communication

skill for sales. For fresher due training will be given and then will be put on jobs. Their potential

will be monitored on a regular basis and suitable guidance will be provided on time to time basis.

Annual increments are also given based on the performance predominant.

IIFL has skilled employees with good knowledge and talent. It helps interchange ability of staff

among various units/zones. It enables the organization to have centralized selection procedure,

promotional and transfer procedure, etc. It ensures the most effective and suitable placement of

candidates.

Skills:

The Company’s Stock Broker is trained and provided with skills to deal with customers personally

to know their needs and wants. Employees of IIFL are evaluated based on passion, ambition,

innovation, diligence, team work.

Recruitment is not based solely on academic achievements. Company is seeking to appoint

candidates who satisfy a broad range of criteria in terms of their ability to make a positive

contribution to the organization.

The sales department needs personnel with technical skill. The marketing department needs sale

skill, communication skill, convincing capacity. The Manager should have the managerial skill.

They should have the ability to take right decisions. They should manage the personnel and make

them to carry out their responsibility

Shared Values:

Shared values in the Mc Kinsey’s model refer to the set of values and aspirations that go beyond

the formal statement of corporate objectives. In other words, these are fundamental idea around


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which a business is built and which constitute its main values. Shared values are also known as

super ordinate goals.

Integrity: We must conduct our business fairly, with honesty and transparency. Everything we do

must stand the test of public scrutiny.

Understanding: We must be caring, show respect, compassion and humanity for our colleagues

and customers around the world, and always work for the benefit of the communities we serve.

Excellence: We must constantly strive to achieve the highest possible standards in our day-to-day

work and in the quality of the goods and services we provide.

Unity: We must work cohesively with our colleagues across the group and with our customers

and partners around the world, building strong relationships based on tolerance, understanding and

mutual cooperation.

Responsibility: We must continue to be responsible, sensitive to the countries, communities and

environments in which we work, always ensuring that what comes from the people goes back to

the people many times over.

3.13. THE SWOT ANALYSIS OF IIFL:

MEANING:SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses,

Opportunities and Threats involved in a project or in a business venture. It involves specifying the

objective of the business venture or project and identifying the internal and external factors that

are favorable and unfavorable to achieve that objective. The technique is credited to Albert S

Humphrey who led a convention at Stanford University in the 1960s and 1970s using data from

“Fortune 500” companies.


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STRENGTHS:

Strong Brand Image:

The IIFL brand is in market for more than 17 years and is making them to venture into new

businesses and build relationship with new and prospective clients.

Wide range of services under one roof:

They have plethora of services like retail broking, institutional broking, infrastructure

finance, and wealth management.

Efficient Equity Research Team:

The company’s equity research team is one of the best in the market; they have expertise

in understanding the requirements of the channel as well as the end customers. They

provide very good research advice to their clients on trading.


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Tie ups with major Banks:

The company has tie ups with major banks like ICICI for real time online transfer

fund and exposure updating facility.

WEAKNESSES:

Lack of Focus on Client Relationship:

There should be a separate set of staff working in fields and trading on behalf of their

clients and they should be able to answer the questions of their clients relating to the current

market position.

High Attrition Rate:

Due to continuous need to meet the targets, some of the relationship managers crack under

pressure and thus leave the organization.

Lack of Aggressive Marketing:

The company is focusing less on marketing. As they are new to the market, the only way

for them to get into the market is by promotion .They should start promotional campaigns

and other promotional activities for their diverse range of products.

Less Spread in Rural Areas:

The company does not have branches in rural areas, as there are a lot of people having

surplus funds to invest.

OPPORTUNITIES:

Growing Interest of retail investors:

The capital market in the last few years has turned out to be one of the favorable avenues

for the retail investors and they are finding it to be an easy way to invest and create wealth.

Tax concession for long term investors:

The people who are already trading in the market from a long time can get tax concession.

For example, long term bonds offers a tax benefit in the form of a deduction and the amount

of tax saved would depend on the tax bracket one would fall under.


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Government decision t

study on derivatives in futures

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