SHREKHAN ONLINE TRADING COMPANY

HISTORY OF SHARE TRADING INDUSTRY

The world's foremost marketplace New York Stock Exchange (NYSE), started its trading under a tree (now known as 68 Wall Street) over 200 years ago? Similarly, India's premier stock exchange Bombay Stock Exchange (BSE) can also trace back its origin to as far as 125 years when it started as a voluntary non-profit making association.

News on the stock market appears in different media every day. You hear about it any time it reaches a new high or a new low, and you also hear about it daily in statements like 'The BSE Sensitive Index rose 5% today'. Obviously, stocks and stock markets are important. Stocks of public limited companies are bought and sold at a stock exchange. But what really are stock exchanges. Known also as the stock market or bourse, a stock exchange is an organized marketplace for securities (like stocks, bonds, options) featured by the centralization of supply and demand for the transaction of orders by member brokers, for institutional and individual investors. The exchange makes buying and selling easy. For example, you don't have to actually go to a stock exchange, say, BSE - you can contact a broker, who does business with the BSE, and he or she will buy or sell your stock on your behalf.

The New York Stock Exchange (NYSE) adopted its present name (see history: New York Stock Exchange). Today, nearly three thousand companies from all over the world trade their stocks valued at trillions of dollars here.

The first stock exchange in India, Bombay Stock Exchange was established in 1875 as 'The Native Share and Stockbrokers Association' and has evolved over the years into its present status as the premier stock exchange in the country. It may be noted that BSE is the oldest stock exchange in Asia, even older than the Tokyo Stock Exchange, which was founded in 1878.

The country's second stock exchange was established in Ahmedabad in 1894, followed by the Calcutta Stock Exchange (CSE). CSE can also trace its origin back to 19th century. From a get together under a 'neem tree' way back in the 1830s, the CSE was formally established in May 1908.

India's other major stock exchange National Stock Exchange (NSE), promoted by leading financial institutions, and was established in April 1993. Over the years, several stock exchanges have been established in the major cities of India.

By providing a centralized, ready market for the exchange of securities, stock exchanges greatly facilitate the financing of business through flotation of stocks and bonds. However, speculation in stocks can sometimes accentuate the instability of an economy. The reality of the Great Depression was emphasized by the stock market crash in 1929. The interstate sale of securities and certain stock exchange practices in the United States are regulated by federal laws administered by the Securities and Exchange Commission. Today, a large percentage of stocks are traded through such over-the-counter organizations as NASDAQ (National Association of Securities Dealers Automatic Quotations) and its European equivalent, Nasdaq Europe (formerly Easdaq).

The Stock Exchange is regulated by the following agencies –

Stock Exchange division, department of economic affairs, Ministry of finance.

Securities & Exchange Board Of India

About World Scenario

The first publicly issued security can be tracked back to the fourteenth century in Venice where the government made the first known issue of bonds. Merchants and landowners as investments purchased these government securities.

In and around 1750s in England, traders in the shares of early companies would commonly meet in Jonathans Coffee House to trade shares and make business deals. Early share bids and offers were written on the Coffee House walls and the trading process was highly unregulated, with insider trading forming the basis for most investment decisions.

By 1773, Trading Clubs had formed, and in 1801 a group of traders raised 20,000 pounds to build the London Stock Exchange in Capel Court. A similar process was occurring in America. By the early 1790s many merchants had begun trading shares. Just as in London, these early traders often met at coffeehouses in an informal environment.

In 1792, 24 Brokers who each paid $400 for a "trading seat" signed the Buttonwood Tree Agreement. This agreement outlined the regulations under which shares could be bought and sold. These regulations formed the basis for trading rules that still exist today and led to the formation in 1817 of the New York Stock Exchange. Much water has passed under the bridge since then and we forward all the way to late 1990s.

By late 1990s, most of the stock exchanges had been automated, and the “open outcry” method of trading was the thing of the past. Most stock exchanges began to use computers to replace floor traders. Floor traders take phone and computer orders from brokers, and negotiate a trade with stock specialists at trading stations on the trading floor.

Securities Market

The securities market has two interdependent segments:

The primary market (new issues)

The secondary market.

Primary Market

The primary market provides the channel for sale of new securities while the secondary market deals in securities previously issued.

Role of the Primary Market

The primary market provides the channel for sale of new securities. Primary market provides opportunity to issuers of securities; Government as well as corporates, to raise resources to meet their requirements of investment and/or discharge some obligation.

They may issue the securities at face value, or at a discount/premium and these securities may take a variety of forms such as equity, debt etc. They may issue the securities in domestic market and/or international market.

Secondary Market

Secondary market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets.

Role of the Secondary Market

For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, Secondary equity markets serve as a monitoring and control conduit—by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions.

Difference between the Primary Market and the Secondary Market

In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading venue in which already existing/pre-issued securities are traded among investors. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market, Over-the-Counter (OTC) is a part of the dealer market.

Products in the Secondary Markets

Following are the main financial products/instruments dealt in the Secondary market which may be divided broadly into Shares and Bonds:

Shares:

Equity Shares: An equity share, commonly referred to as ordinary share, represents the form of fractional ownership in a business venture.

Rights Issue/ Rights Shares: The issue of new securities to existing shareholders at a ratio to those already held, at a price.

Bonus Shares: Shares issued by the companies to their shareholders free of cost based on the number of shares the shareholder owns.

Preference shares: Owners of these kinds of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before dividend can be paid in respect of equity share. They also enjoy priority over the equity shareholders in payment of surplus. But in the event of liquidation, their claims rank below the claims of the company’s creditors, bondholders/debenture holders.

Cumulative Preference Shares: A type of preference shares on which dividend accumulates if remained unpaid. All arrears of preference dividend have to be paid out before paying dividend on equity shares.

Cumulative Convertible Preference Shares: A type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.

Bond: is a negotiable certificate evidencing indebtedness. It is normally unsecured. A debt security is generally issued by a company, municipality or government agency. A bond investor lends money to the issuer and in exchange, the issuer promises to repay the loan amount on a specified maturity date. The issuer usually pays the bond holder periodic interest payments over the life of the loan. The various types of Bonds are as follows:

Zero Coupon Bond: Bond issued at a discount and repaid at a face value. No periodic interest is paid. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only one payment, at the maturity of the bond.

Convertible Bond: A bond giving the investor the option to convert the bond into equity at a fixed conversion price.

Treasury Bills: Short-term (up to one year) bearer discount security issued by government as a means of financing their cash requirements

INDIAN STOCK MARKET OVERVIEW

BACK GROUND TO THE STOCK EXCHANGE

For the premier Stock Exchange that pioneered the stock broking activity in India, 125 years of experience seem to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called "Bombay Stock Exchange Limited" by paying a princely amount of Re1.

Since then, the stock market in the country has passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no measure or scale that could precisely measure the various ups and downs in the Indian stock market. Bombay Stock Exchange Limited (BSE) in 1986 came out with a Stock Index that subsequently became the barometer of the Indian Stock Market.

SENSEX, first compiled in 1986 was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing a sample of large, well-established and financially sound companies. The base year of SENSEX is 1978-79. The index is widely reported in both domestic and international markets through print as well as electronic media. SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. From September 2003, the SENSEX is calculated on a free-float market capitalization methodology. The "free-float Market Capitalization-Weighted" methodology is a widely followed index construction methodology on which majority of global equity benchmarks are based.

The growth of equity markets in India has been phenomenal in the decade gone by. Right from early nineties the stock market witnessed heightened activity in terms of various bull and bear runs. More recently, the bourses in India witnessed a similar frenzy in the 'TMT' sectors. The SENSEX captured all these happenings in the most judicial manner. One can identify the booms and bust of the Indian equity market through SENSEX.

A stock exchange is an organized place or market where listed securities are traded. The securities contracts Regulation Act, The Securities Contract Regulation Act,1956 defines it as “an Association” Organization or body of individuals, whether incorporated or not established for the purpose of assisting, regulation and controlling business in buying, selling and dealing in securities. The working of stock exchange in India is regulated by the Securities Contracts (Regulation) rule 1957 & Exchange of India Act 1992 (SEBI Act). The main objective of the Act is to establish unitary control over all the stock exchanges by the Central Government with a view to making them really helpful for the economic development of the country. A stock exchange, organized market for the trading of stocks and bonds (see bond; stock). Such markets were originally open to all, but at present only members of the owning association may buy and sell directly. Members, or stock brokers, buy and sell for themselves or for others, charging commissions for their services. A stock may be bought or sold only if it is listed on an exchange, and it may not be listed unless it meets certain requirements set by the exchange's board of governors. There are stock exchanges in all important financial centers of the world; the New York Stock Exchange (NYSE, in nearly continuous operation since 1792), which had a trading volume of $7.3 trillion in 1998, is the largest in the world. Tokyo, London, and Frankfurt also have major facilities, and Euronext, an inter-European exchange combining facilities in Amsterdam, Brussels, Paris, and other cities, is also significant.

With over 21 million shareholders, India has a third largest investor base in the world after USA and Japan. Over 9000 companies are listed on stock exchange, which are serviced by approximately 7500 stock brokers. The Indian capital market is significant in terms of the degree of development, volume of trading and its tremendous growth.

There are 23 recognized stock exchanges in Indian including the over the counter exchange of India (OTCEI), for small and new companies. The Bombay Stock Exchange (BSE) and The National Stock Exchange of India Ltd. (NSE) are the preliminary exchanges in India. However, the BSE and NSE have established themselves as the two leading exchanges and also for about 80% of the equity volume traded in India. The NSE and BSE are Equal in size in terms of daily traded volumes.

NSE was set up as a model exchange to provide nation wide services to investors. NSE which in its recent past has accounted for the largest trading volumes has fully automated based system that operates in the wholesale debt market segments as well as capital market segments.

BSE, is one of the oldest stock exchange in the world, accounts for the largest number of listed companies and has started a screen based training system with introduction of the Bombay Online Trading System.

Both the exchanges have a different settlement cycle. The primary index of BSE is BSE index (Sensex) comprising thirty stocks. NSE has the S and P NSE 50 Index (Nifty) which consists of 50 stocks. The markets are closed on Saturdays and Sundays, both the exchanges have switched over from the open outcry trading system to a fully automated computerized mode of trading known as BOLT (BSE online trading) and NEAT (National Exchange Automated Trading)system. It facilitates more those efficient processing automated order matching, faster execution of trades and transparency. The script traded on the BSE have been classified in to “A”, “B1”, “B2”, “C”, “ F”, & “Z” groups. The ‘A’ group of shares represents those, which are highly liquid, Market capitalization of greater than 200 crores. The ‘B1’ group of shares represents moderate liquidity, ‘B2’ group of shares represent low liquidity, The ‘C’ group of shares convey the odd lot securities in “A”, “B1”, “B2”, groups and rights renunciation. The ‘F’ group of shares represents the debt market (Fixed income Securities) segment. The ‘Z’group of shares represents default or blacklisted companies. The key regulator governing stock exchange, brokers, Depositors, Depositary Participants, Mutual Funds, Fll’s and other participants in Indian primary and secondary market is the SEBI which has issued a detailed guidelines for capital issue, disclosure by public company’s and investor protection.

Company profile

Share khan Services Profile of the company

Sharekhan is a retail broking arm of S.S Kantilal Ishwarlal Investors Services Pvt Ltd, an organization with more than 8 decades of trust and credibility in the stock market. Sharekhan Ltd (Formally SSKI Investors Services Pvt Ltd) was promoted by Mr.Shripal.S Morakhia and Mr.Shreyas.S Morakhia. It is currently India’s largest broking house. It is a member of the stock exchange, Mumbai. It is a depository participant of the NSDL and CDSL. Its business includes stock broking, depository services, portfolio management and derivatives.

The company’s core specialty lies in its retail distribution with a large network of branches i.e. 510 share shops (retail shops) in 170 cities in India and sub-brokers/authorized persons. Its strengths lies in its investment research capabilities. Its research division has several analysts continuously monitoring global, national and regional political, economic and social situations so as to assess their impact on the economy in general, the sectors and companies they research which helps them if offering quality research and advice to clients.

Hierarchical Structure of ‘Share khan’

Nature of the business carried:

Sharekhan is a stock broking company. The company offers a complete range of pre trade, trade and post trade service on the BSE (Bombay stock exchange) and the NSE (National stock exchange).

Whether the client come in to the company’s conventionally located offices and trade in a dedicated environment or issue instructions over the phone, our highly trained team and sophisticated equipment ensure smooth transactions and prompt service.

Investment Advisory service

Facilitation services to Retail Investors, Corporate.

Depository services

Investment options includes:

1. Online trading(Includes equity, derivatives)

2. Commodities trading

3. Mutual funds

4. Portfolio management services

Sharekhan Branches are conceptualized to be place where investors can come in contact with investment opportunities in an atmosphere of convenience and comfort. Our services are available through our network of 510 Share shops spanning 170 major towns and cities in the country.

Professional seeks to educate clients & end their confusion by custom an Investment Plan according to the needs of clients and are also today a part of companies induction program advising employees on how to plan their investments.

Milestones of SSKI

1922: The SSKI started its operation in stock broking

1922: The SSKI became the first member in the BSE as institutional broker

1984: Ventured into corporate finance

2002: The site was launched on February 8^th in on-line trading

2002: The next generation technology product “Speed trade” was launched on April 17^th

2002: The advanced technology in the online business “ Speed trade plus” was launched on October 28^th for derivative trading

2006: The SSKI crossed US $ 8 billion of private equity deals

Achievements of Sharekhan:

· Rated among the top 20 wired companies along with Reliance, HLL, Infosys, etc by ‘Business Today’, January 2004 edition

· Awarded ‘Top Domestic Brokerage House’ four times by Euro money and Asia money.

· Pioneers of online trading in India amongst the top 3 online trading websites from India. Most preferred financial destination amongst online broking customers

· Winners of “ Best Financial Website” award

· India’s most preferred brokers within 5 years. “ Awaaz Consumers Award 2005”

Future Plans:

· 2,00,000 plus retail customers being serviced through centralized call centers/web solutions

· Branches/semi branches servicing affluent/ aggressive traders through high skill financial advisor

· 250 independent investment managers/franchisee servicing 50,000 highly valued clients

· New initiatives- Portfolio Management Services and Commodities trading

Ownership pattern:

The shareholder of SSKI investor Pvt. Ltd are Mr. Shripal Morkhia, Mr. Shreyas Morkhia, foregn private equinty funds and key employees of the company. The key promoter of the company is Mr. Shirpal Morkhia who as on march 31, 2005 along with his family owns 55.47% of the paid up capital of the company and the remaining balance i.E.44.53% is HSBC, CARLYE, and INTEL PACIFIC.

Ownership pattern

SSKI (55.47%) HSBC, CARLYE, INTEL PACIFIC (44.53%)

Classic Account:

This account allows the client to the trade through out website and is suitable for the retail investors. Our online trading website also comes with the Daily Trade service that enables you to buy and sell shares by calling their dedicated toll free number.

Speed trade

SPEEDTRADE is a next-generation online trading product that brings the power of your broker’s terminal to your PC. It is ideal for active traders who transact frequently during day’s trading session capitalize on intra-day price movements. SPEEDTRADE is an internet-based application available on a CD, which provides every-thing a trader needs on one screen, thereby, reducing the required to execute a trade.

SPEEDTRADE has all the above-mentioned features with the power to trade in cash and derivatives from a single screen.

Services Offered by Sharekhan

Following services are offered:

Trading Facilities:

Sharekhan as a member of NSE& BSE provides both offline and online trading facilities nationwide for trading the securities in secondary market to its clients. The company’s wide network of outlets spread across the country facilities to executive the orders in secondary market.

Derivatives: (Futures and Options)

The company also facilitates the trading system for trading in secondary market under future and options segment of NSE and BSE. The equity dealers in the company will be eager to give insights into the new sets introduction in the Indian Capital Market futures and options.

Depository services:

Sharekhan is a Depository participant of National Securities Depository Limited and Central Depository and Securities Limited.

Sharekhan will open De-mat accounts, which will investors to convert physical certificates of shares into electronic balances in an account maintained.

Margin Financing:

In the present rolling settlement scenario, Sharekhan understand investor need for additional capital availability for daily purchaser shares. It offers unique facility avail finance, for purchasing shares at very competitive interest rates.

IPO’s and Mutual Funds:

Sharekhan offers the change of investing in the potentially lucrative IPO market. Sharekhan is a distribution house for all mutual funds. This is the news scheme introduced by the company and it also offers schemes catering to investors with varying risk return profiles.

Stock lending and Borrowing:

One can place an order of shares with Sharekhan. It is approved intermediary of the security or lending scheme. These would be sent out the borrowers, these earnings fees for all investors’ idle shares. Thus Sharekhan fulfill the investor need for borrowing and lending of shares.

Equity Research:

Share khan has a highly rated research using involved in macro economic studies, industry and company specific equity research. The research team’s inputs will be available as daily trading calls, quarterly investment picks and long term investment picks, based on the fundamentals of particular company and the industry as a whole.

Internet Trading:

Investors can also trade their securities through this facility by logging into company’s website. The virtual world that Sharekhan offers online trading services through.

Portfolio Management Services:

Sharekhan securities are a registered portfolio manager with SEBI to manage portfolios on behalf of clients with a discretionary and non discretionary right. This service is a provision for those who may not have the time to manage their stock investments or require the service of company’s highly specialized profession team.

Other Services

Free access to investment advice from Share khan’s research team

“Sharekhan “Value line” (A monthly publication with review of recommendations stocks to watch out)

Daily research reports and market review ( high noon and eagle eye)

Daily trading calls based technical analyses

Cool trading products ( Daring derivatives and market strategy)

Personalized advice

Live management information

Internet- Based online trading

Online BSE & NSE executions through BOLT & NEAT terminals)

Convenient, secure Secure and Automated Dematservices

Dematerialization and trading in the demat mode is the safer and faster alternative to the physical existence of securities. Demat as a parallel solution offers freedom from delays, thefts, forgeries, settlement risks and paper work. This system works through depository participants (DPs) who offer demat services and the securities are held in the electronic form for the investor directly by the Depository.

Sharekhan Depository Services offers dematerialization services to individual and corporate investors. We have a team of professionals and the latest technological expertise dedicated exclusively to our demat department, apart from a national network of franchisee, making our services quick, convenient and efficient. At Share khan, our commitment is to provide a complete demat solution which is simple, safe and secure

Share khan outlet offers the following services:

9 Online BSE and NSE executions (through BOLT and NEAT terminals)

9 Free access to investment advice from Share khan’s research team

9 Share khan Value Line (a fortnightly publication with reviews of recommendations, stocks to watch out for etc

9 Daily research reports and market review (High Noon, Eagle Eye)

9 Pre-market Report (Morning Cuppa)

9 Daily trading calls based on technical analysis

9 Cool trading products (Daring Derivatives, Trading Ring and Market Strategy)

9 Personalised advice

9 Live market information

9 Depository services: Demat and Remat transactions

9 Derivatives trading (Futures and Options)

9 Internet-based online trading: Speed Trade, Speed Trade Plus