PallaviJain 09DM082 KotakSecuritiesLtd Stock Trading

A STUDY ON RISK MANAGMENT
2010
PROJECT REPORT ON
UNDERSTANDING OF MECHANISM OF MITIGATION OF RISK FACED BY A BROKER IN CAPITAL MARKETS
UNDER THE GUIDANCE OF PROF.ASHOK MALHOTRA
SUBMITTED TO KOTAK SECURITIES LTD
IN PARTIAL FULFILMENT OF POST GRADUATE DIPLOMA IN MANAGEMAENT (PGDM) (2009-2011)
SUBMITTED BY PALLAVI JAIN BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY

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DECLARATION
I hereby declare that this project report titled UNDERSTANDING OF MECHANISM OF MITIGATION OF RISK FACED BY A BROKER IN CAPITAL MARKETS In KOTAK SECURITIES is executed as per the course requirement for the post graduate program in management and it has not been submitted by me or any other person to any other university or institution for degree or diploma. Its my own work.
NAME: PALLAVI JAIN SIGNATURE: DATE:
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INDUSTRY CERTIFICATE
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CERTIFICATE OF FACULTY GUIDE

This is to certify that MS. PALLAVI JAIN student of PGDM 1ST YEAR at BIRLA INSTITUTE OF MANAGMENT TECHNOLOGY, greater noida has under gone a dissertation report under my guidance. The report entitled UNDERSTANDING OF MECHANISM OF MITIGATION OF RISK FACED BY A BROKER IN CAPITAL MARKETS has been completed by the student to my entire satisfaction.
: FACULTY GUIDE: PROFESSOR ASHOK MALHOTRA SIGNATURE: DATE:
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ACKNOWLEDGEMENT
In this project I have made an honest and dedicated attempt to make the research material as authentic as it could. And I earnestly hope that it provides useful and workable information and knowledge to any person reading it. During this small time frame of two months in which the project reached its completion, there were a few people whom I would like to make a mention of and without whose help the project would have never seen the light of the day. I also thank to my FACULTY guide Prof. ASHOK MALHOTRA for his timely response, which immensely helped in giving the project the direction it needed. I would like to thank my INDUSTRY guide Mr. AMIT JINDAL (VICE PRESIDENT -OPERATIONS) and MR. ANOOP (VICE PRESIDENT, OPERATIONS) who gave me a free hand as far as going about the project work was concerned. Last but not the least; I would thank my team members Ms SHILPI AGGARWAL, Mr. PRAFUL MERH, MR MUKESH PRASAD,MR RAMESH & all my lecturers for giving me an opportunity to work with such an esteemed organization, guiding& encouraging me throughout.
PALLAVI JAIN PGDM (FINANCE) BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY 2009-2011
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TABLE OF CONTENTS
1. SYNOPSIS
1.1. OBJECTIVE OF STUDY.7 1.2. RESEARCH METHODOLOGY..8 1.3. RESOURCES AND LIMITATIONS....8
2. CHAPTER ONE
2.1. INTRODUCTION10 2.2. APPROACHES TO RISK MANAGEMENT..11 2.3. OBJECTIVES TO RISK MANAGEMENT11 2.4. RISK MANAGMENGT PROCESS.12 2.5. FEATURES OF PURE RISK..12 2.6. COMPONENTS OF PURE RISK....12
3. CHAPTER TWO
3.1. INDUSTRY ANALYSIS.14 3.2. SWOT ANALYSIS.15 3.3. LATEST ANALYSIS ON EQUITY BROKING HOUSE.19 3.4. HISTORY OF COMPANY.26 3.5. AREAS OF BUISNESS..27 3.6. KOTAK GROUP.29 3.7. KOTAK MAHINDRA BANK.31 3.8. MARKET SHARE..32 3.9. AWARDS AND RECOGNIZTION33
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4.
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CHAPTER THREE-A THEORTICAL PROSPECTIVE

4.1. INTRODUCTION TO MARGIN DEFINATION..36 4.2. RISK MANAGEMENT...39 4.3. VARITIES OF VAR40 4.4. RISK MANAGEMENT AND RISK METERIC41 4.5. VALUE AT RISK MARGIN..43 4.6. EXTREME LOSS MARGIN..44 4.7. MARK TO MARKET MARGIN44 4.8. CROSS MARGIN46 4.9. STESS TESTING.47
5. CHAPTER FOUR-PROBLEM DEFINATION

5.1. BACKGROUND OF PROBLEM49 5.2. PRIMARY OBJECTIVE..49 5.3. SECONDARY OBJECTIVE..50 5.4. RESEARCH APPRAOCH.50 5.5. RESEARCH DESIGN50 6.
CHAPTER FIVE-APPROACH TO PROBLEM

6.1. OVERVIEW OF THE WORK DONE DURING MY INTERNSHIP..52 6.2. INTRODUCTION TO MTM..52 6.3. DETAILED MTM REPORT...56
7.
CHAPTER SIX- DATA ANALYSIS

7.1. CASE BASED APPROACH..61 7.2. BENEFITS..64
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8. CHAPTER SEVEN- RECOMMENDATIONS AND CONCLUSIONS

8.1. LESSONS LEARNED66 8.2. VALUE ADDITIONS TO ME BY MY INTERNSHIP69
9. REFRENCES ANNEXURES
TABLE 1: TABLE2:
MARGIN STATEMENT OF CLEARING MEMBER MARGIN STATEMENT OF TRADING MEMBER
TABLE 3: MARGIN PAYABLE OF CLEARING MEMBER TABLE 4: DETAIL MARGIN FILE FOR CLEARING MEMBER TABLE 5: CLIENT LEVEL MARGIN FILE FOE TRADING MEMBER NETWORK DIAGRAM
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SYNOPSIS
Risk containment measures include capital adequacy requirements of members, monitoring of member performance and track record, stringent margin requirements, position limits based on capital, online monitoring of member positions and automatic disablement from trading when limits are breached. Margin call risk for brokerages must be managed from both a price movement as well as an open order perspective. With respect to price movements, there will likely exist certain customer accounts with asset portfolios that are heavily leveraged and particularly sensitive to movements in the overall market. From an open order perspective, a customer account that maintain a relatively high number of open orders has a particularly higher chance of entering a margin call Situation With the bit understanding of risk measures my endeavor during these two months to have a thorough review of the literature pertaining to risk management. For the same purpose, I will be doing my summer internship in a broking house thats KOTAK SECURUTIES. After having my concepts clear on working of risk management I will try visiting other broking house so as to understand their methodology having different income level of clientele. This will enable me to have an insight of different risk management process and gradually design a process minimizing the margin call to clients and going beyond the practiced collateral requirement to be maintained with brokers. OBJECTIVE 1. The main objective of my study during these two months will be to enhance my knowledge and figure out the working of the operation process of risk management division and how does it contribute in a broking firm and form its most integral part. 2. Moving gradually I will be focusing on the margin call made by the risk team and how do they monitor the collateral of various types of clients and their categorization of various accounts.
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A STUDY ON RISK MANAGMENT RESEARCH METHODOLOGY RESEARCH APPROACH:
2010
It will be qualitative approach. Instead of quantifying the data by going through questionnaire designing my focus will be adopt the Delphi method, having expert opinions at different grounds. RESEARCH DESIGN: An exploratory research design will be adopted. This was considered to be appropriate as there was need to explore the areas of risk faced by brokers and clients. RESOURCES AND LIMITATION: As my project does not involve direct use of statistical tools to quantify the data, I cant carry out any market research by collecting samples. Instead, Ill be visiting few brokerages that have a different clientele or groups of investors. Because if your clientele base is different than the way we handle our risk management operations is different. The study will give me useful insights on them. After taking sample size of 4-5 brokerages Ill form a panel of CAs, CFOs, SHAREMARKET TRADERS, and DEALERS. With their help I will in a position to design and analyze process which minimizes the margin call thereby giving a comfort cushion to clients and brokers revenue. But there are several limitations that will be obstructing the study. As getting into the risk management team of any brokerage is not an easy task. Then how to define the variables of the study as the opinion of differs from expert to expert.
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CHAPTER ONE
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INTRODUCTION
Risk in the stock market is everywhere. Investing in the stock market is fraught with worry, for good reason. If you lose half of your investment, you must double your return to just breakeven. Warren Buffett, considered by many to be the worlds greatest investor, states his first rule of investing is do not lose money. Unfortunately, the risk in the stock market of losing your money is always a possibility. However, without taking some risk there is no reward. Therefore, successful investors employ stock market risk management strategies to minimize their losses. Managing risk in stock market starts with identifying the type of risk and taking action to mitigate the impact of the risk on your investment portfolio. Risk in the stock market comes in many forms and each can lead to a loss. The most common is the overall trend of the market. Approximately 60 % of the move of an individual stock is attributed to the trend of the stock market. If the stock market is rising, it takes with it most of the other stocks, though not in equal amounts. When the stock market falls stocks sink with it. Another big risk in stock market lies with owning an individual stock. While owning the stock of a company can offer greater rewards, it also entails the risk that something might go wrong that can cut the price of the companys shares in half. It might be news that sales have suddenly fallen due to a new competitor, or a product liability issue has arisen. For whatever the reason, individual stocks are subject to risk associated to them alone. Summarizing some of the risks in capital marketsTypes of Risk or Sources of Risk: Interest rate risk Exchange risk Liquidity risk Internal business risk External business risk Financial risk Events of God Market risk
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A STUDY ON RISK MANAGMENT Marketing risk Credit risk
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APPROACHES TO RISK MANAGEMENT Risk avoidance Loss control Diversification Separation Risk transfer Risk retention Risk sharing OBJECTIVES OF RISK MANAGEMENT Mere survival Peace of mind Lower risk management costs and thus higher profits Fairly stable earnings Little or no interruption of operations Continued growth Satisfaction of the firms sense for a good image Fulfillment of social responsibility
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RISK MANAGEMENT PROCESS Determining objectives Identifying risks Risk evaluation Development of policy Development of strategy Implementation Review FEATURES OF PURE RISK huge potential losses pure risks are controllable insurability lower probability not associated with offsetting gains COMPONENTS OF PURE RISK expected cost of losses
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cost of loss control cost of loss financing cost of internal risk reduction methods cost of residual uncertainty
CHAPTER TWO
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INDUSTRY ANALYSIS
The rise of retail lending in emerging economies like India has been of recent origin. Asia Pacifics vast population, combined with high savings rates, explosive economic growth, and underdeveloped retail banking services, provide the most significant growth opportunities for banks. Banks will have to serve the retail banking segment effectively in order to utilize the growth opportunity. Banking strategies are presently undergoing various transformations, as the overall scenario has changed over the last couple of years. Till the recent past, most of the banks had adopted fierce cost cutting measures to sustain their competitiveness. This strategy however has become obsolete in the new light of immense growth opportunities for banking industry. Most bankers are now confident about their high performance in terms of organic growth and in realizing high returns. Nowadays, the growth strategies of banks revolve around customer satisfaction. Improved customer relationship management can only lead to fulfillment of long-term, as well as, short-term objectives of the bankers. This requires, efficient and accurate customer database management and development of well-trained sales force to develop and sustain long-term profitable customer relationship.
The banking system in India is significantly different from that of the other Asian nations, because of the countrys unique geographic, social, and economic characteristics. Though the sector opened up quite late in India compared to other developed nations, like the US and the UK, the profitability of Indian banking sector is at par with that of the developed
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countries and at times even better on some parameters. For instance, return on equity and assets of the Indian banks are on par with Asian banks, and higher when compared to that of the US and the UK. Banks in India are mainly classified into Scheduled Banks and Non-Scheduled Banks. Scheduled Banks are the ones, which are included in the second schedule of the RBI Act 1934 and they comply with the minimum statutory requirements. Non-Scheduled Banks are joint stock banks, which are not included in the second Schedule of the RBI Act 134, on account of the failure to comply with the minimum requirements for being scheduled.
SWOT ANALYSIS STRENGTH

Indian banks have compared favorably on growth, asset quality and profitability with other regional banks over the last few years. The banking index has grown at a compounded annual rate of over 51 per cent since April 2001 as compared to a 27 per cent growth in the market index for the same period. Policy makers have made some notable changes in policy and regulation to help strengthen the sector. These changes include strengthening prudential norms, enhancing the payments system and integrating regulations between commercial and co-operative banks. Bank lending has been a significant driver of GDP growth and employment. Extensive reach: the vast networking & growing number of branches & ATMs. Indian banking system has reached even to the remote corners of the country. The government's regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. In terms of quality of assets and capital adequacy, Indian banks are considered to have clean,
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A STUDY ON RISK MANAGMENT strong and transparent balance sheets relative to other banks in comparable economies in its region. India has 88 scheduled commercial banks (SCBs) - 27 public sector banks (that is with the Government of India holding a stake)after merger of New Bank of India in Punjab National
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Bank in 1993, 29 private banks (these do not have government stake; they may be publicly listed and traded on stock exchanges) and 31 foreign banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively. Foreign banks will have the opportunity to own up to 74 per cent of Indian private sector banks and 20 per cent of government owned banks.
WEAKNESS
PSBs need to fundamentally strengthen institutional skill levels especially in sales and marketing, service operations, risk management and the overall organizational performance ethic & strengthen human capital. Old private sector banks also have the need to fundamentally strengthen skill levels. The cost of intermediation remains high and bank penetration is limited to only a few customer segments and geographies. Structural weaknesses such as a fragmented industry structure, restrictions on capital availability and deployment, lack of institutional support infrastructure, restrictive labor laws, weak corporate governance and ineffective regulations beyond Scheduled Commercial Banks (SCBs), unless industry utilities and service bureaus. Refusal to dilute stake in PSU banks: The government has refused to dilute its stake in PSU
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banks below 51% thus choking the headroom available to these banks for raining equity capital. Impediments in sect oral reforms: Opposition from Left and resultant cautious approach from the North Block in terms of approving merger of PSU banks may hamper their growth prospects in the medium term.
OPPORTUNITY
The market is seeing discontinuous growth driven by new products and services that include opportunities in credit cards, consumer finance and wealth management on the retail side, and in fee-based income and investment banking on the wholesale banking side. These require new skills in sales & marketing, credit and operations. Banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates provided. This will expose the weaker banks. With increased interest in India, competition from foreign banks will only intensify. Given the demographic shifts resulting from changes in age profile and household income, consumers will increasingly demand enhanced institutional capabilities and service levels from banks. New private banks could reach the next level of their growth in the Indian banking sector by continuing to innovate and develop differentiated business models to profitably serve segments like the rural/low income and affluent/HNI segments; actively adopting acquisitions as a means to grow and reaching the next level of performance in their service platforms. Attracting, developing and retaining more leadership capacity
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foreign banks committed to making a play in India will need to adopt alternative approaches to win the race for the customer and build a value-creating customer franchise in advance of regulations potentially opening up post 2009. At the same time, they should stay in the game for potential acquisition opportunities as and when they appear in the near term. Maintaining a fundamentally long-term value-creation mindset. reach in rural India for the private sector and foreign banks. With the growth in the Indian economy expected to be strong for quite some time especially in its services sector-the demand for banking services, especially retail banking, mortgages and investment services are expected to be strong. the Reserve Bank of India (RBI) has approved a proposal from the government to amend the Banking Regulation Act to permit banks to trade in commodities and commodity derivatives. Liberalization of ECB norms: The government also liberalized the ECB norms to permit financial sector entities engaged in infrastructure funding to raise ECBs. This enabled banks and financial institutions, which were earlier not permitted to raise such funds, explore this route for raising cheaper funds in the overseas markets. Hybrid capital: In an attempt to relieve banks of their capital crunch, the RBI has allowed them to raise perpetual bonds and other hybrid capital securities to shore up their capital. If the new instruments find takers, it would help PSU banks, left with little headroom for raising equity. Significantly, FII and NRI investment limits in these securities have been fixed at 49%, compared to 20% foreign equity holding allowed in PSU banks.
THREATS
Threat of stability of the system: failure of some weak banks has often threatened the stability of the system.
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Rise in inflation figures which would lead to increase in interest rates. Increase in the number of foreign players would pose a threat to the PSB as well as the private players.
RECENT ANALYSIS OF EQUITY BROKING FIRMS

Equity broking firms gradually move towards a diversified product mix
In FY08 the earnings of the companies under study remained strong at Rs 72.18 billion growing by an impressive 95.2% as compared with FY07. During the same year, income from the core broking business grew 70%, but the core business share in the total income fell from 83.1% to 72.4% on a y-o-y basis. However, this fall is not unexplained as gradually equity broking firms are adopting a diversified product portfolio to reduce their dependence on equity broking. Even though income from wealth management, portfolio management services (PMS) and advisory fees accounted for a miniscule portion of around 5% of the total income in FY08, these services grew by more than 100% on an annual basis. Likewise, other revenue generating segments like income from trading activities, lending activities and investment banking grew by more than 50%.
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In the near future also, the other revenue generating segments collectively, other than core broking business, are estimated to continue playing a larger role. Medium-sized firms grow faster than peers, but remain more vulnerable in difficult times During FY07 to FY08, mid-sized companies recorded the steepest increase of more than 100% in total income as compared with large companies 93.9% and small-sized companies 60%. Medium-sized firms also had a leadership position in terms of the income share from the core broking segment, which was 78% of their total income and grew by more than 100% during FY07-FY08. Moreover, these firms also showed the highest growth in wealth management (by more than 100%), and in PMS and advisory fees and lending activities (by 232.2%). Nevertheless, the mid-sized companies heavy reliance on revenue from core broking activity, around 78% of its total income, is not a comfortable position, especially because revenues almost froze in this segment during FY07 and FY08. On the other hand, large and small-sized companies seem to have lowered their dependence on core broking activities; during FY07 to
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A STUDY ON RISK MANAGMENT FY08, the large sized companies income from broking operations went down from around 85% to around 70% and that of small-sized companies went down from 60% to 55%. Thus, large and small companies seem to be better insulated than mid-sized firms for facing tough times due to their diversified product mix.
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Expenditure component Interest costs increase by over 140% Interest cost skyrocketed by 142% in FY08 over FY07 and constituted 8% of the total expenses. Regulatory and stock exchange charges and depreciation increased by 94.0% and 27.2%, respectively, and contributed 4.3% and 3.2% of the total expenditure. During FY07 to FY08, the income of companies considered for the study grew by 95.2% and its total expenditure, which stood at Rs 49.1 billion in FY08, grew by 79.0%. The other operating expenses, which included administrative, software maintenance, transaction cost etc, surged by 146.8% and constituted 60.1% of the total expenditure. Employee cost was the most significant cost for the equity broking sector, and increased by 68.1% y-o-y; however, the
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contribution of employee cost in total expenditure decreased from 31.1% to 24.5% during the same time period.
Employee costs highest in small-sized firms Medium-sized companies not only recorded the fastest growth in total income but also recorded the highest growth in total expenditure during FY07-FY08; their total expenses grew by around 90% as compared with 76.3% and 56.0% for large and small-sized firms, respectively. Operating and employee costs turned out to be the two significant costs across all the three types of companies. Employee cost, the single highest cost component, accounted for around one fourth of the total expenses for large and medium sized firms; whereas for small firms it accounted for 38%. As in the case of operating costs, midsized firms recorded the highest increase of 88.7% in terms of employee costs. Operating costs, which include administrative, software maintenance, transaction cost etc, constituted around 60% of the total expenses of large and medium-sized firms, and 43.7% of the total expenses of small-sized firms. Mid-sized firms displayed the highest increase of 89.6% in operating costs.
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A STUDY ON RISK MANAGMENT The regulatory and stock exchange expenses grew the most in large companies at 96.1% as compared with medium and small companies, whose related expenses grew by 87.2% and 38.0%, respectively. The highest increase in interest costs was recorded by mid-sized companies at around 180%.
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Profitability Net cash flow from operating activities generated positive figures in FY08 The operating profit margin of the companies covered in the study decreased by around 600 bps at 39.5% in FY08 as compared with 45.4% in FY07 owing to an increase in administrative and operating expenses. The net profit margins, however, did not deviate much from FY07; in FY08, the net profit margin was 21.6%, almost in line with FY07s 21%. Interest coverage ratio stood at 6.9% in FY08 which decreased from the FY07 figure of 8.1%. Debt to equity ratio for FY08 stood at 1.25 which increased from 0.6 recorded in FY07; this clearly shows that the sector has increased its reliance on debt financing. Interest cost as a component of total expenditure is likely to increase further in the future considering the difficult business environment. The cash and bank balance increased by 275.4% in FY08. Companies covered in the study also generated positive net cash flow from operating activities for FY08 compared to negative cash flows in FY07.
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Large companies show better margins Large companies dominated the sector in terms of operating profit margins as well as in terms of growth; the operating profit margin of large companies improved to 42.1% in FY08 as compared with 35.7% in FY07. The net profit margins of large companies at 23.4%, was in line with FY07s margins. Mid-sized companies and small-sized companies registered a net profit margin of 15.2% and 3.17%, respectively. However, the small companies also included three loss-making companies if these companies are excluded from the analysis, the margin for this group of companies improves to 22.9%. The return on net worth of large companies in FY08 was 38.9% as compared with 36.4% in FY07. The return on net worth of mid-sized companies showed maximum improvement at 17.3% in FY08 as compared with 10.6% in FY07. Small companies recorded a return on net worth of 1.6% and if the loss-making companies are excluded, their net worth improved to 11.4%. The increase in debt-equity ratio of large companies from 0.7 times in FY07 to 1.6 FY08 denotes the increasing dependence of large companies on debt to finance their business activities. On the other hand, medium and small-sized companies debt-equity ratio stood at a much more comfortable level of 0.4 and 0.1 respectively as compared to large companies.
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The growth in large companies cash and bank balance also surpassed that of other categories; the cash and bank balance of large companies jumped by 325% while that of medium-sized companies grew by 121.4%. Moreover, large companies reported a positive net cash flow from operating activities as compared with a negative cash flow in FY07. While medium companies net cash flow grew by 170.4%, small companies cash flows was negative. Performance in FY09 The plunge in stock markets during the first nine months of FY09 dried up share volumes on stock exchanges and further pressurized revenues of stock broking companies. During the first nine months of FY09, the y-o-y total income for the 17 listed equity-broking companies decreased by 18.4% at Rs 11,501.3 million as compared with the same period last year.
However the bottom-line had a much worse tale to tell. A large share of the operating expenditure of the retail broking industry is fixed, and that has now begun to have an impact. While revenues fell sharply, expenditure fell by just 4% - resulting in a major impact on profitability. Profits have halved and the pressure on profits is immense as companies are finding it difficult to adjust costs amid declining revenues. In the first nine months of FY09, the PAT margin of the 17 listed companies was 16.7% as compared with 29.1% during the same period of FY08.
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HISTORY OF COMPANY
The Kotak Mahindra group was born in 1985 as Kotak capital management financiers ltd. Day Kotak, Sidney A.A Pinto, Promoted the company. Industrialists Harish Mahindra and an and Mahindra Took a stake in 1886 and thats when the company changed its name to KOTAK MAHINDRA FINANCE LIMITED. 1986: Kotak Mahindra Finance Limited starts the activity of bill discounting. 1987: Enters the base and hire purchase market. 1990: Auto finance division was started. 1991: Investing banking was started. 1992: Enters funds syndication sector. 1995: Brokerage and distribution businesses incorporated into a separate company Kotak Securities. 1996: The auto finance business was hived off into aspirate company- Kotak Mahindra Primus Limited. Kotak Limited, for financing ford vehicles. 1998: Enters the mutual fund market with launch of Kotak Mahindra Company 2000: Kotak Mahindra ties up with old mutual for the life4 insurance business. Kotak Securities launches Kotak street system. Com- its online broking site. 2003: Kotak Mahindra finance Limited converts to bank
Kotak securities limited are a subsidiary of Kotak Mahindra Bank Limited is one of largest private brokerage and distribution house Set up in 1994 by Mr.
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Uday Kotak. Kotak securities have 25% equity participation from Goldman Sachs. Kotak securities have been the largest in IPO distribution and were ranked no.1 in the year 2003-2004 as book running lead managers in I POs by prime database. The core strengths are the expertise in equity research and wide retail distribution network. It has an outstanding research division involved in macro economic studies, industry and company specific equity research with analysts specializing in particular economic sectors and large cap stocks. Kotak securities manage assets over rupees 1200 cars under portfolio management services. Main areas of business Kotak Securities are: Institutional broking business Private client group Client money management Retail distribution of financial products Depository services Online trading
Institutional broking business:This service primarily covers secondary market broking. It caters to the needs of foreign and Indian institutional investors in Indian equities Kotak Securities institutional business also incorporates a comprehensive research cell with sect oral analysts who cover all the major areas of Indian economy. Private client group:Private client group is a special investment division for high net worth individuals. Nonresident Indian investors, trusts corporate and banks the investments product range at private client group
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is among the widest in the country and covers debt and equity, mutual funds and specialized structured investment products. Client money management:This division provides professional portfolio management services to high net worth individuals and corpotate.Efficient fund management is maintained at all times as well as complete accountability and transparency. Its expertise in research and stock broking gives it the right perspectives from which it provide its clients with investments advisory services that benefit the clients.
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Retail distribution of financial products Kotak Securities has a comprehensive retail distribution network, comprising about 7000 agents, 13 branches and over 20 franchisees across India. This network is used for the distribution and placements of a range of financial products that includes company fixed deposits, mutual funds initial public offerings, equity and small saving schemes. Depository services:Kotak Securities is a depository participant with national securities depository limited for trading and settlement of dematerialized shares. Since it is also in the broking business investors who use its depository services get dual benefit. Online trading:Kotak Securities online broking service kotakstreet.com offers services for retail investors who like to trade on net its unique product offering securities as margins and its market watch facility with real time prices combined in an order facility not offered by and other web site at present.
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KOTAK GROUP
The group is organized on the following:Kotak Mahindra Group Strategic Business Units
Asset Finance
Knowledge & Skill
Wealth Management Insurance
Kotak Mahindra Kotak Mahindra Bank Ltd.
Kotak Securities
Kotak Mahindra Life Insurance
Om
Capital Company Ltd
Kotak Mahindra Primes Ltd.
Kotak Mahindra An M C
Kotak Mahindra Venture Capital Fund BIMTECH Page 32
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Kotak Mahindra (U K)
Ltd.
Kotak Mahindra (International) Ltd.
Kotak Mahindra Inc
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Kotak Mahindra Bank

In Feb. 2003 Kotak Mahindra Bank finance limited the groups flagship company was given the license to carry on banking business by RBI. This approval creates banking history since Kotak Mahindra Finance limited is the first company in India to convert to a bank. Mr. K.M. Gherda is the chairman and Mr. Uday Kotak is the vise chairman managing director of the bank.
A Kotak Mahindra Primus limited

Kotak Mahindra Primus limited is a joint venture between Kotak Mahindra bank limited and ford credit formed to finance all non ford passenger vehicles. The company was incorporated on 20th February 1996 and commences its operation on 1st November 1996. The net worth on 31st March was 464 crore. Mr. Kotak is the chairman and Mr. Deepak Gupta, Mr. C. Jairam, Mr. Gaurang Shah, Mr. Pankaj Desai, Mr. Nishchal kkkk, Mr. Gregery Coham and Mr. Raghu Nadaaa are the directors of Kotak Mahindra Premium Limited.
Kotak Mahindra Asset Management Company

Kotak Mahindra Asset Management Company is a wholly owned subsidiary of Kotak Mahindra Bank limited is the asset manager of Kotak Mahindra Mutual Fund. KMAMC started operation in December 1998 has over 1,35,000 investors in various schemes.
Kotak Mahindra Venture Capital Fund

KMVCF sponsored by Kotak Mahindra Bank limited was formed to cater the needs of the modern day entrepreneur. The fund partner with companies for their first and second of funding requirements in the emerging high growth sectors such as IT research and proudest, internet and E-commerce, media, healthcare, investments in company could range from Rs. 20 millions to Rs. 100 millions. KMVKF is a SEBI registered VCF with KMBL as the principal investor and 30 other private investors. KMBL is the investment manager of fund.
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Kotak Mahindra International Limited

Kotak Mahindra international limited is the international arm of Kotak Mahindra Group and was incorporated in 1994 in Mauritius; with a brand in Dubai and now international operation are cover the United Kingdom through Kotak Mahindra UK limited in USA through Kotak Mahindra Inc. USA. These companies are subsidiaries of Kotak Mahindra Capital Company.
Kotak Mahindra Capital Company Limited

KMCCL was incorporated 1996 as a joint venture between Goldman Sachs the international banking and brokerage firm and Kotak Mahindra Bank limited. KMCC in its franchisee business focuses in fine care areas capital markets, mergers acquisition, corporate advisory, structured finance and international operational. KMCC has advised some of the largest telecom and cement deals in India. KMCC is a leading player in the field of Media and advertisement. KMCC is also RBI is approved primary deals in the government securities market. Mr. Kotak is the chairman and Ajay Sondhi is Vice president and managing director.
Kotak Mahindra Life Insurance

Om Kotak Mahindra life insurance ventures a 74:26 joint venture with old mutual. U.K. Kotak Mahindra Bank limited believes that life insurance is a logical expansion of its exiting financial services business. Old mutual is a leading financial services provider in the world, providing a wide range of financial services in the area of insurance, asset management and banking.
MARKET SHARE
Kotak Securities Ltd. is Indias leading stock broking house with a market share of around 8.5 percent as of March 31, 2006. It handles more IPOs than any other brokerage. The company has
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a full-fledged research division involved in macroeconomic studies, sect oral research and company-specific equity research combined with a strong and well-networked sales force, which helps deliver current market information and news. Kotak Securities is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), providing dual services wherein the investors can use brokerage services for executing transactions and depository services for settling them. The firm has 195 branches servicing more than 2,200,000 customers across 231 cities. Kotaksecurities.com, the online division, offers Internet brokerage services and also online IPO and mutual fund investments. Kotak Securities manages over 2500 crores of Assets under Management (AUM). Its portfolio management services cater to the high end of the market, offering an answer for those who would like to grow exponentially on the crest of the stock market, with the backing of an expert.
AWARDS AND RECOGNIZATION

Kotak Securities Ltd. 100 % subsidiary of Kotak Mahindra Bank is one of the oldest and largest broking firms in the Industry. The companys offerings include stock broking through the branch and Internet, Investments in IPO, Mutual funds and Portfolio management service. Kotak Securities has a full-fledged research division involved in Macro Economic studies, Sect oral research and Company Specific Equity Research combined with a strong and well networked sales force which helps deliver current and up to date market information and news. Kotak Securities network spans over 321 cities with 877 outlets, with an employee workforce beyond 5100. The company is also a depository participant with National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL), providing dual benefit services wherein the investors can avail the companys brokerage services for executing the transactions and the depository services for settling them. Kotak Securities Ltd. processes more than 4, 00,000 trades a day which is much higher even than some of the renowned international brokers.
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Kotak Securities Limited has over Rs. 3300 crore of Assets under Management (AUM) as of 31st March, 2008. The portfolio Management Service provides top class service, catering to the high end of the market. Portfolio Management from Kotak Securities comes as an answer to those who would like to grow exponentially on the crest of the stock market, with the backing of an expert. Unlike many other companies, Kotak Securities Ltd. has a Centralized Risk Management System and an in-house Research Team which allows it to offer the same levels of service to customers across all locations. Kotak Securities was awarded as the most customer responsive company in the Financial Institution sector by AVAYA Global Connect Award both in 2006 and 2007. Kotak Securities Ltd has been the first in providing many products and services which have now become industry standards. Some of them are:

Facility of Margin Finance to the customers Investing in IPOs and Mutual Funds on the phone SMS alerts before execution of depository transactions Mobile application to track portfolios Auto Invest A systematic investing plan in Equities and Mutual funds Provision of margin against securities automatically against shares in the customers Demat account
Kotak Securities Accolades include:

Best Brokerage Firm in India by Asia money in 2008, 2007 & 2006 Best Performing Equity Broker in India CNBC Financial Advisor Awards 2008 Avaya Customer Responsiveness Awards (2007 & 2006) in Financial Services Sector The Leading Equity House in India in Thomson Extel Surveys Awards for the year 2007 Euro money Award (2007 & 2006) Best Provider of Portfolio Management: Equities Euro money Award (2005)-Best Equities House In India Finance Asia Award (2005)-Best Broker In India Finance Asia Award (2004)- Indias best Equity House Prime Ranking Award (2003-04)- Largest Distributor of IPOs
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CHAPTER THREE
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LITREATURE REVIEW
Over the past fifteen years, several investors have suffered huge losses due to extreme events. Barings Bank failed in 1995, Long Term Capital Management collapsed in 1998, and Enron went bankrupt in 2001. Furthermore, the terrorist attacks in the U.S. (2001), Spain (2004), and the U.K. (2005) and the most recent American economy collapse causing slow down (2008-09) have tremendously affected Indian financial markets. Extreme market moves and distress condition throughout the world have occurred since the beginning of organized market even so, 1998 was distinguished by the number of spectacular market stresses. Many market participants should have learned powerful lessons. But 1998 and in 2008 and haws that many of us are still ill prepared. Extreme incidences that makes the world economies to slow down also effect the India stock Market causing the fall in index from 20 to 60 percent some of the extreme events the affect the Indian stock market. INTRODUCTION TO MARGIN DEFINATION The definition of margin includes three important concepts: the Margin Loan, the Margin Deposit and the Margin Requirement. The Margin Loan is the amount of money that an investor borrows from his broker to buy securities. The Margin Deposit is the amount of equity contributed by the investor toward the purchase of securities in a margin account. The Margin Requirement is the minimum amount that a customer must deposit and it is commonly expressed as a percent of the current market value. The Margin Deposit can be greater than or equal to the Margin Requirement. We can express this as an equation: Margin Loan + Margin Deposit = Market Value of Security
Margin Deposit >= Margin Requirement Borrowing money to purchase securities is known as "buying on margin". When an investor borrows money from his broker to buy a stock, he must open a margin account with his broker, sign a related agreement and abide by the broker's margin requirements. The loan in the account is collateralized by investor's securities and cash. If the value of the stock drops too much, the investor must deposit more cash in his account, or sell a portion of the stock.
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A STUDY ON RISK MANAGMENT INITIAL AND MAINTENANCE MARGIN
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The Federal Reserve Board and self-regulatory organizations (SROs), such as the New York Stock Exchange and FINRA, have clear rules regarding margin trading. In the United States, the Fed's Regulation T allows investors to borrow up to 50 percent of the price of the securities to be purchased on margin. The percentage of the purchase price of securities that an investor must pay for is called the initial margin. To buy securities on margin, the investor must first deposit enough cash or eligible securities with a broker to meet the initial margin requirement for that purchase. Once an investor has started buying a stock on margin, the NYSE and FINRA require that a minimum amount of equity be maintained in the investor's margin account. These rules require investors to have at least 25 percent of the total market value of the securities they own in their margin account. This is called the maintenance margin. For market participants identified as pattern day traders, the maintenance margin requirement is $25,000. When the balance in the margin account falls below the maintenance requirement, the broker can issue a margin call requiring the investor to deposit more cash, or the broker can liquidate the position.
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Brokers also set their own minimum margin requirements called "house requirements". Some brokers extend more lenient lending conditions than others and lending terms may also vary from one client to the other but brokers must always operate within the parameters of margin requirements set by regulators. Not all securities can be bought on margin. Buying on margin is a double-edged sword that can translate into bigger gains or bigger losses. In volatile markets, investors who borrowed from their brokers may need to provide additional cash if the price of a stock drops too much for those who bought on margin or rallies too much for those who shorted a stock. In such cases, brokers are also allowed to liquidate a position, even without informing the investor. Real-time position monitoring is a crucial tool when buying on margin or shorting a stock.
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A STUDY ON RISK MANAGMENT Risk Management
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Since the occurrence of these incidents, the importance of risk management has been extensively recognized by banks and securities firms when deciding the amount of risk they are willing to take. Moreover, bank regulators now put an emphasis on risk management practices in attempting to reduce the fragility of financial and banking system. Setting up of risk management cell is been practiced by various banks, brokerage houses and other financial firms. Basic objective of this department was to eliminate risk exposure to the firm and the clients portfolio as much as possible. In volatile financial markets, both market participants and market regulators need models for measuring, managing and containing risks. Market participants need risk management models to manage the risks involved in their open positions. Market regulators on the other hand must ensure the financial integrity of the stock exchanges and the clearing houses by appropriate margining and risk containment systems. The successful use of risk management models is critically dependent upon estimates of the volatility of underlying prices. The principal difficulty is that the volatility is not constant overtime - if it were, it could be estimated with very high accuracy by using a sufficiently long sample of data. Thus models of time varying volatility become very important. Practitioners and econometricians have developed a variety of different models for this purpose. Whatever intuitive or theoretical merits any such model may have, the ultimate test of its usability is how well it holds up against actual data. Empirical tests of risk management models in the Indian stock market are therefore of great importance in the context of the likely introduction of index futures trading in India. There are several risk management models available, but the most popular in them are:Value-at-Risk, Stress Testing. Value-at-Risk, In financial risk management, Value at Risk (VaR) is a widely used measure of the risk of loss on a specific portfolio of financial assets. For a given portfolio, probability and time horizon, VaR is defined as a threshold value such that the probability that the mark-to-market loss on the portfolio over the given time horizon exceeds this value (assuming normal markets and no
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trading in the portfolio) is the given probability level. For example, if a portfolio of stocks has a one-day 5% VaR of $1 million, there is a 5% probability that the portfolio will fall in value by more than $1 million over a one day period, assuming markets are normal and there is no trading. Informally, a loss of $1 million or more on this portfolio is expected on 1 day in 20. A loss which exceeds the VaR threshold is termed a VaR break. VaR has five main uses in finance: risk management, risk measurement, financial control, financial reporting and computing regulatory capital. VaR is sometime used in non-financial applications as well. Varieties of VaR The definition of VaR is no constructive, it specifies a property VaR must have, but not how to compute VaR. Moreover, there is wide scope for interpretation in the definition. This has led to two broad types of VaR, one used primarily in risk management and the other primarily for risk measurement. The distinction is not sharp, however, and hybrid versions are typically used in financial control, financial reporting and computing regulatory capital. To a risk manager, VaR is a system, not a number. The system is run periodically (usually daily) and the published number is compared to the computed price movement in opening positions over the time horizon. There is never any subsequent adjustment to the published VaR, and there is no distinction between VaR breaks caused by input errors (including Information breakdowns, fraud and rogue trading), computation errors (including failure to produce a VaR on time) and market movements.
For risk measurement a number is needed, not a system. A Bayesian probability claim is made, that given the information and beliefs at the time, the subjective probability of a VaR break was the specified level. VaR is adjusted after the fact to correct errors in inputs and computation, but not to incorporate information unavailable at the time of computation. In this context backtest has a different meaning. Rather than comparing published VaR to actual market movements over the period of time the system has been in operation, VaR is retroactively computed on scrubbed data over as long a period as data are available and deemed relevant. The same position data and pricing models are used for computing the VaR as determining the price movements. Although some of the sources listed here treat only one kind of VaR as legitimate, most of the recent ones seem to agree that risk management VaR is superior for making short-term and tactical decisions
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A STUDY ON RISK MANAGMENT today, while risk measurement VaR should be used for understanding the past, and making
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medium term and strategic decisions for the future. When VaR is used for financial control or financial reporting it should incorporate elements of both. For example, if a trading desk is held to a VaR limit, that is both a risk-management rule for deciding what risks to allow today, and an input into the risk measurement computation of the desks risk-adjusted return at the end of the reporting period. Risk measure and Risk metric The term VaR is used both for a risk measure and a risk metric. This sometimes leads to confusion. Sources earlier than 1995 usually emphasize the risk measure, later sources are more likely to emphasize the metric. The VaR risk measure defines risk as mark-to-market loss on a fixed portfolio over a fixed time horizon, assuming normal markets. There are many alternative risk measures in finance. Instead of mark-to-market, which uses market prices to define loss, loss is often defined as change in fundamental value. For example, if an institution holds a loan that declines in market price because interest rates go up, but has no change in cash flows or credit quality, some systems do not recognize a loss. Or we could try to incorporate the economic cost of things not measured in daily financial statements, such as loss of market confidence or employee morale, impairment of brand names or lawsuits. Rather than assuming a fixed portfolio over a fixed time horizon, some risk measures incorporate the effect of expected trading (such as a stop loss order) and consider the expected holding period of positions. Finally, some risk measures adjust for the possible effects of abnormal markets, rather than excluding them from the computation. The VaR risk metric summarizes the distribution of possible losses by a quantile, a point with a specified probability of greater losses. Common alternative metrics are standard deviation, mean absolute deviation, expected shortfall and downside risk. VaR risk management Supporters of VaR-based risk management claim the first and possibly greatest benefit of VaR is the improvement in systems and modeling it forces on an institution. In 1997, Philippe Jorion wrote: The greatest benefit of VAR lies in the imposition of a structured methodology for critically thinking about risk. Institutions that go through the process of computing their VAR are forced to confront their exposure to financial risks and to set up a proper risk management
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A STUDY ON RISK MANAGMENT function. Thus the process of getting to VAR may be as important as the number itself.
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Publishing a daily number, on-time and with specified statistical properties holds every part of a trading organization to a high objective standard. Robust backup systems and default assumptions must be implemented. Positions that are reported, modeled or priced incorrectly stand out, as do data feeds that are inaccurate or late and systems that are too frequently down. Anything that affects profit and loss that is left out of other reports will show up either in inflated VaR or excessive VaR breaks. The second claimed benefit of VaR is that it separates risk into two regimes. Inside the VaR limit, conventional statistical methods are reliable. Relatively short-term and specific data can be used for analysis. Probability estimates are meaningful, because there are enough data to test them. In a sense, there is no true risk because you have a sum of many independent observations with a left bound on the outcome
Risk management in Indian capital market Categorization of stocks for imposition of

margins Stock is classified into three categories on the basis of their liquidity and impact cost. The Stocks which have traded at least 80% of the days for the previous six months shall constitute the Group I and Group II. Out of the scrips identified above, the scrips having mean impact cost of less than or equal to 1% are categorized under Group I and the scrips where the impact cost is more than 1, are categorized under Group II. The remaining stocks are classified into Group III. The impact cost is calculated on the 15th of each month on a rolling basis considering the order book snapshots of the previous six months. On the basis of the impact cost so calculated, the scrips move from one group to another group from the 1st of the next month. For securities that have been listed for less than six months, the trading frequency and the impact cost are computed using the entire trading history of the security. Categorization of newly listed securities For the first month and till the time of monthly review a newly listed security is categorized in that Group where the market capitalization of the newly listed security exceeds or equals the market capitalization of 80% of the securities in that particular group. Subsequently, after one
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month, whenever the next monthly review is carried out, the actual trading frequency and impact cost of the security is computed, to determine the liquidity categorization of the security. In case any corporate action results in a change in ISIN, then the securities bearing the new ISIN are treated as newly listed security for group categorization. Margins Daily margins payable by members consists of the following: 1. Value at Risk Margin 2. Extreme Loss Margin 3. Mark to Market Margin Daily margin, comprising of the sum of VaR margin, Extreme Loss Margin and mark to market margin is payable. Value at Risk Margin All securities are classified into three groups for the purpose of VaR margin for the securities listed in Group I, scrip wise daily volatility calculated using the exponentially weighted moving average methodology is applied to daily returns. The scrip wise daily VaR is 3.5 times the volatility so calculated subject to a minimum of 7.5%. For the securities listed in Group II, the VaR margin is higher of scrip VaR (3.5 sigma) or three times the index VaR, and it is scaled up by root 3. For the securities listed in Group III the VaR margin is equal to five times the index VaR and scaled up by root 3.The index VaR, for the purpose, is the higher of the daily Index VaR based on S&P CNX NIFTY or BSE SENSEX, subject to a minimum of 5%. NSCCL may stipulate security specific margins from time to time. The VaR margin rate computed as mentioned above is charged on the net outstanding position (buy value-sell value) of the respective clients on the respective securities across all open settlements. There is no netting off of positions across different settlements. The net position at a client level for a member is arrived at and thereafter, it is grossed across all the clients including proprietary position to arrive at the gross open position .For example, in case of a member, if client A has a buy position of 1000 in a security and client B has a sell position of 1000 in the same security, the net position of the
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member in the security is taken as 2000. The buy position of client A and sell position of client B in the same security is not netted. It is summed up to arrive at the members open position for the purpose of margin calculation. The VaR margin is collected on an upfront basis by adjusting against the total liquid assets of the member at the time of trade. The VaR margin so collected is released on completion of pay-in of the settlement. Extreme Loss Margin The Extreme Loss Margin for any security is higher of: 1. 5%, or 2. 1.5 times the standard deviation of daily logarithmic returns of the security price in the last six months. This computation is done at the end of each month by taking the price data on a rolling basis for the past six months and the resulting value is applicable for the next month. The Extreme Loss Margin is collected/ adjusted against the total liquid assets of the member on a real time basis. The Extreme Loss Margin is collected on the gross open position of the member. The gross open position for this purpose means the gross of all net positions across all the clients of a member including its proprietary position. There is no netting off of positions across different settlements. The Extreme Loss Margin collected is released on completion of pay-in of the settlement. Mark-to-Market Margin Mark to market loss is calculated by marking each transaction in security to the closing price of the security at the end of trading. In case the security has not been traded on a particular day, the latest available closing price at NSE is considered as the closing price. In case the net outstanding position in any security is nil, the difference between the buy and sell values shall be is considered as notional loss for the purpose of calculating the mark to market margin payable The mark to market margin (MTM) is collected from the member before the start of the trading of the next day. The MTM margin is collected/adjusted from/against the cash/cash equivalent component of the liquid net worth deposited with the Exchange. The MTM margin is collected on the gross open position of the member. The gross open position for this purpose means the gross of all net positions across all the clients of a member including its proprietary position. For this purpose, the position of a client is netted across its various securities and the positions of all the clients of a member are grossed. There is no netting off of the positions and set off against
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MTM profits across two rolling settlements i.e. T day and T+1 day. However, for computation of MTM profits/losses for the day, netting or set off against MTM profits is permitted. Margins collection from Client Members should have a prudent system of risk management to protect themselves from client default. Margins are likely to be an important element of such a system. The same should be well documented and be made accessible to the clients and the Stock Exchanges. However, the quantum of these margins and the form and mode of collection are left to the discretion of the members. Margin Shortfall In case of any shortfall in margin: The members shall not be permitted to trade with immediate effect. Is a penalty for margin violation Penalty applicable for margin violation is levied on a monthly basis based on slabs as mentioned below? Exemption upon early pay-in of securities In cases where early pay-in of securities is made prior to the securities pay-in, such positions for which early pay-in (EPI) of securities is made are exempt from margins. Members are required to provide client level early pay-in file in a specified format. The EPI of securities is allocated to clients having net deliverable position, on a random basis unless specific client details are provided by the member/ custodian. However, member/ custodian shall ensure to pass on appropriate early pay-in benefit of margin to the relevant clients. Additionally, member/custodian can specify the clients to whom the early pay-in may be allocated. Exemption upon early pay-in of funds In cases where early pay-in of funds is made prior to the funds pay-in, such positions for which early pay-in (EPI) of funds is made are exempt from margins based on the client details provided by the member/ custodian in the specified format. Early pay-in of funds specified by the
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member/custodians for a specific client and for a settlement is allocated against the securities in the descending order of the net buy value of outstanding position of the client. Cross Margin Salient features of the cross margining available are as under: 1. Cross margining benefit is available across Cash and Derivatives segment 2. Cross margining benefit is available to all categories of market participants 3. For client/entities clearing through same clearing member in Cash and Derivative segments, the clearing member is required to intimate client details through a file upload through Collateral Interface for Members (CIM) to avail the benefit of Cross margining 4. For client/entities clearing through different clearing member in Cash and Derivatives segments they are required to enter into necessary agreements for availing cross margining benefit. 5. For the client/entities who wish to avail cross margining benefit in respect of positions in Index Futures and Constituent Stock Futures only, the entitys clearing member in the Derivatives segment has to provide the details of the clients and not the copies of the agreements. The details to be provided by the clearing members in this regard are stipulated in the Format 1. Positions eligible for cross-margin benefit 2. Entities/clients eligible for cross margining 3. Facility of maintaining two client accounts 4. Computation of cross margining benefit 5. Provisions in respect of default 6. Additional Reports for Cross Margin Stress testing in risk management
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Stress testing defines a scenario and uses a specific algorithm to determine the expected impact on a portfolio's return should such a scenario occur. There are three types of scenarios: Extreme event: hypothesize the portfolio's return given the recurrence of a historical event. Current positions and risk exposures are combined with the historical factor returns. Risk factor shock: shock any factor in the chosen risk model by a user-specified amount. The factor exposures remain unchanged, while the covariance matrix is used to adjust the factor returns based on their correlation with the shocked factor. External factor shock: instead of a risk factor, shock any index, macro-economic series (e.g., oil prices), or custom series (e.g., exchange rates). Using regression analysis, new factor returns are estimated as a result of the shock. In an exponentially weighted stress test, historical periods more like the defined scenario receive a more significant weighting in the predicted outcome. The defined decay rate lets the tester manipulate the relative importance of the most similar periods. In the standard stress test, each period is equally weighted. Instead of doing financial projection on a "best estimate" basis, a company may do stress testing where they look at how robust a financial instrument is in certain crashes a form of scenario analysis. They may test the instrument under, for example, the following stresses:
What happens if the market crashes by more than x% this year? What happens if interest rates go up by at least y%? What if half the instruments in the portfolio terminate their contacts in the fifth year? What happens if oil prices rise by 200%?
This type of analysis has become increasingly widespread, and has been taken up by various governmental bodies (such as the FSA in the UK) as a regulatory requirement on certain financial institutions to ensure adequate capital allocation levels to cover potential losses incurred during extreme, but plausible, events. This emphasis on adequate, risk adjusted determination of capital has been further enhanced by modifications to banking regulations such
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as Basel II. Stress testing models typically allow not only the testing of individual stressors, but also combinations of different events.
CHAPTER FOUR
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PROBLEM DEFINATION BACKGROUND OF THE PROBLEM Never before has the role of the risk management function been so important or so central to good business management. The recent credit crisis has served to highlight the fundamental importance of the management of risk, and with risk the management of capital. Many institutions are now redefining the role of risk management, as are many regulators. So with keeping the importance of risk management in mind ill be making an attempt to understand the mechanism of mitigation of risk by a broker in capital markets. Major focus areas of the mechanism will be occurrence of margin call made to client, the various functions performed by a risk team and the integration of them with other allied activities. As my project will involve visiting of various brokers, Ill be focusing how different brokers have developed the mechanism to suit their clientele and organization.
RESEARCH OBJECTIVE: PRIMARY OBJECTIVES 1. The main objective of my study during these two months will be to enhance my knowledge and figure out the working of the operation process of risk management division and how does it contribute in a broking firm and form its most integral part. 2. moving gradually I will be focusing on the margin call made by the risk team and how do they monitor the collateral of various types of clients and their categorization of various accounts.
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SECONDARY OBJECTIVES 1. To understand the technology and the softwares adopted by brokers in today industry. 2. To understand method of handling the various clientele of different income groups. 3. Knowing the Responsibilities of risk team in a broking house.
4. Understanding the integration of risk team with other allied activities of broking house. 5. To have an opportunity to communicate to widespread franchise and branches of Kotak.
RESEARCH METHODOLOGY RESEARCH APPROACH: It will be qualitative approach. Instead of quantifying the data by going through questionnaire designing my focus will be adopt the Delphi method, having expert opinions at different grounds. While the Delphi is typically used as a quantitative technique, a researcher can use qualitative techniques with the Delphi method. Qualitative research is inter pretivistin the sense that the researcher is interested in how the social world is interpreted, understood and experienced; the researcher is flexible and sensitive to the social context within which the data was collected; and qualitative research is about producing holistic understandings of rich, contextual and detailed data . Qualitative research is also about engaging in conversations with the research participants in a natural setting as opposed to research conducted in a laboratory. The qualitative researcher attempts to make sense of or interpret the phenomena in terms of the meaning the participants place on them. The Delphi method is well suited to rigorously capture qualitative data RESEARCH DESIGN:
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An exploratory research design will be adopted. This was considered to be appropriate as there was need to explore the areas of risk faced by brokers and clients. In order to do that, I will be streamlining the duration of my project time as

First, the understanding the composition of the risk team. Enhancing my knowledge about the various functions. Then , making an attempt to visit other broking houses and understanding the methods adopted by them This will allow me to make a distinction in the functional operations of mitigating risk by different brokers.
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CHAPTER FIVE
APPROACH TO THE PROBLEM

(OVERVIEW OF THE WORK DONE DURING MY INTERNSHIP) RISK MANAGEMENT OF MTM CLIENTS
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A STUDY ON RISK MANAGMENT INTODUCTION TO MTM
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MTM refers to the valuing of securities at days closing price on a daily basis to calculate every days profit and loss for unbilled trades. A MTM Client provides initial margin to the broker in the form of funds of or securities, on the basis of which he is assigned an exposure limit up to, which he can place an order with the broker usually a multiple is used to calculate the total exposure limit, based on the margin provide d by the client. In Kotak Securities the normal multiple assigned to an offline MTM offline client is 7. The document detailed below describes, in case of a client:
Calculation of margin available Calculation f open exposure Calculation of margin% Analyzing whether the margin is appropriate as compared to that prescribed in the risk Management policy. Steps to be taken in case of shortfall in margin
Different types of Clients From the perspective of Risk Manage, clients can be broadly classified into two distinct types viz:
MTM Clients clients who arrange the funds for exposure taken in the market from their own resources. MTM clients can be further bifurcated into two broad categories:-
Normal Clients- these clients can provide margin only in the form of funds to the broker. They may or may not have a DP account with Kotak Securities (KS)
Security margin clients- These clients can provide the margin either in the form of funds or in the form of securitiries to KS, and also issue an irrevocable POA in favor of the KS, so that KS can execute control over the shares lying in the DP account. Margin funding clients
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Clients who obtain partial funding (50%) from the broker for exposure taken in the market. In order to avail this facility it is mandatory that they must open a DP Account with KS, and also issue an Irrevocable POA in favor of KS to operate the DP account on their behalf. Calculation of Margin Every client is offline is assigned a limit up to which he is allowed to take an exposure I the securities market. The limit of every client is based upon the amount of margin the client is having with the broker. The formula to calculate margin is as follows: Margin of client availing Security Margin facility Value of security lying in KS-POA DP A/c after Haircut (Less) net ledger value (Add) full value of unbilled delivered selling (Add) MTM and Square up Profit on unbilled trades Net Margin
Detailed Calculation
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A STUDY ON RISK MANAGMENT Value of security lying in KS- POA DP A/c after Haircut Sr. no 1. Col A Col B Col C Col D Haircut factor Col E Rate after haircut Col F (Col B * Col E)
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Net Current quantity market of shares rate lying in POA DP A/c Less Net quantity of shares received from 3rd party DP ID & lying in DP A/c Current market rate
2.
Current market rate
(Col B * Col E)
3.
Add
Quantity Current of shares market for which rate payout not received from exchange Unbilled Current quantity market of shares rate sold for which delivery Instruction has been executed by KS
Haircut factor
Rate after haircut
( Col B * Col E)
4.
Add
N.A
Current market rate
(Col B * Col E)
5.
Total value
(1-2+3+4)
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Net Ledger Value
Sr. No 1. 2. 3.
Col A
Col B Current ledger balance
Less Add
Cheques received from client but still uncleared in excess of which Rs. 5 laces or as specified for a particular client Initial, additional and exposure margin charged (if any) by the exchange on the clients open derivatives position, on the previous trading day (1-2+3)
4.
Total
MTM Profit/ (Loss) on unbilled trades cash (equity) market
Col A Col B Day Scrip
Col C Trade
Col D Qty
Col E
Col F
Col G
Col H MTM value Col (G * D) 10*100 (20)*100 (40)*100 1000 (2000) (4000)
Opening Closing Col rate rate (F-E) 1000 1010 990 1010 990 950 10 (20) (40)
T +0 T +1
Infosys Infosys Infosys
Buy
100 100 100
Square Up Profit/ (Loss) on unbilled trades Cash (Equity) market Purchase

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Sell
Sq. Up
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A STUDY ON RISK MANAGMENT Profit/Loss Col A Day T +0 Col B Scrip Col C Qty Col D Rate 1000 Col E Value 100000 Col F Qty 100 Col G Rate 1050 Col H Value 10500 0 Col I Col (H-E) 5000
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Infosys 100
Margin of a normal Client Value of a security sold, unbilled, but delivery given for the same No. of members in family: displays the no. of clients mapped under the family code.
Detailed MTM Report

Family No. of members in family Exposure open position at current (A) buy Sell Derv total Net ledger(F) (EB-C-D) Security 1 (G) Security 2 (H)
Derivative margin reversal Initial (B) Profit (I) Exposur e (C) Addition al (D)
Ledger(E )
Margin (J)
% (K)
Margin 2 (L) (G+H+I+I)
% (M) (L/A)
Margin with uncl chq %
MTM Margin w/o uncl chq %
SQUP Shortfall (N) (E(C+D+G+I)) Shortfall2 Client location RM Client code
Intraday limit
Equity zero
Stock upload
Additional stock upload
Haircut
Remarks
Input
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A STUDY ON RISK MANAGMENT Exposure open position: Displays the open position standing of the client in cash and F&O market segment. Buy- value of unbilled purchase of scrip at full value Sell value of unbilled shares sold for which delivery instructions has not been executed Derv displays the total value of open exposure in F&O segment. Derivative margin reversal:
2010
Displays the amount various margins charged by the exchanges on the open F&O positions of the clients, on the previous trading day. Initial displays the amount of initial margin charged by the exchange on open F&O positions of the clients, on the previous trading day. Exposure- amount of exposure margin charged by the exchange on the open F&O positions. Additional- amount of additional margin charged by the exchange on open F&O positions of the clients. Ledger: Displays the ledger balance after reversing the amount of cleared cheques, which have been already credited in the clients ledger. Net ledger: Calculated by adding back the initial, exposure and additional margins debited In clients a/c on the previous trading day in case he is having open exposure in F&O segment to the ledger value calculated above. Security 1: Value of security given by the client and is calculate as: Security margin clientsValue of stocks lying in the clients POA-DP A/c with KS after haircut. (Less) shares received from the third party DP lying in client DP (Add) unbilled delivered selling by the client, after full valuation (Add) payout of shares not received from exchange, valued after haircut.
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Normal ClientsUnbilled-delivered selling by the client at full valuation. Profit (MTM/SQ.UP): Displays the profit or loss made by the client. This section is further divided into two sections viz: MTM & square up. MTM here means market to market profit or loss made by the client. Square up means profit or loss on Square up transactions by the client. Margin: Displays available margin with the client. It is calculated by subtracting col. (ledger) from col (security) and adding (profit) to it. Margin %: Calculated by dividing margin by total exposure. This % is compared with the benchmark % of risk management of KS to find out the risk of positions of client. Margin 2: Security 2 valuation is also considered and is added in the amount of margin calculated above. Margin %: Calculated by dividing margin 2 by total exposure. Shortfall: It indicates the initial margin shortfall. It is calculated by (Add) exposure margin, additional margin, security 1 value and MTM/ sq up profits (Less) total figure of ledger value. If there is shortfall in client account then he will not be permitted to do trading. If this value comes out to be negative in the MTM report then it means that there is no shortfall in clients ledger. Shortfall 2: In this, we see the amount of initial+ exposure margin shortfall a client is having. It is generally a shortfall of initial and exposure margin. This is calculated to be on the safer side. Formula shortfall2 = col (security1) col(net ledger) + col(profit). Monitoring of Margin Obligations of Client:
Maintain at least 15% margin. Make full payment of unbilled buy positions, or Deliver shares in case of unbilled sell positions, before pay-in obligation.
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2010
Various cases of MTM report and actions taken by Risk Management Department:
1. 2.
Ledger debit >Rs. 5000 Initial margin shortfall> 5000
cash buying limit blocked restricted trading limit to be provided after Reducing derivative shortfall amount.
3.
Ledger debit more than 5days
cut clients open position.
In the above cases a client must be asked to either: Give additional cash Give additional securities Sell his securities Square off his position to adjust the shortfall.
Explanation of Unbilled transactions Any transaction in cash market remains unbilled for a period of 2 days, after which it is billed in the clients ledger. Example- a client executes a trade on 15th June 2010. Settlement of the same will take place on 17th June 2010. The client must make the paying/payout by the 17th June. Till this date the Transactions will be displayed as unbilled transaction in MTM report. Uncleared cheques Displays only the amount of cheques deposited by the client and entered in the CRPS, but not cleared with the bank till now. A client is given an advantage to trade on this cheq ue presented by the client up to Rs.500000
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CHAPTER SIX
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DATA ANALYSIS (CASE BASED APPROACH) Since the framework of my project didnt involved any collection of data .It was a deep and through study of the literature pertains to risk management and enhancing my knowledge about the integration of risk division with other allied activities of broking house. With such an objective in my mind I adopted a qualitative approach, whereby I along with the support my mentors and colleagues arranged visits to different broking house. This broking house didnt have that big turnover as compared with Kotak securities but had their own software and technology to manage their clientele. So I have formulated my study and visits as cases.
Case one:
NAME OF BROKER: CPR CAPITAL SERVICE CPR Capital Services Limited. Is an equities focused organization, a veteran equities solutions company with lots of experience in the Indian stock markets. CPR Capital Services Limited. Provides Equity Broking, Commodity Trading and IPO Service. Their clients include corporate, retail investors who come to them for an unbiased opinion on how to achieve their investment goals depending on each individuals risk profile. The organization finds its strength in its team of young, talented and confident individuals. 1. Customer interest is paramount. 2. Ethical and transparent business practices. 3. Respect for professionals, associates and business partners.
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A STUDY ON RISK MANAGMENT 4. Research based value investing. 5. Cutting edge technology to ensure world-class customer service. NAME OF THE SOFTWARE USED: VTECH
2010
I went to their main corporate office, where there had software for surveillance and monitoring. That software didnt allow any changes in granting limits to the clients. It was used to keep a watch on all the braches and online clients. What the different thing I found there was, as compared to Kotak there wasnt an exhaustive list of clients but what they had as a revenue earning model was the employment of jobbers and traders. These jobbers were engaged in trading on behalf of CPR. Now, this particular software enabled them to extract tables which were extremely useful in stress time. Additionally they had separate window to observe the derivative market with the objective of jobbers engaging in arbitrage opportunities. Some of the distinguishing features were:
Multiplier allotted is 10 times Provides the list of the scrips names in all futures and options, NSE and bse observing arbitrage and hedging.
After working for them these are some of the useful recommendations and up gradations which the traders and dealers want it:
Wants to extract a list of all jobbers and traders who are suffering a loss of rs.15000 or more, so that a corrective action can be taken accordingly.
A list of all clients holding an intraday position of rs.10, 00,000 should be generated. Up gradation of revision of the rates of scrips to get more shortened More features to trap the arbitrage opportunity from both sides.
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CASE TWO:
NAME OF THE BROKER: R.K STOCKHOLDINGS
With over two decades of expertise and reputed standing in Financial Services, RKFS Group has grown from strength to strength to go miles ahead of merely being a leading Brokerage House in India. We value and understand the needs of our customers and its relationship to excellent service. We bring together a group of like-minded Financial Advisors with a new approach to providing clients with secure investment, Retirement, Income and Superannuation advice. Offering a new level of service, responsive to your changing needs, our team works towards the realization of your expectations by delivering new standards in care, value and integrity. Today RKFS Group is one of the foremost brokerage houses, being a member of various exchanges in the capital and commodity markets. RKFS Group is a member of the National Stock exchange of India (NSE), the Bombay Stock Exchange (BSE), Multi commodity Exchange of India Ltd. (MCX), National Commodities Derivatives Exchange of India Ltd. (NCDEX) & National Multi Commodity Exchange of India Ltd. (NMCE). We are also a member of Dubai gold & Commodities Exchange (DGCX) & a fully fledged depository participant of Central Depository Services Ltd. (CDSL). Name of the software used: VSAT ODIN POWERED BY FT ENGINE. It was great experience here as the software used by the firm was the same as that of Kotak securities. But there was a clear distinction on the methodology used by them to operate on the system. Because of the difference in the clientele list and presence in the market their way was much more different to use the same software. Some of the key features adopted to mitigate risk were as follows:
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Instead of categorization of stocks in various categories based on their performance a flat 30 % haircut is used on all scrips.
The limit granted to clients is based on margin money. Spam margin goes to the system daily and manages the risk of all scrips in equity market. The debit cycle is of 10 days, after that they square off positions as against conventional 5 days and 9 days.
If there is a debit at the end of the day, no limit will be given to client next day. They operate by being a bit pro-active by observing the rejected orders of clients and order book of clients, and surveillance watch window. By this technique, a lot of calls coming from clients get reduced. As the favour the client would be asking is already granted.
The integrated net position of all the clients is uploaded at the end of day so their transaction could be watched for as on expiry.
BENEFITS FROM THIS METHODLOGY Instead of the people observing the margin percentages, the NSE exchange does it. As the VAR files are uploaded daily so as for any respective scrip demanding more margin because of the volatility in the market would be taken care off. The amount of labor required gets reduced by being a bit pro active in observing the clients transactions. The amount of trade generated is more as margin allows more transaction to take place in given amount of money as compared to limit granted based on exposure. The most interesting features observed was that there was a window called surveillance stock watch which was running on the amount of margin available with the client and margin percentage. So in stressful situation we immediately
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come to know which clients are suffering maximum losses and who are those to be approached first. Moreover at times there are scrips particularly belonging to T AND Z groups which have very high margin requirements because they are extremely volatile based on their performance, by following such approach no blocking of these scrips are required
Among all the futures present this method is in particularly advantageous in case of mini nifty as compared to exposure method.
In times of sudden circuit breakers this saves the position of broker as well clients.
CHAPTER SEVEN
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RECOMMENDATIONS AND CONCLUSIONS LESSONS LEARNED

Lesson One: Risk Management Is No Longer OptionalIf It Ever Was Lesson Two: Risk Management Must Run Through An Organization From Top To Bottom
No one would question the proposition that senior managers must take responsibility for risk management. It is clear, however, that this is not enough. In order to avoid risk, or at least minimize it, individuals at all levels of an organization must be invested in the effort.
Lesson Three: Adequate Staffing And Budget Are Necessary Risk management is not the place to cut corners. An investment in a firms risk management system protects the firm and its assets, and in that way, is essentially an investment in each individual product and client the firm has. In short, risk management is well worth the time and money associated with the effort.
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Lesson Four: Documentation, Documentation, Documentation Document everything, and keep the records. It does not matter how good your risk management program is if you cannot prove it to a regulator
Risk Assessment of Depositories Brokers/intermediaries should consider and monitor on an ongoing basis the depositories utilized for custody of customer property. Among the factors that may be considered are the financial condition of the depositories, including their credit standing, and the nature of their operations.
Risk Assessment of Customers A broker/intermediary, prior to establishing a relationship with a customer should assess the risks of doing business with that customer and should regularly monitor these risks throughout the term of the relationship with the customer. In general, a broker/intermediary's consideration should focus on the following areas:(a) the nature of the customer (e.g., institutional or retail) and its corresponding level of experience and sophistication; (b) the creditworthiness of the customer, as measured by established credit policies and procedures of the broker/intermediary; and (c) the authority (including apparent authority) of the customer to conduct its proposed trading activities, including the customer's legal authority and the capacity of the individuals responsible for the trading.
Brokers/intermediaries should establish and enforce policies and procedures regarding the prompt collection of customer margin (other than in the case where there are appropriate credit arrangements in place) and the liquidation of customer accounts (or other appropriate action) where necessary
Legal Relationships with Customers Brokers/intermediaries should prepare and utilize written agreements with their customers that clearly delineate the respective rights and obligations of the
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brokers/intermediaries and their customers. Such agreements should provide a basis for allocating between brokers/intermediaries and their customers responsibility for all material aspects of their relationships and risk exposures and should take into account the particular requirements of each customer and its relationship with the broker/intermediary.
Adequate separations should be imposed between (a) back office personnel responsible for trade reconciliation, margin, position limits, preparation and maintenance of books and records and other similar matters as well as compliance personnel, risk management personnel and treasury or funding personnel, and (b) personnel responsible for customer relationships or proprietary trading. The authority of appropriate personnel in these areas should be clearly established
Brokers/intermediaries should conduct regular internal reviews of their customer and proprietary accounts, including record-keeping and other account maintenance matters, to monitor the broker/intermediary's compliance with applicable laws and regulations and internal policies and procedures. Such reviews should be conducted by personnel who are independent of proprietary traders and personnel responsible for customer relationships
THESE ARE IN SPECIFIC TO KOTAK SECURITIES
There should be a more comprehensive system for the follow up system of cash debit clients .what can be done to reduce labor, A certain amount of automation can be brought in. for example, a range can be set for cash debit and intimation to clients should be done that after a span of time those debits will be automatically squared off.
The surveillance stock watch window can be a added feature as to monitor margin available and margin percentage .this can be really useful on stressful days such
BIMTECH
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A STUDY ON RISK MANAGMENT as in my internship duration was the RNRL-RIL DISPUTE. EURO CRISIS, FALL OF ABAN SCRIP.
2010
THE INTEGRATED NET POSITION USED to watch the clients net position in intraday should also be able to give transaction based on expiry.
Ease out the way to use mutual funds as collateral. A loss of 10% or more occurs, a list should get generated of both futures and options and equity markets.
No file where clients having cash or stockholding can be watched out for having a particular scrip in terms of observing surveillance.
VALUE ADDITIONS DURING SUMMER INTERNSHIP

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Got the great opportunity to work for an esteemed organization as Kotak securities. Being the centre of risk management across north India, it was a great learning experience to monitor widespread franchisee and all branches.
Enabled me to enhance the knowledge of financial markets, equity markets and derivatives.
Worked for both the inbound team and outbound teams of risk management. Able to understand the concepts of limits, margin money, categorization of stocks based on performance and volatility.
Daily tasks involved handling franchisee and branches managers calls to grant limits, monitoring order book, rejected order, and clearing cash debit.
Worked on exhaustive and comprehensive software and technology on VSAT ODIN TERMINALS
Understood the working of NEAT TERMINAL, BOSS (BACK OFFICE SUPPORT SYSTEM), E-VOLVE.
Understood the integration of risk management division along with allied activies of broking house.
Was able to try my forte on commodity market and enhance my knowledge about it. Was able to witness stressful situation such as RNRL-RIL DISPUTE, EURO CRISIS ETC that as to how risk team handles such scenario when markets become so volatile.
Enabled me to get more confident on my concepts on capital markets.
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REFERNCES

http://findarticles.com/p/articles/mi_m0JQR/is_6_15/ai_30432067/ http://www.timberhill.com/en/p.php?f=margin http://www.e-personalfinance.com/article/How-to-Avoid-Margin-Calls.html http://www.theamateurfinancier.com/blog/the-risk-of-margin-calls/ http://www.moneymanagement.com.au/Article.aspx?ArticleID=220677 PRACTICAL RISK MANAGEMENT FOR EQUITY PORTFOLIOMANAGERS By G. C. Heywood, J. R. Marshland, and G. M. Morrison[Presented to the Institute of Actuaries, 28 April 2003]
Risk Management For Broker-Dealers By Alan M. Wolper Approaches for Avoiding Margin Call Situations Through Risk-Management Automation :Chad Dau, Matthew Groch Practicum in Analytical Finance, Spring 2005
KOTAKSECURITIES.COM NSEINDIA.COM BSEINDIA.COM SEBI GUIDELINES
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ANNEXURES
MARGIN REPORTS The following margin reports are provided on daily basis:
TABLE 1:
MARGIN STATEMENT OF CLEARING MEMBER- MG-09
Naming convention: - X_MG09_<MEMBER CODE>_DDMMYYYY.LIS.gz File location: /CDSFTP/X<MEMBER CODE>/REPORTS File details and format: Sr. No
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A STUDY ON RISK MANAGMENT TM/CP Code Initial Margin Premium Margin Total Margin Futures Final Settlement margin this report gives margin summary for the clearing member code across all his Trading Members /CPs.
2010
TABLE 2:
MARGIN STATEMENT OF TRADING MEMBER: MG-10
Naming convention: - X_MG10_<MEMBER CODE>_DDMMYYYY.LIS.gz

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A STUDY ON RISK MANAGMENT File location: /CDSFTP/X<MEMBER CODE>/REPORTS File details and format: Sr. No Proprietary/ Client Initial Margin Premium Margin Total Margin This report gives margin summary for the TM/CP code across with his account types.
2010
TABLE 3:
MARGIN PAYABLE STATEMENT OF CLEARING MEMBER : MG-11 Naming convention - X_MG11_<MEMBER CODE>_DDMMYYYY.LIS.gz File location: /CDSFTP/X<MEMBER CODE>/REPORTS File details and format: A. CAPITAL 1. Total Cash Capital 2. Total Non-Cash Capital 3. Total Capital (A1 + A2) 4. Cash Component Required (%) 5. Effective Deposits [Min (A1/A4, A3)] 6. Non-usable Non-cash Capital (A3 - A5)
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B. MARGIN INFORMATION 7. Minimum Liquid Net Worth 8. Initial Margin Amount 9. Extreme Loss Margin 10. Effective Deposits Required For Initial Margin (B7 + B8) 11. Effective Deposits Required For ELM (B7+B8 +B9) 12. Effective Deposit requirement for the Clearing Member [Higher of (B10, B11)]
C. TRANSACTION AMOUNT 13. Excess Effective Deposits Required (B12 A5) 14. Minimum Free Deposit for Pay-in Transaction 15. Minimum Free Deposit for Pay-out Transaction 16. Additional Deposit Required 17. Daily Cash Margin Already Paid By the Member 18. Non-usable Non-cash Allocation 19. Cash Margin Payable(+)/Receivable(-) This report gives the collateral and margin payable statement for a clearing member
TABLE: 4
DETAIL MARGIN FILE FOR CLEARING MEMBERS: MG 12
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Naming convention - X_MG12_<MEMBER CODE>_DDMMYYYY.LIS.gz File location: /CDSFTP/X<MEMBER CODE>/REPORTS File details and format: The file for a clearing member shall contain the following values Trade date Trading member /Custodial participant code Initial margin Extreme Loss Margin Total margin Filler
TABLE :5
CLIENT LEVEL MARGIN FILE FOR TRADING MEMBERS : MG-13 Naming convention - X_MG13_<MEMBER CODE>_DDMMYYYY.LIS.gz File location: /CDSFTP/X<MEMBER CODE>/REPORTS File details and format: The file for a trading member shall contain the following values Trade date Client Code Initial margin Extreme Loss Margin Total margin Filler Client/P RO flag
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NETWORK DIAGRAM
VSAT
NSE
BSE
MCX X
NCDE
BIMTECH
SB SWITCH S
ODIN ADMIN ODIN MANAGER (CHIEF) SERVER
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ODIN CONNE CT
(SECONDARY BROADCAST SERVER)
FIREWALL
ROUTER
INTERN ET CLOUD
ROUTER (EG.HCL)
CLIENT
ODIN BIMTECH CLIENT (BRANC HES) ODIN DIET (FOR CLIENT)
ODIN INTERNET (FOR CLIENT WEBBASE Page 82
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A STUDY ON RISK MANAGMENT

UNDERSTANDING OF MECHANISM OF MITIGATION OF RISK FACED BY A BROKER IN CAPITAL MARKETS

UNDER THE GUIDANCE OF PROF.ASHOK MALHOTRA

SUBMITTED TO KOTAK SECURITIES LTD

IN PARTIAL FULFILMENT OF POST GRADUATE DIPLOMA IN MANAGEMAENT (PGDM) (2009-2011)

SUBMITTED BY PALLAVI JAIN BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY

A STUDY ON RISK MANAGMENT

NAME: PALLAVI JAIN SIGNATURE: DATE:

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

CERTIFICATE OF FACULTY GUIDE

: FACULTY GUIDE: PROFESSOR ASHOK MALHOTRA SIGNATURE: DATE:

A STUDY ON RISK MANAGMENT

PALLAVI JAIN PGDM (FINANCE) BIRLA INSTITUTE OF MANAGEMENT TECHNOLOGY 2009-2011

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

CHAPTER THREE-A THEORTICAL PROSPECTIVE

5. CHAPTER FOUR-PROBLEM DEFINATION

CHAPTER FIVE-APPROACH TO PROBLEM

CHAPTER SIX- DATA ANALYSIS

A STUDY ON RISK MANAGMENT

8. CHAPTER SEVEN- RECOMMENDATIONS AND CONCLUSIONS

MARGIN STATEMENT OF CLEARING MEMBER MARGIN STATEMENT OF TRADING MEMBER

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT RESEARCH METHODOLOGY RESEARCH APPROACH:

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT Marketing risk Credit risk

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

SWOT ANALYSIS STRENGTH

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

RECENT ANALYSIS OF EQUITY BROKING FIRMS

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

A STUDY ON RISK MANAGMENT

Knowledge & Skill

Wealth Management Insurance

Kotak Mahindra Kotak Mahindra Bank Ltd.

Kotak Mahindra Life Insurance

Capital Company Ltd

Kotak Mahindra Primes Ltd.

Kotak Mahindra Venture Capital Fund BIMTECH Page 32

A STUDY ON RISK MANAGMENT

Kotak Mahindra (International) Ltd.

Kotak Mahindra Inc

A STUDY ON RISK MANAGMENT

Kotak Mahindra Bank

A Kotak Mahindra Primus limited

Kotak Mahindra Asset Management Company

Kotak Mahindra Venture Capital Fund

A STUDY ON RISK MANAGMENT

Kotak Mahindra International Limited