ABHISHEK GUPTA

10160 GIBM

A PROJECT REPORT ON
Risk Management regarding working of a broking firms and its investors

FOR

HDFC SECURITIES
BY ABHISHEK GUPTA MBA-II 2010-2012

UNDER THE GUIDANCE OF PROF. MADHU ARORA

SUBMITTED TO
GENISIS INSTITUTE OF BUSINESS MANAGEMENT

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ACKNOWLEDGMENT

Its a great privilege that I have done my project in such a wellorganized and diversified organization. I am great full to all those who helped and supported me in completing the project. First of all I would sincerely like to thank Mr. Rohit Rakibe (Branch Manager, Nasik), for his valuable guidance and kind cooperation during the project. I am highly grateful to Mr. Dhirendra Kapadi (Associates of HDFC SEC) for the help provided by them in various forms. I am also thankful to our director Dr. Sharad Joshi and my project guide Prof. Mahesh Halale for helping me in completing the project. Last but not least, I am also thankful to all college staff and my friends for helping me directly or indirectly in my project.

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CONTENTS

Sr.No.

Topic

Page No.

Executive summary

1-1

Company Profile

2-4

Objective of Project

5-5

Research Methodology Data Presentation

6-6

Introduction to capital Working of a Broking Firm Risks in a Broking Firm

7-55

Data Analysis & Interpretation Risk Management in a Broking Firm

56-73

Conclusion of the study

74-74

Suggestion & Recommendation

75-76

Scope for development

77-77

10

Limitation

78-78

11

Bibliography

79-79

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SUMMARY :

A Capital Market deals in financial assets, excluding coins and currency. The financial assets comprise of banking accounts, pension funds, provident fund, mutual fund, insurance policy, shares, debentures, and other securities. The secondary market is the market where scrips are traded. It is a market place, which provides liquidity to the scrips issued in the primary market. All investments are risky, whether in stock, capital market, banking, financial sector, real estate, bullion, gold etc. The degree of risk however varies on the basis of the features of the assets, investments instrument, the mode of investment, time frame or the issuer of the security etc Risk can be defined as Possibility of suffering lo sses The chance of something happening that will have a n impact upon objectives. It is measured in terms of consequences and likelihood. Risk management in a Broking Industry is a new concept in India, since it poses maximum risk in the financial market, managing it was felt most essential by the regulatory bodies and exchanges.

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PROFILE OF THE ORGANIZATION

HDFC SECURITIES LTD.

Companys Mission

To create reputation synonymous with quality, comp etitiveness, fairness and transparency dealings and be a responsible corporate citizen. Business Objectives The primary objective of HDFC is to enhance residential housing stock in the country through the provision of housing finance in a systematic and professional manner, and to promote home ownership. Another objective is to increase the flow of resources to the housing sector by integrating the housing finance sector with the overall domestic financial markets.. Organizational Goals HDFCs main goals are to a) develop close relationships with individuals, b) maintain its position as the premier housing finance institution in the country c) Providing ideas into viable and creative solutions d) provide consistently high returns to shareholders, e) to grow through diversification by leveraging off the existing client base.

History and Background :

HDFC was incorporated in 1977 with the primary objective of meeting a social need that of promoting home ownership by providing long-term finance to households for their housing needs. HDFC was promoted with an initial share capital of Rs. 100 GENESIS INSTITUTE OF BUSINESS MANAGEMENT Page 7

million. HDFC Securities, a trusted financial service provider promoted by HDFC Bank and JP Morgan Partners and their associates, is a leading stock broking company in the country, serving a diverse customer base of institutional and retail investors. HDFCsec.com provides investors a robust platform to trade in Equities in NSE and BSE , and derivatives in NSE. Our website will support you with the highest Standards of service, convenience and hassle-free trading tools. Speed : Our state-of-the art technology enables to instantly trade on the BSE and NSE. Convenience : We can trade with us online or on the phone from the convenience of your home or office. Use the 3-in-1 Advantage account to seamlessly move funds and securities across your bank, demat and trading account. This way, you do not have to issue cheques or delivery instructions. Transparency : With our trusted pedigree, you can be assured that you get the best services in a transparent manner. By broking with us, you are in total control of your funds and stocks. Expertise : Our Group has decades of experience in providing financial services to customers in a transparent and trusted manner. We have a dedicated, motivated and experienced team of professionals to provide you top class service. Our Group has decades of experience in providing financial services to customers in a transparent and trusted manner. We have a dedicated, motivated and experienced team of professionals to provide you top class service. Timely and Relevant Information : We realise the importance of making information available to you as it happens. Empowered with the latest news, developments and research, you will be able to take informed decisions.

Consumer Interest :

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For us, our interest comes first. We endeavour to provide high quality investment services, in a simple, direct and cost-effective way to help you achieve your financial goals.

OBJECTIVE OF THE PROJECT

Introduction to capital market.

To get familiar with the working of a broking firm.

To identify various risks involved in the broking firm.

To identify various risk for the investors of the broking firm.

To manage and reduce the identified risks.

RESEARCH METHODLOGY
During my project, I collected data through various sources primary & secondary. GENESIS INSTITUTE OF BUSINESS MANAGEMENT Page 9

Primary source includes :1) Discussion with branch manager

2) Discussion with experts

3) Discussion with investors of the firm.

4) Live trading in the market

Secondary source includes :1) Various books related to stock market 2) Books related to Financial Management 3) Web sites were used as the vital information source.

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DATA PRESENTATION

Introduction to Capital Markets

Financial System

The financial system of every economy consists of various constituents such a Financial Institutions Financial Companies Financial Markets Financial Instruments Financial Services Financial regulations

The financial market in India comprised of capital market and money market whereas the financial system of the country comprised of institutions, which operate the financial markets and the financial instruments with which the financial system is put into operation. Tax anomy of financial markets can be understood on functional, sectoral and institutional basis. On a functional basis we can divide financial markets into 1 2 Money market (short term) Capital market (long term)

The institutional classification can be made into

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1 2

Organized financial market Non-Organized financial market

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Capital Market Scenario

The stock market in India dates back to the 18 th century when the East India Company was ruling the roost in the country and was perhaps the most dominant and powerful institution and its securities were traded. The securities trading were done in

an unorganized form at Bombay and Calcutta in early 19th century. The decade of 90s has witnessed several changes in reformation of capital market. Automation, transparency,. Strict surveillance, depository system, on line trading, investors protection, new rules and regulations, etc. are some of the activities which only reflect the growth of Indian capital market. By any reckoning Indian corporate sector has grown very significantly in the last couple of decades whether to look at it in terms of public and private limited companies, their share capitalization, their sales turnover or their contribution to capital formation with this came the legislation of SEBI to act as a regulatory body to protect investors Capital Market : A Capital Market deals in financial assets, excluding coins and currency. The financial assets comprise of banking accounts, pension funds, provident fund, mutual fund, insurance policy, shares, debentures, and other securities. If the stock exchanges are well regulated and function smoothly, then it is an indication of healthy capital market. Stock exchange provide a good leverage of the capital market and their relationship is directly proportional. India has multi-stock exchange system with 24 stock exchanges functioning across the country. In our country, capital markets are generally also known as security/stock market. The Indian capital market currently provides excellent investment opportunities to domestic and foreign investors in both equity and fixed income Segments.

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The Indian Capital Markets can be broadly classified into three types of markets.

1 2 3

Money market Primary market Secondary market

Money market The money market is part of overall financial system and securities or capital market. It deals in short term financial assets whish can be readily converted into cash. Money market is a place for trading in money and short tern financial assets that are as liquid as money. It provides a platform for short term surplus funds of lenders or investors and short term requirements of borrowers, the instruments can be traded at low cost and are highly liquid.

Primary market Primary market is generally referred to the market of issues or market for new mobilization of resources by the companies and the government undertakings, for new projects as also for expansion, modernization, addition, and diversification and up gradation. Primary market operations include new issues of shares by new and existing companies, further and right issues to existing share holders, public offers, and issue of debt instruments such as debentures, bonds, etc. Raising money from capital market is cheap for the company and involves a low servicing cost. The investors benefit by way of dividend and or capital appreciation. The following are the market intermediaries associated with the primary market 1 2 Merchant banker/book building lead manager Registrar and transfer agent

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3 4 5 6 7

Underwriter/broker to the issue Advisor to the issue Banker to the issue Depository Depository participant

Defects in Indian Primary Market 1 2 3 4 5 6 7 8 9 Aggressive pricing and over pricing. Price rigging before and during issues. Poor, wrong and vague disclosures in offer documents. Poor information accessibility. Misleading projections subject to vague assumptions. Delay in penal actions against the erring market intermediaries. SEBI not assuming any responsibility for disclosure/offer documents. Bunching of issues. Existence of grey or unofficial market.

10 Lack of transparency 11 Uninformed and uneducated investors. 12 Delay in listing and trading permission.

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Secondary Market
The secondary market is the market where scrips are traded. It is a market place, which provides liquidity to the scrips issued in the primary market. Thus, the growth of secondary market is dependent upon primary market. More the number of companies entering the primary market, the greater is the volume at the secondary market. Trading activities in the secondary market are done through recognized stock exchanges, which are 24 in number including Over the Counter Exchange of India, National Stock Exchange of India, and Inter-connected Stock Exchange of India. Secondary market operations involves buying and selling of securities on the stock exchange through its members. The following intermediaries are involved in the secondary marker.

1 2 3 4 5 6

Broker/member of Stock Exchange- buyer broker and selling broker Portfolio manager Investment advisor Share transfer agent Depository Depository participant

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WORKING OF A BROKING FIRM

Stock Broker

According to SEBI Stock Broker is a member of a recognized stock exchange(s) and is engaged in buying, selling and dealing in securities. In other words broker is an intermediary who arranges to buy and sell securities on behalf of clients i.e. the buyer and the seller. A broker can deal in securities only after getting registered with SEBI.through stock exchanges. The constitution of a broking firm may be a Proprietary Concern, a Partnership firm or a Corporate.

COMPLIANCE DEPARTMENT The functions carried out by Compliance Department are as follows

COMPLIANCE DEPARTMENT

Reg. of Sub-Broker Reg. Of Client Reg. Of Franchisee GENESIS INSTITUTE OF BUSINESS MANAGEMENT Page 19

Individual

Non Individual

Limited Company

Partnership

Sole Proprietorship

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Registration of Client

Documentation required for individual client as per SEBIs guidelines are as follows

Individual

1 2

Client Registration Application Form. Broker Client Agreement on stamp paper of value as applicable in the respective state. Identity Proof like Copy of Passport Copy of ration card Copy of Driving Licenses Copy of Voters Identity Card Copy of Pan card Letter from bank certifying account number and period from which the same is in operation

Letter of Running account

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Non-Individual Limited Company 1 Client Registration Application Form.

2 3 4

Broker client Agreement on stamp paper. Certified copy of Memorandum and Articles of Association. Certified copy of resolution authorizing the company to open account with HDFC SEC and appointing persons authorized to operate upon said account on behalf of company. Proof of identity in respect of authorized director

5 6

Letter from the bank certifying account number and period from which the same is in operation.

Partnership Firm 1 2 3 4 Application Form Broker client agreement on stamp paper. Partnership Deed Partnership letter signed by all the partners authorizing the firm to open account with HDFC SEC and appoint one or more partners to operate the said account on behalf of the firm. Identity Proof Bank Certifying Letter

5 6

Proprietorship Concern 1 2 3 Client Registration Application Form Broker Client Agreement Identity Proof

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Bank Certifying Letter

REGISTRATION OF SUB-BROKER SEBI rules for application for registration of Sub Broker An application by a sub broker for the grant of a certificate shall be made in Form B The Application shall be accompanied by a recommendation letter from a stock broker of a recognized stock exchange with whom he is to affiliated along with two references including one from his banker

The application form shall be submitted to the stock exchange of which the stock broker with whom he is affiliated as a member. - The stock exchange on receipt of an application shall verify the information contained and then shall also certify that the applicant is eligible for registration. The eligibility criteria is as follows -

The applicant should not be less than 21 years of age The applicant has not been convicted to any offence involving fraud or dishonesty The applicant should have at least passed 12th STD The applicant should be fit and proper person

DEALING DEPARTMENT
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Dealing department is a very important department in the broking firm as it carries out most important activities of Buying and Selling of securities. The people doing dealing are called as Dealers. He is the person dealing on behalf of the investor, therefore when the investor wants to trade in some scrips he must inform the dealer first and then the dealer deals in the market. The following are the activities carried out in a dealing department.

DEALING DEPARTMENT

Buying Securities

Selling Securitie s

Entering Orders

Order Modification

Order Cancellation

Order Matchin g

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