The financial markets enable efficient transfer and allocation of financial

resources for productive activities in the economy. The function of the financial
markets is to ensure that economic activity is enabled by providing access of
funds to those who need it for consumption or productive activity. They provide a
way for aggregation of funds from a large number of investors and make it
available for productive economic activity. Therefore, providing liquidity and exit
options are an important function of financial markets.
Financial market regulations and regulators focus on setting up systems and
processes in place to streamline the activities associated with the transfer of
funds. The term ‘security’ means an instrument of claim (return or share of
profits) from the user of funds. Securities market help in transfer of resources
from those with idle resources/surplus to others who have a productive need for
them. To state formally, securities markets provide channels for allocation of
savings to investments and thereby decouple these two activities.
Securities Market
• The primary market is used by issuers for raising capital from the investors by
making Initial Public Offers or rights issues or Further Public Offer (FPO)
. • The secondary market provides liquidity to these instruments, through trading
and settlement on the stock Exchanges. Primary market is the market that
ensures availability of adequate capital at reasonable rates to finance expansion,
diversification or consolidation of companies. A secondary market on the other
hand is the market where the buyer of securities in the primary market can
transfer /sell these securities to another buyer.
The resources in the primary market can be raised either through the private
placement route or through the public issue route by way of Initial Public Offer
(IPO) or Follow on Public Offer (FPO). It is a public issue, if anybody and
everybody can subscribe for it, whereas, if the issue is made to select group of
people then it is termed as private placement. In cases, where fresh shares are
issued to existing shareholders at a particular price, it is referred as Rights Issue,
whereas if such issues are without involvement of any cost, it is referred as
Bonus issue/stock split.
• OTC markets are the informal type of markets where trades are negotiated. In
this type of market, the securities are traded and settled bilaterally over the
counter.
• The other option of trading is through the stock exchange route, where trading
and settlement is done through the Stock Exchanges and the buyers and sellers
don’t know each other. Money Markets Money market is a market for financial
assets that are close substitutes for money. Such financial instruments are also
known as cash equivalents. It is a market for short term funds and instruments
having a maturity period of one or less than one year. The money market deals
primarily in short‐term debt securities and investments, such as bankers’
acceptances, negotiable certificates of deposit (CDs), repos and treasury bills (T‐
bills), commercial papers. Government securities are also a part of the money
market. Products Traded in the Indian Securities Market
• An Equity Share represents the form of fractional ownership in a business
venture. Equity shareholders collectively own the company
• Debentures are instruments for raising debt. Debentures in India are typically
secured by tangible assets.
• Warrants entitle an investor to buy equity shares after a specified time period
at a given price. • A Mutual Fund is an investment vehicle that pools money from
numerous investors who wish to save or make investments having similar
investment objective.
• Exchange Traded Fund is a fund that can invest in either all of the securities or
a representative sample of securities included in an index.
• Indian Depository Receipt (IDR): Foreign companies are not allowed to directly
list on the Indian stock exchanges. However, they are allowed to raise capital in
Indian currency through an instrument called Indian Depository Receipt (IDR).

Derivative Market and its Products Derivative is a product whose value is derived
from the value of one or more basic variables, called bases (underlying asset,
index, or reference rate), in a contractual manner.
Derivative products are in the form of:

• A Forward contract is a promise to deliver an asset at a pre‐ determined date in

future at a predetermined price.
• A Future contract is an agreement between two parties to buy or sell an asset
at a certain time in the future at a certain price. These are basically Exchange
traded, standardized contracts.

asset in future. Options are of two types ‐ calls and puts

• Options give the buyer (holder) a right but not an obligation to buy or sell an

. • A swap is a derivative in which two counter parties exchange cash flows of

one party's financial instrument for those of the other party's financial
instrument. In India, futures and options are traded on:
• Index Futures and Options
• Stock Futures and Options
• Currency Derivatives
• Interest Rate Derivatives
• Derivatives on Foreign Stock Indices
• Commodity Derivatives
• Interest Rate Futures/Bond Futures.
Debt Market and its Products Debt market consists of bonds and debentures,
which provide financing through the issuance of bonds, and enable the
subsequent trading thereof. These instruments can be traded in OTC or Exchange
traded markets. In India, the debt market is broadly divided into two parts:
Government Securities Market: The Government needs enormous amount of
money to perform various functions such as maintaining law and order, justice,
national defence, central banking, creation of physical infrastructure etc. For this,
it generates revenue by various ways including borrowing from banks and other
financial institutions. Corporate Bond Market: The corporate bond or corporate
debt market is a market where debt securities of corporate such as corporate
bonds, T‐bills, commercial papers and certificate of deposits are issued and
traded. Corporates adopt either the public offering route or the private
placement route for issuing debentures/bonds. Corporate bonds are bonds issued
by firms to meet their needs for expansion, modernization, restructuring
operations, mergers and acquisitions.
Other Asset Classes Real Estate Investment Trusts (REIT) are trusts registered
with SEBI that invest in commercial real estate assets. REIT assets” means real
estate assets and any other assets held by the REIT, on a freehold or leasehold
basis, whether directly or through a holding company and/or a special purpose
vehicle.
Infrastructure Investment Trusts (InvIT) are trusts registered with SEBI that
invest in the infrastructure sector. The InvIT can raise funds through public issue
and/or through private placement.
Sovereign Gold Bond Scheme (SGB) was launched in 2015 to provide an
alternative way for investors to take exposure to gold as an investment. SGBs
are government securities denominated in grams of gold. The bonds are issued
in denomination of one gram of gold and in denominations thereof. The tenor of
the bond is 8 years. Each bond investor buys the bonds in Indian rupees and on
redemption are paid the maturity value also in Indian rupees.
II. Investors Market Participants in the Securities Market An investor is the
backbone of the securities market in any economy as he is the one giving surplus
resources for funding to companies (for their set‐up or for expansion plans) in
return for financial gains. Investors in securities market can be broadly classified
into:
• Retail Investors are those individual investors who buy and sell securities for
their personal account, and not for another company or organization. This
category also includes high net worth individuals (HNI) which comprises people
who invest above rupees two lakh in a single transaction.
• Institutional Investors comprises domestic financial institutions (DFIs), banks,
insurance companies, mutual funds and FPIs (a Foreign Portfolio investor is an
entity established or incorporated outside India that proposes to make
investments in India).
The public and private sector enterprises, banks and other financial institutions
tap the securities market to finance their capital expansion and growth plans.
Even mutual funds which are an important investment intermediary mobilizes
the savings of the small investors. Funds can be raised in the primary market
from the domestic market as well as from international markets.
Indian companies can also raise resources from international capital markets
through Global Depository Receipts (GDRs)/American Depository Receipts
(ADRs), Foreign Currency Convertible bonds (FCCBs) and External Commercial
Borrowings (ECBs). Market Structure and Participants The intermediaries play a
very important role in the securities market; they put together the demands of
the buyers with the offers of the security sellers. A large variety and number of
intermediaries provide intermediation services in the Indian securities markets.
Market Infrastructure Institutions
• Stock Exchanges: The stock Exchanges provide a trading platform where the
buyers and sellers (investors) can
meet to transact in securities.
• Clearing Corporation: A Clearing Corporation performs three main functions,
namely: clearing and settlement
of all transactions executed in the stock market (i.e. completes the process of
receiving and delivering
shares/funds to the buyers and sellers in the market) and carrying out risk
management.
• Depository: A "Depository" is an entity facilitating holding securities in
electronic form and enables transfer
of securities by book entry. The main objective of depository is to provide
maintenance of ownership or
transfer records of securities in an electronic book entry form resulting in paper-
less trading rather than paper
based trading and to ensure transferability of securities with speed, accuracy
and safety.
Market Participants
• Trading/ Clearing Member: An important constituent of the securities market is
a trading member/ stock
broker who is a member of the stock exchange. A trading member is allowed to
buy and sell securities on stock
exchanges on behalf of individuals and institutions. Clearing Member helps in
clearing of the trades.
• Professional Clearing Members and Trading cum Clearing Members:
Professional Clearing Members (PCM)
has the right only to clear trades. The PCM does not have any kind of trading
rights. These types of members
can clear trades of all members associated with him. Trading cum Clearing
member (TCM) has both trading
and clearing rights. He can clear his own trades as well as the trades of other
members.
• Custodian: Custodians are also clearing members but not trading members.
They settle trades on behalf of
the clients of the trading members, when a particular trade is assigned to them
for settlement. The custodian
is required to confirm whether he is going to settle that trade or not.

• Self-Clearing Member: As the name implies, self‐clearing members can clear

the trades done by him.
Custodian
Custodian means any person who carries on or proposes to carry on the business
of providing custodial service. To
provide custodian services entity has registered with SEBI and obtain certificate
to carry custodian services. A
Custodian is an entity that is responsible for safeguarding the securities of its
clients. Besides safeguarding securities,
a custodian also keeps track of corporate actions on behalf of its clients.
Regulators
The regulators in the Indian securities market ensures that the market
participants behave in a desired manner so
that securities market continue to be a major trusted source of finance for
corporates and Government and the
interest of investors are protected. The different regulators who regulate the
activities of the different sectors in the
financial market are as given below:
• Securities and Exchange Board of India (SEBI) regulates the securities market
and the commodities market.
• Reserve Bank of India (RBI) is the authority to regulate and monitor the
banking sector.
• Insurance Regulatory and Development Authority of India (IRDAI) regulates the
insurance sector.
• Pension Fund Regulatory and Development Authority (PFRDA) regulate the
pension fund sector.
• Ministry of Finance (MOF)
• Ministry of Corporate Affairs (MCA)
Role of SEBI
• Protecting the interests of investors in securities.
• Promoting the development of the securities market.
• Regulating the business in stock exchanges and any other securities markets.
• Registering and regulating the working of stock brokers, sub–brokers etc.

• Promoting and regulating self‐regulatory organizations

• Prohibiting fraudulent and unfair trade practices
• Calling for information from, undertaking inspection, conducting inquiries and
audits of the stock exchanges,

intermediaries, self‐regulatory organizations, mutual funds and other persons

associated with the securities
market.
Regulatory Framework for Securities Market
SEBI Act 1992: The SEBI Act, 1992 was enacted to empower SEBI with statutory
powers for (a) Protecting the interests
of investors in securities, (b) Promoting the development of the securities
market, and (c) Regulating the securities
market. Its regulatory jurisdiction extends over corporates (who list or propose to
list their securities) in the issuance
of capital and transfer of securities, in addition to all intermediaries and persons
associated with securities (more
specifically the capital market) market.
Securities Contracts (Regulation) Act, 1956: It provides for direct and indirect
control of virtually all aspects of
securities trading and the running of Stock Exchanges and aims to preventing
undesirable transactions in securities. It
gives Central Government the regulatory jurisdiction over (a) Stock Exchanges
through a process of recognition and
continued supervision (b) Contracts in securities, and (c) Listing of securities on
Stock Exchanges
Depositories Act, 1996: The Depositories Act passed by Parliament received the
President's assent on August 10, 1996.
It was notified in a Gazette on August 12 of the same year. The Act enables the
setting up of multiple depositories in
the country. This was to ensure that there is competition in the service and more
than one depository in operation.
The Depositories Act facilitated the establishment of the two depositories in India
viz., NSDL and CDSL. Only a company
registered under the Companies Act, 2013 or (hitherto Companies Act 1956) and
sponsored by the specified category
of institutions can set up a depository in India.
Companies Act 2013: The Companies Act of 2013 deals with issue, allotment and
transfer of securities and various
aspects relating to company management. It provides for standard of disclosure
in public issues of capital, particularly
in the fields of company management and projects, information about other
listed companies under the same
management, and management perception of risk factors. It also regulates
underwriting, the use of premium and
discounts on issues, rights and bonus issues, payment of interest and dividends,
providing annual reports and other
information.
SEBI (Stock Broker) Regulation, 1992: The SEBI (Stock Brokers) Regulation, 1992
lays down the rules and regulation
for registration of Stock Brokers. It also prescribes the fees applicable to be paid
to SEBI on grant of registration
certificate from SEBI and the general code of conduct by the stock broker holding
certificate of membership.
Prevention of Money Laundering Act, 2002: The Prevention of Money‐Laundering
Act, 2002 (PMLA), is an act to
prevent money laundering and to provide for confiscation of property derived
from, or involved in, money‐laundering
and for related matters.
SEBI (Prohibition of Insider Trading) Regulations, 2015: Any dealing/trading done
by an insider based on information
which is not available in public domain, gives an undue advantage to insiders
and affects market integrity. This is not
in line with the principle of fair and equitable markets. Thus, in order to protect
integrity of the market, the SEBI
(Prohibition of Insider Trading) Regulations have been put in place. The
Regulations lay down the definition of
‘Insiders’; restrictions on communication and trading by insiders; disclosures of
trading by them; and the systemic
provisions which need to be laid down and followed by listed company as well as
intermediaries.
SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the
Securities Market) Regulations, 2003: The
SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to the
Securities Market) Regulations 2003 enable
SEBI to investigate into cases of market manipulation and fraudulent and unfair
trade practices. Regulation 2(1) (c)
defines fraud as inclusive of any act, expression, omission or concealment
committed to induce another person or his
agent to deal in securities. There may or may not be wrongful gain or avoidance
of any loss.
SEBI {KYC (Know Your Client) Registration Agency} Regulations, 2011: In 2011
SEBI introduced the concept of KYC
Registration Agency with a view to eliminate duplication of KYC process to be
executed by the investors and have
uniform KYC process across SEBI registered intermediaries. The regulation
provides details about criteria, procedure
for registration of KRAs. It also lists down the functions and obligations for the
KRAs and Intermediary
SEBI (Intermediaries) Regulations, 2008: This regulation provide details on
Registration of Intermediaries, General
obligation of intermediaries including redressal of investor grievance,
appointment of compliance officer, investment
advice, code of conduct, Inspection and disciplinary proceedings etc.

III.
Introduction to Securities Broking Operations
Introduction to the Securities Trade life cycle
In financial market, “trade” means to buy and/or sell securities/financial
products. To explain it further, a trade is the
conversion of an order placed on the Exchange into a pay-in and pay‐out of funds
and securities. Trade ends with the
settlement of the order placed. Every trade placed on the stock market has a
cycle which can be broken down into
pre-trade and post‐trade events. The following steps are involved in a trade’s life
cycle:
1. Placing of an Order by the investor / client / broker
The Broker accepts orders from the client and sends the same to the Exchange
after performing the risk management
checks. Clients have the option of placing their orders through various channels
like internet, phone, direct market
access (DMA) (for institutional clients) etc. Once the orders are received by the
broker, it is confirmed with the client
and then entered into the trading system of the Exchange.
Another feature which has been introduced in the Indian securities market is
Algorithmic Trading and High Frequency
Trading. Algorithmic Trading – Any order that is generated using automated
execution logic shall be known as
algorithmic trading.
2. Risk management and routing of order through the trading platform
An efficient risk management system is integral to an efficient settlement
system. The goal of a risk management
system is to measure and manage a firm's exposure to various risks identified as
central to its operations. For each risk

category, the firm must employ procedures to measure and manage firm‐level
exposure. These are:
• Establish standards and reports
• Impose Position Limit and Rules
• Set Investment guidelines and Strategies
3. Order Matching and Conversion into Trade
All orders which are entered into the trading system of the Exchange are
matched with similar counter orders and
are executed. The order matching in an Exchange is done on a price time priority
basis. The best price orders are
matched first. If more than one order is available at the same price then they are
arranged in ascending time order.
4. Affirmation and Confirmation
FIIs trading in the Indian securities market use the services of a custodian to
assist them in the clearing and settlement
of executed trades. Custodians are clearing members of the Exchange. On behalf
of their clients, they settle the trades
that have been executed throu6gh other brokers. A broker assigns a particular
trade to a custodian for settlement.
Upon confirmation by the custodian whether he would settle the trade, the
broker communicates the same to the
clearing corporations who then assigns the obligation to the custodian.
5. Clearing and Settlement of trades
Once the trade is executed on the Exchange, the details are passed on to the
clearing corporation, to initiate the
clearing and settlement of those executed trades. Based on the trade details
from the Exchange, the Clearing
Corporation determines the obligations of the members. It then notifies the
consummated trade details to the clearing
members/custodians who affirm back.
The settlement process is carried out by the clearing corporation with the help of
clearing banks and the depositories.
The clearing corporation provides a major link between the clearing banks and
the depositories. This link ensures

actual movement of funds as well as securities on the prescribed pay‐in and pay‐
out day.
Front Office Operations
The front office is responsible for trade capture and execution. This is where the
trade originates and the client
relationship is maintained. The front office makes/takes orders and executes
them. Dealers and sales staff are
considered front office staff.
Client On‐Boarding and Registration:
An important part of a broker's job is finding clients and building a customer
base. Thus, securities sales agents spend
time searching for clients. Some agents network by joining civic organizations or
social groups, while others may rely
on referrals from satisfied customers. It Includes:
• Sales
• Account Opening
▪ Client Account Opening Form
▪ Rights and obligations of stock broker
▪ Uniform Risk Disclosure Documents
▪ Guidance Notes
▪ Policies and procedures of stock brokers
▪ Tariff Sheet
KYC and Other Documents
KYC is an acronym for “Know your Client”, a term commonly used for Customer
Identification Process. SEBI has prescribed certain requirements relating to KYC
norms for Financial Institutions and Financial Intermediaries including
Mutual Funds and Stock Brokers to ‘know’ their clients.
KRA Agency (Know Your Client Registration Agency)
SEBI has simplified the account opening process for investors and made it
uniform across intermediaries in the securities markets as already mentioned
above. Further, to avoid duplication of the KYC process with every intermediary,
in the year 2011 SEBI has devised the KRA system for centralization of the KYC
records in the securities.
The KRA system was made applicable for those clients who opened accounts
with the intermediaries from January 1,
2012 onwards.
Central Know Your Client (CKYC)
CKYC refers to Central KYC (Know Your Customer), an initiative of the
Government of India which aims to have a system
which allows investors to complete their KYC only once before interacting with
various entities across the financial
sector. CKYC is managed by CERSAI (Central Registry of Securitization Asset
Reconstruction and Security Interest of
India), which is authorized by Government of India to function as the Central KYC
Registry (CKYCR). Thus, CKYCR will
act as centralized repository of KYC records of investors with uniform KYC norms
and inter‐usability of the KYC records
across the sector.
Unique Client Code (UCC)
In 2001, SEBI made it mandatory for brokers to use unique client codes for all
clients. Once the formalities of KYC and
other details thereon are complete, each client is assigned a unique client code
(UCC) by the broker. This acts as an identity for the client with respect to the
broker.
Brokerage
Brokerage firms have elaborate commission module (brokerage) to attract and
retain clients. Given below are the rules for charging brokerage.
Brokerage rule for equity segment:
• Maximum brokerage that brokers can change is 2.5% of the trade value.

• If the value of share is Rs.10/‐ or less, a maximum brokerage of 25 paisa per

share can be collected.
• There is no minimum brokerage requirement specified.
Brokerage rule for F&O segment:
• Brokerage rule for F&O segment is similar to the equity segment except for
options contract
• In the case of options contracts, maximum brokerage can be 2.5% of the option
premium or Rs.100/‐ per contract whichever is higher.
Trading member can be a full service broker, discount broker or an online
broker. Commission charged can be different
for different types of brokers.
Full service broker charges higher commission
Discount brokers charge a much lower commission they also don’t offer any
other facility other trading
Online brokers cater to niche segment of retail clients. Commission charged is
lesser than what would be charged
for a client placing orders through a broker.
Brokers also use multiple commission schemes such as
• Volume based commission
• Slab wise commission or
• Scrip wise commission.
Commission charges may differ for day trades versus delivery transactions.
Order Management
Order management consists of entering orders, order modification, order
cancellation and order matching. The main components of an order are:
• Price
• Time
• Quantity
• Security (What to buy and what to sell))
• Action (Buy / Sell)
• Client identity (UCC)
Types of Orders
Price Condition
Market Order: A market order is where a trader purchases or sells their security
at the best market price available. In the market order there is no need to specify
the price at which a trader wants to purchase or sell. There are two variations on
the market order—market order without protection and Market with
protection order.
Limit Order: Limit orders involve setting the entry or exit price and then aiming
to buy at or below the market price or
sell at or above it. Unlike market order, the trader here needs to specify at least
one price. They of course can be
changed any time before execution. Reaching these limits/targets is not always
possible and sometimes the orders do
not go through. Limit orders are very common for online traders.
Stop Orders (orders with stop loss triggers): The one that allows the Trading
Member to place an order which gets
activated only when the market price of the relevant security reaches or crosses
a threshold price. Until then the order
does not enter the market. In stop order, the client enters two prices: one is
trigger price and the other is limit/market
price.
Time Condition
DAY: A Day order, as the name suggests, is an order which is valid for the day on
which it is entered. If the order is not matched during the day, the order gets
cancelled automatically at the end of the trading day
IOC Order: An immediate or cancel order (IOC) is an order to buy or sell a
security that executes all or part immediately and cancels any unfilled portion of
the order. An IOC order is one of several "duration orders" that investors can use
to specify how long the order remains active in the market and under what
conditions the order is canceled.
GTC - A Good Till Cancelled (GTC) order is an order that remains in the system
until it is cancelled by the Trading Member. It will therefore be able to span
trading days if it does not get matched.
GTD - A Good Till Days/Date (GTD) order allows the Trading Member to specify
the days/date up to which the order should stay in the system. At the end of this
period the order will get flushed from the system.
Quantity Conditions
Disclosed Quantity (DQ) - An order with a DQ condition allows the Trading
Member to disclose only a part of the order quantity to the market.
MF - Minimum Fill (MF) orders allow the Trading Member to specify the
minimum quantity by which an order should be filled.
Placing Order through Internet/ Phone
Placing of orders through the internet/phone means the facility provided by stock
brokers, whereby the client can place order(s) over the phone/internet for
transactions in securities, to be executed on behalf of clients by the broker.
Process of order routing through exchanges
Once the order is entered and confirmed by the client/dealer at his trading
terminal and verified by the broker software, the order is routed to the Exchange
for its execution. The Exchange system allots a unique order number for all
orders received in the system. This is given as order confirmation along with the
time stamp to the broker. The order gets executed at the Exchange depending
upon the type of order. If the order is a market order it gets executed
immediately.
Order Modification/ Cancellation
Sometimes in a moving market, orders need to be changed in terms of the price
and quantity as per the client’s requirement. All the orders can be modified till
the time they are not fully executed. Due to some problems in the moving
market or when one does not want to buy or sell shares, then orders need to be
cancelled.
Trade Execution
Execution of trade occurs when a buyer and seller reach an agreement
pertaining to the terms and price of a trade and the order to buy or sell a
security is completed after the same is matched on the exchange platform.
Middle Office Operations
Risk Management & Surveillance
The goal of a broking firm’s risk management system is to measure and manage
its own and its client’s exposure to various risks identified as central to its
operations. For each risk category, the broking firm must employ procedures
measure and manage firm‐level exposure. These are:
• Establishing Standards and Reports
• Imposing Position Limits
• Set Investment Guidelines and strategies
Types of Risk
• Operational risk is the risk of monetary loss resulting from inadequate or failed
internal processes, manual and systems error or external events.
• Market risk refers to the possibility of incurring large losses from adverse
changes in financial asset prices such as stock prices or interest rates. This risk
entails the erosion of value of marketable securities and assets, due to factors
beyond an enterprise’s control.
• Regulatory risk occurs when the rules governing the securities industry are
changed, giving rise to a potential loss.
Back office operations
The back office exists for three reasons: confirmation, payments,
settlements and accounting. In other words, the back office monitors the
post‐market processing of transactions. The back office is where the trade ends.
Trade Enrichment: Trade Enrichment is performed automatically after each trade
execution. In this step, all necessary details for the clearing of futures and option
contracts, or the settlement of cash securities are added.
Trade enrichment is defined as process of including additional information in one
instruction in a trade which is already being executed.
Trade Allocation: In the case of institutional trades, the front office may enter a
single order for a particular client and subsequently distribute it across various
sub schemes of the client at the back office end. Once the trade data is received
at the back office, the user will also receive deal sheets from the front office
team in terms of details of allocation to individual schemes. Based on these
instructions, the back office user will then allocate the trade to individual
schemes within the parent fund and generate appropriate contract note.
Clearing and settlement process: Clearing and Settlement is a post trading
activity that constitutes the core part of equity trade life cycles. After any
security deal is confirmed (when securities are obliged to change hands) the
broker who is involved in the transaction issues a contract note at the end of the
trade day. The contract note issued by broker, informs the client of his
obligations.
Accounting
The stock brokers are required to maintain books of account as prescribed by the
Securities Contracts (Regulation)

Rules, SEBI (Stock brokers and Sub‐brokers) Regulations and requirements of

Stock Exchanges. These are to be
maintained for a minimum period of 5 years.
• The register of transactions (sauda book) is to include each transaction
effected. This would show the name
of the security, its value, and rates gross and net of brokerage and names of the
clients.
• The client’s ledger, as the name suggests, has the details of all clients, and
their transactions through the broker.
• The general ledger accounts for all general transactions including expenses,
overheads salaries, petty cash, etc.
• The journal is the accounting book of the general ledger. Any adjustment
entries for e.g., interest receivable, etc., are accounted here.
• The cash and bank book contain records of all cash and cheque transactions
and are normally balanced daily.

• The securities register is required to be maintained client‐wise and scrip‐wise.

The details provided would include date of receipt/delivery of the security,
quantity received/delivered, party from whom delivered to whom delivered, the
purpose of receipt/delivery and the balance quantity.
• A contract note is a confirmation of trade done on a particular day for and on
behalf of a client.
A contract note issued in the format and manner prescribed by the Exchanges
establishes a legally enforceable relationship between the stock broker and the
client in respect of settlement of trades executed on the
Exchange as stated in the contract note. The copies of the original contract notes
issued to the client are to
be maintained by the broker.
• The margin deposit book contains details of margins paid and collected and
payable and collectable.
Information Technology
Any stock broking office needs to have a complete integrated system that
optimizes current business processes and
provides a single integrated solution that covers all the aspects of the stock
brokering industry. The system should
cover all areas of brokerage operations and management, including, but not
limited to, back office management,
order management, customer accounting, general accounting, branches
management and control, accounts
managers, on line trading system, commissions builder, archiving system,
auditing system, invoicing, risk
management and control. They include:
• Business Functions include customer database and document archiving
including customer signature,
customer accounting, portfolio management, risk management, auditing system,
on‐line trading system,
general accounting system, etc.
• Technical Functions include, support and standby database function, disaster
recovery, customer database,
customer data, etc.
• Trades functions include, automatic entry of daily executions, automatic
identification of new customers,
automatic link of executions to orders, etc.
• The IT will also include an order management system with issue of sell orders,
buy orders, order execution,
log of orders, orders confirmation, etc.
Securities Transaction Tax
Securities Transaction Tax (STT) is levied on every purchase or sale of securities
that are listed on the Indian Stock
Exchanges. This includes shares, derivatives or equity-oriented mutual funds
units. STT is collected by the broker from
their client and remitted to the Stock Exchanges /Clearing Corporations.
Bulk Deal is defined as “all transactions in a scrip (on an Exchange) where the
total quantity of shares bought/sold is
more than 0.5% of the number of equity shares of the company listed on the
Exchange”.
A trade, with a minimum value of Rs.10 crore executed through a single
transaction on this separate window of the
stock Exchange constitutes a “block deal” as distinguished from “bulk” deal.
IV.
Risk Management
Risk Management framework consists of the following components:
Margin
Margining is a process by which a clearing corporation computes the potential
loss that can occur to the open
positions (both buy and sell) held by the members. The clearing corporation
computes and collects three kinds of
margins namely:
• Value at Risk Margin (VaR): to cover potential losses for 99% of the days.
• Mark to Market Loss Margin: Mark to market losses on outstanding settlement
obligations of the member.
• Extreme loss margin: Margins to cover the loss in situations that lie outside the
computation of the VaR
margin.
• Additional Margin on High Volatile Stocks
Liquid Asset
Liquid Assets with haircuts and margins are also accepted as margin securities.
All Institutional trades in the cash
market would be subject to payment of margins as applicable to transactions of
other investors. Institutional trades
shall be margined on a T+1 basis with the margin being collected from the
custodian upon confirmation of trade.
Clearing Corporation generally provides list of approved securities and other
collateral related information on monthly
basis.
Calculation of mean impact cost
The mean impact cost shall be calculated in the following manner:
a) Impact cost shall be calculated by taking four snapshots in a day from the
order book in the past six months. These
four snapshots shall be randomly chosen from within four fixed ten-minutes
windows spread through the day.
b) The impact cost shall be the percentage price movement caused by an order
size of Rs.1 lakh from the average of
the best bid and offer price in the order book snapshot. The impact cost shall be
calculated for both, the buy and the
sell side in each order book snapshot.
Margining of Institutional Trades in Cash Market
All Institutional trades in the cash market would be subject to payment of
margins as applicable to transactions of
other investors. Institutional trades shall be margined on a T+1 basis with the
margin being collected from the
custodian upon confirmation of trade.
Shortfall of Margins / Pay-in of funds
In case of any shortfall in margin, the Clearing Corporation may advise the
Exchange to withdraw any or all of the
membership rights of the clearing member including the withdrawal of trading
facilities of all trading members and/
or clearing facility of custodial participants clearing through such clearing
members. Additionally, there is a penalty
for margin violation.
Base minimum capital
Categories
BMC Deposits
Only Proprietary trading without
Algorithmic trading (Algo)
Rs. 10 Lacs
Trading only on behalf of Client (without
proprietary trading) and without Algo
Rs. 15 Lacs
Proprietary trading and trading on behalf
of Client without Algo
Rs. 25 Lacs
All Brokers with Algo
Rs. 50 Lacs
Additional Margins
Exchanges/clearing corporations have the right to impose additional risk
containment measures over and above the
risk containment system mandated by SEBI. However, those additional risk
containment measures should be based
on objective criteria and should not discriminate between members.
Provision of early pay-in
Necessary systems are required to be put in place by clearing corporations to
enable early pay-in of funds by the
trading members/clearing members. In cases where early pay-in of funds is
made by the members, the outstanding
position to that extent of early pay-in shall not be considered for computing the
margin obligations.

Pre‐trade risk control

Pre‐trade risk control helps to prevent aberrant orders or uncontrolled trades.

Order Level Checks
• Value/Quantity Limit per order
• Cumulative limit on value of unexecuted orders of a stock broker
• Dynamic Price Bands
Risk Reduction mode

Stock Exchanges shall ensure that the stock brokers are mandatorily put in risk‐
reduction mode when 90 percent of
the stock broker’s collateral available for adjustment against margins gets
utilized on account of trades that fall under
a margin system.
Risk Management Framework for F&O Segment
Risk Management framework for F&O will consist of the following:
• Margins
• Liquid Net worth & Liquid assets
• Pre-trade risk control
• Risk reduction mode
• Position Limits
Types of Margin-In the futures and options segment, the following types of
margins are levied:
Initial margin
Initial margin is payable on all open positions of clearing members, up to client
level. Initial margin for F&O segment
is calculated on the basis of a portfolio (a collection of futures and option
positions) based approach. The margin

calculation is carried out using software called ‐ SPAN (Standard Portfolio Analysis
of Risk).
Computation of SPAN Margin
Clearing Corporation adopts SPAN® (Standard Portfolio Analysis of Risk) system
for the purpose of real time margin
computation. Initial margin requirements shall be based on 99% Value at Risk
(VaR) over a time horizon as determined
by Margin Period of Risk for each product (MPOR). The methodology for
computation of value at risk percentage shall
be as per the recommendations of SEBI from time to time.
Net Option Value
Net Option Value is computed as the difference between the long option
positions and the short option positions,
valued at the last available closing price of the option contract and shall be
updated intraday at the current market
value of the relevant option contracts at the time of generation of risk
parameters
Delivery Margins
Delivery margins shall be levied on lower of potential deliverable positions or in-
the-money long option positions four
(4) days prior to expiry of derivative contract which must be settled through
delivery. Example- If expiry of derivative
contract is on Thursday, the delivery margins on potential in-the-money long
option position shall be applicable from
previous Friday EOD.
Extreme Loss Margin
Clearing members shall be subject to extreme loss margins in addition to initial
margins.
Additional Margin
Exchanges/clearing corporations have the right to impose additional risk
containment measures over and above the
risk containment system mandated by SEBI.
Cross Margining
In order to improve the efficiency of the use of the margin capital by market
participants SEBI has introduced cross
margin across Cash and Derivatives segment and made available to all
categories of market participants. The positions
of clients in both the Capital market and F&O segments to the extent they offset
each other shall be considered for
the purpose of cross margining.
Compliances and regulatory reporting - SEBI and the Stock Exchanges issued
various directives/guidelines/circulars
to be followed by stock brokers. These include directives on client registration,
dealing with clients, issuance of
contract note, margin requirements, guideline related to trading software,
smooth functioning of pay-in/pay-out,
dealing with branches & authorized person, maintenance & preservation of
books of accounts and other documents,
trading restrictions, base minimum capital, etc.
• Failure to maintain or furnish documents
• Failure to enter into an agreement with clients
• Maintenance of different types of books.
• Submission of various periodic reports
• Settlement of Accounts
• Sending account statements to clients
Risk Based Supervision of Market Intermediaries
In order to help better regulate the marketplace and strengthen its supervision
system, SEBI has initiated a process of
formalizing its risk based approach towards supervision of market intermediaries,
including stock brokers, in alignment
with the global best practices.
Core Settlement Guarantee Fund: The Clearing Corporation (CC) of the Stock
Exchange should create a fund called
Core Settlement Guarantee Fund (SGF) for each segment of the Exchange. This
fund is set up to provide settlement
guarantee in the event of a clearing member failing to fulfill their settlement
commitments. It further includes:
• Corpus
• Contribution to CSGF
• Default Waterfall
• Stress Testing and Back Testing
V. Clearing Process
Clearing Corporation/ House ensure that members meet their fund/security
obligations. It acts as a legal counterparty
to all trades through the process called novation. Thus Clearing Corporation /
Clearing House become the buyer to
every seller and seller to every buyer. If there is a default in this scenario,
Clearing Corporation / Clearing House being
counter party, is responsible for ensuring the settlement, thus managing risk and
guaranteeing settlement to both the
parties.
The clearing agency is the main entity managing the clearing and settlements of
transactions done on a Stock
Exchange. It interacts with the Stock Exchange, clearing banks, clearing
members and depositories through an
electronic connection.
Clearing Banks and their function
All transactions of pay-in/pay-out of funds are carried out by these clearing
banks. The payin obligation details are
passed on to the clearing banks by clearing corporation, who then debit the
clearing member account and based on
pay-out instruction from clearing corporation the clearing bank will credit the
receiving member clearing account. In
case of cash market this happens on T+2 and / or T+1 day
Clearing members/ Custodians
The clearing corporation provides details of all transaction of members and their
clients which are linked to its clearing
member. Wherever applicable, the clearing member shall confirm the transaction
(about the genuineness of the
transactions). In cash market, trades which are allocated for settlement by
Custodians are indicated with a Custodian
Participant (CP) code and the same is subject to confirmation by the respective
Custodian. Once this is done, the
clearing agency then determines the net obligations of the clearing
members/custodian through multilateral netting.

Depository and Depository Participants

A "Depository" is an entity facilitating holding securities in electronic form and
enables transfer of securities by book
entry. The main objective of depository is to provide maintenance of ownership
or transfer records of securities in an
electronic book entry form resulting in paper-less trading rather than paper-
based trading and to ensure transferability
of securities with speed, accuracy and safety.
The Depository provides its services to clients through its agents called
depository participants (DPs). For trading in
Cash Market, it is mandatory for buyer and seller to open demat (beneficiary)
account with the depository
participant in either of the depositories. In the depository system both transferor
and transferee have to give
instructions to its depository participants (DPs) for delivering (transferring out)
and receiving of securities.
Clearing Process
In the stock exchanges this is done by a process called multilateral netting. This
process is performed by the clearing
agency (clearing corporation/clearing house). The clearing agency guarantees
that all contracts which are traded will
be honored. Clearing is the process of determination of obligations, after which
the obligations are discharged by
settlement.
Clearing Process for Derivatives
The clearing mechanism essentially involves working out open positions and
obligations of clearing members. This
position is considered for exposure and daily margin purposes. The open
positions of clearing members are arrived at
by aggregating the open positions of all the brokers/trading members and all
custodial participants clearing through
them. A trading member’s open position is arrived at by summing up his
proprietary and client’s open positions.
Balancing/ Netting off with the clients: The stock brokers are allowed to net the
client account within the firm. At the
end of the day, the position of each client is netted against all his transactions
and the final pay in/ pay‐out of
securities/funds is carried out through clearing banks and depository
participants.
Broker netting with exchange: Every day, the clearing corporation sends the
clearing member a list of all trading
transactions made by him and his clients for the day. After this, clearing is
performed by multilateral netting.
V.
Settlement Process
All Exchanges, clearing corporations and depositories has decided to introduced
T+1 rolling settlement. In case of T+1
rolling settlement, the trades executed on Wednesday, has to be settled on
Thursday (provided no holiday in between)
with pay-in and pay-out of funds and securities being completed on that day.
From a settlement cycle taking a week,
the Exchanges have now moved to a faster and efficient mode of settling trades
within T+1 Days.

Determination of settlement obligations‐ Equity segment

Netted Obligations: All purchase and sell transactions will be netted to determine
the obligations. Member will have
the obligation to deliver a security in a settlement only if the sell quantity is more
than buy quantity.

Trade to trade or gross obligations: Member’s security pay‐in obligation will be

equivalent to cumulative sell quantity

and security pay‐out will be equivalent to cumulative buy quantity. Funds pay‐in
will be equivalent to cumulative value

of buy transactions and funds pay‐out will be equivalent to cumulative sell value.
NISM SERIES VII – SECURITIES OPEARTION & RISK MGT
SHORT NOTES BY PASS4SURE.IN
Daily mark to market settlement of futures contract: Daily settlement prices will
be computed for futures contracts
based on specified methodology. All open positions will be marked to market at
the settlement prices to determine
mark to market obligations to be settled in cash.
Final Settlement: Final settlement for futures contract which are cash settled (in
equity F&O – Index Futures): All
positions (brought forward, created during the day, closed out during the day) of
a clearing member in futures
contracts, at the close of trading hours on the last trading day of the contract
which are cash settled, shall be marked
to market at final settlement price (for final settlement) and settled.
Premium settlement for option contracts: Premium settlement in respect of
admitted deals in options contracts shall
be cash settled by debit/ credit of the clearing accounts of clearing members
with the respective clearing bank. The
premium payable or receivable value of clearing members shall be computed
after netting the premium payable or
receivable positions
Exercise settlement for cash settled option contracts: Long positions at in-the
money contracts shall be assigned to
short positions in option contracts with the same series on a random basis. For
option contracts that are to be cash
settled shall be by debit/ credit of relevant clearing accounts of relevant clearing
members with the respective clearing
bank towards the exercise settlement value for each unit of the option contract.
Settlement of Funds
Mode of Payment and Delivery from Clients: All payments shall be received /
made by the brokers from / to the
clients strictly by account payee crossed cheques / demand drafts or by way of
direct credit into the bank account
through EFT, or any other mode allowed by RBI. The brokers shall accept
cheques drawn only by the clients and also
issue cheques in favor of the clients only, for their transactions.
Margin Payment: The initial and exposure margin is payable upfront by clearing
members. Initial margins can be paid
by members in the form of cash, bank guarantee, and fixed deposit receipts and
approved securities. Clearing
members who are clearing and settling for other trading members can specify
the maximum collateral limit towards
initial margins, for each trading member and custodial participant clearing and
settling through them.
Settlement Dues: The clearing members and custodians shall pay to the clearing
agency whatever is due to them for
settlement of their cleared positions. In turn, the clearing agency shall pay to the
clearing members and custodian’s
moneys payable to them for every settlement for their cleared positions. This is
based on the information provided by
the Exchange or Clearing Agency.
Settlement of Securities

A purchaser of securities can give one‐time standing instruction to his DP for

receiving securities in his account. The
securities which the client has purchased will be first delivered in his brokers
demat account by the Clearing
Corporation / Clearing house. The broker will subsequently transfer the securities
in his demat account. The broker
may give request to the Clearing Corporation / Clearing house to deliver the
securities directly in the purchaser’s
account.
Settlement through the Depository Clearing System: The securities pay out takes
place on the same date as the
securities pay in date i.e. in the T+1 working days after the trade date. The
securities pay‐out is done simultaneously
through both depositories and the process is usually completed by 1.30p.m.
Auction of Securities
An auction is resorted to when there are shortages in delivery by a seller broker.
The clearing corporation conducts a
buy-in auction through Exchange system to buy shares from open market for
delivering to buyer broker. Securities
shortages occurs generally when a short seller fails to square up the position, or
a seller fails to deliver shares on time,
or a seller delivers bad/wrong shares.
Auction of securities on Exchanges/Clearing Corporation: An auction tender
notice is issued by Exchanges/CCs to the
trading members informing them about the
a) Names of the scrips which are short or have not been delivered
b) Quantity slated for auction
c) The date and time of the auction session on the Exchanges.
Close Out Procedure
Whenever there is short delivery of securities, Clearing Corporation/ Clearing
House will conduct auction to buy the
shares from the market participants. If on the auction day, there are no sellers
for a particular short delivery, the
Clearing Corporation / Clearing House will then carry out a process called “Close
out”. In this process, the buyer is
compensated by paying the value of the short delivered security at the highest
price prevailing across the stock
exchange from the day of trading till the auction day or 20% above the official
closing price on the auction day,
whichever is higher.
Corporate Actions Adjustment
The corporate actions may be broadly classified under stock benefits and cash
benefits.
The various stock benefits declared by the issuer of capital are:
• Bonus
• Rights

• Merger / De‐merger
• Amalgamation
• Splits
• Consolidations

• Hive‐off
• Warrants, and
• Secured Premium Notes (SPNs) among others.
Any adjustment for corporate actions would be carried out on the last day on
which a security is traded on a cum basis
in the underlying equities market after the close of trading hours.
Methodology for adjustment in Equity F&O
The methodology to be followed for adjustment of various corporate actions to
be carried out is as follows:
For Bonus, Stock Splits and Consolidation :
• Strike Price: The new strike price shall be arrived at by dividing the old strike
price by the adjustment factor
as under.
• Market Lot Multiplier: The new market lot/multiplier shall be arrived at by
multiplying the old market lot by
the adjustment factor as under.
• Position: The new position shall be arrived at by multiplying the old position by
the adjustment factor as under.
Rights
• Strike Price: The new strike price shall be arrived at by multiplying the old
strike price by the adjustment
factor as under.
• Market Lot / Multiplier: The new market lot/multiplier shall be arrived at by
dividing the old market lot by
the adjustment factor as under.
• Position: The new position shall be arrived at by dividing the old position by the
adjustment factor as under.
Dividends: For the purpose of adjustments in equity F&O, dividends which are
below 2 percent of the market value of
the underlying stock, would be deemed to be ordinary dividends and no
adjustment in Equity F&O for the Strike Price
would be made for ordinary dividends.
Mergers: After the announcement of the Record Date, no fresh contracts on
futures and options in equity derivatives
(futures and options) would be introduced on the underlying, that will cease to
exist subsequent to the merger.
VI.
Investor Grievances and Arbitration
In the event of any grievance(s), the investor is first required to approach the
concerned intermediary/trading
firm/company for settling his/her grievance. If the investor is not satisfied then
he/she can approach the stock
exchange(s) of which the broking firm is a member and/or the investor can
approach the securities market regulator‐‐SEBI. The stock exchange(s) and SEBI
then independently takes up the grievances against its registered intermediaries
and advises the registered trading member to redress the investor grievance.
Investor Grievance handling at the trading member level: SEBI has also
mandated the stock brokers to let their
investors know that in case of any grievance, the investor should contact the
compliance officer of the stock broker,
depository participant, CEO/Partner/Proprietor. The trading members are
mandated to prominently display this
information at their offices and also provide the telephone numbers and email ids
of the concerned officers
(compliance officer of the stock broker, depository participant,
CEO/Partner/Proprietor).
Investor Grievance handling at the Stock Exchanges and SEBI: In case the
complainant or the aggrieved investor is
unsatisfied with the redress process of the trading member then the investor can
take his grievance to the stock
exchange or SEBI.
SEBI Complaint redressal system: SEBI handles the investor grievances through a
system called SEBI Complaints
Redressal System (SCORES). SCORES is a web based centralized system to
capture investor complaints against listed
companies and registered intermediaries, and is available 24x7. It allows the
investors to lodge their complaints and
track the status online. When a complaint is lodged on SCORES, an email
acknowledgement is generated for reference
and tracking. The system also allows market intermediaries and listed companies
to receive complaints lodged against
them electronically.
An investor who has lodged the complaint can verify the status by logging in
using unique complaint registration
number. Every complaint has an audit trail and saved in a central database. If
the complaint is successfully resolved
the entity is advised to send reply to complainant.
Investor Protection Fund
The Central Government, has stipulated the setting up of the Investor Protection
Fund (IPF) by Stock Exchanges. This
fund NISM Certification on Securities Operations and Risk Management –
Workbook should take care of legitimate
investment claims which are not of speculative nature of the clients of defaulting
member(s). The Investor’s Protection
Fund is a fund established and maintained by the Exchanges with an aim to
protect the interests of the clients of the
trading members of the Exchange, who may have been declared defaulters or
who may have been expelled, under the
provisions of the Rules, Bye-laws and Regulations of the Exchange. The Investor
Protection Fund/Customer Protection
Fund (hereinafter referred to as IPF/CPF) shall be administered by way of a Trust
created for the purpose.
Arbitration

Arbitration, which is a quasi‐judicial process, is an alternate dispute resolution

mechanism prescribed under the
Arbitration and Conciliation Act, 1996. The Exchanges prescribe the provisions in
respect of arbitration and the
procedure therein has been prescribed in the Regulations. Arbitration aims at
quicker legal resolution for the disputes.
When one of the parties feels that the complaint has not been resolved
satisfactorily either by the other party or
through the complaint resolution process of the Exchange at the Investor
Services Cell or the IGRC, the parties may
choose the route of arbitration.
The arbitration reference shall be concluded by way of issue of an arbitral award
within four months from the date of
appointment of arbitrator(s). However, the Managing Director/Executive Director
of the stock exchange may for
sufficient cause extend the time for issue of arbitral award by not more than two
months on a case to case basis after
recording the reasons for the same.
Please refer the arbitration fees table in the provided booklet
Appellate Arbitration: A party aggrieved by an arbitral award may appeal to the
appellate panel of arbitrators of the
stock exchange against such an award. An appeal before the appellate panel of
arbitrators may be filed within one
month from the date of receipt of arbitral award. The appellate panel consists of
three arbitrators who are different
from the ones who passed the arbitral award appealed against. The stock
exchange shall ensure that the process of
appointment of appellate panel of arbitrators is completed within 30 days from
the date of receipt of application for
appellate arbitration.
VIII. Other Services provided by Brokers
Big stock brokers have converted themselves into financial services companies.
They provide investment options in
equities, derivatives, commodities, IPO, mutual funds, depository services,
portfolio management services and
insurance. They also offer wealth management services for high net worth
individuals (HNIs). They also have branches
all over the country and provide services via internet or telephone. Licenses and
certifications have to be obtained for
each of the services offered by the stockbrokers.
Normally, a stock broker’s outlet offers these facilities:
• Investment advice & Research reports and market review
• Depository services
• Direct Market Access (DMA)
• Mobile trading & Smart Order Routing (SOR)
• Algorithmic trading
• IPOs & Mutual Funds Distribution
• Internet-based Online Trading (IBT)
• Margin funding
IPO Applications
An IPO is the process by which a company goes public i.e. offers its shares to the
public for sale for the first time.
Electronic trading through broking firms has made investing in IPOs very simple.
Once the account is opened with the
broker, the investor has to call or login and apply for the IPO.
SEBI has introduced a facility called Application Supported by Blocked Amount
(ASBA) in the Primary market
for investor. ASBA provides an alternative mode of payment in issues whereby
the application money remains in the
investor’s account till finalization of basis of allotment in the issue.
The back office must have a system in place that allows efficient handling of
large amounts of data. The system must
facilitate the IPO process
Trading of Mutual Fund Units
The client can invest in different mutual fund schemes online or through phone,
availing of the services offered by the
trading members. The trading members who are AMFI Registration Number
(ARN) holders and have passed the NISM
certification examination are permitted to participate in the trading of the mutual
funds units through the exchange
trading platform. Further, eligible members would have to register as distributor
with the mutual fund company. Apart
from brokers, mutual fund distributors registered with AMFI who are permitted by
the stock exchanges can also
participate in this process. Hence, eligible members would be able to place
orders only in respect of Mutual Fund
Companies where they have registered as distributor.
Portfolio Management Service
Many stock brokers also offer Portfolio Management Services (PMS) to their
clients. For this, a separate PMS license
has to be obtained by them from SEBI. This is normally offered to the High Net
worth Individuals (HNIs). In this kind of
service, the stock broker makes the investment decision on behalf of the client
and manages his portfolio. The portfolio
manager decides the mix of securities that the investor will invest in. Apart from
portfolio management, the stock
brokers also offer advice on managing the client’s portfolio depending upon the
client’s needs. Based on this advice,
the client can make the investment decisions.
Research Reports
Stock brokers also bring out regular research reports for use by their clients.
Research reports normally educate
investors about the industry trends, sectors, which company scripts to buy, sell
or hold etc. These reports are aimed
at helping the investor make informed investment decisions. Research reports
could include:
• Fundamental Research
• Stock Research
• Daily/weekly/fortnightly/monthly newsletters
• Special Reports to cater to needs of some investors
• Sector Reports
Depository Services
The brokers also provide depository services to investors amongst other services.
To provide these services, the broker
or the trading member has to get registered as a depository participant of a
depository as per the SEBI Act 1992 and
the Depositories Act of 1996. The relationship between the DPs and the
depositories is governed by an agreement
made between the two under the Depositories Act. The form of the agreement is
specified in the bye‐laws of the
depository. Under the Depositories Act, 1996, a DP is described as an agent of
the depository. The SEBI (Depository &

Participants) Regulations, 1996 and the bye‐laws of depositories prescribe the

eligibility criteria to become a DP.
Margin Trading
Margin Trading is trading with borrowed funds/securities. It is essentially a
leveraging mechanism which enables
investors to take exposure in the market over and above what is possible with
their own resources. SEBI has been
prescribing eligibility conditions and procedural details for allowing the margin
trading facility from time to time. Only
corporate brokers with net worth of at least Rs.3 crore are eligible for providing
margin trading facility to their clients
subject to their entering into an agreement to that effect. Before providing
margin trading facility to a client, the
member and the client have been mandated to sign an agreement for this
purpose in the format specified by SEBI.
Internet Based Trading (IBT) & Securities Trading Using Wireless Technology
(StWT)
Investor may also place order using an internet trading terminal or mobile
phones. Orders placed through the IBT
system go through automated risk management validations, before being
transmitted to the Stock Exchange systems.
Once the order is accepted/trade executed, the investor gets notification on their
IBT terminals.