Research Directions. International Multidisciplinary Research Journal. Vol 1 Issue 5 Nev 2013 ISSN No: Editor-in-Chief S.P.

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1 Vol 1 Issue 5 Nev 2013 ISSN No: ORIGINAL ARTICLE International Multidisciplinary Research Journal Research Directions Editor-in-Chief S.P. Rajguru

2 Welcome to Research Direction ISSN No Research DirectionJournal is a multidisciplinary research journal, published monthly in English, Hindi & Marathi Language. All research papers submitted to the journal will be double - blind peer reviewed referred by members of the editorial board readers will include investigator in universities, research institutes government and industry with research interest in the general subjects. CHIEF PATRON PATRON Mr. Sanjeev Patil Suhasini Shan Chairman : Chairman - Central Div. Rayat Shikshan Sanstha, Satara. LMC & Director - Precision Industries, Solapur. EDITOR IN CHIEF S.P. Rajguru Asst. Prof. (Dept. of English) Rayat Shikshan Sanstha's, L. B. P. Mahila Mahavidyalaya, Solapur. (M.S.) Sub Editors (Dept. Of Humanities & Social Science) Dr.Prakash M. Badiger Nikhilkumar D. Joshi Dr.kiranjeet kaur Nikhil joshi Guest Faculty,Dept. Of History, Gujrat Dept.of English G.H.patel college of Gulbarga University,Gulbarga. Engineering and Technology,Gujrat. Advisory Board S. N. Gosavi Shrikant Yelegaonkar Punjabrao Ronge D. R. More T. N. Kolekar Seema Naik M. L. Jadhav Annie John Suhas Nimbalkar Adusumalli Venkateswara Raw Deepa P. Patil R.D.Bawdhankar Ajit Mondal Guest Referee Maryam Ebadi Asayesh Islamic Azad University, Iran Judith F. Balares Salamat Department of Humanities, IASPI, Philippines Henry Hartono Soegijapranata Catholic University, Indonesia Mukesh Williams University of Tokyo, Japan Address:-Ashok Yakkaldevi 258/34, Raviwar Peth, Solapur Maharashtra, India Cell : , Ph No: ayisrj@yahoo.in Website:

3 Research Directions Volume 1, Issue 5 / Nov 2013 Research Article ISSN: ONLINE STOCK TRADING & E- BROKING IN INDIA : A STUDY SWATI JAIN Assistant Professor, Department Of Commerce & Management, Dr. C.V. Raman University, Kota, Dist.-Bilaspur (Chhattisgarh) Abstract: The Internet provides us with means to directly interact with the service provider through computer systems. The prevailing shift of the business paradigm is reshaping the financial services industry and transforming the way people invest or deal in securities. Information Technology led to a paradigm shift and revolutionized the structure and the functioning of the securities market. The Internet has also been influential in generating mass awareness among the customers on online trading and has provided a level playing field to all investors, who can access the necessary information with greater ease. Online exchanges facilitate faster transactions by providing online trading portals and brokerage houses ease and flexibility. Despite persisting weakness faced by online trading firms, the industry will survive. Online Trading has immense potential to be the future option for investment decision. In coming years, the competitive advantage for online broking firms could be derived, from the combination of technology, contents and customer service. The regulators and stock exchanges are embracing change in a very open minded manner. World class IT and Telecom Infrastructure definitely accelerate the internet penetration, which is very important for growth of online investing in India. In this research paper we study the concept of online stock trading in India and its pros & cons.we also study the challenges or concerns of online brokerage industry and the future prospects of online trading in India. KEY WORDS: E- Broking, Internet, Online Stock Trading. INTRODUCTION: The Internet revolution has been changing the way of our society works. It changes the way we communicate and the way we do business. It brings us closer and closer to virtual source of information. The securities market of India dates back to 18th century when the trading in the shares of East India Company commenced in Bombay (now Mumbai) and Calcutta (now Kolkata), the real beginning came in July 1875 with the formation of Stock Exchange in Mumbai by the brokers. This was followed by the Ahmedabad stock-exchange in 1894 and 22 other exchanges was formed in the 20th century. The economic reforms led in the securities market in India led to exponential growth in terms of number of stock exchanges, intermediaries, listed stocks, and amount raised, market capitalization, trading volume, investor population and price indices. During the last few years banks and investment firms have been attempting to become one stop financial service providers to individuals and companies. In the process, various areas of personal finance like banking, managing accounts, paying bills and filling of tax returns have become web enabled. Increased connectivity has resulted in greater integration and inters market links in the global financial markets. Joseph Grundfest of Stanford Law School had aptly said that The securities industry is, in many 1

4 essential respects, an information processing industry. The most significant development is the way technology has erased the geographical boundaries, even creating new alternatives. Among financial services, online trading of securities including stocks, bonds and mutual funds has emerged as the fastest growing area, in terms of investor adoption due to reduced, transaction cost, better services, earlier access and increased transparency. E-broking firms are leveraging on the Internet to increase their penetration among the masses, and generate higher volumes, which could be translated into higher revenue. OBJECTIVES OF STUDY 1.To study the concept of online stock trading in India. 2.To examine the pros & cons of online stock trading in India. 3.To study the challenges or concerns of online brokerage industry. 4.To study the future prospects of online trading in India. RESEARCH METHODOLOGY 1.RESEARCH APPROACH The report is based on analytical type of research. The research focuses on Online Trading Industry in India, its evolution, pros & cons, concerns, legal and technological aspects and future prospects. 2.DATA SOURCE The research has been based on secondary data. The information has been collected from different sources. The secondary Sources are those from where the data has already been collected by someone else & which have passed through the statistical processes. The secondary sources I have employed to give a supporting hand in my research work are from the Internet, various Magazines & Journals. E-BROKING AND REGULATORY FRAMEWORK FOR ONLINE TRADING:- TYPES OF BROKERS There are two types of online trading service: DISCOUNT ONLINE BROKERS allow you to trade via internet at reduced rates. They provide quality research. FULL SERVICE ONLINE BROKERAGE is linked to existing brokerages. These brokers allow their clients to place online orders with the option of talking / chatting to brokers if advice is needed. Brokerage rates are higher. 5 Paisa.Com, ICICI Direct.Com, India Bulls.Com, Sharekhan.Com., Geojit securities.com., HDFCSec.Com., Tatatdw.Com., Kotakstreet.com are some online broking sites in India. FACTORS TO KEEP IN MIND WHILE SELECTING ONLINE BROKER: BROKERAGE COST: It is important to weigh up the subscription and trading costs charged by online brokers against benefits offered by the site. All online brokers display their charges on their sites. BROKERAGE: Site must have 128 bits encryption to ensure safety of transaction online. ICICI Direct.Com. 5 Paisa.com. are few sites with 128 bits encryption. There must be a secured log-in-id and password. It is always advisable to frequently change trading password. Online trading site should be fully integrated. The greater the backward integration, the better it is for the customer. Ideally broking account, demat account; bank account should be linked electronically. RATE REFRESH: Rate refresh has to be real time with no time lag. The speed and reliability comes with huge investment in technology. It is always advisable to check rates of online broking site with BSE/NSE terminal areas. SPEED OF EXECUTION: System has to be fast & reliable. The site should be one click wonder where squaring off all positions or cancelling pending orders takes one click and confirmation of action. 2

5 TRADING LIMIT: For trading, all sites provides 4 times buy and sell limit against margin money put in by customer. For delivery of shares, buying limit is equal to margin money put is by customer. FREE TRIAL PERIOD: Sites should allow users free trial period to familiarize the customer with system before becoming member of trading site. INTRADAY CHART / HISTORICAL CHART: The site should provide Intraday chart tick by tick time and price date / historical chart for technical analysis by investor of particular scrip. Before trading, there is a need to open an account and register as a trader as with online broking site. This involves filling up trading account form, Demat account form and for faster transfer of money Internet enabled bank account. REGULATORY FRAMEWORK FOR ONLINE TRADING The following are the legal requirements to be fulfilled for online trading: BROKER CLIENT AGREEMENT The client must sign an agreement with the broker. The agreement contains the guidelines stated by NSE and BSE both for the broker and the client. DP CLIENT AGREEMENT Agreement between the DP (Depository Participant) and the person seeking to open an account with the DP. It must be signed by the client, the authorized person of the respective DP and two witnesses. DEPOSITORY PARTICIPANT A DP is described as an agent of the depository. They are the intermediaries between the depository and the investor. DP is an entity that is registered as such with SEBI under the provision of the SEBI Act. The main objective of establishing DPs is the ensure free transferability of securities with speed, accuracy and security. The client must have a account in a DP for online trading. DEMAT ACCOUNT Dematerialization is the process by which client can get physical certificates converted into electronic balance maintained in its account with the DP. Each client is given a separate account number. For online trading a password is also given to the client. Client must change the password at regular interval so as to avoid hacking. AGREEMENT FOR TRANSACTION STATEMENT THROUGH INTERNET This is the agreement between DP and the client for providing of the transaction statement through internet. It must be signed by the client, DP and two witnesses. POWER OF ATTORNEY The client may also sign a power of attorney is favour of his/her respective DPs and authorize then to execute on their behalf. RISK DISCLOSURE DOCUMENT FOR CAPITAL MARKET / CASH SEGMENT & FUTURE & OPTIONS SEGEMENT (BSE & NSE) This document is issued by the member of NSE / BSE which has been formulated by the exchanges in coordination with the Securities and Exchange Board of India (SEBI) and Trading in Equities and F&O segments of NSE / BSE. All prospective constituents should read this document before trading on Capital Market / Cash segment or F&O segment of the Exchanges. BANK ACCOUNT The client must open a bank account with a bank designated by the broker. This bank account is used for making payments. Electronic transfers of funds are made to this bank account. PREREQUISITES AND PROCEDURES: The prerequisites for online trading are a computer, a modem, a telephone, registration with a broker, a bank account and depository account. In order to start online broking, brokers also require setting up a website and for getting connected with stock exchanges they have to pay an additional amount of Rs. 50 3

6 Lacs to the exchange. Both BSE and NSE have placed a centrally located web server to give direct access to the investors. Investors interested in trading should register with a broker. The broker provides a login name, password and a personal identification number. By entering the symbol and series of the stock, quantity and price of the scrip on the place order window he placed an order. After that by clicking the send option, he can send the order. Few minutes later, the investor will get the confirmation message along with the order number and the value of the order. After placing the order, payment should be made. There are many modes of payment; among them the most prevalent one is to ask the investor to open an account in a pre-designated bank through which electronic transfer can be made. For security, long passwords are used and PIN number is changed frequently by using the password navigation option. There are many software programs in the market having different facilities; however, there would be certain common features, like Market watch, On-line ticker, Market depth, etc. BARRIERS OF ONLINE TRADING The time when online trading was launched in India coincided with the steep decline in the Markets. This was because of the unawareness and mental unacceptability factor. Other reasons are:- ªOnline trading typically takes place through a bank account with an online bank. The relative inability of large public sector banks to offer facilities for internet banking is a barrier in this regard. ªLow internet penetration in India also act as a barrier. ªOnline trading in India is not aggressively advertised with the exception of ICICI Direct. ªInfrastructural bottlenecks : There are problems of connectivity with the entire network choking at peak hours due to poor quality of ISP infrastructure. Integration of India s banking, broking and depository platforms is a major problem. The non availability of bandwidth on demand is also a major bottleneck.. ªLack of Awareness / education : The main problem faced by e-broking players is lack of investor awareness and education. Net needs to be demystified and expanded. ªElectronic clearance mechanisms: In India, only scrips that have been compulsorily dematerialised can be traded on the Net. Though Demat has made a transformation from physical shares to electronic form and making online trading, some inherent bottlenecks. In India, the entire trading volumes cannot be expected to grow unless the settlement and clearance delays are minimised. BENEFITS OF ONLINE TRADING [A]BENEFITS TO INVESTORS ENSURES THE BEST PRICE This technique offers the best price for the buying and selling transaction of the investors, by ensuring that proper matching of their orders is done within the communication network itself. Also due to the high level of transparency with regard to display of information relating to the specific stocks and company profiles, the investors will be able to get the best quote for the shares. OFFERS LIQUIDITY & GREATER TRANSPARENCY Online trading offers 24-hours trading facilities or trading for longer hours,when compared to the traditional stock exchanges. This provides added liquidity to the investors. Online trading gives greater transparency to the investors by providing them an audit trail. This involves a complete integrated electronic chain starting from order placement, to clearing and settlement and finally ending with a credit to the depository account of the investor. Each of the above mentioned stages are subject to inspection, thus bringing in transparency into the system. QUICK TRADING The investor will be able to execute the entire trading transaction, right from logging on to the broker s site, to the execution and settlement of his bank account, in a very short period of time. 4

7 LOWERS SETTLEMENT RISK This method of trading reduces the settlement risk for the investor, as in this case no short sale is possible, i.e. the seller will not be able to sell the securities unless he has actual possession of them. In the case of a demat account (which is required for an online transaction), when a seller wants to sell the securities, his demat account is checked by the Depository Participant before executing the sale transaction. This reduced the settlement risk for the buyer, who is assured of the delivery of the securities. RESEARCH SUPPORT Besides the quotes, it is much easier to download the analysts reports than to find it in the market. In light of the data you get from online providers, it is also very convenient to compare the accuracy from one site to the next. With a few clicks, one can check different sites. The Internet is also a full-time service. Traders can check data whenever needed without regard to normal business hours. PRIVACY For actual electronic trading, traders gather in the trading room and process the transaction. The function of the trading room works like an electronic community. It is a place on the Internet where traders gather and activate trading. The process maintains the privacy of the traders since they are dealing with unknown entities in separate places. This situation solves the problem of further interaction confusions. With the trader s identification secured, traders can interact more freely. The activity advantage of the online trading room is that it provides a free market. [B] BENEFITS TO BROKERS EASIER RISK MANAGEMENT: In online mechanism, the system first check the status of funds available with the client in his bank account and only then allow the trade to take place. This process, thus, substantially reduces the exposure of the broker to client-related credit and payment risk. GREATER BUSINESS POTENTIAL: The new paradigm of e-broking, which allows simple, convenient, and transparent transactions, may encourage more participants to trade. It is expected that the introduction of e-broking will expand the market horizon, thus resulting in better business for brokers in the long-term. LOWER STAFF COSTS: Automation of the broking processes results in reduced manpower requirement, flexibility of time, less infrastructure cost, etc. offering significant cost savings to the broker. FINDINGS The main problems faced by online industry are:- 1.Customers are not aware of online trading. Infrastructure is not appropriate. Transaction cost is also very high i.e. the Internet access cost. 2.These problems can easily be solved by making customer aware about online trading through advertisement broker, sub broker, industry; the stock exchange should actively participate. Customer should be informed about the benefit of on line trading. KEY ISSUES CAPACITY AND RELIABILITY ISSUES In stock investing, especially in volatile markets transaction speed is crucial. Slow connectivity can be a dreadful proposition if the Net is the sole trading medium. However, most Net trading players account for this, and allow to route trades through their physical set up. In fact, a few players have integrated their physical and online network into a single system. So, not only do investor get both online and offline access, he can check the status of your orders in any mode. Another reason for acquiring larger capacity is for information storage. It is becoming necessary to have a comparable storage of data to increase site revenue. 5

8 SECURITY CONCERNS Online payments and settlements are a new concept for investors, and obviously they are viewed with reservation. However, Net trading players are striving to employ adequate safeguards towards off security frauds. Customers are usually most concerned about the security of this type of personal information. Although companies keep developing new security systems or are using security software, the concern of giving or receiving unknown parties confidential information is not easily lessened. LACK OF PERSONAL TOUCH and Cyber chat are affecting a fundamental change in attitude, relationships etc. There is a lack of personal touch, expression and emotions that could be expressed in a hand written letter or on face to face rendezvous. Communication through intimate may cause interpersonal relations to crumble. RISK ASSOCIATED WITH SYSTEM FAILURE In the event of system or component failure, it is possible that, for a certain time period, investor may not able to enter new orders, execute existing orders, or modify or cancel orders that were previously entered. System or component failure may also result in loss of orders or order priority. INTERNATIONAL ISSUES Electronic commerce is growing rapidly in the U.S. market, but extending the business internationally does have limitations. FIRST, the development of worldwide technology is not progressing in a balanced fashion. For example, in Asia the most popular way of connecting to the Internet is through the telephone line. However, the telephone line allocation is 5-6 per 100 people in Asia versus 12 in the West. This affects the spread of electronic commerce and it surely decreases the chance of online trading internationally. SECOND, building trust between the two transaction parties is hard enough for domestic business deals, not to mention the difficulty of putting one s investment online to a worldwide market when little information is known about the other party. THIRD, as mentioned above, the lack of money laws is making the electronic commerce market risky. Under this circumstance, making international money transactions, especially when dealing with fluctuating currency exchange rates is even more difficult and risky. LAST, cultural differences are also important to developing an international market. People have different needs and points of view of investing. Therefore, solving the international barrier problem has an important effect on the global market electronic business. ANALYSIS Keeping in view the objectives of the research I have analyzed that:- Online trading is still an unknown concept for many investors. Investors are also not very much familiar with internet. Most of the investors resist online trading because of its high transaction cost. Most of them don t trust that their investments are in safe hands if they invested online. Main issues of concern for any investor in online trading are security, authentication, and privacy and they mainly concentrate on this before selecting their broker. Price is also an important factor. Customer or investor will switch on those brokers which charge less commission. My findings also focus on the benefits of online trading. Convenience, speed, independence and reach are main benefits. SUGGESTION & RECOMMENDATIONS There can be several things that create a winning value propositions. A few of them are outlined below:- India needs a robust and world class IT and telecom infrastructure coupled with explosion in internet penetration. Internet market of India is one definite case of, Build and they will come. Transaction cost need to be reduced this will also give a boom to e-broking industry. 6

9 Settlement and clearance cycles need to be need more effective.. As hacking is very common in case of online trading so there is a need to review the security system so as to ensure safe and reliable e-broking transaction. Currently, the security model present in e-broking industry are passwords, Secure Socket Layer, Kerberos, Pretty Good Privacy, Public Key Infrastructures. A Universal Hub need to setup for maintenance and dissemination of information in an orderly fashion across various service providers. This will reduce cost and ensured considerable enhancement in process, efficiency and customer satisfaction. CONCLUSION Notwithstanding many problems, Indian stock market has emerged as a significant financial intermediary, assisting efficient resource allocation, providing strong support to Indian economy and help investors to realize the benefits of stock market investing. Online trading offered investors not only the convenience of trading from within the comforts of home, office or wherever they were, it has also helped in bringing down the cost of traders. It has put more powers in the hands of investors than that of the brokers. It provides a win-win proposition for both investor and brokers. The Internet has also been influential in generating mass awareness among the customers on online trading and has provided a level playing field to all investors, who can access the necessary information with greater ease. Connectivity was perhaps the most important technological factor. The cost of leased lines and VSAT links has been traditionally very high and the reliability of the links has been low. During the period of liberalization and globalization various developments have taken place. The remarkable ones are introduction of screen based trading systems, scrip less trading, modified carry forward system, rolling settlements, derivative trading and internet based security trading. Online exchanges facilitate faster transactions by providing online trading portals and brokerage houses ease and flexibility. In coming years, the competitive advantage for online broking firms could be derived, from the combination of technology, contents and customer service. The regulators and stock exchanges are embracing change in a very open minded manner. It can be rightly said that Online Trading has immense potential to be the future option for investment decision. REFERENCES 1.Bagchi, Anup (2002), Online Trading has Immense Potential to be the future option for Investment Decisions, Portfolio Organisor, pp Bagchi, Anup (2002), Online Trading-Issues and Concerns, Chartered Financial Analyst, December, pp Bhasin, Madan (2004), Electronic Stock broking all set to bloom in India, Journal of Institute of Chartered Accountants of India, December, Vol. 53, No. 6, pp Maheshwari, N.C. (2004), Contemporary Issues in Indian Capital Market, Journal of Institute of Chartered Accountants of India, October. Vol. 53, No. 4, pp Mantravadi, Pramod. Mehrotra, Nitin (2002), Online Trading: Emerging Trends, Portfolio Organisor, October, pp Sandhu, H.S., Singh, Arwinder (2004), Internet stock Trading in India: Its Evolution, Development, and Barriers, Apeejay Journal of Management, Vol.1, No.1. pp Sethu, Prof. G (2004). Seamless Trading, Chartered Financial Analyst, August, pp WEBSITE Online-Trading---Part-1/Read-Article.html Market_in_ Bangladesh_ Problems_Prospects_and_Way_Forward 7

10 SWATI JAIN Assistant Professor, Department Of Commerce & Management, Dr. C.V. Raman University, Kota, Dist.-Bilaspur (Chhattisgarh) 8

11 Publish Research Article International Level Multidisciplinary Research Journal For All Subjects Dear Sir/Mam, We invite unpublished Research Paper,Summary of Research Project,Theses,Books and Books Review for publication,you will be pleased to know that our journals are Associated and Indexed PDOAJ Directory of Research Journals Researchbib SocioSite Tjdb Frequency: Monthly International Research Directions Journal Review & Advisory Board : Research Directions Journal is seeking scholars. Those who are interested in our serving as our volunteer Editorial Review Board, Editorial Board and Advisory Board. Call for editorial board: All of faculties, experts and researchers are invited to join us as member of editorial board. For applying, send your CV at researchdirection2013@gmail.com / researchdirection@yahoo.com. We welcome you in research documentation. researchdirection2013@gmail.com / researchdirection@yahoo.com Research Direction Journal Editor-in-Chief: Prof. Santosh P. Rajguru Address for Correspondence 56,'PARASHURAM' Ayodhya Nagari,Near Reliance Office, Hydrabad Road,Dahitane, Solapur (Maharashtra) researchdirection2013@gmail.com cell: