Trading Industry in India

Indian stock brokerage industry date backs to 1850 where first meeting of brokers was held in natural environment under banyan trees in Mumbai-the financial capital of India. Over the period of time they were continuously changing their meeting place due to increasing number of brokers. In 1974 they found the permanent place which is now known as Dalal Street (Brokers street). The first exchange of India-BSE was established in 1875 which was later given recognition under Securities Contract Regulation Act 1956. Before the actual legislation were enacted as a pioneer BSE Ltd formulated set of rules and regulation for the securities market and also laid down best practices which were adopted subsequently by stock exchanges set up after India got independence. Though Indian brokerage industry dates back to 1850 it started growing after 1990 with incorporation of Securities Exchange Board of Indian in 1992 in accordance with the provision of Securities Exchange Board of India Act 1992 and incorporation of National Stock Exchange in November 1992 which is now biggest exchange of India in terms of volume and value of securities traded. Market Indices: Indian market is tracked by investors with respect to two major indices one is BSE Ltd.s S&P BSE Sensex which consist of top 30 shares representing different sectors of Indian economy and NSEs CNX Nifty which consist of top 50 shares. There are other indices also for example NIFTY Junior, NIFTY midcap 50, CNX 100, CNX 200 and CNX 500 etc on NSE. IN case of BSE we have S&P BSE midcap, S&P BSE small cap, S&P BSE 100, S&P BSE 500. BSE and NSE also have sectoral indices for example CNX auto index, CNX bank index, CNX energy index, CNX Bank index which represent sectoral performance on stock market. Market Segment: There are different types of market segment based on nature of product traded which include Equity/Cash market where share of listed companies gets traded, Debt Market where investors trade in bonds issued by various entities such as NHAI, HUDCO, IRFC etc, Futures & Options/Derivative segment where derivative products gets trades they include equity as well as stock derivatives. Currently derivative segment showing strong growth specially on NSE which is undisputed leader in this segment

Trading: Floor based trading- where brokers used to gather at specific venue known as trading floor to buy/sell stock. They use the open outcry method which involves shouting and use of hand signals to transfer information about buy and sell orders. During 1990 floor based trading system got replaced due to emergence of electronic trading system. As of now very few exchanges have floor trading system for example New York Stock Exchange.Electronic trading system- Electronic trading also known as etrading is a method of trading securities, currencies, or derivatives electronically. Information technology is used extensively to bring together both buyers and sellers through electronic trading platform and network to create virtual market places. In India NSE have trading system called National exchange automated trading(NEAT) and BSE have BSE on line trading(BOLT).

Brokers: Since as per regulation only members of stock exchange can trade on that exchange. Individual cannot directly get connected to NSE or BSE. Brokers or Brokerage firms are the member of exchanges and act as an intermediary between investor/trader and exchanges to buy and sell different type of stock and other financial instrument. As a part of service provided of facilitating transaction on exchange brokers typically charge some amount of money as brokerage fees which vary depending on segment or nature of transaction for example whether it is intraday trade or delivery trade. In India we have big brokerage companies like Motilal Oswal, Angel Broking, Kotak Securities Limited, Sharekhan etc. Traditionally share trading brokerage is charged as percentage of value of trade. Typically any brokerage firm charge 0.05-0.5% of total value of transaction as brokerage fees or brokerage.

Major Competitors in Discounted Brokerage segment:

RKSV securities Ltd based in Mumbai which offer online trading service got incorporated in 2009. It offers multiple Budget brokerage plans to Indian stock market investors. Its fixed monthly plan which charges flat monthly fee irrespective of number of trades done became popular among investors. Investors can trade unlimited in cash, Futures and options segments by paying monthly fee of 1947. Its share trading platform is powered by National stock exchanges Now (NSE on web) internet trading platform. Its scope of offering includes equity, currency and doesnt include commodity trading. It allows traders to do trading on both NSE and BSE.

Smart trade online is one of the Indias leading discount broking firm based in Mumbai. It got incorporated 1994, They offer broking service in the segments including BSE Equity, NSE Equity, NSE Futures and Options, Currency derivatives on NSE and MCX, commodity trading on NDCEX and MCX. It also offers wide range of products to investors in mutual fund segment. Like RKSV securities Smart trade online firms trading platform is powered by National stock exchanges Now (NSE on web) internet trading platform. Trading options include Browser based trading, Trader platform( needed to be installed), and mobile trading.

Compositedge is the division of Composite Investment Pvt. Ltd. a brokerage firm with experience of more than 16 years. They founded Compositedge to provide the knowledgeble investors an almost zero brokerage online platform. Trader can trade on their platform by paying fixed charges OF Rs. 25 per trade irrespective of the size of trade. There focus is on providing transparent and simple brokerage structure. Like Zerodha, Compositedge also gave special attention to designing website to make it clear and clutter free. Compositedge continuously put efforts to maintain a lean and efficient operation,be it client registration, in person verification through web-camera, order entry, execution,back office access etc.

RK Global incorporated in 1995 in delhi which later moved its head office to Mumbai considering importance of this city as financial capital of India. it launched its retail broking business in 2004 and able to grow exponentially. It provides services under Equities, Derivatives, Currency, Commodities, Depository, IPO Distribution, Mutual Fund Distribution and Consultancy areas. It follows business associates model which enabled it to have pan India presence with offices in over 150 citie. It offers brokerage plans according to needs of traders but most popular plan is the India trades@Rs. 999 which offers unlimited trading at Rs. 999 per month and super 9 which offers fixed Rs. 9 brokerage for a buy/sell transaction irrespective to the size of order.Like Zerodha, RK Global made online trading services available through web browser based and desktop application based trading platform Zerodha membership Information: Particulars NSE NSE Registration Date Member ID Future & Options (F&O) Currency Derivatives (CDS) BSE BSE Registration Date Member ID Capital Market(CM) Futures & Options(F&O) CDSL NSDL Column1 30-Jun-12 INF231390627 INE231390627

17-May-12 INB011390623 INF011390623 IN-DP-CDSL-00278209 IN-DP-NSDL-11496000

Stock Brokers Fees: Account Opening Charges(Rs.) Brokerage Account AMC(Rs.)

(Amount in Rs.) DEMAT Account AMC(Rs.)

Broker

Zerodha RK Global Composite edge RKSV Securities Smart trade online

300 NIL 300 250 300

NIL NIL NIL NIL NIL

400 250 300 400 200

Share Brokerage Charges: Cash Delivery Cash Intraday

(Amount in Rs.) Minimum Brokerage

Broker

Margin

Future

Options

Zerodha RK Global Composite edge RKSV Securities Smart trade online

20

20

20

20

20

NIL

15-25

15-25

15-25

15-25

15-25

15

15

15

15

15

15

Note: RKSV securities provides unlimited trading at monthly trading fee of Rs. 1947

Investment Options available: Broker Equity Debt Mutual Fund Commodity Currency

Zerodha RK Global Composite edge RKSV Securities Smart trade online

NSE Market Statistics: Segments Cash Market Debt Market Equity F&O Currency F&O TOTAL Aug'12 204,874.00 48,625.51 2,432,169.00 328,907.00 3,014,575.00 Sep'12 240,189.00 71,326.61 2,591,949.00 397,592.00 3,301,056.00 'Oct 2012 239,795.00 66,985.57 2,714,209.00 507,426.00 3,528,416.00 'Nov 2012 220,933.00 51,361.00 2,479,817.00 467,875.00 3,219,986.00

Turnover (Rs. Crore) 'Dec 2012 240,325.00 71,980.00 2,640,393.00 448,753.00 3,401,451.00 'Jan 2013 295,415.00 103,426.00 2,950,975.00 586,025.00 3,935,841.00

5,000,000.00 4,000,000.00 3,000,000.00 2,000,000.00 1,000,000.00 Aug'12 Sep'12 'Oct 2012 'Nov 2012 'Dec 2012 'Jan 2013 Cash Market Debt Market Equity F&O Currency F&O TOTAL

BSE Market Statistics: Segments Equity Futures Options Mutual funds Total Aug 2012 42788.83 8848.92 865509 301.68 917448.43 Sept 2012 45501.3 4617.09 300757.74 320.72 351196.85 Oct 2012 51030.14 3676 407171 527.26 462404.4 'Nov 2012 47782.98 2287 544294 490.05 594854.03

Turnover (Rs. Crore) 'Dec 2012 50377.23 2425.79 897426.78 448.06 950677.86 'Jan 2013 56661.69 4343.27 919098.15 281.13 980384.24

1200000 1000000 800000 600000 400000 200000 0 Aug 2012 Sept 2012 Oct 2012 'Nov 2012 'Dec 2012 'Jan 2013 Equity Futures Options Mutual funds Total

Nest Trader main Screen:

Zerodha Mobile:

SWOT Analysis: Strength: 1. First mover advantage 2. Low cost structure hence saving above 90% brokerage on most of the trades 3. Reliable and simple 4. Electronically fast real time transaction 5. Industry standard software platform 6. Personal network of traders 7. Good industry understanding ( 15 years in trading personally ) 8. Presence in all forums where a trader can go 9. No marketing expenses 10. Taxes charged (i.e. Service Tax of 12% on brokerage) are less as brokerage itself is less Weakness: 1. Credibility being a new player and new business model 2. Highly risky business 3. Bad debts issue 4. No personal interaction with customers 5. The discount brokers may not provide all the investment options a full-service broker provide Opportunity: 1. Internet penetration in Indian market and large no of online traders 2. Entry in more complex financial securities market 3. Institutional customers 4. International expansion Threats: 1. Few more startup copying exactly same business model 2. Bad economic conditions worldwide 3. Existing institutions( Sharekhan )entry into the market