Documentos de Académico
Documentos de Profesional
Documentos de Cultura
Report On
PREPARED BY:
NILESH KUMAR
PROJECT TRAINEE
DATE 25-07-2009
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A
Report On
EQUITIES–Cash & Derivatives
PREPARED BY:
NILESH KUMAR
2008/MBA/32
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DECLARATION
NILESH KUMAR
PGPM /MBA
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(2008-2010)
CERTIFICATE
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ACKNOWLEDGM
ENT
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.
NILESH KUMAR
PGPM/MBA
(2008-2009)
Executive
Summary
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This Project gave
me a great learning experience and at the same
time it gave me enough scope to implement my
analytical ability.
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Anand Rathi
(AR) is a leading full service securities firm
providing the entire gamut of financial
services. The firm, founded in 1994 by Mr.
Anand Rathi, today has a pan India presence
with 450 locations as well as an international
presence through offices in Dubai and
Bangkok. AR provides a breadth of financial
and advisory services including wealth
management, investment banking, corporate
advisory, brokerage & distribution of equities,
commodities, mutual funds and insurance,
structured products - all of which are supported
by powerful research teams.
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In year 2007 Citigroup Venture Capital
International joined the group as a financial
partner.
MILESTONES
• 1994:
Started activities in consulting and
Institutional equity sales with staff of 14.
• 1995:
Set up a research desk and empanelled
with major institutional investors.
• 1997:
Introduced investment banking
businesses
Retail brokerage services launched
• 1999:
Lead managed first IPO and executed
first M & A deal
• 2001:
Initiated Wealth Management Services
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• 2002:
Retail business expansion recommences
with ownership model
• 2003:
Wealth Management assets cross Rs1500
crores
Insurance broking launched
• 2004:
Commodities brokerage and real estate
services introduced
Wealth Management assets cross
Rs3000crores
Institutional equities business re launched
and senior research team put in place
Retail Branch network expands across
100 locations within India
• 2005:
Real Estate Private Equity Fund
Launched
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Retail Branch network expands across
200 locations within India
• 2006:
AR Middle East, WOS acquires
membership of Dubai Gold &
Commodity Exchange (DGCX)
Ranked amongst South Asia's top 5
wealth managers for the ultra-rich by
Asia Money 2006 poll
Ranked 6th in FY2006 for All India
Broker Performance in equity
distribution in the High Net worth
Individuals (HNI) Category
Ranked 9th in the Retail Category having
more than 5% market share
Completes its presence in all States
across the country with offices at 300+
locations within India
• 2007:
Citigroup Venture Capital International
picks up 19.9% equity stake
Retail customer base crosses 200
thousand
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Establishes presence in over 450
locations
• 2009
deals only in
MANAGEMENT TEAM
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Our senior Management comprises a diverse talent pool that
brings together rich experience from across industry as well as
financial services.
Mr. Anand Rathi - Group Chairman
Chartered Accountant
Past President, BSE
Held several Senior Management positions with one of India's
largest industrial groups
Mr. Pradeep Gupta - Vice Chairman
Plus 17 years of experience in Financial Services
Mr. Amit Rathi - Managing Director
Chartered Accountant & MBA
Plus 11 years of experience in Financial Service
Table of Contents
1. History of BSE………………………………………... 14
- Services…………………………………………… 15
- Awards……………………………………………. 17
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- Vision……………………………………………... 17
2. History of NSE………………………………………... 18
3. Role of SEBI…………………………………………… 19
4. Introduction……………………………………………… 20
- Listed Securities………………………………………22
- Permitted Securities………………………………… 22
- Tick Size………………………………………… 22
- Computation of closing price of scrip’s in the Cash
. Segment…………………………………………… 23
5. Compulsory Rolling Settlement (CRS) Segment………. 23
- Trading and settlement cycle for scrip’s under CRS...26
6. Settlement…………………………………………………….
- Demat pay-in………………………………………. 30
- Auto delivery facility………………………………. 30
- Pay-in of securities in physical form…………………31
- Funds Pay-in………………………………………….32
- Securities Pay-out………………………………..…...32
- Funds Payout…..……………………………………...33
- Dematerialization of shares…………………………...33
- Merits of Dematerialization.…………………………..34
- Rematerialization. …………………………………34
7. Open interest in derivative market……………………………….35
- What is open interest……………………………………..35
- Rising market and increasing open interest…………......36
- Rising market and decreasing open interest……………..36
- falling marker and increasing open interest……………. ..37
- falling marker and decreasing open interest……………...37
- sideways marker and increasing open interest……………38
8. The index number…………………………………………… 38
- desirable attribute of an index…………………………..39
- capturing behavior of portfolios……………………… ..40
- including liquid stocks………………………………….40
- maintaining professionally……………………………..41
– impact cost…………………………………………….. 41
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9. Futures and options………………………………………….42
- trading underlying versus trading single stock futures.. 43
- derivative market at nse………………………………..44
- index derivatives………………………………………45
10. Future terminology…………………………………………..45
– business growth of futures and options market
. turnover(rs. Crore)……………………………………49
11. Eligibility for any stock to enter in derivative market…….50
- trading mechanism…………………………………..50
- volumes………………………………………………51
- index derivatives for hedging………………………..51
– pricing futures……………………………………….52
– initial margin……………………………………….. 53
- initial margin charged on f & o market……………..54
12. Convergence of futures price to spot price…………………54
- mark to market (mtm) margin……………………….56
– open interest calculation with example……………...57
13. Options………………………………………………………..58
- option terminology…………………………………..59
- strategies in futures and options……………………..62
14. Buying a call option………………………………………….63
– buying a put…………………………………………66
- writing the call options………………………………68
- writing the buy options………………………………70
15. Firday market analysis……………………………………….73
16. Conclusion………………………………………………….....79
17. Suggestions …………………………………………………..81
18. Bibliography………………………………………………….84
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Bombay Stock Exchange Limited (the Exchange)
is the oldest stock exchange in Asia with a rich heritage. Popularly known
etc.
Mumbai.
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which allows listing of small and medium sized companies.
SERVICES
BSE also has a wide range of services to empower investors and facilitate
smooth transactions:
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TRADIN
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The 'Z' group was introduced by the Exchange
in July 1999 and includes the companies which
have failed to comply with the listing
requirements of the Exchange and/or have
failed to resolve investor complaints or have
not made the required arrangements with both
the Depositories, viz., Central Depository
Services (I) Ltd. (CDSL) and National
Securities Depository Ltd. (NSDL) for
dematerialization of their securities.
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The scrip’s of the companies which are in
demat can be traded in market lot of one but
the securities of companies which are still in
the physical form are traded on the Exchange
in the market lot of generally either 50 or 100.
However, the investors having quantities of
securities less than the market lot are required
to sell them as "Odd Lots". The facility of
trading in odd lots of securities not only offers
an exit route to investors to dispose of their odd
lots of securities but also provides them an
opportunity to consolidate their securities into
market lots.
Listed Securities:
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The securities of companies which have signed
Listing Agreement with the Exchange are
traded at the Exchange as "Listed Securities".
Baring a few scrip’s, all scrip’s traded in the
Equity Segment at the Exchange fall in this
category.
Permitted Securities:
Tick Size:
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Compulsory Rolling Settlement
(CRS) Segment:
Under
rolling settlements, the trades done on a
particular day are settled after a given number
of business days. A T+2 settlement cycle means
that the final settlement of transactions done on
T, i.e., trade day by exchange of monies and
securities between the buyers and sellers
respectively takes place on second business day
(excluding Saturdays, Sundays, bank and
Exchange trading holidays) after the trade day.
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dematerialization of their securities are settled
only in demat mode on T+2 on net basis, i.e.,
buy and sell positions of a member-broker in
the same scrip are netted and the net quantity
and value is required to be settled. However,
transactions in securities of companies, which
are in "Z" group or have been placed under
"trade to trade" by the Exchange as a
surveillance measure (“T” and “TS” group) ,
are settled only on a gross basis and the facility
of netting of buy and sell transactions in such
scrip’s is not available.
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In case of Rolling Settlements, pay-in and pay-
out of both funds and securities is completed
on the same day.
The
members are required to make payment for
securities sold and/ or deliver securities
purchased to their clients within one working
day (excluding Saturday, Sunday, bank &
Exchange trading holidays) after the pay-out of
the funds and securities for the concerned
settlement is completed by the Exchange. This
is the timeframe permitted to the members of
the Exchange to settle their funds/ securities
obligations with their clients as per the
Byelaws of the Exchange.
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DAY ACTIVITY
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T at
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T+1
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T+2 ri
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T+3
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n Page | 32
Thus, the pay-in
and pay-out of funds and securities takes places
on the second business day (i.e., excluding
Saturday, Sundays and bank & Exchange
trading holidays) of the day of the execution of
the trade.
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through the member-broker himself or through
a SEBI registered custodian appointed by
him/client. In case the delivery/payment in
respect of a transaction executed by a member-
broker is to be given or taken by a registered
custodian, then the latter has to confirm the
trade done by a member-broker on the BOLT
System through 6A-7A entry. For this purpose,
the custodians have been given connectivity to
BOLT System and have also been admitted as
clearing member of the Clearing House. In case
a transaction done by a member-broker is not
confirmed by a registered custodian within the
time permitted, the liability for pay-in of funds
or securities in respect of the same devolves on
the concerned member-broker.
The following statements can be downloaded
by the members in their back offices on a daily
basis.
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c. Statements of securities and fund
obligation.
The Exchange
generates Delivery and Receive Orders for
transactions done by the members in A, B1,
B2, S and F and G group scrip’s after netting
purchase and sale transactions in each scrip
whereas Delivery and Receive Orders for “T”,
“TS”,"C" & "Z" group scrip’s and scrip’s
which are traded on the Exchange on "trade to
trade" basis are generated on gross basis, i.e.,
without netting of purchase and sell
transactions in a scrip. However, the funds
obligations for the members are netted for
transactions across all groups of securities.
Settlement
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Demat pay-in :
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Pay-in of securities in physical
form:
Funds Pay-in:
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Bank, Indusind Bank Ltd., Union Bank of India
and Hongkong Shanghai Banking Corporation
Ltd. are directly debited through computerized
posting for their funds settlement obligations.
Securities Pay-out:
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Clearing House. Based on the break up given
by the member-brokers, the Clearing House
instructs depositories, viz., CDSL & NSDL to
credit the securities to the Beneficiary Owners
(BO) Accounts of the clients. In case delivery
of securities received from one depository is to
be credited to an account in the other
depository, the Clearing House does an inter
depository transfer to give effect to such
transfers.
In case of physical securities,
the Receiving Members are required to collect
the same from the Clearing House on the pay-
out day.
Funds Payout:
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standard/closing rate of the scrips on the
trading day.
Dematerialization of shares:
physical form.
Merits of dematerialization:
physical form.
Page | 42
Stock exchanges have now discarded the
odd lots.
Rematerialization:
OPEN INTEREST IN
DERIVATIVE MARKET
Page | 43
of future contracts or options contracts that
have not been exercised, expired or full filled
by delivery. Hence we can say that the open
interest position at the end of each day
represents the net increase or decrease in the
number of contracts for that day. However, it is
to be noted that open interest is not the same as
trading volume. Trading volume represents the
total number of contracts that are traded during
a day, inclusive of both squared –off (closed)
positions and new positions. Thus, for any day,
the trading volume will always be higher than
the open interest.
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the trade initiate a new position, it increases the
open interest by one contract.
But if the traders square
off their existing positions, Open interest will
decrease by the same number of contracts.
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positions and suggests the flow of extra money
into the market.
If the open
interest decreases in a sideways market, we can
Page | 47
say that flat market trends will continue for
some more time. A decrease in open interest
only represents the squaring-off of old
positions and lack of any new positions might
result in a sideways or weak trends in the
market.
Page | 48
starting value or base of the index is usually set
to a number such as 100 or 1000. for example
the base value of the Nifty was set to 1000 on
the start date of November 3, 1994.
Page | 49
DESIRABLE ATTRIBUTE OF AN
INDEX
Page | 50
diversification, there is very little gain by
diversifying beyond a point; the more serious
problem lies in the stocks that are included in
the index when it is diversified. We end up
including illiquid stocks, which actually
worsen the index. Since an illiquid stock does
not reflect the current price behavior of the
market, its inclusion in index results in an
index, which reflects, delayed or stale price
behavior rather than current price behavior of
the market.
Maintaining Professionally
Page | 51
It is now clear that an index should
contain as many stocks with as little impact
cost as possible. This necessarily means that
the same set of stocks would not satisfy these
criteria at all times, a good index methodology
must therefore incorporate a steady pace of
change in the index set. It is crucial that such
changes are made at a steady pace. It is very
healthy to make a few changes every year, each
of which is small and does not dramatically
alter the character of the index, on a regular
basis, the index set should be reviewed, and
brought inline with the current state of market,
to meet the application needs of users, a time
series of the index sold be available.
Impact cost
Page | 54
could be the ease of trading and settling these
contracts.
To trade securities, a customer must open
a security trading account with a securities
broker and a demat account with a securities
depository. Buying security involves putting up
all the money upfront. With the purchase of
shares of a company, the holder becomes a part
owner of the company. The shareholder
typically receives the rights and privileges
associated with the security, which may include
the receipt of dividends, invitation to the
annual shareholders meeting and the power to
vote.
Selling securities involves buying the
security before selling it. Even in cases where
short selling is permitted, it is assumed that the
securities broker owns the security and then
“lends” it to the trader so that he can sell it,
besides, even if permitted, short sales on
security can only be executed on an up tick.
Page | 55
in the margin money. They enable the futures
traders to take a position in the underlying
security without having to open an account
with a securities broker. With the purchase of
futures on a security, the holder essentially
makes a legally binding promise or obligation
to buy the underlying security at some point in
the future. Security futures do not represent
ownership in a corporation and the holder is
therefore not regarded as a shareholder.
INDEX DERIVATIVES
FUTURES TERMINOLOGY
Page | 58
EXPIRY DATE: It is the date specified in the
futures contract. This is the last day on which
the contract will be traded, at the end of which
it will cease to exist.
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plus the interest that is paid to finance the asset
less the income earned on the asset.
Page | 60
A futures contract is different from the
underlying stock in the following ways:
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Non promoter holding (free float
capitalization) should not be less than
Rs.750 crores for the last 6 months.
Daily Average Trading value should not
be less than 5 crores in last 6 months
It must be traded least 90% of Trading
days in last 6 months.
Non Promoter Holding must at least be
30%
BETA should not be more than 4 (for
previous 6 months)
TRADING MECHANISM
Page | 64
on strict price-time priority. It is similar to that
of trading of equities in the cash market
segment. The NEAT-F&O trading system is
accessed by two types of users. The trading
members have access to functions such as
order entry, order matching, order and trade
management. It provides tremendous flexibility
to users in terms of kinds of orders that can be
placed on the system. various conditions like
Immediate or Cancel, Limit/Market price, Stop
loss, etc. can be built into an order. The
clearing members use the trader workstation
for the purpose of monitoring the trading
members for whom they clear the trades.
Additionally, they can enter and set limits to
positions, which a trading member can take.
VOLUMES
Page | 65
Rs.35000 crores. A total of 216,883,573
contracts with a total turnover of Rs.
7,356,271 crores were traded during 2006-
2007.
F=SerT
Where:
e= 2.71828
Example:
Page | 67
F = SerT
=1150*e0.11*1/12
=1160
INITIAL MARGIN
Page | 68
INITIAL MARGINS CHARGED ON
F&O MARKET
Index futures: 5%
Index options: 3%
Stock options: 7.5%
Page | 70
Figure: A
The convergence of the futures
price to the spot price when future
price is below the spot price can be
pictorially represented as follows:
Page | 71
Figure: B
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(Profits/loss) from their trading members
according to their open positions.
Page | 73
OPEN INTEREST CALCULATION
(EXAMPLE)
OPTIONS
Page | 75
Thus an option is the right to buy or sell a
specified amount of a financial instrument at a
pre- arranged price on, or before, a particular
date.
OPTION TERMINOLOGY
Page | 76
Both type of the option are traded through out
the world
Page | 77
STRIKE PRICE: the price specified in the
options contract is known as the strike price or
the exercise price.
Page | 78
OUT OF THE MONEY OPTION: An out
of the money (OTM) option is an option that
would lead to a negative cash flow if it were
exercised immediately. A call option on the
index is out of the money when the current
index stands at a level which is less than the
strike price(i.e. spot price < strike price). If the
index is much lower than the strike price, the
call is said to be deep OTM. In the case of a
put, the put is OTM if the index is above the
strike price.
STRATEGIES IN FUTURES
AND OPTIONS
Page | 80
A buyer of the option paying a premium
(price) for the option to buy a specified
quantity at a specified price any time prior to
the maturity of the option.
300
250
200
PAYOFF
50
0
-50
400 450 500 550 600 650 700 750
PRICE
Figure: C
Page | 82
share prices rise to Rs.750 then the holder of
the option has the right to purchase that share
at a price of Rs.500 form the seller of the
option. In this case any price level above
Rs.525 (500+25), which is the breakeven point,
results in a profit for the buyer of the option.
Investment in the above option is
Rs.25*1000=Rs.25000.
Page | 83
The following are the updates
BUYING A PUT
The second strategy is the put strategy where
the buyer of the put option has to pay a
premium(price) for the option to sell a
specified quantity at a specified price any time
prior to the maturity of the option. Here we
take the example of buying a put option on the
stock of AIR DECCAN. The exercise price was
Rs.140. The premium paid on the above option
Page | 84
was Rs.4.10 on 04-06-2009. investment in the
above strategy is Rs.4.10*2500=Rs.10,250.
Page | 85
07-06-2009 140 4.00 4.00 4.00
08-06-2009 140 4.90 8.75 4.90
27-06-2009 140 6.75 6.75 6.75
Table: D
35
30
25
20
PAYOFF
15 GROSS PAYOFF
10 NET PAYOFF
5
0
-5
-10
110 120 130 140 150 160 170
PRICE
Figure: D
Page | 86
larger of the exercise price minus the stock
price or zero.
Page | 87
increases the writer of the option starts making
losses. Higher the spot price more is the loss he
makes, if upon expiration the spot price of the
underlying is less than the strike price, the
buyer lets his option expire unexercised and the
writer gets to keep the premium.
Page | 88
Following are the updates of the option rates in
the market:
15
10
5
0
PAYOFF
-5
GROSS PAYOFF
-10
-15 NET PAYOFF
-20
-25
-30
-35
110 120 130 140 150 160 170
PRICE
Figure: E
Page | 89
Here we can see that the investment in
this option is nil, as the call writer will get the
premium at which he is writing. The net return
on this option at the expiry period was
Rs.10,624.
Page | 90
The put writer will first get a premium of
amount Rs.9375
Page | 91
WRITING PUT OPTION PAYOFF
50
PAYOFF
-50 GROSS PAYOFF
-150
-200
650 700 750 800 850 900
PRICE
Figure: F
Page | 92
FIRDAY MARKET ANALYSIS
DIFFERENC
DATE 1 2 3 4 5 E
PRE'S
1 CLOSED
2 Open
3 HIGH
4 LOW
5 CLOSING
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Conclusions according to my
study
CONCLUSIONS
Page | 100
3) Most of investors are trading not only in
derivatives for hedging, but also for other
purposes.
Page | 101
otherwise. This also does not involve
much cost.
avenues.
SUGGESTIONS
Page | 103
country for proper understanding of the
derivative market.
Page | 104
SEBI and RBI in respect of all financial
derivatives
Page | 105
BIBLIOGRAPHY
• WWW.GOOGLE.COM
• WWW.WIKIPEDIA.COM
• WWW.BSEINDIA.COM
• WWW.NSEINDIA.COM
• WWW.ANANDRATHI.COM
• WWW.MONEYCONTROL.COM
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