Introduction of Bonanza OVERVIEW OF BONANZA A financial powerhouse! That’s what Bonanza is for you! Established in the year 1994, Bonanza developed into one of the largest financial services and broking house in India within a short span of time. Today, Bonanza is the fastest growing financial service with 5 mega group companies under it. With diligent effort, acknowledged industry leadership and experience, Bonanza has spread its trustworthy expertise all over the country with pan-India presence across more than 1632 outlets spread across 535 cities. With a smorgasbord of services across all verticals in finance, Bonanzas offers you the perfect blend of financial services right from Equity Broking, Advisory Services that cover Portfolio Management Services, Mutual Fund Investments, Insurance to exceptional Depository Services. Bonanza believes in being technologically advanced so that we can offer you – our tech-savvy customers - an integrated and innovative platform to trade online as well as offline. Besides, we also have one of the finest and most dedicated research teams 1
Transcript
Introduction of Bonanza
OVERVIEW OF BONANZA
A financial powerhouse! That’s what Bonanza is for you! Established in the year 1994, Bonanza developed into one of the largest financial services and broking house in India within a short span of time. Today, Bonanza is the fastest growing financial service with 5 mega group companies under it. With diligent effort, acknowledged industry leadership and experience, Bonanza has spread its trustworthy expertise all over the country with pan-India presence across more than 1632 outlets spread across 535 cities.
With a smorgasbord of services across all verticals in finance, Bonanzas offers you the perfect blend of financial services right from Equity Broking, Advisory Services that cover Portfolio Management Services, Mutual Fund Investments, Insurance to exceptional Depository Services.
Bonanza believes in being technologically advanced so that we can offer you – our tech-savvy customers - an integrated and innovative platform to trade online as well as offline. Besides, we also have one of the finest and most dedicated research teams with experts who have in-depth, unsurpassed knowledge of the market place. All this and more makes Bonanza the perfect place for you to take your first step in the direction of financial success.
Bonanza is affiliated with the best in the industry – right from the NSE, BSE MCX, MCX-SX to CDSL, NSDL, ICEX and USE etc. These affiliations prove our worth in the market and make Bonanza a name to reckon with.
With various titles and achievements under our belt, Bonanza looks forward to tougher challenges and newer milestones to conquer, so that you – our customer can get nothing less than the BEST!
So come join the Bonanza family. We look forward to helping you grow financially.
Vision & value
To be one of the most trusted and globally reputed financial distribution companies.
Values
Customer-centric approachAt Bonanza, customers come first. And their satisfaction is not just our top priority but also the driving force for us, every single day.
TransparencyHonesty is our forte. We believe in dealing on thoroughly ethical grounds, being fair and transparent with our customers.
MeritocracyWe recognize and appreciate efforts put in by our employees. And we, as a matter of fact, reward and distinguish each one of them, ceaselessly.
SolidarityWe believe in sharing a forthright and respectful relationship with our business partners and employees. We consider them both as our team associates, who work together. Succeed together.
5th largest in terms of no. of offices for the year 2010-2011*.
Top Equity Broking House in terms of branch expansion for 2008*.
4th in terms of Trading terminals for the year 2010 - 2011*.
6th in terms of Sub Brokers for the year 2010-2011*.
Nominated among the Top 3 for the "Best Financial Advisor Awards 08" in the category of National Distributors – Retail instituted by CNBC-TV18 and OptiMix.
Nominated among the Top 3 for the "Best Financial Advisor Awards 09" in the category of National Distributors – Retail instituted by CNBC-TV18 and OptiMix.
Awarded by BSE Major Volume Driver 04-05,06-07,07-08 .
Ranked 2nd by UTI MF & CNBC TV 18 Financial Awards 2009 in the category Best Financial Advisor- Retail.
Company expects to achieve net profits after tax in the range of Rs 3,100 to Rs 2,000 million from the Financial Services Business during the current fiscal year as compared to Rs 1,511 million of net profits in fiscal year ending March 2010
Securities Business:
Securities Business is expected to continue to gain market share through out the current Fiscal year driven by strong customer additions
Business Conditions continue to be challenging with higher customer count offset by weak per customer trading volumes and revenues. Business volumes are expected to be sequentially flat to slightly down despite rapid growth in customer base.
Consumer Finance Business:
Consumer Finance is expected to continue to show significant increase in loan origination volume as it benefits from the nation-wide distribution network combined with a comprehensive product offering
The Company expects to reach over Rs 11,000 million of balance outstanding across its various loan product offerings such as personal loans, commercial vehicle loans, two wheeler loans and loans against property by end of FY 2009-10. This compares to Rs 2,386 million of balance outstanding as of June 2010 with an average yield of 31%.
• Risk Management Logic takes into account all assets of client, to determine allowable exposure value. Margin calls automatically relayed to client and system administrator
• On instances of extreme market volatility the system has demonstrated its robustness in coping with extreme fluctuations
Real-time Risk Management System requiring minimumReal-time Risk Management System requiring minimum human interventionhuman intervention
• Risk management logic built into internet trading application
• Continuous marking-to-market of client exposure
• Back office support for centralized control and risk management of non-internet transactions
• Strong risk management module in place for credit appraisal and loan disbursements
• Strong redundancy arrangements and disaster recovery plan in place
Risk Management Module Risk Management Module
Inter-branch connectivity enabling centralized order entry and back office support to all terminals
Backup and recovery functions to enhance reliability of system and data integrity
Maintenance and periodic testing of disaster recovery plan
Bonanza has emerged as one of the leading and fastest growing financial company in less than two year, since its initial public offering in September 2004. It has a market capitalization of around USD 500 million and consolidated net worth of around USD 200 million.
2004-05:
Bonanza Financial Services Ltd. established India’s one of the first trading platforms with the development of an in house team.
2005-06:
Bonanza expands its service offerings to include Equity, F&O, Wholesale Debt, Mutual fund, IPO distribution and Equity Research.
2006-07:
Bonanza ventured into Insurance distribution and commodities trading. Company focused on brand building and franchise model.
2007-08:
Bonanza came out with its initial public offer (IPO) in September 2008.Bonanza started its consumer finance business.
Bonanza entered the Indian Real Estate market and became the first company to bring FDI in Indian Real Estate. Bonanza won bids for landmark properties in Mumbai.
2008-09:
Bonanza has acquired over 115 acres of land in Son-pat for residential home site development.
Merrill Lynch and Goldman sac, one of the renowned investment banks in the world have increased their shareholding in Bonanza.
Bonanza is a market leader in securities brokerage industry, with around 31% share in online trading,
Farallon Capital and its affiliates, the world’s largest hedge fund committed Rs. 2000 million for Bonanza subsidiaries Viz. Bonanza Credit Services Ltd. and Bonanza Housing Finance Ltd.
2009-10:
Bonanza entered in a 50/50 joint venture with DLF, Kenneth Builders & Developers (KBD). KBD has acquired 35.8 acres of land from Delhi Development Authority through a competitive bidding process for Rs 450 crore to develop residential apartments.
Bonanza Financial Services Ltd. is included in the prestigious Morgan Stanley Capital International Index (MSCI).
Farallon Capital has agreed to invest Rs. 6,440 million in Bonanza Financial Services Ltd.
Bonanza is a depository participant with the National Securities Depository Limited and Central Depository Services (India) Limited for trading and settlement of Dematerialized shares. Bonanza performs clearing services for all securities transactions through its accounts. We offer depository services to create a seamless transaction platform – execute trades through Bonanza Securities and settle these transactions through the Bonanza Depository Services. Bonanza Depository Services is part of our value added services for our clients that create multiple interfaces with the client and provide for a solution that takes care of all your needs.
2. CONSUMER FINANCE:
Bonanza being a retail focused organization fulfills the credit need of a large percentage of population in India. The key aspect of Bonanza business model is to provide an extremely unique customer experience. The blend of power of the Internet with personalized services allows Bonanza to expand its geographical coverage and capture a greater share in the highly competitive retail market. We offer consumer loans, home loans, personal loans, securities brokerage, and other financial products and services to retail customers from across 414 Bonanza offices in 127 leading cities of the country.
3. MORTGAGE LOANS:
Bonanza has commenced lending of Mortgage Loans to prospective customers under the flagship of Bonanza Housing Finance Ltd. Here we enable home-seekers to access finance to buy their homes. We also provide plot loans, Loan against Residential, Commercial and Rental Property, thereby enabling the borrower to leverage the property owned to fund any legitimate needs be it Business Expansion, Child's Education, Child's Marriage or for Holiday Abroad.
After realty, Lakshmi Mittal wants a slice of the booming financial services sector. Bonanza Financial Services, where Mittal owns a 6% stake, wants a merger with beleaguered UWB.
In a proposal submitted to RBI, which is scouting for a suitor for the bank, IFSL wants its financial services business to be merged with that of the bank.
IFSL has proposed a swap ratio of 6:1 and an infusion of Rs 450 crore equity. This means for every six shares of UWB, the shareholders will receive one share of IFSL.
UWB trades at Rs 19 on BSE and Bonanza at Rs 149.After pumping fresh capital into the bank, UWB's networth is likely to rise to around Rs 1,450 crore.
Currently the bank's networth is negative. After demerging the real estate business, IFSL will have a net worth of Rs 1,000 crore, the presentation to RBI said.
Eventually the merger will give Lakshmi Mittal Investment Ventures a 5% stake in the merged entity. The proposal has also laid down certain riders to comply with RBI norms.
Sameer Gehlaut, CEO of IFSL, who would own 14% stake in the merged entity will pare his stake down to 10% as stipulated by RBI.
MUMBAI: Turning around steel companies may be Lakshmi Mittal's forte, but that doesn't prevent the UK-based NRI from entering real estate development and home financing in India.
A source said Mittal would fund specific realty projects in JV with Bonanza, a financial serivices provider in which he owns a stake. "When we apprised
him of real estate opportunity in India, he expressed keenness to invest in specific projects," a source familiar with development said.
His relationship with Bonanza started in 2000 when he purchased a 10% stake In Bonanza Financial Services.
After the company made a public offering, two overseas issues and a preferential sale of equity to US private equity firm Farallon Capital Management, Mittal's stake came down to 6%. However, the company's valuation has jumped from Rs 20 crore in 2000 to Rs 2,500 crore at present.
Mittal, it is learnt, wants a share of the booming housing finance business. A source said his company LNM IV Ltd will acquire a 10-15% stake in Bonanza Housing Finance, a fuly owned arm of Bonanza.
This year, he acquired a 10% stake in consumer loans provider Bonanza Credit Services. Farallon owns a 32% stake in the company and Bonanza the remaining stake.
The firm expects consumer finance business to rake in Rs 1,500 crore of disbursals by end of current fiscal as it benefits from nation-wide distribution network and a comprehensive product offering.
Meanwhile, Bonanza Financial Services will hike its stake to 51% in three firms — Bonanza Estate Ltd (IEL), Bonanza Properties Pvt Ltd (IPPL) and Bonanza Infrastructure Ltd (IIL) — by converting optionally convertible debentures of Rs 141.5 crore to equity.
IPPL is developing Mumbai-based Jupiter Mills, IEL is developing a township in Sonepat.
Bonanza Financial Services Ltd rose 1.4% to Rs 304 on plans to acquire United Western Bank.
The company plans to issue 1 equity share of Bonanza, after the spin-off of its real estate business, for every 6 equity shares of United Western Bank.
Indian stock market has a long history dated back to 19 th century. At the end of 19th century Bombay stock exchange was established in Bombay now known as Mumbai. From that time it has passed through a metamorphosis with several ups and downs like 17 th may a black Monday in Indian stock market history comparable to 11 th September in the US market. It has seen the emergence of so many regional exchanges as well as one big exchange in the form of NSE which swept all the business in his favour. With the demutualization of exchanges it has also seen the extinction of regional exchanges. If we go through the present scenario then maximum business on cash market segment are shared by BSE and NSE where NSE is the bigger player and in derivative segment it is almost monopoly of NSE. If we divide the whole Indian securities market in terms of value in cash market that is equities and derivatives also known as F&O segment then the ratio comes to 1:2. In volume terms cash market comes closer to 5000-6000 crore on daily basis on an average while F&O brings 10000 crore on an average.
It shows that Indian stock market is more or less now dominated by F&O segment in terms of volume. If we further move inside the cash market there are different types of scripts available for trading which can be classified as follows
1. large cap2. mid cap3. small cap4. Ultra small cap
These classifications are based on the market capitalization of different companies. In cash market segment volumes in the term of money are dominated by large caps . Now there is a changing trend in the market and it is moving towards mid cap reasons are large caps are not viable for a retail investor due to their high market prices.
If we go inside the derivative segment 70%-80% volume are in futures and rest in options. If we look at the one day volume break up on NSE and BSE it will give us a clear idea.
In cash market
On NSE: Number of trades- 1781974 Traded Qty. (lakh shares) -2,755.56 Traded Value (Rs. Crore) – 3822.5
On BSE: Number of trades- 666706 Traded Qty. (lakh shares) -1635 Traded Value (Rs. Crore) – 1752
If we look at number of stock listed in cash market it is more than 6000 in number while active trade happens on only approx 300-400 companies while in F&O segment there are only 53 scripts available for trading but volume wise they dominate the market. A list of all 53 stocks available for trading in F&O segment on 18-06-2006 with their lot sizes are as follows-
Underlying Symbol Market LotS&P CNX Nifty NIFTY 100CNX IT CNXIT 100
Derivatives on Individual SecuritiesAssociated Cement Co. Ltd. ACC 375Andhra Bank ANDHRABANK 2300Arvind Mills Ltd. ARVINDMILL 2150Bajaj Auto Ltd. BAJAJAUTO 100Bank of Baroda BANKBARODA 1400Bank of India BANKINDIA 1900Bharat Electronics Ltd. BEL 275Bharat Heavy Electricals Ltd. BHEL 150Bharat Petroleum Corporation Ltd. BPCL 550
Shipping Corporation of India Ltd. SCI 1600Syndicate Bank SYNDIBANK 3800Tata Consultancy Services Ltd TCS 250Tata Power Co. Ltd. TATAPOWER 800Tata Tea Ltd. TATATEA 275Tata Motors Ltd. TATAMOTORS 825Union Bank of India UNIONBANK 2100Wipro Ltd. WIPRO 300
Derivatives and cash market are two important segments in the Indian stock market. Apart from this now a days commodities are also getting momentum. There are two dedicated exchanges available for commodities trading namely NCDEX and MCX. In commodities market products available for trading are agro products, metals, and oils etc. where bullion (gold) and crude oil are the important one.
The Private Client Group of Bonanza Securities deals with the following types of clients:
Normal Equity Client Margin Funding Client Margin Securities Client
Normal Equity Client:
The transaction volumes of this client are generally small to medium in size. He falls in the retail category. The client calls up the dealer to place his orders. The transactions involving the securities is done as per his or the dealers advice. The normal trading client settles his trades on a bill-to-bill basis.
Margin Funding Client:
The margin-funding client does trades as a normal client, but avails of funding facility from Bonanza securities Ltd. The transaction volumes of this client are generally large in size. He takes huge positions in the market. He has to register himself as a funding client.
Margin Securities Client
This client gives stocks as a margin with the broker. He is not a margin-funding client. He settles his trades on a bill-to-bill basis.
Above mentioned flow chart shows how a dealing process can be done at stock exchange. First of all customer places his order to buy or sell the script with his dealer. Dealer is a member of stock exchange in turn dealer executes the deal on exchange. At the end of the day clearing corporation looks on the whole process and find out the net position of each client like what they are supposed to get or pay which is called clearing process then with the help of clearing bank and depository participant it settles the
whole deal by pay in/out of fund and security. Right now the whole process takes two days to settle i.e. on T+2 basis. The time table of this process are mentioned below.
Cash market
Activity DayTrading Rolling Settlement Trading TClearing Custodial Confirmation T+1 working days Delivery Generation T+1 working daysSettlement Securities and Funds pay in T+2 working days Securities and Funds pay out T+2 working days Valuation Debit T+2 working days
In the case of derivatives settlement cycle as follows-
Mark to market settlement (Futures) Pay in at T+1 11.30 amPay out at T+1 12.00 pm
Final settlement (Futures)
Pay in at T+1 11.30 amPay out at T+1 12.00 pm
Premium, exercise and final settlement (Index Options)
Interim exercise, exercise and final settlement( individual security option)
Pay in at T+2 11.30 amPay out at T+2 12.00 pm
Settlements are of two types in the cash market first one is delivery based called rolling settlement where client is supposed to take delivery and another one is intraday where only profits and losses on the positions are settled.
In F&O segment there is no concept of delivery except in commodities where physical transfer of underlying takes place. Here all deals are cash settled on day to day basis by mark to market method and near month contract expires on the last Thursday of every month while in commodities it expires on 20th of every month.
Members who participate in the whole clearing and settlement process are as follows
1.clearing member2.clearing bank3. depository participant4.professional clearing member
Clearing Members
Clearing Member means a member of the Clearing Corporation who clears and settles deals through the Clearing Corporation. The Clearing Member clears and settles deals for a segment in a manner and mode and subject to such terms and conditions and procedures prescribed for them. Further, a Clearing Member may clear and settle deals either on their own account or on behalf of their clients subject to the terms and conditions prescribed by the Clearing Corporation. In the Capital market Segment, all trading members of the Exchange are required to become the Clearing Member of the Clearing Corporation.
In F&O Segment, trading members need not necessarily clear their own deals but can select another clearing member or a professional clearing member to clear and settle their dues. Trading Members who are also Clearing Members, can clear and settle their deals and also deals of other trading members who opt to settle their deals through the said clearing member. 'Self Clearing Members' may clear and settle only their own proprietary trades and their clients’ trades but cannot clear and settle trades of other trading members
Clearing banks holds the fund of customer and helps in fund pay in and out with clearing corporation. Banks are required to provide all the facility to a customer in a following way.
Branch network in cities that cover bulk of the trading cum clearing members
High level automation including electronic funds transfer (ETF) facilities
Facilities like (a) dedicated branch facilities (b) software to interface with the Clearing Corporation (c) access to accounts information on a real time basis
Value-added services to members such as free-of-cost funds transfer across centres etc.
Providing working capital funds Stock lending facilities Services as Professional Clearing Members Services as Depository Participants Other Capital Market related facilities All other banking facilities like issuing bank guarantees / credit
They are members of depository namely NDSL and CDSL and they work like a branches of a bank to hold a share in a demat form for a client in their respective accounts.
Professional Clearing Members
Clearing Corporation admits a special category of members namely professional clearing members. Professional Clearing Member (PCM) are clearing members who are not trading members. They are typically banks, custodians etc. who clear and settle trades executed for their clients (individuals, institutions etc.).In such an event, the functions and responsibilities of the PCM would be similar to Custodians. PCMs may also undertake clearing and settlement responsibility for trading members. In such a case, the PCM would settle the trades carried out by the trading members connected to them. The onus for settling the trade would be thus on the PCM and not the trading member.
Risk ManagementAt exchanges trade volumes are very high so it increases a chance of default from every corner. to minimize these risks exchanges have got a tight risk management policy and have set clear cut norms for every participant in the form of limited exposures. Margining system, capital adequacy norms.
They have also got the system to stop abnormal changes in price in the form of circuit and filters. In case of derivatives as exposure are very high due to leverage so there are extra precautions taken by exchanges to minimize the default in the form of span margin an internationally accepted software which works on Value at risk mechanism and calculates the risk margin.
As when ever a person wants to buy a script he is supposed to pay an upfront margin to cover the risk he is exposed to due to variation in the market or the cover the loss he is expected to make due to down turn of market. Details of margin are as follows-
There are different categories of stocks available for trading in market which has got different risk class . So margins are calculated on the basis of their category. Criteria for selection in different categories are as follows.
The Stocks which have traded at least 80% of the days for the previous 18 months shall constitute the Group I and Group II.
Out of the scripts identified above, the scrips having mean impact cost of less than or equal to 1% shall be categorized under Group I and the scrips where the impact cost is more than 1, shall be categorized under Group II.
The remaining stocks shall be classified into Group III.
The impact cost shall be calculated at 15th of each month on a rolling basis considering the order book snapshots of the previous six months. On the basis of the impact cost so calculated, the scrips shall move from one group to another group from the 1st of the next month.
On the basis of group of stock exchange requires upfront margin from the client . Applicable rates are as follows.
Groups (Securities Covered) Upfront Margin RateGroup I 15%Group II 30%Group III 45%
As this segment is more riskier than the cash market. So exchange follows a tight margining system in the form of different margins to cover the exposed risk which are as follows.
Initial Margin
NSCCL collects initial margin up-front for all the open positions of a CM based on the margins computed by NSCCL-SPAN . A CM is in turn required to collect the initial margin from the TMs and his respective clients. Similarly, a TM should collect upfront margins from his clients.
Initial margin requirements are based on 99% value at risk over a one day time horizon. However, in the case of futures contracts (on index or individual securities), where it may not be possible to collect mark to market settlement value, before the commencement of trading on the next day, the initial margin may be computed over a two-day time horizon, applying the appropriate statistical formula. The methodology for computation of Value at Risk percentage is as per the recommendations of SEBI from time to time.Initial margin requirement for a member:
a. For client positions - shall be netted at the level of individual client and grossed across all clients, at the Trading/ Clearing Member level, without any setoffs between clients.
b. For proprietory positions - shall be netted at Trading/ Clearing Member level without any setoffs between client and proprietory positions.
For the purpose of SPAN Margin, various parameters are specified from time to time. In case a trading member wishes to take additional trading positions his CM is required to provide Additional Base Capital (ABC) to
NSCCL. ABC can be provided by the members in the form of Cash , Bank Guarantee , Fixed Deposit Receipts and approved securities .
Premium Margin
In addition to Initial Margin, Premium Margin would be charged to members. The premium margin is the client wise margin amount payable for the day and will be required to be paid by the buyer till the Premium settlement is complete.
Assignment Margin
Assignment Margin is levied on a CM in addition to SPAN margin and Premium Margin. It is required to be paid on assigned positions of CMs towards Interim and Final Exercise Settlement obligations for option contracts on individual securities, till such obligations are fulfilled.
The margin is charged on the Net Exercise Settlement Value payable by a Clearing Member towards Interim and Final Exercise Settlement and is deductible from the effective deposits of the Clearing Member available towards margins. Assignment margin is released to the CMs for exercise settlement pay-in.
These are the few steps which exchange takes to control the client default risk. Apart from this for controlling the clearing member and trading member exchanges have got clear capital adequacy norms and exposure limits, which are as follows.
In cash segment As in cash market all trading members are also a clearing members so applicable limits are as follows.
Intra-day turnover limit
Members are subject to intra-day trading limits. Gross turnover (buy+ sell) intra-day of the member should not exceed twenty five (25) times the base capital (cash deposit and other deposits in the form of securities or bank guarantees with NSCCL and NSE).
Gross Exposure Limits
Members are also subject to gross exposure limits. Gross exposure for a member, across all securities in rolling settlements, is computed as absolute (buy value - sell value), i.e. ignoring +ve and -ve signs, across all open settlements. Gross exposure limit would be:
Total Base Capital Gross Exposure Limit
up to Rs.1 crore 8.5 times the total base capital
> Rs.1 crore 8.5 crores + 10 times the total base capital in excess of Rs.1 crore
Security-wise Differential Exposure Limits
In case of securities that are traded in the Rolling settlement (Type ‘N’ and security series ‘EQ’), the GE multiple for each security are as under:
Groups (Securities Covered) Covered Multiple
Group I 1.25 times
Group II 2 times
Group III 8.5 times
All new securities to be traded on the Exchange shall be subject to exposure multiple of 8.5 times.
The exposure for members should not exceed at any time, including during trading hours, the following limits:
i. For Index options and Index futures contracts:
33.33 times the liquid net worth . This translates into an additional margin of 3% of the notional value of a contract. For option, it is charged only on short positions.
ii. For option contracts and Futures Contract on individual Securities:
The Exposure limits which is higher of 5% or 1.5 standard deviation of the notional value of gross open position in futures on individual securities and gross short open positions in options on individual securities in a particular underlying shall be collected /adjusted from the liquid net worth of a member on a real time basis. The standard deviation of daily logarithmic returns of prices in the underlying stock in the cash market in the last six months shall be computed on a rolling and monthly basis at the end of each month.
For trading member
· Index Futures and Option Contracts:
The individual open interest of any trading member should not exceed, at anytime, including during trading hours, 15% of the total open interest of the market or Rs. 100 crores, whichever is higher
· Futures and Option contracts on individual securities:
The trading member position limits shall be linked to market wide limits. For securities, in which the market wide position limit is less than or equal to Rs.250 crores, the trading member limit in such securities shall be 20% of the market wide position limit. For securities, in which the market wide position limit is greater that Rs.250 crores, the trading member position limit in such stocks shall be Rs.50 crores.
Client wise
The gross open position for each client, across all the derivative contracts on a underlying, should not exceed:
- 1% of the free float market capitalization (in terms of number of shares)or
- 5% of the open interest in all derivative contracts in the same underlying stock (in terms of number of shares)
whichever is higher
Market Wide Position Limits for Derivative Contracts on Underlying Stocks
Market Wide Position Limits for futures and options contracts on individual securities is the lower of:
- 30 times the average number of shares traded daily, during the previous calendar month, in the relevant underlying security in the underlying segment (CM segment)
- 20% of the number of shares held by non-promoters in the relevant underlying security i.e. 20% of the free float in terms of the number of shares of a company
Apart from fixing the exposure limit exchange fixes some capital adequacy requirement for members which are as follows.
Minimum Base Capital
A Clearing Member (CM) is required to meet with the Base Minimum Capital (BMC) requirements prescribed by NSCCL before activation. The CM has also to ensure that BMC is maintained in accordance with the requirements of NSCCL at all points of time, after activation.
Every CM is required to maintain BMC of Rs.50lakhs with NSCCL in the following manner:
(1) 25 lakhs in the form of cash.(2) Rs.25 lakhs in any one form or combination of the below forms:
i. Cash ii. Fixed Deposit Receipts (FDRs) issued by approved banks and
deposited with approved Custodians or NSCCL iii. Bank Guarantee in favour of NSCCL from approved banks in the
specified format. iv. Approved securities in demat form deposited with approved
Custodians.
In addition to the above MBC requirements, every CM is required to maintain BMC of Rs.10 lakhs, in respect of every trading member(TM) whose deals such CM undertakes to clear and settle,
All collateral deposits made by CMs are segregated into cash component and non-cash component. For Additional Base Capital, cash component means cash, bank guarantee, fixed deposit receipts, T-bills and dated government securities . Non-cash component shall mean all other forms of collateral deposits like deposit of approved demat securities. At least 50% of the Effective Deposits should be in the form of cash.
Liquid Net worth
Liquid Net worth is computed by reducing the initial margin payable at any point in time from the effective deposits.The Liquid Net worth maintained by CMs at any point in time should not be less than Rs.50 lakhs (referred to as Minimum Liquid Net Worth).
These are the norms which are followed exchanges as a standard practices for risk management.
In market every one buys and sells to make profit. Every one has got a view about market and accordingly they take position. They can take positions only in cash market, only in derivative market or a combination of two. It is the strategies, which makes the traders successful in the long run. It may happen that in short run he may incur loss due to the volatile market sentiment.
There are few indications available in the market on which one can make view regarding market, which can be presented in the following chart.
Prices Open interest MarketUp up bullishUp down bearishDown up unwinding bearDown down unwinding bull
One can also look at future prices of index or script, which are the indicator of trend. Company’s fundamentals, technical and economic factors also give some idea about the trend. Some other important indicators are as follows.
1. Call put ratio2. Open interest3. P.E ratio4. Delivery Vs volume ratio5. Business cycles6. Economic cycles7. Global trend8. Micro economic factors9. Petroleum prices
For making a right strategy it is essential to make to right prediction, which comes with experience and knowledge of market.
In cash market
In this market there are two types of investors one who invests for a longer duration and takes delivery position they called investors. Others are those who have view on the market and take intra day position to make profit and are called speculators.
For long term investors there are different strategies available in the market. Which are as follows.
1. Picking a value stock –stocks which are undervalued currently and will be corrected shortly
2. Picking a growth stock- stocks which has potential to grow abnormally and in long run it will provide huge capital appreciation
3. Picking a blue chip stock- they are less volatile in nature and regularly pays good dividend.
4. Picking a stock in downward market- when market goes downward is best time to enter the market, as at that time good stocks are available at cheaper price.
For speculator strategies are as follows.
1. Arbitrage- here one can take the benefit of miss pricing in the two different markets.
2. Intra day position- if some one has got access of some vital information then they can take intraday position and can make profit.
In derivative segment there are three types of investors, which are as follows
1.Hedger- these are the investors who take position in derivatives to minimize the potential risk they are exposed to.
2.Arbitrager- they are the persons, which makes risk less profit by taking miss pricing in spot and future market.
3.Speculator- they have a view on the market and they are willing to take a risk.
There are few derivative-trading strategies available, which are as follows.
1. Purchase of a call option as an alternative to the physical share .
The purchase of a call option enables the buyer to control the number of shares covered by the option. During the period of the option, the price may increase, giving the buyer the opportunity to either exercise and take up the shares covered by the option or sell the option as a closing transaction, hence realizing a profit or loss. This, of course, is dependent on the performance of the underlying security’s share price.
2. Purchase of a put option to hedge a position To provide protection in the event of market decline,
a put option may be used in conjunction with a stock portfolio. Managers may hesitate to liquidate a portfolio even in uncertain market conditions, as they feel that the market will eventually move in their favor. Instead, through a “put” option, they can protect themselves against decline in the stock price. If the market price increases, then they will let the “put” option lapse.
The option writer will earn a premium on writing a “call” or “put” option. If the writer of the call option owns the asset on which the call is written, it is called a “covered call”. If the writer does not own the asset, it is called a “naked call”. Covered calls are obviously not as risky as the naked calls.
4. Bull Spread
This is a structure where the investor: buys one call at a lower strike price (say, ‘a’), where she would pay option premium; and Sells another call on the same underlying at a higher strike price (say, ‘b’), where she would receive option premium. The option premium received is likely to be lower on account of the higher strike price on the option bought. So, on a net basis, the investor would pay an option premium.
The payoff to the investor would be as follows:
So long as the price in the market is below ‘a’, neither option would be exercised. So the net option premium paid would be a loss for the investor. If the price of the underlying share increases above ‘a’, then the investor would exercise the call option she has bought, and sell the underlying shares in the market. Thus, she would make a profit on the shares, which could negate the impact of the loss on the option premium. The profit would keep increasing, until the price of the underlying share touches ‘b’. Once the price increases above ‘b’, the call she has sold is likely to be exercised by the counter party. So she would not be able to participate in the gains in the market beyond the price level of ‘b’.This strategy would make sense if the investor is mildly bullish about the share i.e. the price of the share may go up to ‘b’, but not beyond.
A similar position can also be created if the investor chooses to buy a put at a low strike price (say, ‘a’) and sell a put on the same underlying at a higher strike price (say, ‘b’). The premium received on the latter would be higher on account of the higher strike price. So there would be a net premium inflow for the investor.
So long as the market price of the share is higher than ‘b’, neither put would be exercised. The option premium received would be income for the investor. As price falls below ‘b’, the counter-party for the higher priced put will exercise the option. So the investor would make a loss, which would reduce the net income. The loss would keep increasing as the price falls from ‘b’ to ‘a’. For price falls below ‘a’ the investor is protected, because she has purchased a put at ‘a’.
5.Bear Spread
This is a structure where the investor: sells one put at a lower strike price (say, ‘a’), where she would pay option premium; and buys another put on the same underlying at a higher strike price (say, ‘b’), where she would receive option premium. The option premium received is likely to be lower on account of the higher strike price on the option bought. So, on a net basis, the investor would pay an option premium.
The payoff to the investor would be as follows:
So long as the price in the market is above ‘b’, neither option would be exercised. So the net option premium paid would be a loss for the investor. If the price of the underlying share goes below ‘b’, then the investor would exercise the put option she has bought, and cover up by buying the underlying shares in the market. Thus, she would make a profit on the shares, which could negate the impact of the loss on the option premium. The profit would keep increasing, until the price of the underlying share
touches ‘a’. Once it goes below ‘a’, the put she has sold is likely to be exercised by the counter party. So she would not be able to participate in the decline in the market below the price level of ‘a’.This strategy would make sense if the investor is mildly bearish about the share i.e. the price of the share may go down to ‘a’, but not beyond.
A similar position can also be created if the investor chooses to sell a call at a low strike price (say, ‘a’) and buy another call on the same underlying at a higher strike price (say, ‘b’). The premium received on the former would be higher on account of the lower strike price. So there would be a net premium inflow for the investor.
So long as the market price of the share is below ‘a’, neither call would be exercised. The option premium received would be income for the investor. As price increases above ‘a’, the counter-party for the lower priced call will exercise the option. So the investor would make a loss, which would reduce the net income. The loss would keep increasing as the price increases from ‘a’ to ‘b’. For price increases above ‘b’ the investor is protected, because she has purchased a call at ‘b’.
8. Long Butterfly
This is a structure where the investor: buys a call at a lower strike price ‘b’, where she would pay option premium; sells 2 call options on the same underlying at an intermediate strike price ‘a’, where she would receive option premium; and buys a call, on the same underlying at a higher strike price ‘c’, where she would pay option premium. Thus the investor would pay option premium on two call options and receive option premium on the other two call options.
The peculiar pattern of the payoff accounts for its name - butterfly. If price is below ‘b’ none of the options would be exercised. The investor may only incur net option premium expenditure. As price increases from ‘b’ to ‘a’, the investor would exercise the lower priced call and sell the underlying shares in the market. The profit she would make could set off the option premium expenditure. The profit would keep increasing until the price touches ‘a’. If the price crosses ‘a’, the counter-party for the 2 intermediate priced calls would exercise the options. Thus, the profit trend of the investor would get reversed. This would continue until the price touches ‘c’.
For price increases beyond ‘c’, the investor is protected by the higher strike price call bought. This strategy would make sense if the investor expects the share to be range bound in the market. As can be seen above, she makes a profit if the prices are marginally higher or lower than ‘a’.
Combination of twoApart from this there may be different trading strategies for different market condition or they may be used in combination of two or more than two. With different market condition one can summaries ideal strategies in the following way.
Due to cutthroat competition and increasing consumer demands, the concept of CRM has gained great importance in today’s dynamic world. Therefore this project of ours is an attempt, which would help the organization achieve the same.
The methodology adopted by us to be successful in our attempt is as follows:
A raw database of potential investors is provided to us, which is then refined as per the prospect’s location, age profile, and investments made. The required information about the prospect is gathered from various sources like Internet, telephone directories, and client referrals. We approach the prospective customers through phone and fix an appointment with them. As per the profile of the prospective customer we tailor make our sales approach. After which we meet the prospect in person and acquaint him with the company and its services and try and convince him to avail the services of the company. A database is maintained of the converted clients with whom we are in constant touch so as to update them with the trends in the stock markets and to handle their complaints and grievances.
At the end of the day we prepare a report on the prospects approached, the
method and medium of approach and the responses of the prospects. This
report is forwarded to the seniors, which is then further analyzed to
understand the consumer’s attitude towards the company so as to make the
necessary changes in the services. This report also helps the company to
analyze our performance and accordingly give us the requisite training.
1. The brokerage rate of ICICI direct.com, HDFC securities, Kotak Mahindra, Share Khan, 5 paisa.com, Motilal Oswal is higher as compared to Bonanza except Geoji because the brokerage rate is somewhat same.
2. (i) When market is bullish, then prices & interest rises up.(ii) When market is bearish, then prices go up & interest goes
down. (iii) When market is unwinding bear then, prices go down &
interest goes up. (iv) When market is unwinding bullish, the prices & interest goes down.
3. The companies undertook under group-I have margin rate of 15%, under group –II have margin rate of 30% and under group-III have margin rate of 45%.
The company should focus on convincing the general people.
The company should provide some education to its existing customers so that can make better investments in the market. For this, it should organize conference regarding new development in the market.
The company should provide better customer services.
A weekly ‘form filling system’ should be started for its regular customers.
Company should also conduct some guest lectures /seminars form the market specialist for general public of Kota city. Reason behind this is that during survey the researcher found that there are some people who want to invest but they don’t have proper knowledge about security market.
The company should also focus on after sale services. For this it can acquire the following methods:
