STOCK BROKING SERVICES

Broker

A broker is an intermediary who arranges to

buy and sell securities on behalf of clients (the
buyer and the seller)

According to Rule 2 (e) of SEBI (Stock Brokers

and Sub-Brokers) Rules, 1992, a stockbroker
means a member of a recognized stock
exchange. No stockbroker is allowed to buy,
sell or deal in securities, unless he or she holds
a certificate of registration granted by SEBI.

BROKER-CLIENTS RELATIONS

Know your client

The TM shall enter into an agreement with the client
& seek information like:
investor risk profile, financial profile, investor
identification details, address details, income, PAN,
employment, age, investments, other assets and
financial liabilities.
Margins from the Clients
prudent system of risk management
protect from client default.

Payments/Delivery of Securities to the Clients

within one working day of payout
Brokerage - maximum brokerage chargeable is
fixed at 2.5% of the contract price

Sub-broker

Act as agents of the concerned trading

member for assisting the investors in
buying, selling or dealing in securities.

Required to be registered with SEBI.

Allowed to be associated with only one

trading member of the Exchange.

Online Stock Trading

An internet based stock trading facility.

Investor can trade shares through a

website without any manual intervention
from Stock Broker.

Other services provided by brokers

Portfolio Management services

Investment advice
Research reports and market views
Margin Trading

Margin Trading

Trading with borrowed funds.

Taking exposure in the market over and

above what is possible with own resources.

Corporate brokers with net worth of at least

Rs.3 crore are eligible for providing Margin
trading facility

May use his own funds or borrow from

scheduled commercial banks or NBFCs

Buy a stock for Rs 50 and the price of the

stock rises to Rs 75.
If paid for it in full, you earn a 50 per cent
return
But on margin paying Rs 25 in cash and
borrowing Rs 25 from your broker you
earn a 100 per cent return
And, you owe the brokerage firm Rs 25
plus interest.

The downside - if the stock price decreases,

substantial losses can mount quickly.
the stock you bought for Rs 50 falls to Rs 25
If you fully paid for the stock, you lose 50 per
cent of your money.
But if on margin, you will lose 100 per cent,
and you still must come up with the interest
you owe on the loan.

Regulation of stock brokers

The SEBI (Stock Broker and Sub-Broker)

Regulation, 1992 lays down the rules
and regulation for registration of Stock
Broker and Sub-broker.

DEPOSITORY
SERVICES

Earlier system

Physical movement of papers.

Transfer of ownership more than the
two months
Bad delivery due to faulty compliance
of paper work.
Theft, forgery, mutilation of certificates
To obviate these problems, the
Depositories Act, 1996 was passed.

Depositories Act

It provides for the establishment of depositories in

securities with the objective of ensuring free
transferability of securities with speed, accuracy and
security. It does so by

(a) making securities of public limited companies freely

transferable
(b) dematerialising the securities in the depository
mode; and
(c) providing for maintenance of ownership records in
a book entry form.

Two depositories, viz., NSDL and CDSL, have come up to

provide instantaneous electronic transfer of securities

Eligibility Criteria for a Depository

Any of the following may promote a depository:

A public financial Institution

A bank

A foreign bank operating in India with the approval of

the Reserve Bank of India;

A recognised stock exchange;

An institution engaged in providing financial

services where not less than 75% of the equity is
held jointly or severally by these institutions;

A custodian of securities approved by Government

of India, and

A foreign financial services institution approved by

Government of India

The promoters of a depository are also known as its

sponsors.

A depository company must have a minimum net

worth of Rs. 100 crore.

The sponsor(s) of the depository have to hold at least

51% of the equity capital of the depository company.
Participants of that depository can hold the balance
of the equity capital.
However, no single participant can hold, at any point
of time, more than 5% of the equity capital.

Functions of Depository

Dematerialisation
Account Transfer
Transfer and Registration

legal change of

ownership

Corporate Actions

Pledge

The securities pledged are transferred to a

segregated or collateral account through book entries in
the records of the depository.

NSDL

National Securities Depository Limited - first

depository in India (December 12, 1995)
Set up by IDBI, UTI , NSE
NSDL commenced operations on November 8,
1996.
NSDL has a paid up equity capital of Rs. 80
crore.
Its net worth is above the Rs. 100 crore
Managed by a professional Board of Directors
NSDL charges the DPs and not the investors
directly.
The DPs in turn charge their clients

Revenue by NSDL from DPs

Entry fees Rs 25000

Transaction related fees - Rs.4.50 per debit
instruction in a Client's account

Pledge fees - Rs.25 per instruction for creation

of pledge

Remat charges
Minimum fee of 1 lakh per annum
No charge for demat and custody
Interest free security deposit of 10 lakhs

Benefits of participation in a
depository

Immediate transfer of securities

Elimination of risks associated with physical
certificates such as bad delivery, fake securities,
etc.
Reduction in paperwork involved in transfer of
securities
Reduction in transaction cost
Change in address recorded with DP gets registered
electronically with all companies so no need to
correspond with each different companies
separately
Automatic credit into demat account, of shares,
arising out of split/consolidation/merger etc.

Depository Participant

The Depository provides its services to

investors through its agents called
depository participants (DPs)

These agents are appointed with the

approval of SEBI.

Banks, Financial Institutions and SEBI

registered trading members can become
DPs.

SEBI (Depositories &Participants)

Regulations, 1996 prescribe a minimum
net worth of Rs. 50 lakh for the
applicants who are stockbrokers or nonbanking finance companies (NBFCs)

Depositories can fix a higher net worth

criterion for their DPs.

NSDL stipulates a minimum networth of

Rs. 300 Lakh

Revenues of DPs

Account maintenance
Demat
Remat
Transaction (Debit)
Pledge Creation

CUSTODIAL SERVICES

Custodian

A Custodian is an entity that helps register

and safeguard the securities of its clients.

Role:

Keeping track of corporate actions on behalf of its

clients.
Maintaining the clients securities account
Collecting the benefits or rights accruing to the
client in respect of securities
Keeping the client informed of the actions taken
or to be taken by the issuer of securities, having
a bearing on the benefits or rights accruing to the
client.

Clearing members of the clearing corporation.

Settle trades on behalf of the clients of the
trading members, when a particular trade is
assigned to them for settlement.
The custodian is required to confirm whether he
is going to settle that trade or not.
If the custodian confirms the trade, NSCCL
assigns the obligation to the custodian. If the
custodian rejects the trade, the obligation is
assigned back to the trading member.

Make only 2-3 basis points on custody fees

MFs and FIIs have been increasingly looking to
outsource other administrative functions
The SEBI guideline making it mandatory for
portfolio managers with over Rs 500-crore
assets to appoint a custodian is increasing the
business for custodians
Newer client segments, including high-net
worth individuals, increasingly understand the
need and value of engaging a custodian
Post-Citibank fraud, HNIs seek safety in
custodian services

Regulation of Custodians

Custodians are registered with SEBI under

SEBI (Custodian of Securities regulations,
1996)
Minimum networth requirement is Rs 50
crore
Registration fee of 15 lacs
Annual fee of 10 lacs or 0.001 percent of
assets under custody, whichever is higher

Partial List of Registered Custodians

Axis Bank

Citi

RBS

HDFC Bank

BNP Paribas

Deutsche Bank

Edelweiss

HSBC

ICICI Bank

J P Morgan Chase

SHCIL

Kotak Mahindra

SBI

IL&FS
SBI-SG

The dominant ones are Citi, HSBC

and Deutsche Bank