Financial Markets

What are the different types of Financial Markets and Financial Institutions?

Financial system is the barometer of growth of the economy. In layman terms, Financial System is a complex set of institutions that facilitates the transfer of money from the borrower to the lender. It provides an effective medium for transfer of money between two different parties.

So,what are the various methods of Financing?  

• Direct Financing 
• Indirect financing 

Direct Finance: This is a method of financing wherein lenders and borrowers meet and exchange funds directly. Funds are transferred through the direct route. This can be through direct exchange of cash or securities which include stocks, bonds or foreign exchange. 

Indirect Finance: Through this method, borrowers and lenders never exchange funds directly. This is always done through an intermediary like banks and non-banking financial companies (NBFC's). The lenders deposit money at these intermediaries while the borrowers borrow money from them. 

Financial markets form the most comprehensive part of a Financial System. They facilitate the exchange of capital and serve as a mechanism for exchange of capital.

What are the various types of financial markets?

1) Capital Markets: This market consists of Stock markets/exchanges and bond markets which facilitates the trade of shares and bonds. Capital markets can be sub divided into two parts.  

• Primary Market: They serve as markets for new issues where companies raise capital and are also known as IPO (initial public offer) markets. 
• Secondary Markets: They serve as markets where trading in the new issues take place after they get listed. It serves as an exchange wherein new issues, after subsequent listing, can be traded. It provides liquidity to the existing participants in the financial markets. 

2) Commodity Markets: This market facilitates trading in commodities like base metals, precious metals, food items, etc. Few commodities which are actively traded in the commodity markets are Gold, Silver, Crude, Pepper etc. 
3) Money Markets: They serve as facilitators of short-term financing through debt and equity financing. 
4) Over the Counter Market (OTC): This is that component of the market where trading occurs via a network of middlemen and dealers. It is an unregulated market and trading takes place as per pre-determined rules and regulations. It serves as a medium to trade in unlisted securities. 
5) Foreign Exchange/Currency Markets: They serve as facilitators for trading in currencies of various countries.

Financial Institutions 

Financial institutions is an integral part of the economy, with individuals and companies relying on financial institutions for various types transactions and investing. Financial institutions offer a wide range of products and services for individual and commercial clients. Some of the are listed below. 

Commercial Banks

A commercial bank is a type of financial institution that accepts deposits, offers checking account services, makes business, personal, and mortgage loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses. It is the most widely accepted and used bank by the common people. 

Investment Banks

Investment banks specialize in providing services designed to facilitate business operations, such as capital expenditure, financing and equity offerings, including initial public offerings (IPOs). They also commonly offer brokerage services for investors, act as market makers for trading exchanges, and manage mergers, acquisitions, and other corporate restructurings.

Insurance Companies

Among the most familiar non-bank financial institutions are insurance companies. Providing insurance, whether for individuals or corporations, is one of the oldest financial services. Protection of assets and protection against financial risk, secured through insurance products, is an essential service that facilitates individual and corporate investments that fuel economic growth.

Brokerage Firms

Investment companies and brokerages, such as mutual fund and exchange-traded fund (ETF) provider Fidelity Investments, specialize in providing investment services that include wealth management and financial advisory services. They also provide access to investment products that may range from stocks and bonds all the way to lesser-known alternative investments, such as hedge funds and private equity investments

Role Of SEBI

Securities and Exchange Board of India (SEBI) is an apex body, which maintains and regulates our Capital Market. It was established in the year 1988 by the Indian government. Later in the year 1992, it received the statutory powers and the status of the fully autonomous body. 

SEBI is the watchdog of the financial markets in India. It is the regulatory body which oversees the developments taking place in the Indian markets. It acts as the regulator in helping protect investor's interest investment. It has framed a set of regulations, bye-laws and surveillance systems so as to provide the end users with safety and transparency while dealing in securities. It has introduced many regulatory measures and code of conduct for various intermediaries which include Portfolio Managers, Brokers and Sub-Brokers, Underwriters, Merchant Bankers and so on.

What is the role of SEBI in financial markets? 

1. Restricts Illegal Practices - It forbids illegal and fraudulent practices of the firm which operate in the securities market.
2. Safeguard Investor’s Interest - It protects an investor’s interest in the Capital Market through guidance and proper education. So if you have any complaint about anything related to Capital Market, you can simply visit sebi.gov.in to register your complaint, in the manner shown below:

3. Regulate working of Exchanges - It regulates and keeps a check on the working of Stock Exchanges and other aspects of the Securities Market.
4. Monitor the workings of Mutual Funds - It monitors and regulates the working of Mutual Funds. It keeps a tight supervision on their business operations and protects investors from any unfair practices.
5. Monitor the functioning of Intermediaries - Keeps a tight check on the functioning of the intermediaries like Merchant Bankers, StockBrokers and other intermediaries present in the Capital Market.
6. Regulate Takeovers and Acquisitions - They issue guidelines to regulate Takeovers, Mergers, and Acquisitions of firms to protect investor’s interest.
7. Prohibition of Insider Activity - It prohibits insider activity and also restricts the undesirable practice of brokers and other agents in the Capital Market.
8. Conducting Audit - It conducts an audit, inspection and other suitable measures to keep a check on the workings of Stock Exchanges and other Intermediaries.

SEBI has played a really important role in regulating the capital markets and in the development of our overall economy.It has also played an active role in keeping a tight check on the scams and scandals in our economy.

There was a gradual increase in the number of scams held in our country since 1990’s and it was a common phenomenon every year in those days. However, the number of scams has also come down gradually in the last few years

SEBI has till date played a significant role in maintaining efficiency and transparency in the economy and has also introduced various products fulfilling the need of market participants.

Primary Markets

What is Primary Market and why is it important?

The primary market is that part of the capital market which is involved in issuing fresh securities in the market. It serves as a medium wherein unlisted companies raise capital through a fresh issue. It acts as a medium for companies, both private and public, in helping in their expansion phase. 

There can be various reasons for primary market issues. Companies may need to raise capital to expand their existing business, to meet their working capital needs, starting a new project or modification of an old project or even to pay off their debts. 

Primary markets allow mobilizations of funds via the issue of new securities. 

Issues through the primary market can come out either as a public issue or a private placement. The Companies Act, 2013 defines private placement as a term wherein issue of security results in allotment to less than 200 persons and an issue becomes public if the issue results in allotment to more than 200 persons.

For Example: Company A Limited requires funds. It issues shares in the primary market. When the company issues shares for the first time, it is called Initial Public Offering (IPO). A further issue of shares is known as Follow-on Public Offer (FPO).  The primary market comprises of both IPO and FPO.

Secondary Markets

What is Secondary Market and why is it important?

Secondary Market refers to the market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity market and debt market.  The secondary market, primarily consisting of stock exchange. It provides a forum for buy-sell of already issued securities.

After the listing of securities in the stock exchange, the investor can trade in such securities in the secondary market. For example, Trading on National Stock Exchange (NSE), Bombay Stock Exchange (BSE), Multi-commodity Exchange(MCX) etc.

The Secondary Market is further classified as follows:

• Spot market or Cash Market: The delivery and payment of securities are made immediately without delay.
• Futures Market or Derivatives Market: Securities are bought and sold for some predetermined future date.

Role of Secondary Market 

For an investor secondary market provides an efficient platform for trading of his securities. For the management of the company, secondary equity markets serve as a monitoring and controlling conduit – by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decision.

Primary vs Secondary Markets

Primary market is a place where securities are offered to the public for subscription for the purpose of raising capital for funding or expansion of the business while Secondary market is the place where securities are traded after they have been issued to the investors.

Stock Exchange

What is a Stock Exchange?

The stock exchange in India, under the overall supervision of SEBI ,provides a trading platform, where buyers and sellers can meet and transact in securities. 

The trading platform provided by NSE is an electronic one and there is no need for buyers and sellers to meet at a physical location to trade. They can trade through the computerized trading screens available with the NSE trading members or the internet-based trading facility provided by the trading members of NSE.

There are two types of exchanges. Demutualised exchange and a Mutualised Exchange

Demutualised Vs Mutualised Exchange

Demutualisation refers to the legal structure of an exchange whereby the ownership, the management and the trading rights at the exchanges are segregated from one another. National Stock Exchange (NSE) and Over the Counter Exchange of India (OTCEI) are demutualised.

In a mutualised stock exchange, all three functions viz. Ownership, management and trading are concentrated into a single group. Here, the broker members of the exchange are both the owners and the traders on the exchange and they manage the exchange as well. Thus, all the operations are carried out by the same set of people. On the other hand, in a demutualised exchange, all three functions, i.e. The ownership, management and trading are in separate hands.

Elements of securities market

What constitutes the Securities markets in India?

There are three important elements constituting a Securities Market: 

• Buyers of Capital
• Sellers of Capital
• Intermediaries 

Buyers of capital: These are the people who constitute those set of people who are the net spenders in any economy. These are the people who take the capital from the savers and utilize it. Example: Corporate houses, Government etc.

Sellers of capital: This class constitutes the group of people who are net savers. These are the people who are net providers of money to the people who need money. Example:  Retail Investors, Big Investors like Rakesh Jhunjhunwala.

Intermediaries: These are the class of people who are the providers of finance to the spenders. They facilitate the movement of money from the savers to the spenders. The market mediators play an important role on the stock exchange market; they put together the demands of the buyers with the offers of the security sellers. A large variety and number of intermediaries provide intermediation services in the Indian securities markets. The banks play an important role as an intermediary in the securities market. 

Participants of the Securities market 

Investors: An investor is the backbone of the capital market of any economy as he is the one lending his surplus resources for funding the setting up of or expansion of companies, in return for financial gain. 

Investors in Stock Markets can broadly be classified into Retail Investors and Institutional Investors. 

Retail Investors are individual investors who buy and sell securities for their personal account, and not for another company or organization. This category also includes High Net worth Individuals (HNI) which comprise of people with large personal financial holdings.

Institutional Investors comprise of domestic Financial Institutions, Banks, Insurance Companies, Mutual Funds and Fii’s (Foreign Institutional investor is an entity established or incorporated outside India that proposes to make investments in India). 

Clearing Corporation: A Clearing Corporation is a part of an exchange or a separate entity and performs three functions, namely, it clears and settles all transactions, i.e. Completes the process of receiving and delivering shares/funds to the buyers and sellers in the market, it provides financial guarantee for all transactions executed on the exchange and provides risk management functions. 

National Securities Clearing Corporation (NSCCL), a 100% subsidiary of NSE, performs the role of a Clearing Corporation for transactions executed on the NSE. 

Stock Brokers and Sub-brokers: Stock Broker means a member of a Stock Exchange and Sub-broker means any person not being a member of Stock Exchange who acts on behalf of a Stock broker as an agent or otherwise for assisting the investors in buying, selling or dealing in securities through such stock brokers. 

Depository: A bank or company which holds funds or securities deposited by others, and where exchanges of these securities take place. 

Depository Participant (DP): The Depository provides its services to investors through its agents called depository participants (dps). These agents are appointed by the depository with the approval of SEBI. 

According to SEBI regulations, amongst others, three categories of entities, i.e. Banks, Financial Institutions and SEBI registered trading members can become dps. 

Custodian: A Custodian is basically an organisation, which helps register and safeguard the securities of its clients. Besides safeguarding securities, a custodian also keeps track of corporate actions on behalf of its clients. 

• Maintaining a client's 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 issue of securities, having a bearing on the benefits or rights accruing to the client. 

Merchant Bankers: Merchant bankers means any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities or acting as a manager, consultant, adviser or rendering corporate advisory services in relation to such issue management.

Merchant banks are also called investment banks and are most significant institutions in thefinancial markets. The merchant banking activity in India is governed by SEBI (MerchantBankers) Regulations 1992. Each merchant banker is required to maintain capital adequacy withprescribed net worth.

Foreign Institutional Investors: Foreign Institutional Investors means an institution establishedor incorporated outside India which proposes to make investment in India in securities.Currently, entities eligible to invest under the FII route are as follows:

(i) An institution established or incorporated outside India as a pension fund, mutual fund,investment trust, insurance company or reinsurance company;
(ii) An International or Multilateral Organization or an agency thereof or a ForeignGovernmental Agency, Sovereign Wealth Fund or a Foreign Central Bank; 
(iii) An asset management company, investment manager or advisor, bank or institutionalportfolio manager, established or incorporated outside India and proposing to makeinvestments in India on behalf of broad-based funds and its proprietary funds, if any;
(iv) A Trustee of a trust established outside India, and proposing to make investments in Indiaon behalf of broad-based funds and its proprietary funds, if any;
(iv) University fund, endowments, foundations or charitable trusts or charitable societies.

Mutual Funds: A mutual fund is a company that pools money from many investors and investsthe money in stocks, bonds, short-term money-market instruments, other securities or assets,or some combination of these investments. Mutual Funds are essentially investment vehicleswhere people with similar investment objective come together to pool their money and theninvest accordingly. SESI defines mutual funds as 'A fund established in the form of a trust toraise money through the sale of units to the public or a section of the public under one or moreschemes for investing in securities, including money market instruments or gold or gold relatedinstruments or real estate assets'.

Venture Capital Funds: Venture Capital Fund (VCF) is a fund established in the form of a trust ora company or a private equity capital typically for providing funds to company in the nascentstages of growth where there is very high potential for growth. A company or body corporate tocarryon activities as a VCF has to obtain a certificate from SESI and comply with the regulationsprescribed in the SESI(Venture Capital Regulations) 1996. Venture capital is most attractive fornew companies with limited operating history that are too small to raise capital in the publicmarkets and have not reached the point where they are able to secure a bank loan or completea debt offering.

Credit Rating Agency: Credit Rating Agency means a body corporate which is engaged in orproposes to be engaged in the business of rating of securities offered by way of public or rightsissues. They also assign credit ratings for issuers of certain types of debt obligations as well asthe debt instruments themselves. A credit rating for an issuer takes into consideration theissuer's credit worthiness (i.e., its ability to pay back a loan), and affects the interest rateapplied to the particular securitybeing issued. Credit ratings are used by investors, issuers,investment banks, broker-dealers, and governments. They facilitate the movement of riskcapital into the economy because they classify the companies based on their risk parametersand make the investment process much more simplified.

Trading in Stock Markets

How is trading done in a Stock Exchange

Screen Based Trading 

Earlier, trading on stock exchanges in India used to take place through the open outcry system without use of Information Technology for immediate recording of trades. This was time consuming and inefficient. To improve efficiency and trading volumes and provide further transparency, NSE introduced a nationwide, online, fully automated screen-based trading system (SBTS) whereby a member can perform the trade on a computer system and orders and matches can be found easily. 

NEAT 

NSE is the first exchange in the world to use satellite communication technology for trading. Its trading system called National Exchange for Automated Trading (NEAT), is a state-of-the-art client server based application. At the server end all trading information is stored in an in memory database to achieve minimum response time and maximum system availability for users. 

Types of Market under NEAT: 

• Normal market: The market for regular lot sizes or multiples thereof are traded in normal market. 
• Odd lot market: The market for lot sizes which are different from the regular lot sizes. 
• Auction market: The market for trades initiated by the exchange on behalf of trading members for settlement related reasons. 
• RETDEBT Market: This facility of the NEAT trading system is used for transactions in the Retail Debt Market sessions. 

Virtual NEAT Screen

Investor's Access to Internet Based Trading System 

There are many brokers on NSE who provide Internet based trading facility to their clients. Internet based trading enables an investor to buy/sell securities through internet which can be accessed from a computer at the investor's residence or anywhere else where the client can access the internet. Investors need to get in touch with an NSE broker providing this service to avail of internet based trading facility.

Contract Note - Contract note is a confirmation of trades done on a particular day on behalf of the client by a trading member. It imposes a legally enforceable relationship between the client and the trading member with respect to purchase/sale and settlement of trades. It also helps to settle disputes/claims between the investor and the trading member. It is a pre requisite for filing complains or arbitration proceeding against the trading member in case of a dispute. A valid contract note should be in the prescribed form, containing detail of trades, stamped with requisite value and duly signed by authorized signatory. Contract notes are kept in duplicate, the trading member and the client should keep one copy each. After verifying details contained

Therein, the client keeps one copy and returns the second copy to the trading member duly acknowledged by him. 

Details required to be mentioned on the contract note issued by the stock broker 

• Name, address and SEBI Registration number of the Member broker 
• Name of partner/proprietor/Authorised signatory 
• Dealing office address/Telephone no./Fax no./Code number of the member given by the exchange 
• Contract number/date of issue of contract note, settlement number and time period of settlement 
• Constituent (Client) name/Code number 
• Order number and Order time corresponding to trades 
• Trade number and Trade time 
• Quantity and kind of security bought/sold by client 
• Brokerage and purchase/sale rate 
• GST rates, Securities Transaction Tax and other charges levied by the broker 
• Appropriate stamps have to be affixed on the contract note or it is mentioned that the consolidated stamp duty is paid 
• Signature of stock broker/Authorized Signatory 

Brokerage: Brokerage charges levied on trades depend on the broker and differ on a relative basis. However, the maximum brokerage charged cannot be more than 2.5% of the value mentioned in the respective purchase or sale note. 

Registration of the Broker or Sub-Broker 

To verify whether the broker/sub broker is registered or not one should check for registration certificate issued by SEBI.A broker's registration number begins with the letter "INB" and that of a sub broker begins with "INS". 

Derivatives Trading: To assist market participants to manage risks better through hedging, speculation and arbitrage, SC(R)A was amended in 1995 to lift the ban on options in securities. However, trading in derivatives took off much later after a suitable legal and regulatory framework was out in place. The market presently offers index futures and index options on the benchmark indices of NSE and BSE and various other indices and single stock futures and options. 

Foreign Investment in Stock Exchanges 

Foreign Investment up to 49% has been allowed, in December, 2006, in infrastructure companies in the securities markets, viz. Stock exchanges, depositories and clearing corporations, with separate Foreign Direct Investment (FDI) cap of 26% and Foreign Institutional Investment (FII) cap of 23%. 

Volatility Index (VIX) 

With rapid changes in volatility in securities market from time to time, a need was felt for an openly available and quoted measure of market volatility in the form of an index to help market participants. Volatility Index is a measure, of the amount by which an underlying Index is expected to fluctuate, in the near term, (calculated as annualised volatility, denoted in percentage (e.g. 20%) based on the order book of the underlying index options. On April 08, 2008, NSE launched the Volatility Index, India VIX, based on the Nifty 50 Index Option prices. From the best bid-ask prices of Nifty 50 Options contracts, a volatility figure (%) is calculated which indicates the expected market volatility over the next 30 calendar days. The India VIX is a simple but useful tool in determining the overall volatility of the market. 

The Exchange launched a Securities Lending & Borrowing Scheme (SLBS) on April 21, 2008. The Exchange provides automated, screen based, order matching platform to participants to execute lending and borrowing transactions. Securities available for trading in F&O segment of the Exchange have been initially permitted to trade in this segment. The SLBS was revised from December 22, 2008 to increase the trading time & the lending/borrowing period.

Launch of Currency Futures in India 

On August 29, 2008, NSE launched trading in currency future contracts for the first time in India followed by BSE on October 1, 2008 and MCX-SX on October 7, 2008. To start with, 12 monthly future contracts on the VIX on the website of nseindia.com 

VIX on the website of nseindia.com

Launch of Securities Lending &. Borrowing Scheme

A Securities Lending & Borrowing mechanism allows market participants to take short positions effectively with less cost. It also provides the holder of idle securities with an alternative to earn a return on such holdings without risk. 

USD-INR pair have been made available for trading. The minimum lot size has been kept small at USD$1000 and applicable margins are also comparably very low due to the less volatile nature of the underlying asset. 

Direct Market Access 

During April 2008, Securities & Exchange Board of India (SEBI) allowed direct market access (DMA) facility to the institutional investors. DMA allows brokers to offer clients direct access to the exchange trading system through the broker's infrastructure without manual intervention by the broker. DMA facility gives clients direct control over orders, helps in faster execution of orders, reduces the risk of errors from manual order entry and lends greater transparency and liquidity. DMA also leads to lower impact cost for large orders, better audit trails and better use of hedging and arbitrage opportunities through the use of decision support tools/ algorithms for trading. 

Cross Margining 

Many trading members undertake transactions in both the cash and derivative segments of an Exchange. They keep separate deposits with the exchange for taking positions in two different segments. In order to improve the efficiency of the use of the margin capital by market participants and as an initial step towards cross margining across cash and derivatives markets, SEBI allowed Cross Margining benefit to institutional investors in May 2008. 

In December 2008, SEBI extended the cross margin facility across Cash and F&O segment to all the market participants. 

On February 9, 2009, Cross margining was made available for positions across index futures to stock/stock futures and stock futures to stocks. It is available to all categories of market participant and benefit is computed on online real time basis.

Margin System

What does Margin Trading mean?

Margin means leveraging in the financial markets.It gives traders the power of buying stocks that they can’t afford to buy.Through Margin trading, one can buy the stocks by just paying a part of the value of shares.

The margin can either be paid in cash or shares as security and the balance amount is funded by the brokers.The securities are kept as collateral in the trading account of the investors and the broker acts as the lender of money.The margin is settled after the position is squared off.

For example, we deposit Rs. 1,00,000 in our margin account and we have a 50% margin that means we have the purchasing power of Rs. 2,00,000.If we buy stocks worth Rs.80,000 then we will still have a buying capacity of Rs. 1,20,000.

What does the Pledging of Securities means?

Pledging of securities means using our stocks as securities for availing a loan just like we mortgage gold jewellery for a gold loan.Traders especially in the F&O segment use pledging for receiving margin funding from the broker to trade.

The New Margin rules

SEBI has introduced these new margin rules for standardizing the leverage norms and to achieve transparency in the stock market. This new pledging mechanism will also protect the investors’ interest and prevent brokers from misusing clients’ securities. These new set of rules are effective from September 1, 2020.

Here are the new margin rules as announced by Securities & Exchange board of India:

Transfer of Pledged Shares: The shares will be directly pledged to the clearing corporation that is CDSL or NSDL. The investors will now enjoy all corporate benefits on their shares as these shares are already in their De-mat account and not transferred to the broker’s account.

Upfront margin collection: It has become compulsory for the brokers to collect margins from the investors upfront for any buying or selling of shares.

Power of Attorney: There will be no Power of Attorney (POA) assigned to brokers by the investors. Earlier the investors had to give authority to the brokers for executing the transactions on their behalf.

To Avail Margin: For availing margin, now the investors need to create a margin pledge separately.

Margin Loan: Earlier collecting upfront margin wasn’t compulsory but now the investors will have to pay a minimum 20% margin upfront in the cash segment for availing a margin loan.

Using intraday profit: The shares that are bought today cannot be sold tomorrow. Earlier the investors used intraday profits for making new positions on the same trading day but now the investors will be able to use it only after T+2 days once they get the shares in your account.

Earlier the stocks used to move to the broker’s account after the investors pledge their securities but now it will remain in the investor’s Demat account.The broker will have to open a separate Demat account called ‘TMCM – Client Securities Margin Pledge Account’ for this purpose.

The broker will then have to re-pledge these securities to the Clearing Corporation for obtaining margins.The broker is considered as the custodian of securities but some brokers have already been found guilty of misusing client funds and collaterals.Thus, this new margin pledge rules will help in addressing this problem as well as protect the interest of the investors.

Choose The Right Broker

How to select the right broker for your trading success?

The choice of the right broker can make a huge difference in the trading outcome of the trader or investor.The payoff process, the ease of trading, maintenance of proper contract notes and a good trading software, all of these are dependent upon the actions of the broker. Hence, it is important to choose the right broker for trading successfully.

Some of the main things to keep in mind before selecting your broker can be: –

1. Type of service of the Broker:

You can select between a full-service retail broker or a discount broker.The main differentiating factor between the two is that the retail broker can charge you a percentage of your trade value as brokerage.

For eg: For Religare Securities, this can be between 0.3% to 0.5% of your traded value.

We should keep in mind that this is charged on both – the buy order and the sell order separately.On the other hand, the discount broker can charge between Rs.10 to Rs.20 per trade irrespective of the volume of trade.So, if you are a very frequent trader, choosing a discount broker will be a much better option.

2. Frequency of trading:

There are certain investors who invest their money for a long period of time. This can be a month, a year or even multiple years.For them, the brokerage is not a major factor. But they will value personal interaction with their brokers and also their convenience of trading and advisory.So, retail brokers will be a much better choice for themCompared to that, traders who trade multiple times a day can have a huge difference if their brokerage cost is high. So, the discount broker will be a better choice for them.

3. Online or offline trading platform:

Online trading platforms are provided by most brokers nowadays to their clients.A trading software is provided to the client which the trader can trade by themselves from the comfort of their homes.

There are also offline facilities provided by most brokers. These facilities are for people who are usually busy with their jobs and do not have time to use their computers.For them, call and trade is a better option where they can call their brokers and place their orders.

4. Advisory services:

The trader can also choose whether he or she will require a financial advisor to select which stocks to buy or sell.There are also other kinds of traders who are financially literate.

These types of traders have the skills and knowledge to take their own trading decisions by using fundamental or technical analysis or sometimes purely based on their guts and experience.

So if you require trading advice, the full-service brokers i.e. The retail brokers will provide you with Relationship managers who can call and provide you with investment ideas throughout the day.

Based on these factors, here is a list of the top brokers in India for the year 2015. This list can be subjective in nature.

Some good Full-Service Retail Brokers in India

1. ICICI Direct:

They are the biggest and best-known full-service broker in India.Their rates are usually between 0.2% to 0.5% depending on the value of trades.Their service is decent and their user interface is very high in demand.They also provide easy integration with their ICICI bank accounts for transfer of funds which makes withdrawal and deposit of money into trading account very easy.Hence, it can be said that they are a Good Broker for an investor but not for the trader.

2. Sharekhan:

This company was founded in the year 2000 and is India’s 2nd largest broker as per the number of customers.They have more than 1950 offices across 575 cities in India.They also provide services like asset management etc.As of July 30th, BNP Paribas has purchased sharekhan for Rs 2,200 crore.

3. Kotak Securities:

They are also a well-established full-service broker in India.They have their branches in all the major cities in India.Hence, they are able to cater the needs of all their major clients and provide their services.Their online service is decent but brokerage is not that competitive.

Some Good Discount Brokers in India

1. RKSV:

RKSV was founded by three Indian friends who were traders in the NYSE. Within just 2 years of their establishment, they have more than 1,00,000 and more clients. Their brokerage structure is very simple.

They charge a flat brokerage of Rs.20 per order irrespective of their trading volume.In their Dream plan, they provide an additional 5 free orders.They also have unlimited trading plans for large-scale traders where they charge about Rs.1999 per month for unlimited trading.They also provide the NEST platform for trading in PC and also the RKSV mobile app which provides real-time data to the traders on the go and place orders from it.

2. Zerodha:

Zerodha is one of the oldest discount brokers in India.It has more than 50,000 clients presently.Their brokerage is very competitive and is suitable for frequent traders.The account opening process is also very simple and can be completed online.They also provide the ‘PI’ trading and charting software which is very interactive and useful.It also allows writing custom algorithm.Discount brokers like Zerodha are new to the Indian Trading Scenario and are giving a stiff competition to their retail counterparts.

3. SAS online:

This a very new discount broker.They provide rates even lower than RKSV and Zerodha.They charge the most competitive rate of Rs. 9 per trade.They also provide unlimited trading at Rs. 999 per month. Its main office is based in Bangalore.They also provide the NEST trading platform and provide assistance to the traders in terms of the process of trading and in case of technical difficulties. 

Clearing and Settlement

Clearing Corporation

A Clearing Corporation is a part of an exchange or a separate entity and performs three functions, namely it clears and settles all transactions, i.e. Completes the process of receiving and delivering shares/funds to the buyers and sellers in the market, provides financial guarantee for all transactions executed on the exchange and provides risk management functions. National Securities Clearing Corporation (NSCCL), a 100% subsidiary of NSE, performs the role of a Clearing Corporation for transactions executed on the NSE.

Rolling Settlement

Under rolling settlements all open positions at the end of the day mandatorily result in payment/delivery ‘n' days later. Currently trades in rolling settlement are settled on a T+2 basis where T is the trade day.

Example: A trade executed on Monday is mandatorily settled by Wednesday (considering two working days from the trade day). The funds and securities pay-in and pay-out are carried out on T+2 days.

Pay-in &Pay-out

Pay-in is the day when the securities sold are delivered to the exchange by the sellers and funds for the securities purchased are made available to the exchange by the buyers. Pay-out is the day the securities purchased are delivered to the buyers and the funds for the securities sold are given to the sellers by the exchange. At present the pay-in and pay-out happens on the 2nd working day after the trade is executed on the stock exchange.

Auction

On account of non-delivery of securities by the trading member on the pay-in Clay, the securities are put up on auction by the exchange. This ensures that the buying trading member receives the securities. The exchange purchases the requisite quantity in auction market and gives them to the buying trading member.

Recourses available to investor/client for redressing grievances

Complaints can be lodged with the Investor Grievance Cell (IGC) of the Exchange against brokers on certain trade disputes or non-receipt of payment/securities. IGC takes up complaints in respect of

• trades executed on the NSE, through a NSE trading member or SEBI registered sub broker of a NSE trading member, and
• trades pertaining to companies traded on NSE

Arbitration

Arbitration is an alternative dispute resolution mechanism provided by a stock exchange for resolving disputes between the trading members and their clients in respect of trades done on the exchange. If no amicable settlement could be reached through the normal grievance redressal mechanism of the stock exchange, then you can make application for reference to Arbitration under the bye-laws of the concerned Stock Exchange.

Investor Protection Fund

Investor Protection Fund (IPF) is maintained by NSE to make good investor claims, which may arise out of non- settlement of obligations by the trading member, who has been declared a defaulter, in respect of trades executed on the Exchange. The IPF is utilized to settle claims of such investors where the trading member through whom the investor has dealt has been declared a defaulter. Payments out of the IPF may include claims arising of non-payments/ non receipt of securities by the investor from the trading member who has been declared a defaulter. The maximum amount of claim payable from the IPF to the investor (where the trading member through whom the investor has dealt is declared a defaulter) is Rs. 10 lakhs.