Training Manual
Standard Operating Process
TSL
Version 4.5
May 2011
INDEX

About Tata Securities Limited (TSL)……………………………

What is Capital Market.………………………………………..………

Understanding basic concepts-(MUTUAL FUND)………….

Introduction to Insurance……………………………………………..

Pension Plans…………………………………………………………………….

Dealers Code of Conduct.………………………………………….

Know Your Customers.……………………………………………….

Anti Money Laundering ………………………………………………

Settlement Process.…………………………………………………..

DP Operations.…………………………………………………………….

Risk Management Policy.…………………………………………….

Margin Trading.……………………………………………………………

Understanding Insider Trading.…………………………………..

Surveillance and Trade Monitor.………………………………….
2
About Tata Securities Ltd.
Tata Securities is a 100% subsidiary of Tata Capital
Tata Sons
100%
Tata Capital
100%
Tata Securities
The Distribution & Broking Business of Tata Capital is
being conducted through Tata Securities
Tata Capital
Tata Securities
Retail
Retail
Finance
Finance
Corporate
Corporate
Finance
Finance
Distribution
and Broking
1
2
Retail
•MF
•Equity
•F&O
Institutional
•MF
•Equity
•F&O
Capital
Capital
Markets
Markets
Private
Private
Equity
Equity
Wealth Mgmt
Wealth
Mgmt
Architecture of the Distribution & Broking Business
Distribution & Broking Business Unit
Secondary Market Equity Broking
Institutional
Distribution
Mutual
Funds
Retail
TCL
Office
Life Ins
Non Life
TCL
Office
TCL
Office
Retail Assets
* To be taken up
after domestic
business stabilizes
IPOs
National Network of TCL Offices
India Main Office
International Offices*
Insurance
Home
loans
Personal
loans
Retail Distribution Commercial Finance
Securities
broking
MF & IPO
distribution
Auto
finance
Credit
cards
Insurance
distribution
Relationship
Managers
1
Alternate Channels
Alternate Access
Channels
Product
Suite
Branch
Equity
Call Center
Depository
Services
Internet
Mutual
Funds
Franchisee
IPO
External
Linkages
Banks
Depository
Exchanges
RTA
Data
Services
News
Provider
What is Capital Market ?
What is Capital Market ?
The capital market is the market for financial assets
that have long or indefinite maturity.
When a company wishes to raise capital by issuing
securities, it goes to the primary market which is the
segment of capital market where issuers exchange
financial securities for long-term funds.
Importance of Capital Market
•
•
•
•
•
•
•
•
•
•
•
Mobilization of savings and help capital formulation.
Helps to build up huge pool of funds.
Helps Industrial growth.
Helps to create permanent capital.
Helps allocation of resources to the most efficient companies.
Helps to provide ready and continuous market.
Helps to create a network of specialized services.
Assistance in promotion of the companies.
Pre issue and post issue management of capital.
Provision of underwriting facilities.
Portfolio management.
Primary Market Comprises ...
• The promoters of the company <new as well as existing
companies issuing new shares/fresh capital for subscription to
the people at large.
• The intermediaries related in one way or other with the issue
of this fresh capital e.g. merchant banker, underwriters, banks
etc.
• Public issues of government loans, company debentures, and
various types of debt instruments for the first time and the
investors who would subscribe to the above.
Ways to Raise Capital in the Primary Market
• Public issue,
which involves sell of securities to members of
public, is the most important mode of raising long term funds.
• Rights issue, is the method of raising further capital from existing
shareholders by offering additional securities to them on a preemptive basis
• Private placement, is a way of selling securities privately to a
small group of investors.
The Secondary Market consist of
•
The stock exchanges wherein shares of the
companies are traded.
•
Banks and stock exchanges, where issued is
traded.
•
Mutual funds who collected funds from individual
investors and invest them in shares and debts.
•
The investing public.
Stock Exchanges
The Secondary Market in India, where outstanding
securities are traded, consists of the stock exchanges
recognized by the government. The Stock Exchanges
are Self –Regulatory Organizations (SRO’s) authorized
by the government.
There are presently 18 recognized regional exchanges
(located at Mumbai, Kolkata, Delhi, Chennai and other
cities) and 2 nation wide computerized exchanges ,viz,
the national Stock Exchange(NSE) & Bombay Stock
Exchange (BSE).
INTERMEDIARIES
1
STOCK EXCHANGES
2
INVESTMENT BANKERS
3
BANKERS
4
BROKERS
5
REGISTRARS
6
CUSTODIANS
7
DEPOSITORY
8
DEPOSITORY PARTICIPANTS
VARIOUS ROLES
BROKER
1
2
3
4
INVESTMENT BANKING
DISTRIBUTION
DEPOSITORY PARTICIPANT
TRADING
5
6
7
8
CLEARING MEMBER
PORTFOLIO MANAGER
ADVISORY
MARGIN TRADING
16
Sources of Demand of funds in Capital Market
•
Private Sector Companies
•
Governments <both Central and States>
•
Mutual Funds
•
Public Sector Companies
17
Sources of Supply of funds in Capital Market
•
Individuals
•
Business Corporations
•
Governments
•
Commercial Banks
•
Financial Institutions
•
Mutual Funds
•
Foreign Institutional Investors
•
Non Resident Indians /Overseas Corporate Bodies
•
Provident Fund/Gratuity / Superannuation Funds
•
Charitable and Religious Trusts
18
SEBI
• The Securities and Exchanges board of India was
constituted
as a regulatory authority over various
constituents of the capital market in the year1988.
• Though legally SEBI came into existence in 1988,it was
made operational and effective from April 12, 1992 in
accordance with the provision of Securities and Exchange
Board Act 1992 when it was empowered to secure an
autonomous position.
• SEBI now acts as an apex body for governing the Securities
Market in India
NSE
• The National Stock Exchange (NSE) was set up by IDBI and
other all India financial institutions in Bombay in November
1992 with a paid-up equity of RS 25 crores.
• It was set up to strengthen the move towards professionalism
of the capital market as also to provide nation wide securities
trading facilities to investors.
BSE
• Another important stock exchange is the Bombay Stock
Exchange (BSE).
• Over 130 Years old
• The Bombay stock exchange (BSE) of India has during the last
few years taken various measures to improve the quality of
secondary market in India and to make India an attractive
destination for both domestic and foreign investors.
Important Regulations
• The Companies Act, 1956
• Securities Contracts (Regulation) Act, 1956.
• SEBI (Stock brokers & Sub-brokers) Rules 1992.
• The Depositories Acts, 1996.
• Prohibition of Insider Trading Regulations, 1992.
Key developments in Indian markets
• Dematerialization
• disclosure based regulations
• screen based trading (1993)
• rolling settlement on T+2 basis
• making PAN as the sole identification number
• short selling
• securities lending and borrowing schemes
• simplification of processes
• Reforms in the secondary market have focused on three main areas:
structure and functioning of stock exchanges, automation of trading and
post trade systems, and the introduction of surveillance and monitoring
systems.
• Setting up of clearing houses
• Buy back of shares by Corporate
• Ceiling on inter-corporate investments has been raised to 60 percent
Key developments in Indian markets
• Disclosure of end use of funds raised in public issue in annual statements
• One-time waiver of capital gains tax for corporatization of stock broking
tickets
• Provision of nomination facility in share certificates
• New measures of risk management system in Indian Capital market
– Measures for reducing price volatility
– Place circuit breakers
– Intraday trading limit
– Mark to market margin
• Investor awareness campaign - Workshops/ Seminars Conducted by
Investor Associations recognized by SEBI. SEBI has made this official site's
sub domain at http://investor.sebi.gov.in/, under this campaign.
TWO LAYERS Of EQUITY MARKETS
1. Primary market – An Issuer approaches the
Market for the First Time
2. Secondary market – Platform provided by the
Stock Exchanges to trade in the securities
already issued and listed
TRADING AND CLEARING MEMBER
• Clearing :
A process of determination of obligations of members, after which
the same are discharged by settlement.
• Settlement :
A process of settling of transactions in securities between buyers
and sellers on the stock exchange by exchange of Money and
Securities respectively.
TRADING AND CLEARING MEMBER
• FUNDS PAY IN:
– Members having purchase value more than sells have an obligation to
make net payment to Clearing House through the clearing account
with any designated bank.
– Funds obligations are debited to members clearing accounts on T+2 at
10:30am.
• Funds Pay-out
– The members having more sells value than purchases receive a credit
by net amount by Clearing House on T+2 at 2:30pm.
Every members is required to have clearing account with exclusive
with any of the approved clearing banks.
TRADING AND CLEARING MEMBER
• Trade confirmation: counter parties agree to terms
of trade (security, quantity, price and settlement
date)
– Auto confirmation in electronic trading system
• Obligation determination: counter parties informed
about delivery/receipt obligations
– Clearing Corporation (CC)- central counter party
TRADING AND CLEARING MEMBER
•
•
•
•
Pay-in of funds and securities: counter parties transfer
funds / securities to CC.
Depositories transfer securities from counter party accounts
to CC
CC issues electronic debit instructions to the clearing banks
for payment obligations of counter parties
Pay-out of funds and securities: after processing for
shortage of funds/securities, CC sends electronic instructions
to depositories/clearing banks for releasing pay-out of
securities/funds
Structure of the Depository System –
Electronic Linkage
Stock Exch.
(CC/CH)
Issuer
NSDL/CDSL
DP
Client
Clearing Member
(Broker)
Synopsis of Capital Market
•
Importance of Capital Market
• Primary & Secondary Markets
• Different Intermediaries
• Structure of Depository System
• Role of Broker
31
Understanding Basic Concepts
Concept of NAV (Net Asset Value)
How is NAV calculated?
NAV
=
Net assets of the scheme
Number of units of the scheme
Net asset of the scheme =
+
+
+
-
Market value of investments
Current assets and other assets
Unamortised initial issue expenses
Accrued income
Current liabilities
Accrued expenses
Concept of NAV (Net Asset Value)
Why do you need to have a NAV?
To inform the investors regarding value of their investment
on any given day.
To track investments of the investors entering and exiting on
different dates.
To track investments when investors withdraw in parts.
Investment options offered
Dividend Payout – Investors receive dividends as and when
they are declared.
Dividend Re-investment – Investors do not take the dividend
amount out of the scheme. They re-invest the dividend that is
declared back into the mutual fund at ex-dividend NAV
Growth – Investors retain the profits in the fund itself and
enjoys the benefits of compounding.
NAV and returns on Investment options offered
Particulars
Growth
Dividend
Dividend ReOption Payout Option investment Option
During NFO
Base price
10
10
10
After one year
20 % Return
NAV
12
12
12
Dividend declared 10%
After Dividend NAV
12
11
11
No of units
same
same
increase (1.0909 )
Cut – off timing
SEBI issues regulations in this regard which are mandatory for Mutual Funds to
follow.
Current regulations:
Purchases: All funds except liquid funds
Received before 3.00 pm – prospective pricing ( End of day NAV)
Received after 3.00 pm – prospective pricing ( Next business day NAV)
Purchases: liquid funds
Received before 12.00 noon – historical pricing ( earlier business day NAV)
Received after 12.00 noon - prospective pricing ( End of day NAV)
Redemption: All funds
Received before 3.00 pm – prospective pricing ( End of day NAV)
Received after 3.00 pm – prospective pricing ( Next business day NAV)
Classification of Mutual Fund
Mutual Funds
Classifications
Based on
Charges
Structure
Closed Ended
Fund
Open Ended
Fund
Load
Fund
No Load
Fund
Open ended funds
Open end investor can buy units or redeem units from the fund
itself at a price based on the NAV per unit. The unit capital of this
fund is variable.
Features:
•
•
•
•
•
•
•
Always open for investors to redeem or invest
Easy liquidity
Unit capital keeps varying with entry or exit of investor in the
fund.
NAV calculated every day
No fixed tenure of the scheme.
No secondary market
Open ended funds can sell and repurchase units at all times.
Closed ended funds
Closed ended funds do not allow investors to buy or redeem
units directly from the funds. These funds are listed on the
stock exchange, trading can be done through a stock broker
,similar to buying shares and stocks of a company. Unit
Capital of a closed end fund is fixed.
•
•
Features:
It is for a fixed tenure
Money is collected only during NFO
Load & No Load
Marketing of a new mutual fund involves initial issue expenses. These are
recovered in different ways i.e. investors entry into the fund, charging a
specific amount each year, at the time of investors exit from the scheme. The
charges imposed on the investors to cover distribution/sales/marketing
expenses are called "loads”.
Funds that charge loads such as entry/exit are called Load funds.
Funds that make no such charges or loads for sales expenses are called No load
funds.
Types of load:
Entry load
– A specific amount deducted at the time of investment
Differed load
– A fixed amount charged each year till maturity of the scheme.
Exit load
– A specific amount deducted at the time of redemption
Load
Margin added to or deducted from the Net Asset Value of the unit when units are sold
or bought from the investors. If any expenditure is adjusted in NAV, it implies that it
has
been recovered from all the investors on a proportionate basis.
Entry load:
Charged at the time of entry. This would increase the price at which the unit is
bought.
Sale Price = NAV + entry load
Exit load:
Charged at the time of exit. This would decrease the price at which the unit is
repurchased.
Repurchase price = NAV – exit load
Load regulation
For open ended funds:
Maximum entry load can be 7% of NAV and maximum exit load can be 7%
of NAV.
Difference between sale price and re- purchase price cannot be more
than 7% of sale price.
For close ended funds:
No entry or exit load
Re purchase price cannot be lower than 95% of the NAV
SEBI has banned entry load for all schemes
Contingent deferred sales charge ( CDSC)
This kind of exit load varies with the holding period of the investor.
Example:
On exiting within
On exiting within
On exiting within
On exiting within
6 month of investment
6-12 months of investment
12-18 months of investment
18-24 months of investment
–
–
–
–
3.5%
3.25%
3%
2.75%
Taxation of Mutual Funds
Dividend - taxation
There is no tax on dividend received on units of mutual funds in the hands of
investors
What is dividend distribution tax?
It is a tax that the Mutual fund has to pay while distributing dividends to an
investor.
This tax is paid by the mutual fund out of the investor’s money
A mutual fund having more than 65% of its assets invested in Indian equity and
equity related instruments is not required to pay dividend distribution tax.
All other mutual funds are liable to pay dividend distribution tax.
Dividend – taxation
What is dividend Stripping?
It is a phenomenon where in a large number of investors buy units just
before the record date and sell them immediately after the record
date. This results in a short term capital loss which is used to off-set
any short term capital gains. Further dividends being tax free he saves
on tax over all.
Section 94 (7) of Income Tax Act, 1961 prohibits this. If a person buys
units within a period of 3 months before record date and sells the same
within a period of 9 months after such date (i.e. 6 months post the
dividend declaration),then the loss arising from such buying and selling
shall be ignored, upto the value of dividend income exempted.
Concept of capital gains
What is Capital Gain?
When an investor sells units at a NAV higher than the NAV at which they were
purchased the transaction of sale involves CAPITAL GAIN.
Types of Capital Gain:
Long Term Capital Gain – Investments held for more than 12 months
Short Term Capital Gain – Investments not held for more than 12 months.
Capital gains - taxation
Mutual Funds can
be classified as
Equity Oriented
Mutual
Funds
Others
Taxation of Equity Oriented Funds
Indian Equity
>65%
Income from
Dividends
Tax in
the hands
of investors
Tax Free
Income from
Capital gains
Dividend
Distribution
Tax
NIL
Short Term
15%
Long Term
Tax Free
Taxation of Other Funds
Others
Income
from
capital gains
Income
from
dividends
Tax in the hands
of investors
Tax Free
Dividend
distribution tax
Individuals
& HUF 14.025%
Others 22.44%
Short Term
As per Tax Slab
Long Term
Two Options
10% without
indexation
20% with
Indexation
Concept - Indexation
What is indexation?
Indexation is a method of computing the capital gains based on the concept of time
value of money.
Particulars
Captial Gains
Option 1
(Without
Indexation)
Sale Price per unit
Purchase price per unit
Capital Gain per unit
Units
Capital Gains
Tax rate
Tax Amount
30.000
20.000
10.000
1,000.000
10,000.000
10%
1,000
Year of purchase
Number of units purchased
Year of sale
Cost of inflation index
1998 - 99
2000 - 01
Option 2
(With
Indexation)
Amt (Rs.)
30.000
23.314
6.866
1,000.000
6,866.000
20%
1,373.20
1998 - 99
1000
2001-02
351
406
20 x 406
351
Classification based on Risk & Returns
Classification based on risk and returns
Equity fund:
A scheme that invests a predominant portion of its funds in equity and
equity related instruments.
This fund exhibits attributes such as high risk, high return, high volatility
etc.
Debt fund:
A scheme that invests in debt instruments.
Balanced fund/Hybrid Funds:
A fund that invests a comparable portion of its capital in debt and equity is
known as balanced fund.
Equity Markets & Mutual Funds
The equity market
Mutual fund mangers invest only in market traded stocks.
Growth Stocks:
Potential for growth in sales and earnings.
Pay little or no dividends.
Prefer to invest profits in the business for further expansion.
Value Stocks:
Overlooked by other investors.
Have hidden value.
Price beaten down due to some bad event.
Stocks which are undervalued.
Cyclical Stocks:
Show cyclical behavior
Performance moves up and down, following cyclical changes in economic variables.
Classification based on Market Capitalization
In equity markets, the size of the company is determined by the market
capitalization of that company.
Market capitalization = market value of shares x number of shares
REVISED SEGERAGATION ON THE BASIS OF MARKET CAP.
W.E.F. 31ST MAY, 2010:
TINY CAP
SMALL CAP
MID CAP
LARGE CAP
GIANT CAP
< OR = Rs. 120 Cr.
< OR = Rs.
< OR = Rs.
< OR = Rs.
> OR = Rs.
2557 Cr. BUT > Rs. 120 Cr.
16246 Cr. BUT > Rs. 2557 Cr.
51050 Cr. BUT > Rs. 16246 Cr.
51050 Cr.
Various kinds of equity funds
A simple diversified equity fund:
This fund invests in equity across all sectors
It invests in primary and secondary markets for equity.
Investment may be based on some pre determined criteria or on the
basis of market capitalization (like large cap fund / mid-small cap
fund etc.)
Sector specific fund:
This fund invests in securities of a specific sector.
It can exhibit very volatile returns.
It is not as diversified as simple equity fund.
Various kinds of equity funds
Thematic Funds:
This type of fund has its investment objective based on a certain theme
(e.g.: Infrastructure fund)
It focuses on investing in stocks which adhere to the theme, but might
be from different sectors (Infrastructure fund – power, road, railway,
Infrastructure finance companies etc.)
Risks are higher than diversified funds but lower than sector funds.
Index Fund:
This type of fund is based on passive style of fund management.
It focuses on creating a portfolio that replicates a market index.
Lower costs involved.
Lower risks involved.
Debt Markets & Mutual Funds
The Debt market
Debt instruments issued by Central and State Governments, public sector
organizations and private corporate.
Issued by Central and State Governments and public sector organizations
= Bond
Issued by private corporate = Debenture
In India trading in debt instruments is dominated by government
securities.
Market players in debt markets include banks, institutions, mutual funds,
primary/satellite dealers all governed by RBI/SEBI.
Classification
Based on tenure:
Short-term bond
Medium-term bond
Long-term bond
= maturity < 1 year
= maturity 1 – 5 years
= maturity > 5 years
Based on Frequency of interest payment:
Periodic interest
quarterly,
Discounted Bond
– Interest payment on periodic basis like monthly,
semi-annually or yearly.
– Bond issued at a discount to its face value.
Type of Interest:
Fixed interest bonds – Rate of interest is fixed before hand and would remain
same for the whole tenure.
Floating rate bonds – Rate of interest is not fixed but linked with a benchmark
rate, like MIBOR
Types of Debt instruments
Certificates of Deposit- These are issued by scheduled commercial banks excluding regional rural banks.
Bank certificate of deposits have a maturity period of 91 days to one year.
Commercial Paper- This is a short term unsecured instrument issued by corporate bodies to meet short
term working capital requirements. Maturity varies between 3 months to 1 year.
Corporate Debentures- These are issued by manufacturing companies with physical assets, as secured
instruments in the form of certificates.
Floating Rate Bonds- These are short to medium term interest bearing instruments issued by financial
intermediaries and corporations. The maturity of these bonds is 3 to 5 years.
Government Securities-These are medium to long term interest bearing obligations issued through the
RBI by the government of India and state governments.
Treasury Bills- These are short term obligations issued through the RBI by the Government of India at
discount. These are issued for 91 days and 364 days.
Bank/FI Bonds- These are certificates issued by the Financial Institutions such as IDBI/ICICI/IFCI or by
Commercial Banks.
Public Sector Undertakings(PSU) Bonds- These are medium and long term obligations issued by public
sector companies in which the government shareholding is greater than 51%.Some PSU bonds carry
tax exemptions.
Features
Principal (face value) - This is the amount borrowed.
Interest (coupon)
- This is the compensation paid to the lender.
Maturity (tenure)
- This refers to the term of the bond. Period after which
the borrower will return the principal amount.
Call or Put options
- These options are included in some bond contracts
which allows the issuer to redeem the bonds before
maturity.
Various kinds of debt funds
Debt funds can be classified as under:
Diversified debt fund
Gilt funds
High yield debt fund / Junk debt funds
Liquid & money market mutual fund
Floating rate debt fund
Various kinds of Hybrid Funds
Balanced/Hybrid funds can be classified as under:
Monthly Income Plans
Capital Protection Schemes
Capital Protection Oriented Schemes
Flexible Allocation Funds
Different Types of Investment Plans
Systematic Investment Plans- This plan requires the investor to invest a
fixed sum periodically which lets the investor save in a systematic
and phased manner.
Systematic Withdrawal Plans – This plan allows the investor to make
systematic withdrawals from his fund investment account on a
periodic basis thereby providing the benefit as regular income. SWP’s
are different from Monthly Income Plans, as the former allows the
investor to get back the principal amounts invested while the latter
only pay the income part on a regular basis.
Systematic Transfer Plans- This allows the investor to transfer on a
periodic basis a specified amount from one scheme to another within
the same fund family.
Rupee Cost Averaging
•
•
•
•
Regular investing works on the principle of
rupee-cost averaging
It means buying more units when the prices are
low and fewer units when the prices are high
This helps to average out your purchase price
For example
Equity investing
is not about timing
the market but
time in
the market…
Month
Amount Invested (Rs.)
Purchase Price (Rs.)
No. of Units Purchased
1
2
3
4
1,000
1,000
1,000
1,000
10
9
10
11
100
111.11
100
90.9
Total Investment = Rs. 4,000, No. of units purchased = 402.01.
Average cost per unit = Rs. 9.95 < 10
Advantages of SIP
It helps avoid
investing large
sums in
volatile and
overheated
markets
It forces the
investor to
commit
investments
in any
market
scenario
It instills
discipline –
forced
saving
It allows
investments of
small amounts
(as low as Rs
500)
It is easy to
understand
and operate
Calculation of Returns
Methods of calculating returns
For period less than a year:
Percentage change in NAV method
Simple total return method
Return on investment method ( ROI ) ( Total return with dividend
re-investment method)
For periods of a year or more:
Compounded annual growth rate( CAGR)
Percentage change in NAV
Absolute change in NAV in rupees = closing NAV – initial NAV
Percentage return (change in NAV) = Absolute change in NAV x 100
Initial NAV
Annualized return = Absolute return x 12
No. of months
Simple total return method
Both dividend and change in NAV is added to get the return.
Absolute returns = dividend + change in NAV (closing NAV – initial NAV)
Dividend with re-investment method
In this method we assume that the dividend is re-invested in the same scheme at
the ex-dividend NAV and the returns are calculated accordingly.
Return ( Absolute) = Final value of investment – opening value of investment
Final value of investment = final units x closing NAV
Final units = Initial units + new units on re-investment
New units received on re-investment =
Returns (%) =
Absolute return
Initial investment
Dividend
ex-dividend NAV
x 100
Compounded Annual Growth Rate (CAGR)
We use this method to find out the returns if the period is greater than one year.
CAGR
=
[(A/P)1/n] - 1
A = Final Amount
P = Initial amount
N = Number of years
e.g.:
01 Jan 04 – NAV 10
31 Dec 05 – NAV 14
A = 14, P= 10 and n= 2
CAGR = [(14/10)^(1/2)]-1
CAGR = 18.32%
INTRODUCTION TO INSURANCE
What is Insurance ?
• Insurance - A promise of compensation for specific potential
future losses of insured by insurer in exchange for a periodic
payment (premium)
• Premium Payable - periodical amount that the insured needs to
pay to the insurance company to enjoy the benefits of the
insurance policy
• Sum assured - amount for which the insurance cover is taken
• Death Benefit - amount received from the insurance company on
the death of the insured
• Maturity benefit - amount received on the maturity of the policy
• Riders - additional benefits that are added on to an insurance
policy to make it more compatible to the needs of the policyholder
Why Insurance ??
Life is Uncertain
Provides regular income
Protects your family from risks
Reduces the burden of liability
Protect one’s assets against financial loss
Principles of Insurance
• Insurable Interest – Person effecting insurance must have financial
interest in the insured
• Utmost good faith- Duty of assured to make full disclosure to
insurer w/o being asked of all material circumstances
• Indemnity- Financial compensation to place the insured in same
pecuniary position after occurrence of loss that was enjoyed
before the loss
• Subrogation-Transfer of rights of insured to insurer; not applicable
in life policies
• Contribution-Sharing of loss by all insurers; not applicable in life
policies
• Proximate Cause : Efficient cause which brings about a loss with
no other intervening cause which breaks the chain of events.
Types of Insurance
• Life Insurance - Insurance co. pays at the demise of policy holder
or at the time of maturity
• Health Care Insurance – Insurance against loss by illness or bodily
injury; provides coverage for medicine, visits to doctor, hospital
stays & other medical expenses
• Accidental Insurance – Insurance providing compensation for
accidental injury or death
Types of Insurance
• General Insurance – Insurance related to various potential losses
(excluding life insurance)
– Motor (Car & Two-wheeler)
– Property (Home)
– Travel
– Fire
– Marine
– Others
Life Insurance Plans
• Term Plan
– Provides death cover only during policy period
– Premium is low
– No refund of premium
– Sum assured is paid on death
• Whole Life Policy
– Death cover only
– Premium is low & paid during life time
– No refund of premium
– Sum assured is paid on death
Life Insurance Plans, Contd.
• Endowment Plan
– Covers death & survival benefits
– Sum assured plus additions & bonus (if any) paid on death or on
maturity of policy, whichever is earlier
– Period of policy at the option of proposer
– Most common plan
• Money Back Plan
– Covers death & survival benefits
– Inflows at regular intervals
– Full sum assured paid on death, with additions & bonus, if
applicable
Life Insurance Plans, Contd.
• Unit Linked Insurance Plan = Investment + Insurance
– Each premium split into units for investment and risk premium
for life cover
– Units are priced as per their current market value
– Sum assured and/or current value of units is paid on death as
per policy condition
– Current value of units is paid on maturity
– Flexibility to switch between funds where investment is made
Health Care Insurance
• Medical Insurance
– Individual Mediclaim: Covers the hospitalization expenses for an
individual for up to the sum assured limit
– Group Medical Insurance : Insurance cover applied for by the
employer with insurance co.
– Overseas Medical Insurance
• Critical Illness Insurance
–
Provides guaranteed cash for a premium if the insured is diagnosed
with any of critical illness.
• Unit Linked Health Plans
– combines health insurance with investment and pays back an amount
at the end of the insurance term
– Returns are dependent on market performance
– very new and still in development phase
Tax Implications Of Insurance
Insurance
Type
Insurance
Component
Tax Provision
Max.
Amount
Life Insurance
Sum received on
Maturity / Death
Tax Exempt u/s
10(10D)
Full Amount
Life Insurance
Tax Deductible
u/s 80C; max
Premium Payment deduction under
this section is
Rs. 1lac
Health
Insurance
Premium Payment
Tax Deductible
u/s 80D
Full Amount
-Rs.15000/- for
assessee/family
-Further Rs.15000/for parents (Rs.
20000/- if Senior
citizen)
Milestones in Indian Insurance Industry
• Till 2000, two state-insurance cos. LIC and GIC were the
monopoly insurance (both life and non-life) providers in India
• 2000:
– Indian Parliament cleared a Bill de-linking the four subsidiaries
from GIC.
– A separate Bill was approved by Parliament to allow brokers,
cooperatives and intermediaries in the sector
– GOI liberalized the insurance sector with passage of IRDA Bill
– IRDA started giving licences to private insurers and also allowed
foreign investment with cap of 26%
Milestones in Indian Insurance Industry
• 2001: Royal Sundaram Alliance first non life insurer to sell a policy
• 2002:
– Banks allowed to sell insurance plans
– As TPAs enter the scene, insurers start setting non-life claims
in the cashless mode
• 2007: First online insurance portal set up by an Indian insurance
broker
• 2009 :Total number of life insurers registered with the Authority
were 23, while, total number of general insurers registered with
IRDA were 22
Highlights of the present
• According to the Life Insurance Council, Indian life insurance industry is
the fifth largest life insurance market growing at a rapid pace of 32-34%
annually
• Total premium collected by the life insurance industry increased 13% to
US$ 41.05 billion in calendar year 2010
• According to data released by IRDA, gross premium collected by general
insurance industry increased 22.76% YoY to US$ 5.29 billion during April–
October 2010
• Indian health insurance market is emerging as a new and lucrative growth
avenue for both the existing players as well as the new entrants
• Vast number of uninsured population and under/over insurance cover of
many
• Untapped potential of general insurance
• Increasing financial literacy about insurance
Regulation in Indian Insurance Industry
• Two legislations govern this sector – The Insurance Act- 1938 and
the IRDA Act -1999
• IRDA (Insurance Regulatory And Development Authority) is the
controlling and regulatory apex body for insurance industry in
India with the mission “To protect the interest of the policy holders, to regulate,
promote, and ensure orderly growth of the insurance
industry”
• Requires stringent capital
insurers
adequacy and solvency margins for
Players in Insurance Industry
Choose the Right Insurer
Focus on strength, integrity and performance of the insurer through its • Approach to risk management - Insurer should have a prudent approach
• Ownership – Sovereign guarantee/ private entity set up with only Indian
promoters/ JV between Indian co. & foreign partner
• Capitalization Ratio – Indicator of co.’s ability to ride out uncertain
economic times
• Premium Persistency – Percentage of renewal premiums that are paid by
policyholders
• Ratings – Expected to be rated in the future
• Growth of Surplus – Enough capital to grow the business, increase its
strength and be competitive
• History & Track record – Promoter’s pedigree, performance of ULIP funds
& variants within, size of business in terms of renewal premium
Correct Insurance Plan for you !!
How much Life Insurance do you need?
Depends on –
• Goals & Objectives
• Life Cycle Stage (single, married,
married with young children, married
with grown up children, retired)
• Age, number & needs of dependants
• Relevant particulars of existing life
insurance policies (type, tenor, benefits,
premium payable, insurance cover)
• Financial Positions (annual income &
expenses, outside liabilities, investment
& savings)
• Investment Preferences
General Rule of thumb: Insurance cover of First life insurance policy to be at least 5-10 times of your annual
income
Insurance Mantras
• Assess your life insurance requirements… DON’T UNDERINSURE
• Research on various types of life insurance plans, additional
benefits, or riders; Compare similar plans across the various
insurance companies
• Understand the extent of Life Insurance cover, the exclusions for
the insurance plan and the riders that you select
• Fill the insurance proposal form yourself
• DO NOT provide your agent with a signed, blank form.
• Be truthful when filling the form as you or your nominee could lose
the benefits from the policy in case you misrepresent facts
• Take policy from the right insurer for the amount that is right for
you
Pension plans
Pension Plans
• Pension plans (retirement plans or Annuity) help individuals build a
retirement corpus by one time investment or by regular investment
• On maturity this corpus is invested for generating a regular income
stream, which is referred to as pension or annuity
• Most life insurance companies give option of receiving
monthly/quarterly /half – yearly pension
• Pension Fund Regulatory & Development Authority regulates pensions
in India
• Age of entry (18-65), vesting age(40-79), life cover, availability of
riders, minimum annual premium and tenure depend on the plan
• Offered by various life insurance companies
Features of pension plans
• Maturity Payouts – On maturity, individual has the option of withdrawing
up to one forth of the maturity amount in cash
• Death Benefits – Nominee has the option of receiving the entire amount
on maturity in cash and buying an annuity with the same but all pension
plans don’t offer a life cover
• Tax Benefits - Premium payments towards pension plans are eligible for
deduction under Section 80CCC; the limit being set at Rs 10,000. This
deduction falls under overall limit of Rs. 100000 under Section 80C
• Taxation of Maturity Payouts - Up to one third of the maturity amount,
which can be withdrawn, is treated as tax free in the hands of the
individual. Pension, from the remaining two-thirds amount, is taxed
according to the marginal rate of tax.
• Income Stream – Provide a regular source of income by way of annuities
on maturity
Types of Pension Plans
• Life Cover
– With Cover – Offers an assured life cover in case of eventuality
– Without cover – No sum assured; corpus built till date (net of
deductions like expenses and premiums unpaid) is given to nominees
in case of eventuality
• Annuity
– Immediate annuity - Pension commences within one year of having
paid the premium (which is usually a one-time premium).
– Deferred annuity plans – Pension does not commence immediately; it
is 'deferred' up to a time, which is decided upon by the policyholder
• Investment made under pension plans
– Conventional - Major portion of premium is invested in bonds & Gsecs
– Unit Linked – Market linked plans which invest a portion of premium
in stock market apart from bonds & G-secs; impose various charges
– Mutual Fund – Similar to MFs, these offer lumpsum withdrawal or
regular income post retirement
Options available to individuals on pension plans
• Lifetime annuity without return of purchase price: Individual receives
pension for as long as he lives. The pension ceases on occurrence of an
eventuality and the insurance contract comes to an end.
• Annuity for life with a return of the purchase price: Individual receives
pension till he is alive. In the event of an eventuality, the maturity
amount(basic sum assured plus the bonuses/additions, if any) of the
annuity is paid out to his nominees/beneficiaries
• Lifetime annuity guaranteed for a certain number of years: Individual
receives a pension for a certain number of years (as prescribed by the
plan) irrespective of whether he is alive for the said period or not. If he
survives the period, he continues to receive pension for the rest of his
life, else at the end of the period, annuity ceases and the pension plan
draws to a close
• Joint life/ Last survivor annuity: Individual receives a pension till he is
alive. In case of an eventuality, his spouse receives the pension
Pension Mantras
• Contribute early and regularly
• Choose the right plan – see return on investment, viability of the
plan and promoter’s track record
• Have an exit strategy in case of unexpected need of cash
• Don’t borrow money so that you can begin retirement planning
immediately
• Don’t pump money into your retirement account blindly
NEW PENSION SCHEME-CONCEPT
Promoted & Regulated by the Government of India
Earning pension during old age for Non-government sector
Social Security Measure
Eligible for tax exemption under section 80CCD read with Section
80CCE of the Income Tax Act, 1961
KEY STAKEHOLDERS
•
Points of Presence (POP): Points of presence (POP) are the first points of interaction of the
NPS subscriber with the NPS architecture. The authorized branches of a POP, called Point of
Presence Service Providers (POP-SPs), will act as collection points and extend a number of
customer services to NPS subscribers.
•
Central Recordkeeping Agency (CRA): The recordkeeping, administration and customer
service functions for all subscribers of the NPS are being handled by the National Securities
Depository Limited (NSDL), which is acting as the Central Record keeper for the NPS.
•
Pension Funds (PFs)/Pension Fund Mangers (PFMs): The six Pension Funds (PFs) appointed
by the PFRDA would manage your retirement savings under the NPS
•
Trustee Bank: The Trustee Bank appointed under NPS shall facilitate fund transfers across
various entitles of the NPS system Vis., PFMs, ASPs, Subscribers etc. Bank of India (BOI) has
been appointed as the Trustee Bank. Annuity Service provider (ASP) ASPs would be
responsible for delivering a regular monthly pension to you after your exit from the NPS
•
NPS Trust: A Trust, appointed under the Indian Trusts Act, 1882 is responsible for taking care
of the funds under the NPS in the best interests of subscribers.
•
Pension Fund Regulatory and Development Authority (PFRDA): An autonomous body set up
by the Government of India to develop and regulate the pension market in India.
WORKING
• Permanent Retirement Account Number(PRAN) Allocated to you,
• You contribute a certain sum every month during your working
years,
• It is invested according to your preference,
• Choice of Fund Manager with you,
• You can then withdraw part (60%) of that money when you retire
(60 years),
• Annuity for the period you live from the remaining amount.
INVESTMENT OPTIONS – ASSET ALLOCATION
Active choice option (Customer allocates)
CLASS
RISK PROFILE
G
Ultra Safe
Will only invest in Central and State government
bonds.
C
Safe
Fixed income securities of entities other than the
government
Medium
(50% Max.)
Investment in equity related products like index
funds that replicate the Sensex. However, equity
investment will be restricted to 50% of the
portfolio.
E
DESCRIPTION
Auto Choice (Fund Manager Allocates)
 Allocation as per pre-defined criteria
 Depending on Age
 Higher Age – Lower risk and vice versa
PENSION FUND MANAGERS
• Customer HAS to select one of the following fund managers:
 LIC Pension Fund Limited
 SBI Pension Funds Pvt. Limited
 UTI Retirement Solutions Limited
 IDFC Pension Fund Management Co. Limited
 ICICI Prudential Pension Funds Management Co. Limited
 Kotak Mahindra Pension Fund Limited
 Reliance Capital Pension Fund Limited
TIER I & TIER II ACCOUNT
• The primary difference – Allowing withdrawal of money before
retirement.
• NPS Tier I OR PENSION Account (Started since 1 May 2009)
 Contribute your savings for retirement into a non-withdrawable a/c.
 Minimum Contribution – INR 6000/- per annum.
Before 60
years
Amount to be invested in IRDA
regulated life insurance company
 nnn
for getting Annuity
Rest of the amount
After 60 Years
In case of
Death
Min. 80%
Min. 40%
Min. 0%
(Nominee’s
choice)
Lump sum
Lump sum
OR
Phased manner
upto 70 years
Lump sum
TIER I & TIER II ACCOUNT (Contd…)
• NPS Tier II OR SAVINGS Account (Started since 1 Dec 2009)
 Voluntary savings account form which you are free to withdraw your
savings whenever you wish
 Minimum Account Balance @ end of Fiscal Year – INR 2000/ Tier I account pre-requisite for opening this account
 One-way transfer from Tier II to Tier I is possible.
 Minimum Contribution – INR 1000/- per annum.
CHARGES
• Annual Fund Management Charge – 0.0009%
• Approximately 800 times lower than MF
TAX TREATMENT
• FOLLOWS THE “EET” STRUCTURE
 Which means the amount received at maturity (60 Years) would be
taxable
 NPS could thus become competitive after Direct Tax Code is
implemented
• DTC would follow the EET structure for PPF, Life Insurance, ELSS etc.
REFERENCES (NPS)
• http://www.kotak.com/bank/personal-banking/investments/newpension-scheme.html
• http://www.kotakpensionfund.com/newpensionsystem.html
Dealers Code of Conduct
Integrity & clarity
Don'ts:
Do’s:
•
Deal honestly, ethically and
fairly with their clients.
1.
Do not take unfair advantage of
any client through
•
manipulation,
•
concealment,
•
misuse of privileged
information,
•
misrepresentation of material
facts or
•
any other unfair-dealing
practice
Confidentiality
Do’s:
Don'ts:
1. Treat as confidential all nonpublic
information provided by a client,
prospective client or third party.
2. Use non-public or proprietary
information only for the specific
business purposes for which the
information was given
3. Disclose unpublished or
proprietary information, only to
persons who have a "need to know"
the same
4. Keep clients' identities
confidential
5. Store documents containing
sensitive information in secure
locations away from areas where
they may be read by unauthorized
persons
1. Avoid discussing sensitive
information in social gatherings
or public places
2. Do not use non-public or
proprietary information
regarded as confidential for
personal benefit or gain.
3. Unauthorized disclosure of any
confidential information is
prohibited.
4. Do not buy, sell or recommend a
security while having knowledge
of or being in possession of
unpublished material or
proprietary information
regarding the security or its
issuer
Confidentiality Contd.
Don'ts:
1. Don’t use speakerphones in
circumstances where
confidential information may
be overheard,
2. Note that mobile telephones
must be used with great care
because they are not secure
and conversations may be
overheard
3. Avoid sending confidential
information by fax unless the
intended recipient confirms
that
1. (i) he is present to receive it
personally; and, later (ii) he
has received the message.
Proficiency
Do’s:
1.
Improve existing skills and be alert/ cautious to reduce punching
errors to the minimum
2.
Learn, know and understand the regulations as applicable to trading.
3.
Provide best execution in terms of price, timing, and quantity
4.
Maintain the sauda book/order book for the executed trades
simultaneously.
Be aware of your client
Do’s:
1.
Be aware of facts and circumstances that may either show that :
a)
the information provided by the client is incorrect or
b)
that the basis of the Company’s acceptance of the client has changed in
as much as the client is associating with persons/ entities on the
defaulters’/ banned lists of SEBI/ Stock Exchanges or
c)
The Client is involved in criminal activity or
d)
Is acting as a front/ conduit for persons barred from transacting in the
securities market or for persons who are illegally transacting in violation
of their internal rules viz. fund managers, employees of other securities
companies.
2.
In all such cases, the concerned staff must immediately inform the
supervisor and the Compliance Department
3.
Ensure that the client’s name does not appear on the list of entities
prohibited from accessing the securities market as per
www.watchoutinvestors.com, before execution of orders for a client
Disclosure requirements
Do’s:
1.
Incase of derivative transactions it is your duty to disclose the
special risk structure (not applicable to any specific risks
inherent in individual securities transactions. )
2.
Explain to clients exceptional risks of the transaction
(Eg:- where the risk potential exceeds the common risk level of
purchase, sale and holding of securities of the client)
Recommendations & Information
1.
If the client is to rely upon your recommendation, do so only if you
have reasonable grounds to believe that the recommendation is
suitable for such a client
2.
To decide suitability, use facts obtained from client (his own
security holdings, financial situation and objectives of such
investment)
3.
Do not provide clients with such information relating to a security
that cannot be verified by the clients before their dealing in such
security
Managing of Conflicts of Interest
A conflict of interest occurs when personal interest interferes, or
appears to interfere, with the interests of the Company and the clients
•
Act in the best interests of the Company and the clients.
•
Refrain from engaging in any activity or having a personal interest that
presents a “conflict of interest.”.
Gifts and Gratuities
Do’s:
Don'ts:
1.
Accept only items of nominal
value as gifts from any client
or other related person.
2.
Any gifts that are not of
nominal value should be
returned immediately and
reported to immediate
supervisor.
1.
Dealers must not accept, or
permit any member of
his/her immediate family
to accept, any gifts,
gratuities or other favors
from any client or other
person- which are of high
value (i.e. more than a
nominal value)
Clients’ complaints resolution
Don'ts:
Dos:
•
Address clients’ in a polite
manner.
•
In case of any complaint
regarding any trade,
immediately inform his/her
supervisor and the compliance
department.
•
Cooperate with the Company
in resolving the complaint.
•
•
Do not use any vague
language
Do not use slangs or abusive
language
Print & Communication
Do’s:
1.
2.
Only authorized personnel may
speak with the Press after
obtaining prior approval from
the Compliance department
Make any general comments
(public or private) , in good
faith, in regard to–
–
the economic policy of the
Government;
–
the economic situation of
the country;
–
trends in the securities
market;
–
any other matter of a like
nature;
Don'ts:
1.
2.
3.
Do not grant interviews or make
any statements on television
without the written approval of
the Designated Officer in
Corporate Communications.
Do not render any advice in
publicly accessible media about
any security unless a disclosure of
your, your dependent and the
employer’s interest (long/short
position) in the security has been
made.
Do not circulate any
correspondence or literature
designated as ‘For Internal Use
Only’ or any interoffice
memorandum to any individual
outside the firm without prior
approval of the departmental
head.
Trading rules
Do’s:
1.
2.
3.
4.
5.
Don'ts:
All clients must be treated fairly and
equally.
Trades should be done in client’s
account only on the basis of
instructions received from the client
on recorded line.
Orders received by the dealers
should be received only on the
landlines in the respective branches
/ franchisee offices and should be
recorded in the IVR system.
Orders received should be reconfirmed with the client before
placing in the system.
Where client couldn’t call up on
recorded line but had requested for
placing the order in his account,
client’s approval will be sought
through recorded line before placing
the trade in client’s account.
1.
Do not engage in any transaction on
behalf of a client without appropriate
confirmed instructions.
2.
No trading should be allowed in
derivatives without explaining the
concepts and risk involved in
derivative contracts (leveraging)
3.
If internet trading clients are trading
thru call and trade facility, do not
ask/attempt to get user id/password
from the client
4.
Use of mobile phones in dealing rooms
is not permitted. It is strictly
prohibited.
Trading Rules Contd.
Don'ts:
Do’s:
6.
7.
Intimate clients about the trades,
post trading session through
recorded line.
Order placed by client and Trade
confirmation shall include all
details like scrip, quantity, rate
for each buy and sell etc.
8.
Back-up of the IVR recording to
be provided to the Compliance /
Surveillance Department on a
weekly basis.
9.
Any deviations in the IVR
recording and the trades
executed to be reported to the
concerned Branch Manager/
Compliance Department
5. Do not allow clients to enter into
dealing room/operate the terminal.
6. Do not give your user ID and
password to any person or leave it
unconcealed in such a manner that
the same can be misused.
7. Do not guarantee against losses to
clients in any transaction or agree to
provide any reimbursement of losses.
Trading Rules Contd.
Do’s:
Don'ts:
10. For clients personally visiting the
branch/sub broker office for trade, fill in
deal slip and it should be signed by both
the client and dealer.
11. In all such cases, post trade confirmation
thru recorded line is a must and the note
the time and number
12. Maintain a summary of the deal slips
generated and forward all such deal slips
to Operations for safe keeping & for use
in case of any dispute
13. Accept the orders only after confirming
the genuineness of the client in whose
name account has been opened.
14. Accepting orders from the person other
than client/authorized person will be
treated as serious violation
15. In case client has authorized some one
else to trade on his behalf e.g. wife,
brother etc…authority letter must be in
place.
8. No promises/predictions of any sort
on prices of securities or on items
that may influence the price of
securities should be made to any
person.
9. Do not engage in any transaction
that is not recorded on the books of
the Company.
10. Do not exercise any discretionary
authority with respect to any
transaction in a Clients’ account
11. If suspicious that any client is acting
against market interest with regard
to price discovery, ramping up
volumes or the like, without actual
transfer of interest in the
securities, do not place such trades
and bring this to the notice of
Branch-in-charge/ Compliance
department
Trading Rules Contd.
Don'ts:
Do’s:
16.
If it is necessary for a client to call
on the dealer’s mobile phone, the
number is to be kept forwarded to
the landline phone available in the
dealing room.
17.
In exceptional cases, use of
mobile phone in dealing room can
only be with the written
permission of the compliance
head.
18.
Only use the designated user ID.
No dealer is permitted to use the
user ID of another dealer.
19.
Lock/sign out the terminal while
leaving your seat during market
hours
12. Do not indulge in trades, which
are designed purely to convey an
impression of trading volumes,
with or without price movement,
and are not a genuine trade.
13. Do not put trades when suspicious
that the client is placing
simultaneous opposite orders with
another broker
14. Do not accept any request for
time gaps between order entry
and trade execution, client
should place orders in the normal
course only.
Trading Rules Contd.
Do’s:
20.
Don'ts:
Exercise due caution while placing
trades in low volume and illiquid
scrips, to prevent clients from using
the Company in any attempt to
influence prices.
21.
Ensure that the client does not
indulge in price manipulation of any
securities at any time.
22.
Be cautious about trades at prices
substantially away from the last
closing price/ prevailing market
prices.
15.
Do not place such orders where
an inference can be made that
the orders are for testing price
16.
Do not place trades of small
quantity for the purpose of price
discovery or otherwise and
ensure that the client order is
reflected in full.
17.
Do not deliberately transfer one
client’s trade to another client
for any reason whatsoever.
18.
Under no circumstances, without
prior approval, switch off any
voice recording machine
Trading Rules Contd.
Do’s:
23.
Exercise due care and caution when options trades are entered into the
system at prices, which vary considerably than the present intrinsic value at
the given point.
24.
Be cautious about clients who take bullish and bearish view on the same
scrip, place multiple unrelated trades with delivery, or break up quantity
while trading.
25.
Bring such instances to the notice of the Branch-in-charge and Compliance
department.
Trading Rules Contd.
Do’s
26.
Bring to the notice of the supervisor and Compliance department, if any
client is indulging in frequent cross transactions.
27.
Immediately bring to the notice of their Branch Manager, if the client is a
member of a stock exchange or closely related to a member either as a
dominant shareholder, director, partner, close relative etc.
28.
Speak to clients’ only through recorded lines.
29.
Be careful about clients’ shifting trades to the other accounts of the client
or relatives or associates
30.
In case of any error in execution of a trade, immediately bring this to the
notice of the Branch Manager and ensure that the trades are taken to house
account, after obtaining necessary approvals.
Trading Rules Contd.
Dos:
31. If on leave hand over clients with their positions to a designated person.
32. Inform leave details, contact numbers to the designated person and also
inform the clients the designated person’s contact numbers.
33. It is mandatory to take the qualifying certification exam and to keep its
validity renewed from time to time.
34. Ensure that any tracking and surveillance software uploaded on their
computer is activated at the start of each trading day.
35. Bring to the notice of the Branch Manager if the voice recording machine is
not in a working condition.
Dealers- Institutional
Do’s- Additional Provisions:
1.
2.
3.
4.
5.
6.
Prepare/update restricted list on daily basis before market opens for trading
Put all scrips under ‘restricted list’ in which buy/sell order is received/pending
for execution, if the value of order is in excess of Rs. 25 lacs or it is in excess of
10,000 shares
Record all incoming/outgoing phone calls of dealing room, operation department
and Compliance Department during market hours.
Make buy/sale calls only if it is backed by research.
Explicitly clarify to the client if the buy/sale call is based on personal judgment
or from other sources.
Make appropriate disclosure if the buy/sale call is based on ‘visit note’ only and
it is not backed by full research
Unfair Trade Practices
Don'ts:
1.
Do not report trading transactions to his clients entered into on their behalf, in
an inflated manner in order to increase his commission and brokerage
2.
Do not be involved in any Circular transactions in respect of a security, entered
into between intermediaries in order to increase commission to provide a false
appearance of trading in such security or to inflate, depress or cause
fluctuations in the price of such security
3.
Do not encourage the clients to deal in securities solely with the object of
enhancing his brokerage or commission
4.
Do not predate or falsify records such as contract notes
5.
Do not indulge in or facilitate buying or selling of securities in advance of a
substantial client order or whereby a futures or option position is taken about
an impending transaction in the same or related futures or options contract
6.
Dealer should not indulge in planting false or misleading news which may
induce sale or purchase of securities
References: SEBI (Stockbroker and Sub-broker) Regulations
Stock broker’s Code of Conduct - 1992
SEBI (Prevention of Fraudulent and Unfair Trade Practices) Regulations - 2003
SEBI ( Prevention of Insider Trading) Regulations - 1992
Prevention of Money Laundering Act
Know Your Customers
Account opening Process
INDIVIDUAL INVESTORS
Identity Proof
Address Proof
Passport
PAN CARD
Voter ID Card
Driving license
Latest Landline
Telephone Bill
Latest Electricity Bill
INCOME PROOF
Passport Copy
PAN card with Photo
Latest Bank
Passbook / Statement
Photo Identity card **
Voter ID
Driving License
Ration Card
Rent Agreement
Photo Id card
with address **
NRI
Identity Proof
Address Proof
PAN CARD
Copy of PIS**
Foreign Address Proof
Verified by Indian
Embassy / Consulate
HUF
Identity
PAN of HUF
Bank Passbook/
Statement
Karta
Identity Proof
Declaration
Address Proof
Same as
Individual
By Karta
MINOR
Minor
PAN of Minor
Birth Certificate
Photograph with
Guardians signature
Guardian
Identity Proof
Address Proof
Same as
Individual
Photograph
COMPANIES
PAN
Certificate of Incorporation
Memorandum & Articles of Association.
Resolution of the Board of Directors
Authorizing the investment
Power of Attorney granted to managers, officers,
employees to transact business on its behalf
Note:Certified
Copies of
all
PARTNERSHIP FIRM
PAN Card Copy
Certificates of Registration
( for registered Partnership Firms)
Resolution and
Authority to invest
Power of Attorney
Authorized Signatories List
Partnership Deed
Note:Certified
Copies
of all
Trusts, foundations,
NGO’s Charitable Bodies, Clubs/Mutual Fund
PAN Card Copy
Certificates of Registration
( for registered Trusts)
Authorized Signatories List
Trustee Mandate with Name, address and signature
Authorizing any or all trustees to invest
Note:Certified
Copies of
all
Mandatory
• Occupational details of individual clients
• Financial details in the form of income range
• Client should declared his Investment/trading experience
• Client should be personally known to the broker or introduced by a person
known to the broker.
• PAN Number for Trading in Cash and F & O segment
• Multiple client accounts are not permitted.
• Income Proof
• KYC of Introducer
• In case of Third Party address KYC Of Third Party
140
Mr. Ramesh S. wants to open a Demat account with TSL.
He has a few questions?
1. What is KYC and why do we need to do this?
2. He wants to know what are the documents you would require from him for
KYC?
3. Would KYC be just a one time activity ?
Is KYC a One-time activity
• The answer is a straight “NO”
• Model client-broker agreement makes the knowledge of genuineness of
the client and his financial soundness a continuing obligation on the
broker.
• Exchange Circular on due diligence makes the broker responsible on
continuous basis to analyze the financial soundness, investment
objectives and trading pattern of the client.
142
What is Money Laundering?
Metaphor “Money Laundering” means ‘Cleaning of Money’ with regard to its
appearance.
Dhobi or a laundry do they wash your dirty cloths and make it clean likewise
money which is not legally owned or is earned without paying taxes is
considered ‘Black Money or Illegal Money’
Money Laundering is nothing but converting illegal money into legal money
by circulating through various financial transactions using banks and other
financial institutions so that it appears to be legally acquired.
Money Laundering involves
– Transactions intended to disguise the true source of funds
– Disguise the ultimate disposition of funds
– Eliminate Audit Trial
– Make it appear as though the funds came through legitimate sources
– Evade Income Taxes
Money Laundering Cycle
Illicit Activities
Placement...
You might be part of this
Integration
Layering...
You might be part of this
Clients of Special Category (CSC)
•
•
•
•
•
•
•
Non resident clients
High net worth clients
Trust, Charities, NGOs and organizations receiving
donations
Companies having close family shareholdings or beneficial
ownership
Politically exposed persons (PEP) of foreign origin
Current / Former Head of State, Current or Former Senior
High profile politicians and connected persons (immediate
family, Close advisors and companies in which such
individuals have interest or significant influence)
Companies offering foreign exchange offerings
Clients of Special Category (CSC)
•
•
•
•
Clients in high risk countries (where existence /
effectiveness of money laundering controls is suspect,
where there is unusual banking secrecy)
Countries active in narcotics production, Countries where
corruption (as per Transparency International Corruption
Perception Index) is highly prevalent, Countries against
which government sanctions are applied, Countries
reputed to be any of the following – Havens / sponsors of
international terrorism, offshore financial centers, tax
havens, countries where fraud is highly prevalent.
Non face to face clients
Clients with dubious reputation as per public information
available etc
Money Laundering RED FLAGS
• RED FLAG issues- mean transactions which may indicate possible
money-laundering activity.
• These are examples/pointers of the transactions that the Dealer
should be extremely cautious of, if he comes across them.
• Report immediately to the Branch Manager and the Compliance
Department.
• Any negligence or violation of anti money-laundering guidelines may
result in serious action against the Dealer, by the Company’s
management.
Money Laundering RED FLAGS
Few Money Laundering “Red Flags”
1.
Sustained activity in new accounts.
2.
Clients in high-risk jurisdictions or clients introduced by banks or
affiliates or other clients based in high risk jurisdictions.
3.
Substantial increase in business without apparent cause.
4.
Requests for transfer of investment proceeds to apparently
unrelated third parties.
5.
Unusual transactions by CSCs and businesses undertaken by shell
corporations, offshore banks /financial services, businesses.
6.
Engaging frequently in transactions that lack business sense or
apparent investment strategy, or are inconsistent with the
customer’s stated strategy.
7.
Client (or a person publicly associated with the client) having a
questionable background or being subject of news reports indicating
possible criminal, civil, or regulatory violations.
Money Laundering RED FLAGS
8. Client exhibiting a lack of concern regarding risks, brokerage, or other
transaction costs.
9. Client appears to be acting as an agent for an undisclosed principal, but
declines or is reluctant, without legitimate commercial reasons, to
provide information or is otherwise evasive regarding that person or
entity.
10. Clients’ account has unexplained or sudden extensive activity, especially
in accounts that had little or no previous activity.
11. Client requests that a transaction be processed in such a manner to avoid
the firm’s normal documentation or surveillance requirements.
12. Client maintains multiple accounts, or maintains accounts in the names of
family members or corporate entities, for no apparent business purpose
or other purpose.
Settlement Process
OPERATION
MANUAL
Transaction Process
Settlement Mechanism for Market Transfers
Assumption:
1. Clients and their CMs have
common DPs
2. CMs have given standing
instruct for credits to Pool A/c
CC Settlement A/c
Note:
Funds transfer takes
place outside the
NSDL System
CC Transit A/c
6
7
NSDL/CDSL
Funds pay-in to CC/CH
Funds pay-out by CC/CH
5
4
8
Pay-in
of securities
Receipt
3
Pay-out of
securities
9
CM1
Delivery
Pool A/c
DP1
Receipt
1
2
Issuer/RTA
10
CM2
Delivery
Pool A/c
11
10
DP2
Data Downloaded
Seller’s BO A/c
Pay-in
Instruct
CM1
Debit
Instruct
Funds
Buyer’s BO A/c
12
Selling Client
1. Debit instructions by selling client to DP in favor of his broker (CM1)
2. Transfer by DP to CM1 Pool A/c
3. Pay-in instruction by CM1 to DP
4. Transfer from CM1 Pool a/c to Delivery a/c
5. Transfer from Delivery a/c to CC Transit a/c
6. Transfer by NSDL from CC Transit a/c to CC Settlement a/c
Credit
Instruct
Buying Client
Pay-out
Instruct
Funds
CM2
7. Pay-out from CC Settlement a/c to CC Transit a/c
8. Transfer by NSDL from CC Transit to CM2 Receipt A/c
9. Auto transfer from Receipt a/c to CM2 Pool A/c
10. Pay-out instr. by CM2 to DP – Credit instr. by BO to DP
11. Transfer from CM2 Pool a/c to Buying Client’s BO A/c
12. Download to Issuer / RTA
154
Mechanism of Off-Market Transfers
Matching of
Instructions
NSDL/CDSL
2
DP1
3
2
Securities
debited
DP2
Securities 4
credited
Issuer/RTA
5
Intimation
of Debit
1
Debit
Instructions
Selling Client
Data Downloaded
6
1
Credit
Instructions
5
Intimation
of Credit
Buying Client
1. Selling client gives debit instructions to his DP – Buying client gives credit instructions to his DP. (Buying client
may have given standing instructions for credit to his DP in which case credit instructions will not be required)
2. NSDL matches instructions entered by both DPs
3. NSDL, on successful matching of instructions, authorizes transfer of securities. The selling client’s account is
debited while the buying client’s account is credited
4. Intimation of debit and credit are given to the selling and buying clients by the respective DPs
5. Download of the transaction is sent to the Issuer / RTA
155
Back office Operations:
Primary Responsibility: Generation of contract Notes,
Trade Settlements (Pay in, Payout of
Normal & Auction Settlements).
Handling Share Error
Secondary Responsibility
(Support function)
: KYC activity (Equity & Dp
account opening), Depository
Services, Funds processing.
Software
The entire Back Office process is operated through a Software called
“Precision” developed by TCS Ltd hereinafter referred to as “Precision”.
This will also have interface with “Matrix” software for front end (Equity
& F& O product), with DP Secure for Depository Business and also with
Banking channels.
156
Activities
Activity
Day
Trading
Rolling settlement trading
T
Clearing
Custodial Confirmation
T+1 working days
Delivery generation
Settlement
Post settlement
Securities &funds pay-in
T+2 working days
Securities & funds pay-out
T+2 working days
Valuation of shortages based on
At T+1 closing
closing prices
prices
Auction
T+2 working days
Auction settlement
T+3 working days
Basic Activity of the Back office:
Trade Management and information to the Clients:
Central Operation team is responsible for download of all the transactions
(retail/ institution) from the front end Software.
In case of institutional trades, it is further necessary to verify with the
dealer to process the STP and to send the same to custodian for
confirmation.
Settlement Officer will download the required file from BSE/ NSE terminals
and the extranet provided by the NSE. The files will be downloaded as per
the timing specified by the exchange.
In the exceptional scenario where the primary link does not work, there is
a fall back option to download the data from the Exchange.
In case of BSE there is a back up link in place and for NSE, lease line &
VSAT both the connections are available to download the data.
Trade file can be processed on intraday basis, in case of requirement for
Institutions.
158
Contract Note:
Once the trade file is uploaded in the system, the Settlement Officer
generates the contract note.
i.
ii.
Generation of contract note/e-contract note.
CNs should display Transaction ID, Trade ID, and Time when transaction
was executed.
iii. CNs to be issued to all clients within 24 hours of execution of trade.
iv. Duplicates of CN should be maintained for a period of at least 8 years.
v. Acknowledged copies should be maintained, where possible. The same
should be stored at corporate office.
vi. After the contract note processing the ENDORSER facilitates sending econtract note through email to all the clients.
vii. Cases where the physical contract notes has to be delivered, the same
is generated in physical form signed by the authorized signatory and
forwarded to centralized dispatch cell for dispatching to clients.
viii. For the purpose of the delivery confirmation of contract note to the
clients the courier company will give the Acknowledgements (POD) to
TSL. All POD s will be maintained at centralized dispatched cell.
159
The Contract note processing Steps:
1. The Settlement Officer downloads trade data for each respective
exchange i.e. Broker Query File from Bolt for BSE trades and the Online
file from FTP server for NSE trades.
2. In case of Institutional trades, the data is downloaded from the BOLT &
NEAT terminal. The institutions trade and the conditions related to the
brokerage, STT, and service tax will be verified by Settlement Officer
with the Dealer as per Deal Sheet before the contract note process.
3. The Institutional settlement officer will follow-up with the local
custodian for confirmation of trades. Trade Amendments are required to
be received within stipulated time (before 4.00 pm) to allow the Back
office to ensure that all trade amendments are entered in the admin
terminals of the NSE (Please refer the Share Error & Trade Modification
document)
160
Settlement Process of Shares
• This process begins with updation of exchange data files, and culminates
with Bills / final obligation being posted in the client’s ledger. It is
pertinent to mention here that in the T + 2 settlement scenario no bills are
dispatched to the clients. The contract note itself is treated as bill for all
practical purposes.
Pay in and Pay-out of shares
• The Back Office Head assigns the responsibility of ensuring accurate and
timely Pay-in and Pay-out of shares to two designated Officers.
Primary
Responsibilities
Coordinating with TSL’s DP / Clients to
ensure timely Pay-in and Pay-out
Follow-up on shortfalls from client or
exchange
161
Pay-in of Securities
• After Contract generation, system will calculate the Client’s closing
position.
• Run Auto Inter settlement process to adjust BTST positions. Process
normal payout.
• Process security pay-in to meet sell obligation (Process will
automatically transfer the blocked securities, from clients DP a/c to TSL
pool a/c,)
• After adjusting the stocks from portfolio a/c/ withhold a/c. settlement
officer will send a mail to Branch informing the sell shortage
• Release excess holds on a daily basis.
• The pay-in securities will be available in Pool a/cs and available for
exchange pay-in.
• Any short fall in pay-in the Back office officer will communicate to
branch/ Risk manager on the same day by e-mail and also on T+1 day.
162
Payout of Securities
•
Import of payout file received from exchange to a back office system
•
All payout received in NSDL A/c. will be transferred to CDSL pool a/c for the
settlement purpose.
•
Run withhold process which will ensure the stock blocked against the debit
balance.
•
Withhold stock to be transferred to the TSL Beneficiary a/c.
•
Generate payout file and send it to DP for actual payout.
•
On specific client’s request for hold back of payout, officer will transfer the
payout stock to portfolio a/c.
•
If the stock is not received under normal payout, client will get the delivery in
auction settlement.
•
Further, if the stock is not received in Auction settlement the client will get
the Sq off Credit against his purchase.
163
Fund Processing - Pay-in of Funds
– Cheques should be collected in favour of Tata Securities Limited only
and deposited in designated bank a/c given by Fund Settlement team.
–
No cash should be accepted from clients
– Third party cheques are not to be accepted .
– Cheque’s received from clients should come from designated bank
account which is mapped in Precision.
– Details of cheque collected should be sent to Fund Settlement team by
mail or fax with cheque copy immediately.
– Fund Settlement team will verify details received from Branch and
check with Precision
– If any objection is there then reply to Branch will be sent with reason.
– After clearance of funds ,confirmed from bank statement, mail will be
sent to RMS for limit up date and entries are uploaded in Precision.
– Clients should not be encouraged to pay funds by DD. In certain cases
DD will be accepted with a declaration in specified format
(Annexure IV)
Fund Processing - Pay-out of Funds Contd.
•
Client will request payout of funds to respective Branch officials.
( Format Annexure III)
•
Branch officials will send payout request mail to RMS team before 5
p.m to be processed on same day.
•
In case RMS approve the payout request during market hours, RMS will
reduce the available limits
•
RMS will check payout request and confirm to process payout request
to Fund Settlement team before 5.30 p.m with cc to Branch official.
•
Fund Settlement team will release cheques, post entries in Precision
and will dispatch the cheques
•
For clients having bank accounts with HDFC ,ICICI,IDBI,SBI(Core
Location) and Axis Bank funds will transferred by net banking
facility.(List will be changing as and when arrangements are made)
Collateral Handling
Process where the client is having a TSL DP a/c and transferring the
stock from his beneficiary a/c to TSL collateral a/c
•
On confirmation of client, dealer creates collateral hold on the client’s DP a/c
for the said securities and the client gets the online exposure on the same if
the scrip is updated in the Matrix for collateral by Risk Manager. After market
hours branch will send the email to back office executive to transfer the said
stock to collateral a/c
•
End of the day Risk manager sends a list of collateral hold created from front
office system to the Back office executive
•
On receipt of the mail, Back office executive transfers the hold stock from
client beneficiary a/c to TSL Beneficiary (Collateral) a/c. by using the POA.
•
Client gets the exposure on the said stock on next working day through BOD
process
166
Process where the client wants to transfer the
stock from his TSL portfolio / Withhold a/c to
TSL collateral a/c
• On Clients confirmation, dealer sends a request to Risk manager to transfer
the stock from the portfolio a/c or withhold a/c to our collateral a/c.
• Risk manager verifies the exposure/Debit, if found ok sends the request to
Back office executive
• Back office executive transfers the stock from the portfolio a/c/ withhold
a/c to collateral a/c
• Client gets the exposure on the said stock on next working day.
167
Process where the client is having a DP other
than the TSL
• Client transfers the stock directly to TSL collateral a/c. and
informs to the branch.
• Back office executive at HO ensures that the stock is not third
party
• Branch sends a mail to risk with certain details (i.e. client Id,
client name, scrip name & quantity) the same to risk.
• On basis of the mail received from the Risk department Back office
executive updates the collateral stock in the precision.
• Client gets the exposure on the said stock on next working day.
168
Synopsis of Process Settlement
• Security Processing & Fund Processing
•Payout of Securities & Pay in Securities
169
Share Trade And Trades Amendments:
Share Error:
•
During the course of trading where dealer commits any mistake at the time of
placing an order, we need to take that specific trade in our a/c i.e. in share error
a/c.
•
It is a responsibility of dealer to inform Branch Head/ Compliance/ Risk Manager in
case of any share error trade.
•
Once the trade is ratified as shares error by the authorized person, the same will
communicated to the operation team. In case of NSE, the Dealer should
communicate the Share Error to the Operations team on the day of error through
email (with approval of branch head/ risk head) latest by 3:45 p.m.
•
In case of BSE, the Dealer should communicate the Share Error to the Risk Team on
the day of error through email (with approval of branch head/ risk head) latest by
3:15 p.m. to facilitate the trade modification in the Post closing session (i.e.
between 3.30 pm to 3.45 pm) of BSE.
•
This will facilitate operation team to carry out client code modification and move
the trade in shares error a/c.
170
Trade Amendments
1. Trades that need to be shifted from one account to another
would fall under this category. E.g.: A dealer has put wrong
accounts while placing the order.
2. All such trade corrections (Exchange wise) need to be
documented, have the approval of the Branch Manager and
should be forwarded to Back Office.
3. In case of BSE Trade amendment, the same is taken care by Risk
Department Cell ( refer BSE Share error Process). In case of NSE
trade amendment, the request should reach (after requisite
approval) back office before 3.45pm so that Settlement Officer
can make the necessary changes and can report the same to NSE
before 4.30.P.M.
171
Trade Amendments Contd.
4. If a trade correction is requested after the specified time,
Settlement officer will not accept the trade modification request
from the dealer, as we will not be able to give the contract note
for the same.
5.
Even the exchange reporting cannot be done after the given
time. In case of such acceptance after the specified time, such
transaction can be reversed through accounting entry (Journal
Voucher).
6. The Settlement Officer will need to handle the deliveries
manually as the trades will remain in original client a/c. As an
additional check the Settlement Officer will maintain the records
in Excel sheet for reconciliation.
172
DP operations
DP Manual
Introduction:
• Tata Securities Limited (TSL) have the membership of Central
Depository Services India Limited (CDSL) and National
Securities Depository Limited (NSDL).
• Depository Participant Module (CDAS/DPM) for CDSL/NSDL is
located at TSL-Andheri office.
• Branches will be connected through Back office software,
namely DP Secure.
• Only those branches will be connected to DP, who are having
NCFM/BCCD qualified staff.
• Depository functioning is governed by rules/ regulations of SEBI
Depository Act, 1996 and Bye-laws of respective Depository
i.e. CDSL/NSDL.
• Depository Participants (DP) are acting as agents of Depository.
174
Database Maintenance
• Client data is maintained primarily at two place i.e. depository
and depository participant.
• The master data name / ISIN master / settlement master etc.,
is maintained at Depository end.
• Data with regard like addition of script for demat / change in
to client holdings / transactions executed on day to day basis is
entered and updated in back office software at Depository
Participant end.
• The exchange of data / information between depository
participants and depository takes place on continuous basis.
• As BOD activity DP’s will update its data base by exporting the
master data from Depository.
• During the day and at EOD, DP’s will update the data base with
Depository by importing data from their back office to
depository.
175
Account Opening:Activities at Branch
Activities at HO./AO Cell at Kolkata
1)
Do the in-person verification.
1)
Inward the documents.
2)
Verification of original documents
along with KYC. Affix stamp “ verified
with original “, signature of the
authorized signatory on the AOF and
supporting documents, with employee
Id & date
2)
PAN checking on I.T .Website.
3)
Scrutiny of documents with AOF
4)
Rejection to be informed to
branches
5)
Account opening
Put “PAN VERIFIED “stamp on PAN
copy.
6)
Sending CML to client.
6)
Tariff sheet to be attached with AOF
with signature of all the holders.
DIS book will be sent to client’s
Address.
7)
The AOF will be sent for scanning.
Copy of cancelled cheque.
8)
AOF will be stored with outsource
company after Audit.
3)
3)
4)
5)
Keep the inward and outward register.
6)
Verify the franking validity.
7)
Collect initial DP charges.
8)
Enter in SAGE CRM and send to HO.
176
Dematerialization
Activity at Branch
Activity at HO.
1) On receipt of shares please check
availability of Active ISIN on DP Secure
system after that please check the
name of the company on CDSL/NSDL
pending list which is available on
CDSL/NSDL Website.
1)
Inward the documents.
2)
Scrutiny of DRF
3)
Rejection to be informed to Local
TSL office’s
4)
DRF Processing
2) Check the holders signature and
5)
combination
3) Check the face value
4) Put the stamp of “ Surrender for
Sending DRF & DRN to respective
RTA.
6)
Follow up with RTA for rejected DRN.
dematerialization“ and date of receipt
on DRF
5) Deface the share certificates.
7)
8)
Follow-up for pending DRN
DRN rejected by RTA should be
updated in DP Secure and to be
forwarded to Client’s address.
6) Keep the inward and outward register
7) Enter in SAGE CRM AND send to HO.
177
Demographic Changes
Activities at Branch
Activities at HO.
1)
Accept the request in respective
formats, duly filled and signed.
1)
Inward documents
2)
Scrutiny of documents.
2)
Affix the branch seal and sign.
3)
3)
Collect the required proof, self
attested.
Rejection will be send back to
Branches.
4)
Request’s will be process.
5)
In case of change of address CML
will be sent to old and new address.
6)
In other cases CML will be send after
effecting the changes.
7)
Signature will be updated in DPSecure after change of signature.
8)
Documents will be filed, and after
the audit it will be sent to go-down
for safe keeping.
4)
5)
In case of change of address and
change of signature please collect
identity proof.
Verify the original documents and
then affix verified with original
stamp on the Xerox copies.
6)
In case of change of signature Bank
attestation is must.
7)
Enter in SAGE CRM AND send to HO.
8)
Inward/outward register to be
maintained
178
Settlement:Activities at Branch
1)
On receipt of instruction from
client please check the signature of
all the holders and ensure that DIS
is filled in all respect.
2)
Check the settlement No. & DP
outstanding dues.
3)
4)
5)
Put the date & time stamp with
signature on both the copies of DIS
& also put the late stamp if
applicable on both the copies of
DIS.
Enter the DIS in DP Secure (Maker)
and forward the same through
Fax/Scan to HO.
Send the original DIS to HO with
Daily report from DP Secure by
retaining one copy with the Local
TSL office.
Activities at HO.
1)
On receipt of Fax/Scan instruction
DIS the HO will authorize the same,
In case it require Value
authorization the same will be
done from HO.
2)
In case of Dormant account HO will
take an additional precaution with
additional check.
3)
HO will generate the batch from
time to time and upload the same
in CDAS.
4)
Ho will also update the status of
instructions 4 to 5 times a day.
5)
Ho will reconcile the DIS received
from Local TSL office’s for
safekeeping and Audit.
179
DIS Issuance
Activities at Branches
Activities at HO
ON RECEIPT OF REQUISITION:
1)
HO will inward and do the
scrutiny of requisition slip
2)
If rejected then it will be
inform to Local TSL office.
3)
The new DIS book will be
issued to Client and will be
forwarded to client’s address
directly.
4)
In case of lost DIS, HO will
block the slips in DP Secure
system.
5)
DIS register will be
maintained at HO.
1)
2)
3)
On receipt of requisition slip, pl. check
the signature (of all the holders) from DP
Secure.
Establish the identity of client before
sending the DIS requisition to HO.
Maintain inward/outward register.
ON RECEIPT OF REQUEST LETTER
1)
On receipt of request letter for want of
fresh DIS Book, pl. check the signature
(of all the holders) from DP Secure.
2)
Establish client identity by doing Inperson verification on PAN card copy and
then send the request to HO.
180
Other Services:•
Branch will accept other request from client such as Account Closure / Demat
Request / Remat Request / Transmission after due verification and forward to
HO.
•
If the documents are in order, HO will execute the clients request
•
Rematerialization :– Rematerialization is the process where shares converted
into electronic mode can be reconverted into physical share certificates.
•
Pledge :– Pledge is the instruction where client can pledge his shares to
another depository account holder with same depository or with client having
account with another depository. In case of pledging, shares will be lien
marked in the pledgor’s account, but will not moved out of pledgor’s account
to pledgee’s account till pledgee proposes invocation instruction.
•
Demographic Changes.-Such as Change of Address, change in Bank details,
change of signature etc.
•
Account Closure.- With or without stock in the account & Waiver.
Transmission
181
Regulatory Requirements at Corporate office
• Transaction statements will be generated on monthly basis, and
the same will be forwarded to clients through email.
• Investor Grievances (IG-Report) to Depository.
• Handling of Internal & Concurrent Audit queries.
• Audit reports to be submitted in stipulated time to respective
authorities.
• Filling of MIS reports to Management.
• Record Maintenance.
182
Synopsis of Database Maintenance
•
Database Maintenance
•
Activities at Branch & HO
1. Account opening
2. Dematerialization
3. Demographic Changes
4. Settlement
5. DIS Issuance
183
Risk Management Policy
Risk Management Policy for Derivatives and Cash Market
Contents
1
Introduction and Scope of the policy
2
Margin Policy
3
Exposure Policy
4
Blow out policy
5
Debtor and Recovery Policy
185
Introduction and Scope of the policy
Introduction
“The Risk Management policy will serve as a guide to the
organization in the practice of efficient risk management.”
Scope
Market Risk Management Domain of Tata Securities Limited
(TSL)
Owner
• Risk Control Committee (RCC)
• Member of RCC: Chief Executive Officer (CEO),
Equity
Head, Compliance Head, Chief
Financial Officer (CFO)-TSL & TCL ,Risk
Head, Chief Risk Officer-TCL, Head Operations
186
Client Categorization
TSL Clients
Retail:
 HNI
 Individuals
 Trust
 HUF and
 Corporate
Institutions:
 Financial institutions
(FI’s)
 Foreign institutional
investors (FII’s)
 Mutual Funds (MF’s)
 Banks and Insurance
Companies.
 PSU’s
187
Margin
• Forms Of margin
Securities Deposit (SD)
Margin
Clear Fund
Margin Available = Clear Fund + Stock
188
Collaterals valuation Flow
Stock
from
Clients
Transfer to
collateral
A/C
Collateral
values
Application of
Valuation factor
Collateral Margin
Available
Sum of collateral value
available as margin
189
Margin Requirements (Cash Segment)
• Client needs to pay:
Based on the Quantitative and Qualitative criteria of TSL, Risk
Management identifies the securities eligible for margin trading. In various
scenario the below margin will be required for trade:
– 25 % Margin for stock eligible for 4 Multiple
– 33% % Margin for stock eligible for 3Multiple
– 50 % Margin for stock eligible for 2 multiple
– 100% Margin not falling in above criteria of TSL
190
Quantification of Margin Requirement (Cash)
• Cash and Carry Trades:
– Margin Required = 100% of transaction value (Cash/DP) + Brokerage
and extra charges
• Margin Trades:
– Margin Required = (Margin specified by TSL) % * (Traded Value +
Exchange Pending Value)
– Intra Day Margin Trades :2,4,6 times as per Scrip Profiling
• T2T Stock:
– Margin Required = 100% of transaction Value + Brokerage and extra
charges.
191
Margin Requirement (Derivatives)
• Span & Additional Margin: Client need to pay upfront Span + Additional
Margin as specified by exchanges/ TSL
• Premium: Upfront premium required in case of option buy position
• Intra Day Margin :For specified clients ,having 15 Lakhs Net Worth and
5 lakhs Annual Income 50 5 of Span.
• M2M Margin:
– Client expected to pay MTM losses to hold the position after certain
level
– Only clear fund will be considered
192
Quantification of Margin Requirement (Derivatives)
Futures trades
• Margin Required = {(Total traded value + Exchange pending
order)*(SPAN + Additional margin)} + Brokerage + Statutory
charges
Option Trades
• Fund Required = Premium/ Margin + Brokerage + Statutory
charges
193
Fund/ Securities collection
Online Fund
Transfer
Offline Cheque
Mode
Securities
Transfer
• Immediate
Fund
upload for
trade
• Clear Fund:
Fund upload
for trades
• Securities
Received by
TSL in
collateral
Account
• Unclear
Fund:
exceptional
limit upload
based on
conditions
• Limit
upload after
valuation
194
Conditions for exceptional limit
• Conditions for Exceptional limits:
– Trading history for three months
• Process of granting Exceptional Limit
– Approval as per approval matrix
– Upper cap of Exceptions:
• Client wise up to Rs. 50,000
• Branch wise ceiling Rs. 5,00,000
• Company level ceiling 10% of the net worth based on
audited financial statement
195
Unclear fund authorization matrix
Amount
Up to 50,000
Initiator
Reviewer
Zonal Head
Approver
Equity head
Risk Head (TSL)
> Rs 50k and up to Rs
2 lac
Zonal Head
Business Head
196
Exposure Policy
Cash market:
• Multiple of 4, 3, 2 and 1 times of Margin available
• The multiple is subject to change from time to time
• No exposure allowed in Z group Stock’s
• Trade allowed in T2T Stock against 100% margin
• Liquidation at 70% margin erosion
Derivative market:
• Liquidation at 70% margin erosion
• No fresh exposure allowed in securities in Ban Period
197
Margin Calls
EOD/BOD Margin shortfall
• Margin shortfall calculation basis exchange specification
• Shortfall report will be provided to Branches' on daily basis
• RM will review the Shortfall report and take action
Intraday margin
• MTM will be monitored by Risk Manager on real time basis
• Customer care will inform the Client regarding shortfall
• Mode of collection:
– Online transfer
– DD with Self declaration letter of client for ownership of fund with
bank statement
1
198
Blow out of position (Due to MTM Loss)
MTM Loss 50% of
Margin
• Intimation to Branch
MTM Loss Beyond
60% of Margin
• Reminder to Branch about MTM
MTM Loss Beyond
70% of Margin
• Liquidation of Position
199
Blow out of position (Due to Debit)
Settlement Debit
(T+2)
• Intimation to Branch
T+3 Days
• Reminder to Branch about Debit
T+5 Days
• Liquidation of Position
200
Blow out of position (Intraday trades)
3.00 PM
• Cancellation of pending order
3.05 PM
• Fresh Sq-off order placement
3.15 PM
• Liquidation of Position
201
Debtor and Recovery Policy
Settlement Debit
• BM’s will initiate the settlement debit recovery process on daily basis
• Liquidation of Stock by Risk management on default by clients in
term of Settlement and cheque bounce.
• In case of Cheque bounce:
– The client to be put on blacklist in case of second instance of
cheque bouncing in span of 3 months.
– RM’s will Initiate recovery by informing BM’s giving three days
notice to recover
– On clients default RM initiate action with consultation of RM
202
SUSPENSION, DEACTIVATION AND RE-ACTIVATION OF
CLIENTS
• Client whose account is in debit will be temporarily suspended for
trading. The account will be activated by RM after the Client funds the
debit amount.
• The clients will be deactivated for trading based on intimation from
Regulators or where Management feels in prudent that the Account be
either suspended or deactivated.
203
Margin Trading
Introduction
• Margin Trading product -Within the framework of SEBI
guidelines in both exchanges NSE and BSE in Cash Segment
• Maximum allowable exposure for Margin Trading –Not to
exceed the borrowed funds and 50% of Net Worth.
• Prior approval of both the exchanges.
Prerequisites
• To start with Margin Trading an application has to be submitted
to exchanges.
• A separate agreement will have to be signed by client for
availing the Margin trading and should be registered client of TSL
in cash market segment.
• Declaration from client to be obtained whether he has availed of
any margin trading facility from any other broker and
No-objection certificate in writing from other broker/s if
availed.
• Client should open a separate DP A/c along with and POA with
TSL.
Objectives
• Margin Trading facility -Offered by TSL to clients wherein client
pays only part of the amount(50 %) due from him towards his
Securities purchase obligations with the balance(50%) being
financed by TSL.
• The rationale -Client's portfolio will grow in value at a greater rate
than the cost of borrowing, while (financer) TSL earns interest on
the amount lent to client.
Features
• Margin Trading product -Will be offered to TSL clients in Cash
Segment on both the exchanges.
• Margin Trading facility will be offered in all the securities eligible
for margin trading facility as may be prescribed from time to time
by SEBI/Stock Exchanges and TSL RCC policy. However the same
will be restricted to the scrips approved by RCC (Currently 366
Scrips).
• By availing the facility of Margin trading, a client can obtain
finance up to an extent of 50% of the value of the stocks and the
maximum tenure will be 60 days.
• Initially Overall limit for Margin Trading will not exceed Rs 3 crores
and exposure to any single client at any point of time will be
restricted to Rs 25 lakhs.
• Clients have to make initial margin payment to an extent of 50 % of
the contract value before the execution of the trades
• Maintenance margin for the client will be 40%, calculated as a
percentage of the market value of the securities, calculated with
respect to the last trading day’s closing price, to be maintained by
the client with TSL, to be paid in cash.
• Margin calls will be made to the clients for payment of the additional
margin to TSL .
• The interest rate for Margin Trading would be 14% p.a. for clients
giving cash margin up to Rs 10 lakhs and 13% p.a. for clients giving
cash margin above Rs 10 lakhs.
• The interest will be charged on monthly basis / closure date and
calculation will be on T+2 day.
Control Measures
• Margin trading facility will be given to clients after checking fulfilled
criteria of CIBIL and Dedupe.
• Risk for Margin trading product is comparative less as 50% margin is
collected upfront basis.
• On daily basis interest calculation report client wise, securities wise and
days remaining for each funded scrips will be generated
• TSL will liquidate the securities:
if the client fails to meet the margin call made by TSL or
fails to remit the amount on the day immediately following the day on
which the margin call has been made or
where the cheque delivered by the client has been dishonored
Reporting and Disclosure of exposure
• TSL to disclose to the stock exchange/s details:
Gross exposure including name of the client, PAN, name of the scrip
Name of the lender and amount borrowed if the TSL has borrowed
funds for the purpose of providing margin trading facility, before 12
noon on the following day
•
TSL to submit to the stock exchange a half-yearly certificate, as on
31st March and 30th September of each year, from an auditor
confirming the net worth. Such a certificate shall be submitted not
later than 30th April and 31st October of the year.
• Client will be able to view holdings for designated DP A/c along with
Beneficiary DP A/c.
Understanding Insider Trading
Topics to be addressed
• Background of Code of Conduct for Insider Trading
• Purpose
• Definition
• Applicability to TSL
• Terms explained
• Grey List
• Pre Clearance Procedure
What is Insider Trading?
A definition
Insider trading means dealing in Securities of a company
by its Directors, Employees or other Insiders based on
unpublished
Company.
Price
Sensitive
Information
of
such
Why a Code of Conduct for Insider
Trading?
• Good Corporate Governance practices
• Ethical Behavior
• Protects the interests of the Investing Public
• To meet the statutory requirements of SEBI
What Constitutes Insider Trading?
Information about a Company regarding…
• acquisition and divestiture of businesses or business units
• financial information such as profits, earnings and
dividends
• announcement of new product introductions or
developments
• asset revaluations
• investment decisions/plans
• restructuring plans
• major supply and delivery agreements
• raising finances
The above list is not exhaustive.
Background of Code of Conduct for Prevention of
Insider Trading….
The Securities and Exchange Board of India (SEBI), in its endeavor to
protect the interests of investors in general, has formulated the SEBI
(Prohibition of Insider Trading) Regulations, 1992 under the powers
conferred on it under the SEBI Act, 1992.

The Regulations deal with trading by directors / employees / other
insiders in the stock of their own Company based on insider Price
Sensitive Information available.
Applicability to TSL
• Not applicable to TSL from that point of view…
• However, TSL in the business of providing:Financial Services (such as stock broking, Depository Participant,
distribution of mutual fund products, research and advisory
services).
 Hence, there is a likelihood of the Directors / Officers and
Employees of TSL being in possession of Price Sensitive
Information in respect of listed certain companies with whom it
has dealings.
Definition of some terms……
Price Specific Information (PSI):
means any information, which
relates directly or indirectly to
Other Companies and which, if
published, is likely to materially
affect the price of the Securities
of such Companies.
Insider: means any person who,
is or was connected with the
Company and / or other
Companies or is deemed to have
been connected with such
companies,
and
who
is
reasonably expected to have
access to unpublished PSI in
respect of Securities of such
companies, or who has received
or has had access to such
unpublished PSI.
Definition of some terms……cont’d
Inside Areas:
Compliance Officer:
Those areas of the Company which
routinely have access to confidential
information.
CFO / Company Secretary / Senior
Officer appointed by the Board for
implementing and overseeing
compliance with the Regulations and
the Code across the Company...
Unpublished Information:
means any information which is not disclosed /
disseminated/published by the company or its agents and not specific
in nature.
Note: Speculative reports in print or electronic media is not
considered to be published information.
PSI Includes
i.
Periodical audited or unaudited financial results;
ii.
Intended declaration of dividends (both interim and final);
iii.
Issue of securities or buy-back of securities
iv.
Any major expansion plans or execution of new projects;
v.
Amalgamation, mergers or takeovers;
vi.
Disposal of the whole or a substantial part of the undertaking;
vii. Any significant changes in policies, plans or operations of the
company;
The Concept of ‘Chinese Wall Policy’
•
A policy aimed at segregating Inside Areas from Public Areas.
•
Main aim:-to protect PSI from the public domain.
•
Ensures secrecy of PSI.
•
PSI can be divulged to Public Areas (known as ‘over the wall’) on a need
to know basis.
Inside Area
Outside Area
What is the ‘Grey List’?
•A list maintained by the Compliance Officer.
Prepared when TSL has access to PSI of such a Company.
The Grey List will contain names of securities when…….
Important criteria
 TSL is preparing Research Reports on such companies
 Any activity carried out in the TSL Research Department which may give
them direct access to unpublished information of a Company.
 Discussions / negotiations for investments, acquisitions, matters relating
to capital markets are under process with TSL.
 Preparing appraisal reports.
 Handling any assignment for a listed Company.
‘Grey List’ & its effects
• Maintained confidentially by the Compliance Officer.
• Has the effect on dealings of all employees including those in the
Research Department.
• Trading blocked or disallowed at the time of pre-clearance.
Discussion on Pre Clearance
1)
What is pre-Clearance?
2)
When is required to be obtained?
3)
The Pre-Clearance Process
What is Pre Clearance?
Written permission from Compliance Officer by Specified Persons for dealing in
Securities
The value of the deal > Rs. 5 lakhs (per security) per annum.
Points to note:
1) Applicable to Employee & his / her dependants.
2) Also applicable on aggregate basis i.e. if dealing > Rs. 5 lakhs in
total in a financial year.
3) Not applicable to Investments made under the ‘discretionary
portfolio management service agreement’ with a Portfolio Manager.
Pre Clearance – How to go about taking permission…
• The Compliance Officer to give permission to deal in such
securities.
• Permission to be granted after satisfaction of clear intent.
Compliance Officer
(for approval)
E-Mail @
Along with
necessary
documents
tsl.preclearance@
tatacapital.com
Pre-Clearance How to go about taking permission….
Necessary
documents
(1) Application (Annexure#4 of the Code of
Conduct)
(2) Declarations, Indemnity Bond & other paper
documents as maybe prescribed by C.O. from
time to time.
Pre Clearance – What you need to do.
• Signing of Acknowledgement & Undertaking (Annexure~1 of
Code of Conduct)
• Filing of declaration in 21 days of joining service (Annexure~2 of
Code of Conduct)
Annexure 1 & 2 of Code of Conduct
• Submission of biannual statements of transactions and holdings in Securities
obtained from the depository participant, for the period ending 30th June and
31st December. (Annexure 6 of Code of Conduct)

To be filed < 21 days from the end of the period to which the
statement pertains.
Annexure~6
Other Important points relating to Insider
Trading / Pre Clearance………
•
•
•
•
Compliance Officer consent / rejection <= 1 day.
Dealing in pre-cleared security < 1 week
Holding Period = 30 days (minimum).
Research Department
No dealing
During preparation of reports + 30 days.
Penalties for contravention of Code
•
Penal Action as per Law + Wage Freeze / Suspension
•
SEBI can also take legal action against offending employee.
•
15G of SEBI Act – Penalty of Rs. 25 crs / 3 × times profits from
Insider Trading whichever is higher!!!
•
Section 24 of SEBI Act – Imprisonment upto 10 years & or
fine of Rs. 25 crores.
Insider Trading Provisions
Do’s
1.
2.
3.
4.
Don'ts:
Any employee wishing to
establish and maintain a trading
account to hold such account inhouse.
Complete all Account Opening
Formalities
Policy extends to employeerelated accounts( the employee’s
spouse, children, or any other
individual which an employee
controls or in which an employee
has a beneficial interest.)
Required to submit such
declarations/ undertakings on
periodic basis ( currently biannual) as per TSL Insider Trading
Policy
1.
Day Trading / Trading in F&O
segment is prohibited.
2.
Periodically, the securities of a
company may be put on a
Restricted List. Employees are
not permitted to transact in
these securities during this
period.
3.
Inside areas will be segregated
from public areas. Do not
communicate any PSI to anyone
in public areas.
4.
Do not use the PSI to deal in
securities for yourself or
related person.
Insider Trading Provisions
Dos:
5.
6.
7.
8.
Maintain confidentiality of all unpublished price sensitive
information (UPSI) coming into your possession or control.
UPSI shall be disclosed only to those persons/ within the Company
who need to know the same during the course of performance of
duties.
Obtain pre-clearance of trades from the Compliance Officer.
Dealings upto Rs. 5 lakhs in the value of each scrip in the Financial
year are accepted
Violations to the policy may result in account closures, and/or
termination of employment.
Surveillance – Trade Monitor
Brief Overview
Trade Monitor is designated to monitor the clients trade on
various parameters. Trade Monitor requires the client list, daily
trade date, daily Bhavcopy, FNO lot size file and optionally few
other files as input to generate information.
Reports and alerts can be generated for a selected period.
Trade Monitor does not create any new data. The purpose is to
track the respective trades done by TSL in
Cash segments – BSE & NSE
FNO segments – NSE
Various Reports generated by Trade Monitor
Low Price Scrip: TSL clients trading in scrip priced below the
parameter price entered by user.
Trades as High/Low: TSL clients trading in scrip priced at the market
high or low as per the bhavcopy rates.
Market Volume Concentration: TSL client trades per day in a scrip
exceeds the % selected by the user. Option to filter to the % of the
firm volumes is also available
Trading pattern scrutiny: Buying and selling summary scrip wise
during the selected period.
Intraday Trades: TSL clients buying and selling a scrip on a day, with
option to filter to clients booking profit or loss.
BTST: List of clients who have bought a scrip on a day and sold it on
the next trading day.
Dealer trading pattern: A percentage of total dealer trades (total of
all TSL clients linked to the dealer as per the client master)
resulting in delivery and trading
Selected Clients: Finds the trades done by a pre selected list of
clients, or a particular client selected at report generation or all
clients of a particular category.
Selected Scrip: Find the clients who have traded in a pre selected list
of a scrip, or a particular group.
Matched trades: The report identifies a matched trade based on the
trade number. The match may be occur between 2 different clients
or the same client. The report further locates if there was a
subsequent reversal of the earlier transaction
Single leg trades: TSL clients only buying or selling a scrip on day
where the High/low swing exceeds a selected % and also the clients
trades exceeds a selected % of the exchange turnover.
Trading v/s delivery: A percentage of total client trades resulting in
delivery and trading .
Trade in low volume scrip: Find a list of clients trading in scrip
having a low volume on exchange for number of days.
Trade in price/volume momentum scrip: TSL client trades where the
price/volume has fluctuated by a percentage selected with
selected period.
Front running: A single trade exceeding a particular value in TSL and
other clients who have traded in that scrip, prior to the trade
Thank You