DEMAT

MARGIN TRADING
COMMODITY TRADING
NSE BSE

Prepared BY:
Arvind Kumar
Prateek Jain
Sanchit Jindal
Sourav Bainar
DEMAT
 DEMATERIALISATION

Introduced in India through the enactment of the Depositories Act, 1996.

An investor who wants to trade online needs to open a Demat with a Depository Participant (D
P).

The purpose of dematerialisation is to eliminate the need for the investor to hold physical share c
ertificates and facilitating a seamless tracking and monitoring of holdings.

A select list of securities announced by SEBI can be delivered only in Demat form in the stock ex
changes connected to NSDL.
WHY DEMATERIALISATION ?

Handling of paperwork related to shares in the physical format often led to errors and unforesee
n mishaps in the past

Tracking records and share documents with respect to transfer and upkeep transactions was diffi
cult

The authorities in charge of updating these documents could not keep up with the increasing vol
ume of share papers, which, if left unchecked, could cripple the financial base of the Indian share
market and associated businesses
DEMAT ACCOUNT

 DEMAT refers to Dematerialized account.

 Conversion of physical securities into electronic form.

 During online trading, shares are bought and held in a Demat account, thus facilitating easy tr
ade for the users.

 A demat account holds all the investments an individual makes in shares, government securitie
s, exchange-traded funds, bonds and mutual funds in one place.
DOCUMENTS REQUIRED FOR A
DEMAT ACCOUNT?

Proof of Identity (POI) (Eg.: Driving license)

Proof of Address (POA) (Eg.: Passport)

Proof of Income (For trading in derivatives such as F&O) (Eg.: Copy of ITR Acknowledgement)

Proof of Bank Account (Eg.: Cancelled cheque)

PAN Card

1 to 3 passport size photographs

FEATURES OF DEMAT ACCOUNT

 DEMAT is a safe and convenient way to hold securities as it allows immediate transfer of secu
rities.

 No need of stamp duty on transfer of securities.

 Purchase, hold and sell of shares in electronic form.

 Major reduction in paperwork.

 Eliminating the risks such as bad delivery, loss of certificates, delay & theft.
BENEFITS OF A DEMAT ACCOUNT
TYPES OF DEMAT ACCOUNTS

Regular Demat account: Traders who reside in India use this type of account.

Repatriable Demat account: This is a Demat account which is useful to the Non-Resident India
ns as it allows fund transfers abroad. Such a Demat account requires an associated NRE bank acco
unt.

Non-Repatriable Demat account: This account, too, is for the Non-Resident Indians. However,
in this case, funds cannot be transferred abroad, and this account requires an associated NRO ban
k account.
REMATERIALISATION

Any investor who has already converted the securities and debenture certificates to electronic for
mats has the option of changing them to physical form once again.

People opt for rematerialisation to avoid paying for the maintenance charge of a Demat account
that has only 1 or 2 shares.

It is the process of converting all securities in the electronic form to physical certificates. You will
need to fill out a Remat Request Form (RRF) and approach the Depository Participant (DP) with i
t.
 THE DIFFERENCE
Parameters Dematerialisation Rematerialisation

Meaning The transformation of physical Conversion of the electronic records

certificates of shares and of the share to paper (physical) form
debentures to electronic form

Identification Of Shares Dematerialised shares do not have a They possess distinct numbers issued
distinct number by the registrar and transfer agents
(RTA)

Transaction Mode All transactions take place in All transactions post-

electronic formats only rematerialisation take place
physically

Account Maintenance Authority The Depository participant (NSDL or The company is in charge of account
CDSL) is in charge of the account maintenance
maintenance
 THE DIFFERENCE
Parameters Dematerialisation Rematerialisation

Maintenance Costs The annual charges for maintenance No maintenance charges are
vary between Rs. 500 and Rs. 1000 necessary for physical certificates

Security Threats to the digital form are low Threat of forgery and fraud to
physical paperwork is higher

Difficulty Dematerialisation is an easy process. Rematerialisation is a complex

It is a ubiquitous part of share process that takes a long time. It is
trading; almost every investor has difficult and may require expert
experienced once assistance
COMMODITY
TRADING
Commodity

A commodity is a good or raw material that is bought or sold by individuals or institutions.

Commodities are what makeup goods and services in commerce.

Commodity markets are markets where raw or primary products are exchanged.

They can mainly be categorized into

Bullion
Agricultural
Energy
Base Metals
Commodities as a separate “Asset Class”

Capital based assets like “Bonds”, “Equity Stocks”, “Foreign Currencies”, etc. give returns
for the time value of the money put upfront, as well as the risk he is holding.

 Commodity pricing is driven by factors like demand, supply, inventory, transportation,

seasonality etc. Hence, commodities are treated as a different asset class.

 Commodities are lucrative for investment during times of high inflation as they usually
outpace inflation.

 Commodities are traded in a Commodities Exchange like NYMEX, ICE, NYCE, LIFFE, CBOT,
WTI, LME, WCE.

 Commodities are usually traded as futures contracts. OTC trading of Commodities also take
place as Forward contracts or Spot trading.
Commodities in a Portfolio

Commodities have a low to negative correlation with other asset classes like stocks
and bonds

The negative correlation between commodities and other capital based asset classes help
in hedging the portfolio against inflation.

However commodities are risky assets as they have high volatility but small investors are
always interested in commodities for the opportunity of arbitrage as they give high returns.

An intelligent addition of commodities to a portfolio consisting of equity

stocks and bonds that are less volatile than commodities, decreases the overall
risk of the portfolio and in most cases increases the overall expected return.
Ways of Investing in Commodities

SPOT TRADING
Instant cash is used to physically exchange the commodities, which pass from sellers hands to
users.

Risks involved:
Price Risk, Transportation Risk, Delivery Risk, Credit Risk

Due to the presence of the above risks in spot trading various exchanges were started for commoditie
s trading and Futures

Purchasing stocks of commodity-related companies

Buying stocks of natural resource companies has always been a traditional way of benefiting fro
m an anticipated rise in the price of a commodity.

In order to avoid currency risk, US investors will buy Exxon or Texaco stocks while UK investors
will chose British Petroleum stocks.
Ways of Investing in Commodities
Purchase of Commodity Futures
A direct way to build targeted exposure to a given commodity is to take a long or short position
in Futures on that commodity

Generally hedgers, speculators and arbitragers are the players in a futures market.

Forward Contracts Futures Contracts

Bilateral agreement.
Flexibility in contract with respect
to delivery date, quality, quantity,
etc.
No mechanism or regulation for
pricing or delivery.
Presence of Counterparty Credit
Risk.
Pricing is fixed by trading parties.
Less liquid.
Transaction, storage, customs may
cost very high.
 Standardized commodities.
 Necessity of a physical delivery with
strict quality regulations.
 Central clearing mechanism generating
“Market Practices”.
 Absence of Counterparty Credit Risk
 Transparent Pricing.
 High Liquidity.
 Low transaction costs.
Ways of Investing in Commodities

Purchase of Commodity Options

Like futures, options with commodities as underlying assets are standardized by a commodities
exchange.

Options in commodities are available in all forms and features as for other asset classes such as
Call Options, Put Options using strategies such as Straddles, Butterflies, Risk Reversals, etc.

The options can be European as well as American.

Global Commodity Indices

Commodity Research Bureau (CRB)

 Goldman Sachs Commodity Index (GSCI)

 Dow Jones – American International Group Commodity Index (DJAIGCI)

 S & P Commodity Index (SPCI)

 Deutsche Bank Liquid Commodity Index (DBLCI)

 London Metal Exchange Index (LMEX)

MCX iCOMDEX COMPOSITE

Benefits of Indexes in Commodity Markets

They provide information about the price of a commodity either worldwide or at a given locatio
n

It allows new players to enter the market.

They are lucrative investment instruments for interested players who don’t wish to deal with the
physical commodity.
Stock Exchange

A Stock exchange is a form of exchange which provides services for stock brokers and traders to
buy and sell of securities such as share of stock and bonds and other financial instruments.

Securities traded on a stock exchange include stock issued by companies, unit trusts, derivatives,
pooled investment products and bonds.

Stock exchange in India are governed by SEBI.

In India there are 3 major stock exchanges:

• National Stock Exchange(NSE)
• Bombay Stock Exchange(BSE)
• Calcutta Stock Exchange
National Stock Exchange (NSE)

 The National Stock Exchange of India Ltd.(NSE)

is the country’s leading stock exchange
located in the financial capital of India(Mumbai).
 The NSE was established in 1992 as the first
dematerialized electronic exchange in the country.
 NSE was the first exchange in the country to
provides a modern, fully automated screen-based
trading system, with over two lakhs trading terminals.
Bombay Stock Exchange (BSE)

Bombay Stock Exchange (BSE) Established

in 1875,BSE Ltd. Asia’s first Stock Exchange
and one of India’s leading exchange groups.
More than 5000 companies are listed on BSE
making it world’s No.1 exchange in terms of
listed members.
BSE Ltd is world’s fifth most active exchange in
terms of number of transactions handled through
its electronic trading system.
Clearing and Settlement process

When you buy a stock:

Day 1 - The trade(T Day)

 The day you make the transaction is referred to as the trade date, represented as ‘T
Day’.
 By the end of trade day, your broker will debit purchasing amount of shares and the
applicable charges.
 But the shares are not debited on the same day in your DEMAT account.

For Example: If you buy 100 shares of Reliance Industries at Rs.1000/- per share. The total buyin
g value is Rs.100000/-(100*1000). So, at the end of the trade day your broker will debit Rs.10000
0/- and the applicable charges.
Clearing and Settlement process

Day 2- Trade Day + 1(T + Day)

The Day after you made the transaction is called the T + 1 day.
 On T + 1 day you can sell the stock that you purchase previous day. If you do so, y
ou are basically doing a quick trade. But if you sell then its very risky for the traders
who is beginners.

Day 3- Trade Day + 2(T + 2Day)

On day 3, around 11 AM shares are debited from the person who sold you the shares and credited
to the brokerage with whom you trading, who will in turn credit it to your DEMAT account by th
e end of the day. Similarly, money that was debited from you is credited to the person who sold th
e shares.
The shares will now start reflecting in the DEMAT account indicating that you own 100 shares of
Reliance.
When you sell a stock

The day you sell the stocks is again called the trade day, represented as ‘T Day’.

The moment you sell the stock from your DEMAT account, the stock gets blocked.

Before the T + 2 day the blocked shares are given to the exchange.

On T + 2 day you would receive the funds from the sale which will be credited to your trading a
ccount after deduction of all applicable charges.
What happens if clearance and
settlement process fails….!

What is a fail?

A fail occurs if a buyer fails to deliver funds or a seller fails to deliver an asset by
the
settlement date.

Why do trade fails?

The most common reasons for a failed transaction are an inability to pay, not owning the
asset to deliver, or mismatching, late, or missing information.
Conclusion:

So, to avoid the settlement process fai

lure the buyer and seller will deliver t
he funds and assets before the settle
ment date. So that the trading done i
n an systematic manner.