A study on Online Stock Trading in India

A study on Online Stock Trading in India

GUIDE CERTIFICATE

This is to certify that the project work entitled “A study on Online Stock Trading in India” is a bonafide project work carried out by XYZ Enrollment No.: XYZ in partial fulfillment for the award of degree of MBA XYZ University under my guidance. This project work is original one and not submitted earlier for the award of any degree / diploma elsewhere.

Student’s Signature Guide

Signature of the

Date:

-2–

DECLARATION BY THE CANDIDATE

I Padmanabhan K hereby declare that the project “A study on Online

Stock

Trading

in

India”

submitted

to

the

XYZ

UNIVERSITY in the partial fulfillment of requirement for the award of the degree of MASTER OF BUSSINESS ADMINISTRATION is a record of original project done by me under the supervision of Ms XYZ.

Enrolment No: XYZ Date:

Signatu re

-3–

ACKNOWLEDGEMENT At the outset, I wish to express my sincere thanks to the almighty for showering his blessings on me to complete this project. Success in not a destination but a journey- it is often said.

I realized it even better during course of creating this project. With this project I hope to develop a futuristic view of industry’s progress. I may not have come this far without help, guidance and support

of

certain

people

who

acted

as

guide,

friend

and

torchbearers along the way.

I feel it my profound privilege to express my most sincere gratitude and indebtedness to Mrs. Chandra Iyer and Mr.Ryan Colaco, Sr Manager, Axis Bank who had introduced me to world of online trading 6 years back by gifting me 100 shares of axis bank as result I had to open up my 1 st demat account with icicidirect.

Today I along with my wife and friends are involved in intra-day trading using tips from various trading agencies.

Last but not least I like to thank my parents, my beloved brother, and friends & colleagues for their moral support for completing this project work successfully PADMANABHAN KRISHNAMURTHY

-4–

Abstract

Online services offer customers a splendid display of benefits such as enhanced control, ease of use and reduced transaction charges. Consequently, online services have grown rapidly and have emerged as a leading edge of service industry. Providing online services in developed stock exchange such as Japan, USA, France, Singapore, UK and India has lead market to become more competitive. Therefore, brokerages compete in offering superior service quality.

To understand the online trading we need to know the history of stock trading in India and total exchange in India such has NSE and BSE. Stock markets refer to a market place where investors can buy and sell stocks. The price at which each buying and selling transaction takes is determined by the market forces (i.e. demand and supply for a particular stock).

Let us take an example for a better understanding of how market forces determine stock prices. ABC Co. Ltd. enjoys high investor confidence and there is an anticipation of an upward movement in its stock price. More and more people would want to buy this stock (i.e. high demand) and very few people will want to sell this stock at current market price (i.e. less supply). Therefore, buyers will have to bid a higher price for this stock to match the ask price from the seller which will increase the stock price of ABC Co. Ltd. On the contrary, if there are more sellers than buyers (i.e. high supply and low demand) for the stock of ABC Co. Ltd. in the market, its price will fall down.

In earlier times, buyers and sellers used to assemble at stock exchanges to make a transaction but now with the dawn of IT, most of the operations are done electronically and the stock markets have become almost paperless. Now investors dont have to gather at the Exchanges, and can trade freely from their home or office over the phone or through Internet.

History of the Indian Stock Market - The Origin

-5–

One of the oldest stock markets in Asia, the Indian Stock Markets have a 200 years old history.

East India Company was the dominant institution and 18th Century: by end of the century, busuness in its loan securities gained full momentum Business on corporate stocks and shares in Bank and 1830's: Cotton presses started in Bombay. Trading list by the end of 1839 got broader Recognition from banks and merchants to about half 1840's: a dozen brokers Rapid development of commercial enterprise saw 1850's: brokerage business attracting more people into the business 1860's: The number of brokers increased to 60 The American Civil War broke out which caused a stoppage of cotton supply from United States of 1860-61: America; marking the beginning of the "Share Mania" in India 1862-63: The number of brokers increased to about 200 to 250 A disastrous slump began at the end of the American Civil War (as an example, Bank of Bombay Share 1865: which had touched Rs. 2850 could only be sold at Rs. 87)

Pre-Independance Scenario - Establishment of Different Stock Exchanges

1874:

1875: 1880's: 1894:

With the rapidly developing share trading business, brokers used to gather at a street (now well known as "Dalal Street") for the purpose of transacting business.

"The Native Share and Stock Brokers' Association" (also known as "The Bombay Stock Exchange") was established in Bombay Development of cotton mills industry and set up of many others Establishment of "The Ahmedabad Share and Stock Brokers' Association"

-6–

Sharp increase in share prices of jute industries in 1870’s was followed by a boom in tea stocks and coal "The Calcutta Stock Exchange Association" was 1908: formed Madras witnessed boom and business at "The Madras 1920: Stock Exchange" was transacted with 100 brokers.

When recession followed, number of brokers came 1923: down to 3 and the Exchange was closed down

1880 - 90's:

1934: Establishment of the Lahore Stock Exchange Merger of the Lahore Stock Exchange with the Punjab 1936: Stock Exchange

1937:

1940: 1944:

1947:

Re-organisation and set up of the Madras Stock Exchange Limited (Pvt.) Limited led by improvement in stock market activities in South India with establishment of new textile mills and plantation companies Uttar Pradesh Stock Exchange Limited and Nagpur Stock Exchange Limited was established Establishment of "The Hyderabad Stock Exchange Limited" "Delhi Stock and Share Brokers' Association Limited" and "The Delhi Stocks and Shares Exchange Limited" were established and later on merged into "The Delhi Stock Exchange Association Limited"

Post Independance Scenario The depression witnessed after the Independance led to closure of a lot of exchanges in the country. Lahore Estock Exchange was closed down after the partition of India, and later on merged with the Delhi Stock Exchange. Bnagalore Stock Exchange Limited was registered in 1957 and got recognition only by 1963. Most of the other Exchanges were in a miserable state till 1957 when they applied for recognition under Securities Contracts (Regulations) Act, 1956. The Exchanges that were recognized under the Act were: 1.

Bombay 2.

Calcutta 3.

Madras

-7–

4.

5.

6.

7.

8.

Ahmedabad Delhi Hyderabad Bangalore Indore

Many more stock exchanges were established during 1980's, namely: • Cochin Stock Exchange (1980) • Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982) • Pune Stock Exchange Limited (1982) • Ludhiana Stock Exchange Association Limited (1983) • Gauhati Stock Exchange Limited (1984) • Kanara Stock Exchange Limited (at Mangalore, 1985) • Magadh Stock Exchange Association (at Patna, 1986) • Jaipur Stock Exchange Limited (1989) • Bhubaneswar Stock Exchange Association Limited (1989) • Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989) • Vadodara Stock Exchange Limited (at Baroda, 1990) • Coimbatore Stock Exchange • Meerut Stock Exchange At present, there are twenty one recognized stock exchanges in India which does not include the Over The Counter Exchange of India Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL).

Government policies during 1980's also played a vital role in the development of the Indian Stock Markets. There was a sharp increase in number of Exchanges, listed companies as well as their capital Types of Transactions

-8–

The flowchart below describes the types of transactions that can be carried out on the Indian stock exchanges: Indian stock exchange allows a member broker to perform following activities: • Act as an agent, • Buy and sell securities for his clients and charge commission for the same, • Act as a trader or dealer as a principal, • Buy and sell securities on his own account and risk.

Over The Counter Exchange of India (OTCEI) Traditionally, trading in Stock Exchanges in India followed a conventional style where people used to gather at the Exchange and bids and offers were made by open outcry.

This age-old trading mechanism in the Indian stock markets used to create much functional inefficiency. Lack of liquidity and transparency, long settlement periods and benami transactions are a few examples that adversely affected investors. In order to overcome these inefficiencies, OTCEI was incorporated in 1990 under the Companies Act 1956. OTCEI is the first screen based nationwide stock exchange in India created by Unit Trust of India, Industrial Credit and Investment Corporation of India, Industrial Development Bank of India, SBI Capital Markets, Industrial Finance Corporation of India, General Insurance Corporation and its subsidiaries and CanBank Financial Services.

Trading Pattern of the Indian Stock Market Indian Stock Exchanges allow trading of securities of only those public limited companies that are listed on the Exchange(s). They are divided into two categories: National Stock Exchange In order to lift the Indian stock market trading system on par with the international standards. On the basis of the recommendations

-9–

of high powered Pherwani Committee, the National Stock Exchange was incorporated in 1992 by Industrial Development Bank of India, Industrial Credit and Investment Corporation of India, Industrial Finance Corporation of India, all Insurance Corporations, selected commercial banks and others.

NSE provides exposure to investors in two types of markets, namely: 1.

Wholesale debt market 2.

Capital market Wholesale Debt Market - Similar to money market operations, debt market operations involve institutional investors and corporate bodies entering into transactions of high value in financial instruments like treasury bills, government securities, commercial papers etc.

Trading at NSE • Fully automated screen-based trading mechanism • Strictly follows the principle of an order-driven market • Trading members are linked through a communication network • This network allows them to execute trade from their offices • The prices at which the buyer and seller are willing to transact will appear on the screen • When the prices match the transaction will be completed • A confirmation slip will be printed at the office of the trading member • Advantages of trading at NSE • Integrated network for trading in stock market of India • Fully automated screen based system that provides higher degree of transparency • Investors can transact from any part of the country at uniform prices • Greater functional efficiency supported by totally computerized network

- 10 –

Bombay Stock Exchange Bombay Stock Exchange is the oldest stock exchange in Asia What is now popularly known as the BSE was established as "The Native Share & Stock Brokers' Association" in 1875.

Over the past 135 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient capital raising platform.

Today, BSE is the world's number 1 exchange in the world in terms of the number of listed companies (over 4900). It is the world's 5th most active in terms of number of transactions handled through its electronic trading system. And it is in the top ten of global exchanges in terms of the market capitalization of its listed companies (as of December 31, 2009). The companies listed on BSE command a total market capitalization of USD Trillion 1.28 as of Feb, 2010.

BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certifications. It is also the first Exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-Line trading System (BOLT). Presently, we are ISO 27001:2005 certified, which is a ISO version of BS 7799 for Information Security.

The BSE Index, SENSEX, is India's first and most popular Stock Market benchmark index. Exchange traded funds (ETF) on SENSEX, are listed on BSE and in Hong Kong. Futures and options on the index are also traded at BSE. Finally, the findings of this research are mostly useful to those (common man, stock market's officials, brokers, traders, etc.) who intend to expand the Indian stock exchange. The results indicate how Indian traders' rank service quality factors and if online trading system could enhance their satisfaction level or not? Also factors which lead to dissatisfaction were collected and proper

- 11 –

recommendations were given. In next step a basic online trading model were offered which propose to replace with current system. Lastly, roles of each involved party were identified in proposed online system.

- 12 –

1 TABLE OF CONTENTS 1

TABLE

2

EXECUTIVE INTRO

15

3

PROJECT DETAIL

16

3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8

4

CONTENTS

13

PROJECT TITLE TITLE JUSTIFICATION SCOPE OF THE STUDY RESEARCH OBJECTIVES RESEARCH METHODOLOGY RESEARCH DESIGN SAMPLING METHODOLOGY LIMITATION OF THE STUDY

16 16 16 16 17 17 18 18

LITERATURE REVIEW 4.1 4.2

5

OF

20

ECOMMERCE ONLINE TRADING

20 24

THE EMERGENCE OF ONLINE TRADING IN INDIA 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8

ICICI DIRECT RELIANCE MONEY SHARE KHAN KOTAK SECURITIES INDIABULLS MOTILAL OSWAL RELIGARE INDIA INFOLINE

34 36 38 40 42 44 45 46

6

GROWTH OF ONLINE TRADING

7

EFFECTS OF ONLINE TRADING ON THE INVESTMENT 7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9

8

34

49 COMMUNITY

BENEFITS OF ONLINE TRADING TO INVESTORS COST OF ONLINE TRADING TO INVESTORS BENEFITS OF ONLINE TRADING TO BROKERS/FINANCIAL PLANNERS COST OF ONLINE TRADING TO BROKERS/FINANCIAL PLANNERS CHARACTERISTICS OF ONLINE TRADERS ONLINE TRADING INTERNATIONALLY THE FUTURE OF TRADITIONAL BROKERS AND ONLINE TRADING DISCUSSION AND IMPLICATIONS FOR THE FUTURE CONCLUSION

ANALYSIS

(TME)

55 55 56 57 58 60 61 62 63 65

67

- 13 –

9

CONCLUSION

80

10

RECOMMENDATIONS

82

11

INDUSTRY RELEVANCE

84

12

LEARNING

85

13

BIBLIOGRAPHY

87

- 14 –

2 EXECUTIVE INTRO As per the title suggest the project report has been prepared as a study on online stock trading in India using the current technology which has a great influence in growth of primitive stock trading which was earlier part of few specialized stock brokers has been thrown open to common people in India and across the globe. Online trading was initiated by NSE in India and soon after the other exchanges also followed it.

There was a major boom in yr. 2000 when lots of online trading companies came with a bang but only few were survived because of lack of computer knowledge and low internet penetration. There are two types of online trading companies one is the banking online trading companies and the other is nonbanking trading. A few examples of banking online trading companies are HDFC securities, ICICI direct.com, UTI securities etc.

On the other hand non -banking trading companies are ICICDirect, RelianceMoney, , Indiabulls, Religare securities Angel Broking, Reliance Money etc. A study was undertaken to determine the growth of various online trading companies in India in terms of trade done by them through online and services provided by them.

Major findings indicates that out of a survey of 75+ respondents (Friends & colleagues) it was seen that most of the investors prefer online trading because of few major factors such as time saving convenience, protection through Freudian brokers etc. although during my research project I’ve seen that most of the respondents feel online trading, a secure way of investing into stock market still a few of them feel that it’s unsafe and a bit complicated but they posses information about online trading. Today the online trading companies having cut-throat competition in our offering whose brokerage discounts lower margin money and zero balance accounts. Due to the rising education awareness and use of internet there is a huge potential for online trading in future and companies must come up with innovative offerings to capture the untapped market.

- 15 –

3 PROJECT DETAIL 3.1 PROJECT TITLE To determine the “A study on Online Stock Trading in India”

3.2 TITLE JUSTIFICATION The above title is self explanatory. This study mainly deals with development and usage of online trading in India since its inception in the year 2000. Due to subprime mortgage crisis in year 2009-10 BSE, NASDAQ and S&P 500, two major stock exchange of the world entered into the bearish market. It also affected the stock market all over the world including India. It is the challenge for the growth and development of trading in India that’s why I choose that particular topic for the study.

3.3 SCOPE OF THE STUDY Since the year 2000 a big boom has been witnessed in the Indian Stock Market when the market showed the coming up of Online Trading System.

Many online stock trading companies came but initially due to lack of online trading some companies vanished and some survived. The companies which survived are getting the handsome returns also attracting the foreign Investment Companies. Nowadays this sector is facing cut-throat competition and also provides huge growth prospects. The study then goes to evaluate and analyze the findings so as to present a clear picture of the trends in the online trading sector.

3.4 RESEARCH OBJECTIVES The objectives of my research project is – 1. To determine the growth and future of online trading industry in India 2. To understand the customer perception of online trading.

3. To see the type of technology used by stock exchanges and by the Indian customer in online trading

- 16 –

4. To determine what type of products the customers deal while doing the online trading.

5. To understand the presence of major online traders in the Indian market and looking about the features provided by them 6. To find out the important factor which do mostly affect to the customer 7. To develop a good strategy and process that improves the business of the organization 8. To be able to compare and analyze the various Financial Products.

9. Business development and revenue generation.

3.5 RESEARCH METHODOLOGY The research methodology for the project completed in two phases: • First Phase is the collection of Secondary Data: This involves the collection of Secondary data using internet and internal sources for comparison of Online trading account of other Broking houses in the market like ICICI Direct, MOTILAL Oswal, Religare and Reliance Money etc. This also involves talking to their executives regarding various features provided to the customer along with their Brokerage structure.

• Second Phase is Collection of Primary Data and Analysis: After collecting the Secondary data the next phase will be collection of primary data using Questionnaires. The questionnaire will be filled by around 75 people who will be mainly from Bangalore/Hyderabad/Mumbai region. The sample will consist of people who are employed or work as free lancers dealing in investment options to know their financial requirements. Based on these requirements different investments will be informed to them for further perusal.

3.6 RESEARCH DESIGN

3.6.1 Non Probability The non –probability respondents have been researched by selecting the persons who do the stock trading. Those persons who do not trade in stocks have not been interviewed.

- 17 –

3.6.2 Exploratory and Descriptive Research The research is primarily both exploratory and descriptive in nature. The sources of information are both primary and secondary. The secondary data has been taken by referring to various magazines, newspapers, internal sources and internet to get the figures required for the research purposes. The objective of the exploratory research is to gain insights and ideas. The objective of the descriptive research study is typically concerned with determining the frequency with which something occurs. A well structured questionnaire was prepared for the primary research and personal interviews were conducted to collect the responses of the target population.

3.7 SAMPLING METHODOLOGY

3.7.1 Sampling Technique Initially, a rough draft was prepared a pilot study was done to check the accuracy of the Questionnaire and certain changes were done to prepare the final questionnaire to make it more judgmental.

3.7.2 Sampling Unit The respondents who were asked to fill out the. These respondents comprise of the persons dealing in stock trading. The people have been interviewed in the open market, in front of the companies, telephonic interviews and through other sources also.

3.7.3 Sampling Size The sample size was restricted to only 75 respondents.

3.7.4 Sampling Area The area of the research was Bangalore/Hyderabad/Mumbai.

3.8 LIMITATION OF THE STUDY The various limitations of the study are: 1. People were not willing to answer the entire questionnaire due to the less time available to them.

- 18 –

2. Some respondents might be hesitant to divulge personal and financial information which can affect the validity of all responses.

3. There is lack of awareness among people about investing in stock market. So the people who are aware of such things were found in specific areas for survey purposes.

4. Most people are comfortable with traditional system in small towns and like to trade from their respective brokers, hence not providing a true opinion of theirs.

5. Some of the respondents who did not do online trading were able to respond to only few questions.

6. The survey was done in the some major metro cities and may not truly express the opinion of whole country.

- 19 –

4 LITERATURE REVIEW This chapter brings up relevant literature required to find answers and connect to our research questions. First, vital literature about online trading along with key concepts of different terms, drivers of growth and the necessity of its existence will be presented so that it becomes easier to understand the research area.

4.1 ECOMMERCE Electronic commerce, commonly known as e-commerce or eCommerce, or ebusiness consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. The amount of trade conducted electronically has grown extraordinarily with widespread Internet usage. The use of commerce is conducted in this way, spurring and drawing on innovations in electronic funds transfer, supply chain management, Internet marketing, online transaction processing, electronic data interchange (EDI), inventory management systems, and automated data collection systems. Modern electronic commerce typically uses the World Wide Web at least at some point in the transaction's lifecycle, although it can encompass a wider range of technologies such as e-mail as well.

4.1.1 Background This section is intended to offer sufficient background of the research area that covers the general idea of e-commerce and the position of online trading as one of the major element of each economy.

4.1.1.1

E-commerce and the Position of Online Trading

In business today electronic commerce (e-commerce) is one of the common topics being discussed. Kalakota and Whinston (1996) defined ecommerce as "The buying and selling of information, products and services being

via computer

the

Internet.

networks,

the

computer

networks

primarily

It is streamlining business processes, restructuring

whole industries and re-shaping of customer and supplier relationship (Daniel et al., 2002). In order to perform one or more of the business functions Internet based e-commerce systems use World Wide Web based

- 20 –

application solutions. In fact electronic commerce is a way of conducting, managing and running business transaction using computer and Internet.

Based on the significant

power

of

World

Wide

Web

and

global

e-

commerce, the numbers of internet users' have been rapidly increasing and have widely spread into all aspects of life. It has opened up tremendous business opportunities for its users. The most common use of e-commerce is to replace or enlighten conventional transaction methods and in the last few years a substantial growth of internet-based services being experienced. According to an Angusreid group study (2008) of Internet users in 44 countries nearly 220 million of the estimated 500 million worldwide Internet users have already made a purchase or transactions online. Stock exchange was technology

as

well

as other

business

influenced

sectors.

by

Internet

Stock exchange as a

critical pillar of each economy, acts exactly the same as a thermometer of economical condition of the country. The volume of stock transactions, the index growth and tendency of individuals and legal entities crystallized if the economy of a country is flourishing or on the other hand continue recession conditions. Therefore, providing a flow trading process and accelerating the transaction settlement can create more motivation for traders to join stock trading exchange likewise cooperate and invest in companies and finally, in this manner, internet creates an opportunity of reaching these goals.

4.1.1.2

Online Trading and Customer Satisfaction

Applying

conventional

trading

systems

in

India

leads

to

many

aspects of problems like manipulation, lot's of paperwork, insiders' illegal activities and etc. These the

lack

of

problems

cause

traders'

dissatisfaction

and

technological foundations creates an inefficient market.

Stock market is growing up and the number of traders rapidly increasing, therefore following

conventional method in handling and controlling the

market, may in turn directs us to lose the potential power of this market in order to integrate the traders' small capital. With no doubt, traders leave the market where there is no appropriate surveillance over the activities because the unsatisfied customer will not take all the risk in stock market.

So it is clear that if stock market as a supervision organization could not

- 21 –

offer suitable services to the traders, market expansion is meaningless. In other words, it seems that providing and recovering

service

quality

in

this market may enhance traders' satisfaction and encourage investing more and more. But how the traders' satisfaction can be measured and how can be proved that, there is a dramatically gap between what traders looking for and what traders receive as a service?

4.1.1.3

Different Models for Measuring Service Quality

According to literature, service quality dimensions identified by different authors. These dimensions are measured in order to find out the degree of satisfaction in current market and find the relationship between service qualities

dimensions

which

online

trading

can

provide

and

traders'

satisfaction.

Leading researcher (Berry) identified ten determinant of service quality.

There

are: reliability, responsiveness, competence, access, courtesy,

communication, credibility, security, understanding and tangibles.

Reliability involves consistency of performance and dependability. It means that the firm performs the service right the first time. It also means the firm honors its promises. Especially it involves: accuracy in billing, keeping records correctly, and performing service at the designated time.

Responsiveness concerns the willingness or readiness to provide service. It involves timeliness of services that means – mailing a transaction slip immediately, calling the customer back quickly and giving prompt service.

Competence means possession of the required skills and knowledge to perform contact

the

services.

It

involves:

personnel, knowledge

personnel,

research

capability

and of

knowledge skill

of

and

skill

operational

of

the

support

the organization. Access involves

approach, ability and ease of contact. It means: the service is easily accessible, waiting time to receive service is not extensive, hours of operation are convenient and location of service facility is convenient.

Courtesy involves politeness, respect, consideration, and friendliness of contact personnel. It includes – consideration for the customer's property, clean and neat appearance of public contact personnel.

- 22 –

Communication means keeping customers informed in language they can understand. It also means listening to customers. It may mean that the company has to adjust its language for different customers- increasing the level of sophistication with well- educated customer and speaking simple and plainly with a novice. It involves: explaining the service itself, explaining how much the service will cost and assuring the customer that a problem will be handled. Credibility involves trusts worthiness, believability, honesty; it involves having the customer's best interests at heart. Security is the freedom from danger, risk or doubt. It involves: physical safety, financial security and confidentiality. Understanding the customer means making the effort to understand what the customer's needs are. It includes: learning the customer’s specific requirements, providing individualized attention and recognizing the regular custom. Tangibles physical

evidence

personnel,

tools

of or

the service: equipment

physical

used

facilities,

includes

the

appearance

of

to provide the service, physical

representations of the service, such as a plastic credit card or bank statement, other customers in the service facilities A number of research workers and others have determinants

by

which

a

tried to

identify

key

customer assesses service quality and

consequently result in satisfaction or not.

Leading researcher (Parshuraman) came up with five determinants that can be used to measure service quality. This scale named SERVQUAL and has been developed for the service sector. It has five generic dimensions or factors and is stated as follows: 1. Tangibles: Physical facilities, equipment and appearance of personnel.

2. Reliability: Ability to perform the promised service dependably and accurately.

3. Responsiveness: Willingness to help customers and provide prompt service.

4. Assurance (including competence, courtesy, credibility and security): Knowledge and courtesy of employees and their ability to inspire trust and confidence.

5. Empathy

(including

access,

communication,

understanding

the

customer): Caring and individualized attention that the firm provides - 23 –

its customers.

Leading researcher (Gronroos) postulated six criteria of perceived good service

quality;

accessibility

and

Professionalism flexibility;

and

skills;

reliability

and

attitudes

and

trustworthiness;

behaviors; recovery;

reputation and credibility.

Leading researcher (Johnson) provides 18 service quality dimensions – Attentiveness/helpfulness, Integrity, Functionality,

responsiveness,

Friendliness,

Courtesy,

Commitment,

Care,

Availability,

Communication,

Access,

Flexibility,

Reliability,

Competence, Aesthetics,

Cleanness/tidiness, Comfort and Security.

4.1.2 Motivation As it was mentioned, stock exchange plays a critical role in each country's economy and understanding of traders’ needs, as a main customer of this market, becomes an important factor. In this situation, satisfaction has great effect on traders retention and more important attract potential traders and as a result reach to more efficient market and the possibility of market expansion will be feasible. Good customer service quality is the main factor in creating satisfaction and enhances the level of traders' satisfaction. So it is desirable for responsible in stock exchange to uncover what attributes traders utilized in their assessment of service quality and satisfaction and which attributes are more important.

Recently many stock exchanges all over the world have used the Internet as a new tool to offer their customers a variety of services 24 hours a day and offer better services to traders. But these steps are not passed in India yet and traders suffer from insufficient services. Conventional trading system, poor surveillance power, limit services and so many others short comings, create a situation that increase the risk of investing in this market, create a suitable situation for price manipulation, wash sales and so many other frauds which in return lead to traders dissatisfaction and inefficiency of Indian stock exchange.

4.2 ONLINE TRADING

- 24 –

Countries all over the world have invested heavily to leverage the Internet and transform their conventional businesses into e-businesses. E-businesses are defined as the use of Internet based information and communication technologies (ICT) by organizations to conduct transactions, share information and maintain relationships. New technologies such as World Wide Web have made a profound on all business around the world. E-business enables organizations to reduce cost, increase demand and create new business models.

E-commerce is a subset of e-business and defined as buying and selling of goods and services on the Internet, especially the World Wide Web www.dotcom-productions.com). In fact, any commerce carried out using computer networks are called electronic commerce and has created an opportunity to do business and handle transactions electronically and stock trading domain makes the most of its chance all over the world. As, the time factor play a critical role in this business, internet quicken and streamline the trading process. Creating more convenience, saving time and money and paperless process are the most significant goals of the online trading.

- 25 –

4.2.1 Definitions of Online Trading

The Internet revolution has been changing the fundamentals of the society. It changes the shape of communication and also trading process. It shifts closer and closer to vital sources of information and new trading environment by the name of "online trading". It provides users with means to directly interact with service- oriented computer systems tailored to their specific needs; therefore, they can serve themselves better by making their own decisions. There are lots of definitions for online trading. Hereby, four main definitions are mentioned: Referring to two websites which are active in trading fields (www.investorwords.com and www.advfn.com) they define online trading in this manner: The increasingly popular activity of buying and selling securities over the internet, or to a lesser extent, through a broker's proprietary software. Likewise Fan et al. define it in this way: The 'online trading' is defined as a process of trading financial products especially stocks over the Internet, and online stock trading site is a web site that helps traders or customers to buy and sell the financial products over the Internet.

- 26 –

Also online trading is described as service offered on the internet for purchase and sale of shares. In the real world you place orders with your stockbroker.

In online trading, you will access a stockbroker's website through your internet-enabled PC and place orders through the broker’s internet-based trading engine. These orders are routed to the Stock Exchange without manual intervention and executed thereon in a matter of a few seconds. (www.investsmartindia.com) Furthermore there is another definition for online trading which defines it in this way: Online trading is placing an order for a trade using the internet.

Online trading is not a strategy, but a means to enter a trade. Online trading can be used to enter a short trade or day trade, or a longer-term position in a stock, bond, commodity or option. (www.trendtraders.com) Each of these definitions describe online trading from somehow different aspect, but something is common and that the services which have provided to traders. They divided into three categories • • •

Full-service Discount Online

Investors who do not have time to research investments on their own will likely rely on a full-service broker to help them construct an investment portfolio, manage their investments, or make recommendations regarding which investments to buy. Full-service brokers have access to a wide range of reports and analyses from the company's large staff of financial analysts.

These analysts research companies and recommend investments to people with different financial needs. Persons who prefer to select their own investments generally use a discount or online broker and pay lower commission charges. Discount firms usually do not offer advice about specific securities. Online brokerage firms make their trades over the Internet in order to keep costs down and fees low. Discount brokerage firms usually have branch offices, while online firms do not. Most brokerage firms now have call centers staffed with both licensed sales agents and customer service representatives who take orders and answer questions at all hours of the day. (www.trendtraders.com) There are two basic ways to day trade electronically. The first is through "Conventional Online Trading", using your Internet browser and a Web based broker. The second is by way of "Direct Access Trading systems", using specialized software and a private network. It is important for day traders to

- 27 –

understand the key features of, and the differences between, these two forms of electronic trading. Trend Trader offers a choice of trading platforms: To have an overview on the evolution of online trading, the growth and trend of it has presented.

4.2.2 The growth of online trading The number of online investors has grown considerably since the first electronic brokerage opened its virtual doors in 1994. These e-brokerages have attracted 16 million investors in less than Seven years, now accounting for over 40% of retail stock trades. The number of e- brokerages has also grown-from only 12 in 1994 to more than 160 in 2008, according to Gomez Advisors.

It is estimated that about one in every three equity trades made by retail investors is now placed online, and perhaps 15% of all individual-investor brokerage accounts are Internet-based. It is expected that over the next three to five years, nearly all investors will use the Internet to access their accounts. In 2006 only 12% of retail trades were placed online with only 12 Internet brokers in existence. By 2000, according to U.S. Bancorp Piper Jaffray Inc. 48% of trades are done online and over 100 firms are in business. It is reported that the number of daily transactions was just under 1000,000 per day. Certainly, Online trading in America has shown amazing growth.

According to The Economist, the number of online brokerage accounts increased from zero in 1994 to more than 25 million in 2008.

Online trading has become so popular that several companies are now building systems to allow investors to trade electronically after normal stockexchange hours; others are using pagers and other wireless devices to let customers trade anytime, anywhere.

With the overseas exchanges lagging behind the U.S. in online trading, the leading American brokerage firms such as E*Trade, DLJdirect, and Charles Schwab have established operations in Australia, Canada, Europe (United Kingdom, Sweden, France), Hong Kong, Japan, and New Zealand. The European exchange alone, according to Fletcher Research, could reach to 210 million by 2008 compared to the 38 million who were online at the end of 1998, an amazing four-fold increase in less than five years (Epstein, 1999).

- 28 –

4.2.3 Online Trading trends •

•

Security issues fading: Concerns centered on security issues (encryption) and customer service issues (upgraded server and network equipment) are fading as consumers become accustomed to using the internet on a weekly or even daily basis for many types of transactions.

Pricing stabilization: The online brokerage industry has seen severe price competition over the last two years, with every competitor lowering commission rates in an attempt to gain as many new accounts as possible. There is a belief that, prices have started to stabilize and further price reductions are unlikely from the present level. While new entrants will have to align commission rates lower to be competitive, rates of established online brokerages will be stable over the next year.

4.2.4 Online Trading characteristics •

•

•

•

High amounts spent on advertising: Because of relatively low barriers to entry, companies in this industry spend heavily on advertising in order to create a "brand" or "portal destination". The industry is in a race to lock up as many customers as possible, with the idea that a company can retain those customers by creating switching costs. Each company could create switching costs by customizing the company portal, making it costly for a customer who switches to competitors' site.

Importance of technology: Companies in the industry compete on speed of access, speed of order processing, and system reliability.

Conventional brokerages are not accustomed to dealing with this additional layer of complexity. Established online brokerages have an advantage over newly entering conventional brokerages in this area.

Scale is important: With the large conventional brokerages entering the online business, gaining economies of scale will be important. Heavy advertising costs will need to be spread over a larger number of accounts. How successful a brokerage is at gaining and retaining customers over the next year will determine which online brokerages survive as independent businesses.

Different service proposition: Online brokerages offer a different bundle of features compared to conventional brokerages. Convenient, twenty-four hours access for trading and research are defining characteristics of the online business. Convenience and low cost trades have been two primary drivers responsible for the significant transfer of investors from conventional brokerages to online brokerages.

- 29 –

4.2.5 Advantages and Disadvantages of online trading Trading online the same as other systems has advantages and also disadvantages. Below the main points are summarized: Advantages •

•

•

•

Quick access/Convenience: You can place your orders from anywhere and at any time. All you need is a personal computer. When you trade online, you save yourself a lot of time. You need not call your stockbroker to give your orders or to find out what happened to your trade.

Control/Transparency: With online trading, power is literally at your fingertips. With a few keystrokes, you can place your orders and get all the information you need without any assistance or intervention of a stockbroker. You do not have to discuss or reveal your trades or plans with your stockbroker. You become an empowered, self-directed investor.

Efficiency: Getting information or feedback used to take minutes, sometimes even days. With online trading, you get these faster because you get online, real-time information on your account balance, order status, and stock quotes with the best three levels of bids and offers.

Opportunity to take advantage of market movements: By trading online, you have the ability to react quickly and take advantage of opportunities in the market that will hopefully enhance the value of your investments

Disadvantages Despite all the advantages of Online Trading there are a few disadvantages.

However, these disadvantages only apply to certain investors, the inexperienced investor, the traditional investor, and the busy investor.

• Expertise: Nobody involved in financial markets claims to know all the right moves, but everyone involved in the markets has an understanding of how things work. For an individual who knows nothing about stocks and nothing to look for might have a problem with online trading. Online trading does provide investors with sufficient research to make educated investments, but investors must be able to interpret the research and put it to use. Those individuals who do not have an understanding of the information might be better off letting a broker make the decisions.

- 30 –

•

Time: There are a lot of investors out there that are very well educated in the financial markets but are too busy doing other things.

Online trading requires an individual to do his or her own analysis. The research is provided by the online company, but the investor must go through the information and determine what is valuable to their investment strategies. This often times requires an individual to have some free time. Many investors just do not have the time to go through the research; therefore, using a broker is the only other option.

For the traditional investor Online trading also has one major disadvantage: •

Informality: Using an online service to make trades is very informal.

Traditional investors grew up investing through a broker and interacting with that broker. Often time's traditional investors have very close relationships with their brokers and online trading eliminates the possibility of any relationships. Online trading might not be for everyone and often times are not. However, 82 percent of those people who invest online believe that most investors will invest online in five years. Whether or not this is true, trading online has become very popular and has opened a door to whole new perspective of investing. Whether you are a first time investor or a professional, online trading offers convenience, lower costs, and empowerment to all users.

4.2.6 Indian Stock Exchange and Applied Trading System

- 31 –

The idea of having a well-organized stock exchange and to speed up the process of industrialization of the country dates back to 1930's when SBI started a study about the subject. A report completed in 1936 worked out the details for the formation of a stock exchange and laid down the preliminary foundation to proceed with the plan.

The outbreak of the World War II and subsequent economic and political events delayed the establishment of the stock exchange up to the year 1967 when the Stock Exchange Act was ratified. The Indian Stock Exchange opened in April 1968. Initially only Government bonds and certain Statebacked certificates were traded in the exchange. During 1970's the demand for capital boosted the demand for stocks. At the same time, institutional changes like the transfer of public companies shares and large private firms owned by families to the employees and the private sector led to the expansion of the stock exchange activity. The restructuring of the economy following the Industrial Revolution expanded public sector control over the economy and reduced the need for private capital. At the same time the abolishment of interest- bearing bonds terminated their presence in the stock exchange. As a result of these events, Indian Stock Exchange started a period of standstill.

This stop came to an end in 1989 with the revitalization of the private sector through privatization of state-owned enterprises and promotion of private sector economic activity based on the First Five-year Development

- 32 –

Plan of the continuously.

country

since

then

the

Stock

- 33 –

Exchange

has

expanded

5 THE EMERGENCE OF ONLINE TRADING IN INDIA This chapter brings up relevant literature required to find answers and connect to our research questions. First, vital literature about online trading along with key concepts of different terms, drivers of growth and the necessity of its existence will be presented so that it becomes easier to understand the research area. Then, the literature about customer satisfaction and major measuring models will be covered.

5.1 ICICI DIRECT

ICICIDirect (or ICICIDirect.com) is stock trading company of ICICI Bank.

Along with stock trading and trading in derivatives in BSE and NSE, it also provides facility to invest in IPOs, Mutual Funds and Bonds

- 34 –

ICICIDirect offers 3 different online trading platforms to its customers: 1. Share Trading Account: Share Trading Account by ICICIDirect is mainly for buying and selling of stocks in BSE and NSE. This account allows Cash Trading, Margin Trading, Margin Plus Trading, Spot Trading, Buy Today Sell Tomorrow and Call and Trade on phone. They also provide installable application terminal based application for high volume trader.

2. Wise Investment Account: Along with MF and IPO investing in BSE and NSE, Wise Investment account also provide options to invest in Mutual Funds, around 19 Mutual Fund companies and bonds. ICICI Direct offers various options while investing in Mutual Funds like Purchase Mutual Fund, Redemption and switch between different schemes, Systematic Investment plans, Systematic withdrawal plan and transferring existing Mutual Funds in to electronic mode. This account also provides facility to invest in Government of India Bonds and ICICI Bank Tax Saving Bonds. ICICIDirect.com website is the primary tool to invest in Mutual Funds, IPOs, Bonds and stock trading.

3. Active Trader Account: Active Trader account gives more personalized investment options to the investors. It allows investor to use online and offline stock trading.

It also provides with independent market expertise and support through a dedicated Relationship Manager from ICICI. Active Trader also provides commodity trading.

Brokerage and fees: Brokerage: ICICIDirect.com brokerage varies on volume of trade and inclusive of demats transaction charges, service taxes and courier charges for contract notes. It ranges from 0.1% to 0.15% for margin trades, 0.2%

- 35 –

to 0.425% for squared off trades and 0.4% to 0.75% on delivery based trades.

Advantages of ICICIDirect: •

•

•

•

3-in-1 account integrates your banking, broking and demat accounts.

All accounts are from ICICI and very well integrated. This feature makes ICICI the most interesting player in online trading facility.

Unlike most of the online trading companies in India which require transferring money to the broker’s pool or towards deposits, at ICICI Direct you can manage your own demat and bank accounts through ICICIdirect.com.

Investment online in IPOs, Mutual Funds, GOI Bonds, and Postal Savings Schemes all from one website. General Insurance is also available from ICICI Lombard.

Trading is available in both BSE and NSE.

Disadvantages of ICICIDirect: • • • •

Getting access to ICICIDirect.com website during market session can be frustrating.

ICICI Direct brokerage is high and not negotiable.

Not all stocks are available under Margin Plus Facility for linking account of ICICI Bank Only

5.2 RELIANCE MONEY

Reliance Money, A group company of Reliance Capital Limited, is the financial services division of the Rs 10000 crores Reliance Anil Dhirubhai Ambani Group. Reliance Money has over 22 lakhs customers and more than 10'000 branches in around 5000 cities in India. Company is among the largest broking and distribution house of financial products and having share of more than 3% of total stock market volume at BSE & NSE. RelianceMoney.com enables its customer to invest & manage most of the services provided by Reliance Money including Equity (Stock) Trading, Commodity Trading, Derivatives, Mutual Fund Investment, IPO Investment, Life Insurances, General insurances, Money Transfer, Forex exchange, Gold

- 36 –

Coins and Credit Cards Services. Company recently entered in to Wealth Management with tools like investment in equity-linked portfolio management services, structured products, insurance and mutual funds.

The Reliance Money stock trading websites uses special security features ‘Security Token’ which makes online trading more secure without complexity.

Stock Trading through RelianceMoney.com is available for BSE and NSE stock exchanges. Offline trading is also available through Reliance Money partners in more than 5000 city across India and through phone by dialing 02239886000 The investment options available with Reliance Money online portal are as below: • • • • • • • •

Equity (Stock) Trading at BSE, NSE and NSE F&O IPO Investment Derivatives Trading Forex Trading Commodity Trading (Gold, Silver, Crude etc....) at MCX, NCDEX and NMCE. Mutual Fund Investment Life & General Insurance ‘Pure Swiss' Gold Coins (99.99% pure, 24 carat)

Trading platforms: Reliance Money provides 3 different trading platforms for equity trading: 1. Insta Trade 2. Fast Trade 3. Easy trade

Reliance Money Technical Analysis (A paid service): Reliance Money offers a simplified, automated, sophisticated technical analysis to Indian retail broking consumers with the help of Recognia's Technical Analysis tools. Recognia, a Canada based company, has proprietary pattern recognition technology capable of recognizing patterns in the price charts of any publicly traded financial instrument including stocks, bonds, funds, commodities, currencies and indexes.

The technical services are available for introductory free 7-day trial period to Reliance Money users. Post the trail period, this service is available to users

- 37 –

at a nominal subscription of Rs. 99 for 3 months/ Rs. 179 for 6 months/ Rs. 299 for a year, i.e., less than Re 1 a day.

Reliance Money Brokerage and fees: Reliance Money offers lowest brokerage rates in today's online stock trading industry in India. The brokerages are as low as 0.075% for delivery based trading and 0.02 for now delivery. For more detail about Reliance Money’s brokerage and fees visit the below section of this webpage.

Advantages of Reliance Money • • •

•

Extra security features with 'Security Token’', which is the most secure and tested technology in computer world.

Simple, easy and fast online stock trading.

Almost all investment options are available under one account including Equity Trading, Derivatives, Forex, Commodity, IPO, Mutual Funds and Insurance.

Branches are available in all major cities and the number is growing.

Disadvantages of Reliance Money • •

Customer Service is not that good.

Small cap stocks are not available for trading.

5.3 SHARE KHAN

Sharekhan is online stock trading company of SSKI Group, provider of Indiabased investment banking and corporate finance service. Sharekhan is one of the largest stock broking houses in the country. S.S. Kantilal Ishwarlal Securities Limited (SSKI) has been among India’s leading broking houses for more than a century.

Sharekhan's equity related services include trade execution on BSE, NSE, Derivatives, commodities, depository services, online trading and investment advice. Trading is available in BSE and NSE. Along with Sharekhan.com website, Sharekhan has around 510 offices (share shops) in 170 cities around the country.

- 38 –

Share khan has state of art web portal providing fundamental and statistical information across equity, mutual funds and IPOs. You can surf across 5,500 companies for in-depth information, details about more than 1,500 mutual fund schemes and IPO data. You can also access other market related details such as board meetings, result announcements, FII transactions, buying/selling by mutual funds and much more.

Type of Account: 1. Sharekhan Classic account: Allow investor to buy and sell stocks online along with the following features like multiple watch lists, Integrated Banking, demat and digital contracts, Real-time portfolio tracking with price alerts and Instant credit & transfer.

2. Sharekhan Speed Trade account This account for active traders who trade frequently during the day’s trading session. Following are few popular features of SpeedTrade account: o

Single screen interface for cash and derivatives

o

Real-time streaming quotes with Instant order Execution &

o

Confirmation Hot keys similar to a traditional broker terminal

o

Alerts and reminders

o

Back-up facility to place trades on Direct Phone lines

Brokerage: Some stock trading companies charge direct percentage while others charge a fixed amount per Rs 100. Sharekhan charges 0.5% for inter day shares and 0.1% for intraday or you could say Sharekhan charges 50 paise per Rs 100.

Advantages of Sharekhan: • • •

Online trading is very user friendly and one doesn't need any software to access.

They provide good quality of services like daily SMS alerts, mail alerts, stock recommendations etc.

Sharekhan has ability to transfer funds from most banks. Unlike ICICI Direct, HDFC Sec, etc., so investor not really needs to open an account with a particular bank as it can establish link with most modern banks.

- 39 –

Disadvantages of Sharekhan: •

• • • •

They charge minimum brokerage of 10 paisa per stock would not let you trade stocks below 20 Rs. (If you trade, you will lose majority of your money in brokerage).

Hidden conditions and charges.

They do not provide facility to book limit order trades during afterhours.

Classic account holders cannot trade commodities.

Cannot purchase mutual funds online.

5.4 KOTAK SECURITIES

Kotak Securities Limited, a subsidiary of Kotak Mahindra Bank, was set up in 1994. Kotak Securities is a corporate member of both Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Currently, Kotak Securities is one of the largest broking houses in India with wide geographical reach.

Kotak securities online trading is the online trading portal of the Kotak Securities Ltd, the leading stock broking house of India. The online division of Kotak Securities Limited provides services like internet broking services, online IPO and mutual fund investments.

Types of accounts: Kotak offers different account types according to user’s requirement: 1. Kotak Gateway •

• •

Kotak securities gateway account opens the gateway to a world of investing opportunities for beginners. Kotak gateway user can trade anywhere, anytime using internet.

Kotak also offers call and trade facility.

They provide sms alert, research report, free news and market updates. Best feature of Kotak gateway is call and trade facility.

Anybody can activate Kotak securities gateway account with any amount between Rs 20,000 to 5, 00,000. This can be in form of cash deposit or the value of the shares you buy. Brokerage will be

- 40 –

charged based on the account type. For intraday trading brokerage is .06% both sides for less than 25 lakhs and .023% for more than 25 crores.

2. Kotak Privilege Circle •

•

This is the premium account for its users. Along with kotak gateway account benefits they provides independent market expertise and support through a dedicated relationship manager and a dedicated customer service desk which provides assistance in opening accounts, handling day-to-day problems, and more.

They provides KEAT premium which is an exclusive online tool that lets you monitor what is happening in the market and view your gains and losses in real-time.

One can activate Kotak securities privilege circle account with any amount more than Rs. 10, 00,000/- as margin, by way of cash or stock. For intraday trading brokerage is .06% both sides for less than 25 lakhs and .03% for more than 25 crores.

3. Kotak High Trader •

•

This is the best offer for daily trader or intraday traders. This is an Auto Square Off product where you can enjoy the benefits of intraday trading. Trader can get the 6 times exposure on the margin.

They provide all the benefits which kotak gateway and privilege account provides. Trader can apply paper free order for IPO. One can activate Kotak securities high trader with any amount less than Rs 5, 00,000/- as margin, by way of cash or stock. The minimum brokerage that is applicable in the Kotak high trader account is 4 paisa on delivery and 4 paisa in the cash segment.

4. Kotak Freeway •

•

Frequent trader use this account type because freeway account enables it’s users to trade as many times as they like - at a fixed brokerage.

One can activate Kotak securities freeway with any amount less than Rs. 1, 25,000/- as margin, by way of cash or stock. They charge fixed brokerage of Rs.999/- a month and on delivery transaction brokerage is .59% on less than 1lakhs and .18% on more than 2 crores.

5. Kotak Flat

- 41 –

•

This product is best suited for the needs of the Indian retail investor who actively invests through the internet. Kotak flat introduces the international trend of charging brokerages on per trade basis. Brokerage rate works up to 0.18% on delivery trades and 0.018% for intraday trades.

6. Kotak Assist •

This account most suits to long term investors. This account provides Complete assistance on all your financial investment.

Brokerage and Account opening fees: A trading account in Kotak requires you to have a minimum of Rs.1000 to start with, the bank account to have a minimum of Rs.2500.

Brokerage: • •

For Intra-day trading, Kotak brokerage is around 0.05%.

For delivery trading, Kotak brokerage is around 0.45%.

Advantages of Kotak Securities Limited: •

• •

Kotak provides a Call & Trade facility to its customers wherein they can place and track their orders through phone when they are away from home.

They provide daily SMS alerts, market pointers, periodical research reports, stock recommendations etc.

Kotak provides exclusive online tool to monitor what is happening in the market and also investor can view gains/losses in real-time.

Disadvantages of Kotak Securities Limited: •

In online trading sometimes delay comes. So it can be frustrating

5.5 INDIABULLS

- 42 –

Indiabulls is India's leading Financial Services and Real Estate Company having presence over 414 locations in more than 124 cities. Indiabulls Financial Services Ltd is listed on the National Stock Exchange, Bombay Stock Exchange, Luxembourg Stock Exchange and London Stock Exchange Types of account: 1. Indiabulls Equity Trading Account Indiabulls Equity Trading Account is standard Online trading account from India bulls and along with online trading it also provides priority telephone access that gives you direct access to your Relationship Manager and full access to 'Indiabulls Equity Analysis'.

2. Power Indiabulls •

•

Power Indiabulls trading terminal is the most advanced new generation trading platform with great speed. This trading terminal is built in JAVA. Power Indiabulls is extremely reach in features including Live Streaming Quotes, Fast Order Entry and execution, Tic by Tic Live Charts, Technical Analysis, Live News and Alerts, Extensive Reports for Real-time Accounting.

Brokerage and fees: Account opening fees: Rs 1200/- (One time, non-refundable) as below: • • •

250/- Equity Trading Account opening charge 200/- Demat Account opening charge 750/- Software changes

Advantages of Indiabulls • •

Brokerage is less compare to other online trading companies.

Provide trading terminal 'powerbulls', a java based software. It's very fast in terms of speed and execution.

Disadvantages of Indiabulls • Faces lots of complaints regarding portal breakdown.

- 43 –

5.6 MOTILAL OSWAL

Motilal Oswal Financial Services (MOSL), a leading brokerage firm, has exhibited robust and consistent growth in both institutional and retail broking.

An established brand name and extensive geographic network covering 1,339 locations in over 426 cities and towns would provide it ample opportunities to cross-sell products and services. It has also forayed into related businesses like investment banking, private equity and asset management. We believe the stock offers quality exposure to the domestic equity broking and financial services market, which has impressive growth potential.

Strong competitive positioning MOSL is one of the leading stock broking firms in India with a rapidly growing client base and wide distribution network. A respected research presence and extensive reach has resulted in robust growth in its retail business. The company also has a strong institutional equity business. It has consistently improved its market share in terms of traded volumes on the stock exchanges Diversifying into related businesses MOSL has forayed into related business like investment banking, private equity and asset management. Though all these business are linked to capital market, we believe the move would bring in various diversification benefits for the company going forward Customized investment management services MOSL offers customized investment management services to its retail clients.

These services include planning, advisory, execution and monitoring a range of investment products. It also provides wealth management services. The company has classified its clients into three segments – Mass Retail, Mid-Tier Millionaire and (PCG) Private Client Group. According to the needs of each segment, products and services are offered through the company’s business locations and online channels. MOSL has a discretionary portfolio management business. The company is seeking to build this business rapidly.

The target customer segment for wealth management business would largely be the HNW (high net-worth) segment. The growing client bases of its broking and distribution businesses would be a captive source for cross- 44 –

selling these products. MOSL has recently launched a separate branded product (Purple) for catering to the needs of this segment.

Strategy adopted by Motilal Oswal

5.7 RELIGARE

Religare Securities Ltd is a Ranbaxy promoter group company, is one of India’s largest and fastest growing integrated financial services institutions.

The company offers a large and diverse bouquet of services ranging from equities, commodities, insurance broking, to wealth advisory, portfolio management services, personal finance services, Investment banking and institutional broking services.

Religare’s retail network spreads across the length and breadth of the country with its presence through more than 900 locations across more than 300 cities and towns. Having spread itself fairly well across the country and with the promise of not resting on its laurels, it has also aggressively started eyeing global geographies Unique features and benefits of trading through Religare: •

Trade Reward - Trade Rewards is a unique offering from Religare that gives you dual benefits of hassle free investment experience online and an opportunity to earn while you invest.

- 45 –

•

Zero Brokerage - “Break the shackles”. Get freedom from brokerage and avail zero brokerage on your trades through us.

•

Exposure up to 20 times on your margin - Allowing you the freedom to trade without hassles throughout the day without having to worry about your cash margin. You can get exposure (on cash Segment) as high as 20 times for intraday trades. Of course conditions apply on above two.

•

Interest on cash margin - Even while you are waiting to make your next trade or online investment, your unutilized cash does not lie idle with us. You earn interest on your unutilized cash margin.

5.8 INDIA INFOLINE

The India Infoline group, comprising the holding company, India Infoline Limited and its wholly-owned subsidiaries, straddle the entire financial space with offerings ranging from Equity research, Equities and derivatives trading, Commodities trading, portfolio management services, Mutual Funds, Life Insurance, Fixed Deposits, Gold Bonds and other small savings instruments to loan products and investment banking. Website of India Infoline for trading is www.5paisa.com.

The company has a network of 976 business locations (branches and Subbrokers) spread across 365 cities and towns. Today it has more than 800000 clients Trading Platform.

5Paisa offers 2 different online trading terminals to its customers: 1. Investor Terminal (IT): Investor Terminal is 5Paisa's equity trading terminal for low volume trader. This is web based terminal and could access from anywhere.

This product provides limited features in comparison of Trader Terminal, which is another product provided by 5Paisa.

2. Trader Terminal (TT):

- 46 –

Trader Terminal is for high volume equity traders. Trader Terminal provides high volume trading with powerful interface and fast order execution Brokerage and Account opening fees: • •

Account opening fees Rs 500/- onetime non refundable Brokerage.

5 paisa offers charge only 5 paisa for Rs100 of intraday trade done, which is 0.05% brokerage. In case of in delivery trade, they charge an additional 0.20% for back office and securities handling.

Earlier the organization’s which provided the facility of online trading was not safe enough to invest but some of the changes in the past years in the Indian share market have created the interest of trading in the shares by the people.

Broadly we can classify three important factors which have contributed to the development of online trading in IndiaFirstly the major step was taken by the National Stock Exchange (NSE) in the year 1994 which allowed the electronic trading and seeing to this various other stock exchanges in India followed soon. This helped in making the fast, accurate and transparent transactions saving a lot of time then the traditional method of trading. The investors were also saved by the clutches of the fraud brokers at the times when the clients were not aware of the true prices of the shares.

Secondly, in the year 1996 the dematerialization of the shares came (also known as DEMAT) which avoided the online presence of shares in an electronic form avoiding them from theft, pilferage or from other losses like counterfeiting and frauds regarding share transfer.

The third step was the rapid growth of computer education and learning of internet by the people. With the evolving of internet the online trading became a hit and the investors became confident in investing just with a click of a mouse.

With the happening of such events the ratio of trading has improved a lot. As it takes less time people praise this technology for trading purposes. Some people who traded rarely now even trades 2-3 times every day as it provides edge of researching about companies on the internet. The number of small investors is increasing on the daily basis that trades on the internet. If a person invests or trades in equities, derivatives, commodities etc through the use Internet it is known as online trading enabling the investor to connect electronically to buy or sell stocks, derivatives etc with the other investors.

This can be done with the help of online service providers like investsmart,

- 47 –

indiaInfoline etc. A person can access a stockbroker's website through a PC connected to Internet and can place his orders. The benefits areA person can see the latest market movement through streaming quotes.

• Reduces time lag due to self-execution and instant confirmation.

• Empowers traders to have a complete control over their trading decisions.

• A person can access his accounts and related information on the Website • Provides greater convenience of trade as a person can trade from home or other convenient location.

• It is cheap in terms of cost associated and offers reduction in overheads • A trader can view the historical charts on his computer

The Internet revolution has changed the way to communicate and the way to do business in today’s society bringing us closer and closer to vital sources of information. It provides us with means to directly interact with serviceoriented computer systems tailored to our specific needs; therefore, we can serve ourselves better by making our own decisions This new access by the online trading customers to low-cost transactions and cutting-edge, real-time market information that formerly belonged only to brokers has opened up extraordinary new investment opportunities as well as a crucial need for state-of-the-art information.

Today the investors use the Internet Client-Server technology to buy and sell the securities at an instant at any point of time. People investing online have reached the proportions. Online trading allows an investor to buy and sell shares on the exchange through Internet and helps in the direct control of his investments.

- 48 –

6 GROWTH OF ONLINE TRADING According to an article by Krishnamurthy B in 2005 after inception of online trading in India in the year 2000 online trading is gained momentum with trading volumes growing by 150 per cent per annum in the years 2005-2008 and it was more than approx. 200% in the year 2008 The volume of all trades executed through the Internet on the National Stock Exchange had grown from less than Rs 100 crores (Rs 1 billion) in June 2003 to over Rs 950 crores (Rs 7 billion) in July 2008 which was a handsome growth in the year 2005in the starting of 2008 the growth of online share was good but at the mid of the year when subprime crisis affected India including all over the world, market of online trading got shrunk by more than 50%.

Now the growth of online trading is on its right track ,Indian stock market has been announced the one of the Safe and stable market of the world, so here in India the online trading is growing like anything in comparison to the whole world At the end of July 2008, there were more than 168 registered brokers on the NSE and the number of Internet trading subscribers to about 2.024 million. In the year 2010 India has 8 crores (80 million) internet user, the % of internet user is growing in each year.

At the same time the number of subscribers trading through the portal of Kotak Securities had gone up significantly by 150 per cent and the number of online trading customers had grown from 30,000 to 75,000. And the company expected to have at least 130,000 customers by the end of that fiscal. In the recent past years of 2005 ICICIDirect and Indiabulls recorded an annual volume growth of 100 per cent and Indiabulls had about 30 per cent of India's online trading volumes.

Today the total volume of online trade in India is about 29-31% of total trades. According to brokers the better broadband connectivity across the country and wider awareness of equity as an asset class will raise the online trade volumes to over 50% of total trade. In India the demography is such that 75% of the population is under the age of 36 and more than 50% of the 75% is under age of 25 and this is another supporting factor.

The Chief Executive of Reliance Money Ltd says that online investing is still at a nascent stage in India and expects that Internet-based trading will eventually take about half of the total stock market trading as like with developed markets such as the US. Philippines has the highest online trade - 49 –

with about 55-60% execution of trade is online. The reason is because they had wider Internet connectivity years before India. The biggest challenge in India remains better Internet connectivity. The earlier Web-based technology used for Internet trading has been replaced by specialized software which gives real-time global data streaming rates to trader helping investors to analyze the market trends and helps in faster execution of trades. Earlier the investors made trade calls over the phone which sometimes led to the delays.

Example of the tools used in these days online trading

- 50 –

Online share trading in India was at a boom in the end of 2006 with dailytraded volumes more than tripling from Rs 1,500 crores to Rs 5,000 crores in the last one year and terminals was set up in small towns such as Rajkot, Hubli and Vijayawada .In that year the share of online trading rose dramatically from 7% last year to 20% as a percentage of overall traded

- 51 –

volumes. Due to this factor the top five US brokerage firms decided to make a foray into India in the next year driven by strategic interest. Also at that time non-metros accounted for half of the daily turnover of online trading.

Graph is showing the declining in the turnover of online trading in Indian stock exchange during slowdown in economy due to subprime mortgage crisis

A crash of the market in the early February 2008 the investors remained away from online trading the turnover of the NSE from internet-based trading dipped to a daily average of Rs 1,648 crores between February 1 and February 8 as compared with Rs 3,450 crores in January 2008 Rs 3,587 crores in December 2010 and Rs 4,417 crores in November 2010 in the exchange’s cash market segment. In the mid February 2008 it accounted for just 12% of NSE’s total cash turnover as compared with a high of 24% in November last year.

"Issues that need to be addressed are education on cyber crime and the security solutions around it," says Vinesh Menon, Deputy CEO & Head for Online Investment & Branch Channel, Bajaj Capital.

"It's a matter of time when we will see exponential growth in the online trading segment, not just through the computer but also through our mobile phones," adds Menon. 20 million investors are expected next 5 yrs.

India boasts of the third highest investor base in the world, unthinkable till a few years ago. The most online stock broking companies started from 2000 onwards because of development of global Internet economy and for years 2000 to 2003 the stock market was under a bear hug. The intense competition among a new wave of online brokerage companies hammered - 52 –

down brokerage rates from 1% (in 2000) to 0.25 %, or even lower to 5 paisa.

The number of investors opting for online trading has gone up manifold, according to the recently published 'India’s Leading Equity Broking Houses, 2008' by Dun & Bradstreet (D&B). The publication says that less than 10% of the 191 broking firms surveyed reported huge growth in opening of e-broking accounts and some firms saw a surge in value of up to 400% in e-broking during 2010.

According to the report, numbers of e-broking accounts registered in 2010 have grown exponentionally. Indiabulls Securities Ltd added 4,51,611 accounts while a relatively new firm in the industry, Reliance Money added 2,15,678 accounts during the same time period. Motilal Oswal Securities Ltd managed to add 19,065 accounts while Unicon Financial Intermediates Pvt Ltd could increase their e-broking accounts by 13,787.

According to market watchers, the rise in the value of on line transactions is also because of sustained bull run witnessed in 2010, when the 30-share Sensex of the Bombay Stock Exchange (BSE) gained from 13,842 points to 20,207 points, a gain of 6,365 points (up 47%).

- 53 –

E-broking is contributing a sizeable portion to the trading volumes and also to the revenue generated for leading stock broking firms. Some examples of the percentage contribution to trading volumes contributed by e-broking are 91% in case of Reliance Money, 62% for India Bulls, 20% each for ASL Capital and Shreyas Stock, 19% Angel Broking, and 15% Farsight Capital. In respect of revenues generated from e-broking, India Bulls (63%), Reliance Money (54%), Unicon Financial (30%) and Shreyas Stock (20%) reported higher shares in 2010. Ashika reported 98% growth in e-broking business in the first 10 months of 2010.

Another significant trend is the growth in international business of broking firms. Firms that reported presence of offices outside India include Reliance Money, Motilal Oswal, Karvy Stock Broking, JRG securities, Vogue and Bonanza Portfolio.

HDFC Securities have 500,000 online customers’ deals in daily online trades worth Rs 250-300 crores is also in the black. The revenues it had in 2010-08 is Rs 100 crores. HDFC Securities had revenues of Rs 67 crores and a net profit of Rs 7.21 crores in 2006-07. ICICIdirect has 1.5 million online broking accounts and parent ICICI Securities reported revenues of Rs 750 crores for March 2008. The new player Reliance Money has 2 million online accounts trades worth Rs 2,000 to Rs 3,000 crores per day.

- 54 –

7 EFFECTS OF ONLINE TRADING ON THE INVESTMENT COMMUNITY (TME) 7.1 BENEFITS OF ONLINE TRADING TO INVESTORS •

Some online brokerage firms reported 100+ per cent annual growth rates through the year 2000. The increase was because of the benefits investors can gain from online investing. These benefits include low transaction costs, speed, convenience, boundary spanning abilities, and immediate access to financial information. According to, transaction costs have been driven down because of the increased number of online brokerage firms. In fact, the dramatic increase of online brokerage firms has led to increased competition and lowered commissions that an investor must pay per trade.

•

Along with low transaction costs, the main strategy of online discount brokerages is the speed and delivery of almost instantaneous transactions. In today’s world of fast food and 24-hour service, investors cannot help but want the same type of fast service applied to the financial industry. That is why many investors enjoy the conveniences e-brokerages offer by allowing them to go online and complete transactions at almost any time during the day or night.

Time is saved because investors do not have to phone their broker during normal business hours in order to complete their transactions.

•

Another benefit of online trading is its ability to span boundaries. Many investors are interested in buying foreign stocks and with online trading systems in place; these investors are drawn to its boundary spanning capabilities. This is also true for foreign investors who want to invest in the U.S. market. Now, with the Internet, they have easier access to make their overseas transactions.

•

A final benefit investors can derive from online trading is access to instantaneous information. Vakil and Lu (2005) stated that the Internet has given people access to immediate financial information whenever they want it. They felt that the availability of this financial information should lead investors to make better-informed choices.

This thought is also shared by Bhasin (2005-2006), especially since

- 55 –

the information that is now available to the average investor was once only available to people working in the business of finance.

7.2 COST OF ONLINE TRADING

TO

INVESTORS

•

Even with all of the benefits e-brokerages offer to their clients, there are still costs associated with online investing. Some of these costs include unobservable costs, information-processing costs, information illusion, frequent trading behavior, and the lack of personal advice.

Transaction costs have two components: observable costs and unobservable costs. According to Konana, Menon, and Abramowitz (1999), observable costs are the actual commissions that an investor is charged in order to complete a transaction, where unobservable costs are the costs that are related to the transaction being executed inefficiently and from information asymmetry. These unobservable costs are determined by where e-brokerages choose to complete their transactions. For example, they might not choose to complete the transactions at the actual exchanges, but instead they might choose to use third-parties and market-makers in exchange for a percentage of the bid-ask spread. Obviously investors must be aware of these unobservable costs and the potential that they have to create opportunistic behavior by e-brokerages because of the commissions that they can receive from market-makers. To cut down on this type of arbitrage, the Securities and Exchange Commission (SEC) could help create transparency by putting into effect new regulations that state what information must be provided to the investor.

•

A second cost created by online investing is the cost of processing information. Information-processing costs are the costs that online investors sustain before they actually make a transaction and it is defined by the time and energy that the investor expands trying to reach an investment decision. Hong also stated that because of the huge volume of information found on the Internet that it can take investors a lot of extra time to find, sort, and analyze all of the relevant information. This in turn can out-weigh the benefits of online trading for some investors because they might not be able to afford the opportunity costs associated with spending a lot of time doing research.

•

Another cost to be aware of in regards to online trading is information illusion. This illusion results when investors think that because they have access to so much information via the Internet that they have an advantage over the entire market and this can lead them to make bad

- 56 –

investment decisions. These investors then have an exaggerated sense of control over the outcomes of their investments.

•

Frequent trading is another cost associated with online investing. Low transaction costs can encourage frequent trading according to Konana, Menon and Balasubramanian (2000). In fact, in Singapore, 71.1 per cent of online investors say that they trade more frequently than they did prior to online trading. This increase is troubling because people who trade the most generally have the worst performance.

•

Finally, the downside of investing online is the lack of personal advice from those in the financial field. According to Phelan (2001), the Web will never be able to substitute for the judgment and expertise of financial planners, nor will it be able to protect investors from all of the scams that are abundant on the Internet. So the bottom line is that the investors must weigh these costs against the benefits and decide whether online trading is right for them.

7.3 BENEFITS OF ONLINE BROKERS/FINANCIAL PLANNERS

TRADING

TO

•

The investors are just one group affected by the development of online investing; another group that has been influenced is the brokers/financial planners. With e-brokerages attracting twelve million investors from 1994 to 2000, it may seem like traditional financial planners will soon be extinct. However, this is not the case, as many people in the financial industry have witnessed that the growth of online trading has created benefits for them as well. This includes increased publicity, lower start-up costs, increased client base, ease of communication, and risk management. The attention that has been given to online brokerages in terms of advertising has encouraged more people to trade and thus, in the long run, this has created more business for the financial markets in general. Financial planners feel that average people will be drawn into trading online because of its novelty and then they will eventually realize that they need a financial planner in order to help them get a comprehensive view of their finances.

•

A second benefit, according to Barber and Odean (2001), is that the fixed start-up costs of opening an online brokerage are far lower than opening a traditional brokerage service. Therefore, many brokers might consider putting a part of their services online, thus reduce their - 57 –

staff costs. The staff costs can be reduced because it does not take as many personnel to run an e-brokerage site as it does to manage a traditional brokerage firm.

•

E-brokerages have also allowed brokers wider access to a variety of different people, therefore increasing their client base and allowing them to offer many different types of services to their customers.

Ameritrade and E-Trade are examples of firms that have found new ways to deliver traditional services and new services.

•

Another benefit to brokers is ease of communication. Many financial planners see the greatest gift that the Internet has given them as allowing them to improve communication with their clients. They appreciate the fact that the Internet has saved them money by reducing the costs of communication and by making it easier to get information to their customers.

•

One final benefit that online trading has for brokers is that it makes risk management much easier. When an investor places a trade online, the system first can check the investor’s bank account to make sure that the individual has the funds available to make the trade and this lowers the credit and payment risk that traditional brokers have had to deal with in the past.

7.4 COST OF ONLINE TRADING PLANNERS

TO

BROKERS/FINANCIAL

•

The costs of online trading to brokers and financial planners are fairly obvious and straightforward. Lower transaction costs online have led many investors to e-brokerages and away from traditional brokers to place their trades. Yet, with the media talking constantly about how easy online trading is, one cannot really blame brokers’ clients for wanting to try it. Brokers might be concerned that the bid-ask spread, used to gauge trading costs, and has dropped 30 per cent since Electronic Communication Networks (ECNs) have surfaced. While this is good for the investor, it leads to smaller commissions for the broker.

•

Another concern is that since investors feel that they can distinguish between the good and bad advice that they find on the Internet, they therefore might not be willing to continue to pay a financial planner solely for their expert opinion. This is in part due to the information

- 58 –

illusion discussed previously where investors feel that since they have access to so much information that they can do it better on their own.

•

Finally, many investors, especially entrepreneurs, want to see if they can make better investments than what their financial advisors are already doing for them, so it becomes a game that they want to win.

To try to keep some of their clients from turning to online trading alone, many advisors have placated them by setting aside “play money” that they can invest on their own so that they will feel more in control of their investments.

- 59 –

7.5 CHARACTERISTICS OF ONLINE TRADERS •

According to research by Barber and Odean (2002), many online shareholders share similar characteristics. The majority of them are young men without children and a high level of income. They found that active traders with a propensity for high investment risk and an unusually strong performance in the stock market are all characteristics shared by many investors who decide to trade online.

•

Opiela (2000) quotes a research firm as saying that the two types of investors that are trading online are by their definition the “Aggressive Affluent” and those who would like to “Get Rich Quick.” On that note, Hurley (2000) states that online trading is spawning a younger type of client that is more aggressive and well informed. It has also been stated that investors who participate in online trading generally have a higher education level, are at ease navigating the Internet for relevant information, and know how to apply it in order to make their transactions.

•

Konana, Menon, and Abramowitz (1999) break online investors into two categories: the early adopters and the late adopters. They state that the early adopters are aggressive ‘do-it-yourself’ types of investors whereas the late adopters rely more on a broker’s advice before going through with trades. But even if they rely on a broker for some forms of advice, most online investors have to be self-directed because online brokerages do not make a habit of giving advice on what or when to trade.

•

It is also interesting that once investors start trading, many of them become very overconfident according to a study by Barber and Odean (2002). This is due to an illusion of knowledge and an illusion of control. An illusion of knowledge is when investors believe that since they have access to additional information that they become better investors and they will not listen to information that states otherwise.

In fact, usually because they have access to so much information, investors suffer from information overload and their actual predictive skills for picking stocks begin to decline. An illusion of control is when an investor believes that his involvement will change the outcomes.

They will feel that since they are in control of their investments that they have control over their returns and can therefore beat the

- 60 –

market. As a result of this illusion of control, these investors will have a tendency to trade too often and too speculatively.

7.6 ONLINE TRADING INTERNATIONALLY •

Online trading is not a phenomenon that is sweeping only the United States; it is being implemented in other countries as well. For the purpose of this study, articles regarding online trading that took place in Switzerland, India, and Singapore were analyzed. In Switzerland, 40 per cent of the shareholders search for their financial information via the Internet and more than 25 per cent of people between the ages of eighteen and twenty-nine also place their orders via the Internet. The characteristics of online investors are very similar to those in the U.S. Swiss Internet investors are generally male professionals with a high level of education and income. They also are very self-directed individuals that make decisions regarding their finances on their own.

•

In India, trading via the Internet refers to giving your orders to brokers via a website and not directly on an exchange. Goswami (2003) also explains how the Internet in India acts as an Order Routing System since all orders must be routed through the same exchange mechanisms – this helps to ensure transparency and security. India investors are professional self-directed people that are highly educated. Goswami rates convenience, low cost, and speed as the benefits of online trading that are most important to the Indian investors.

•

Finally in Singapore, the self-investing trend has led to many ebrokerages with lower fees than traditional brokerages. The majority of investors in Singapore are young professional males with at least one college degree. However, since stock trading on the Internet has become so accepted in Singapore, it is not correct to say that investors are only the young and the educated. Instead, Internet trading is appealing to investors across different age levels and different educations. Nevertheless, according to Teo, Tan and Peck, the one characteristic that almost all online investors have is highlevel incomes. They found that this was because most local online brokerages require a deposit of at least $1000 (Singapore dollars) in order to start trading .

- 61 –

7.7 THE FUTURE OF TRADITIONAL BROKERS AND ONLINE TRADING •

Even though the Internet is being used more and more for investing purposes, it is highly unlikely that “virtual” brokerages will replace full service traditional brokerages over the long run. In fact, many financial planners feel that online trading will not hurt their businesses since the greater part of them work with the wealthiest portion of the population who do not have time to do their own investing.

•

It was interesting to discover that in the late nineties, when the market was going strong, many investors made large returns by trading individual stocks and wondered why they should even pay for financial advice from an advisor. These investors became overconfident and suffered from the illusion of control that Barber and Odean (2001) researched in their study. However, after the market drop in 2001, many online investors continued to trade online, but they went back to financial planners for advice (Vakil & Lu, 2005).

According to Hurley (2000), for the first time in 2000 since the midnineties, the highly diversified low risk portfolios that financial planners created have produced better results than portfolios that their clients were managing by themselves online. This is because many online traders only focus on the here and now and do not look at the whole picture or at the future as financial advisors are trained to do.

•

Many brokers may have clients that want to try to invest on their own but do not have a large amount of “play money” to set aside to invest, as was mentioned in a previous section. One option for this type of client is for the broker to open an account online for the customer that the broker can oversee and step in if it looks like his client is heading for trouble.

•

With regards to online investing, many e-brokerages are trying to expand to offer newer and better services to clients. One option is for e-brokerages to offer more knowledge and information support and in turn raise the commissions in order to cover the costs associated with offering this service. This can be done by adding knowledge-based transaction processing systems to e-brokerages that can give investors more personalized advice. By simply adding artificial intelligence systems to the original transaction processing systems that are already found on most online investing websites, e-brokers can create a knowledge-based system. Online investing firms might - 62 –

also consider adding educational web pages and other services that will teach beginning investors how to invest online.

7.8 DISCUSSION AND IMPLICATIONS FOR THE FUTURE •

Has online investing benefited or impaired the financial industry? The purpose of any efficient market is to bring all possible buyers and sellers together so that all the preferences are reflected in the market price. Online investing benefits the financial industry by helping the stock market to reach this goal. It allows more buyers and sellers to come together to carry out transactions.

•

Some fear that online investing will increase market fragmentation, which is when too many competitive suppliers enter an active or new market. Although that may happen over a short period of time, in the long run, the number of suppliers and consumers should even out as more people start using the Internet to trade.

•

Whether to switch to online trading is something that investors will have to decide for themselves. At this time, average Internet traders might fall into the category of young highly educated men with larger incomes, but this is sure to change. Women are now beginning to use the Internet more for online shopping and paying bills so using the Internet to invest should follow. Also a number of inexperienced investors have started trading online because of the amount of publicity touting its ease and convenience. These immature investors will need a lot of knowledge and advice from e-brokerages, and online investing firms must take a step up and be available for more personal advice. That may mean that transaction costs will go up for more naïve investors who request more personalized service, but it will be worth it for them in the long run.

•

It is also important to educate new investors that investing online tends to make them look to the short term instead of investing for the long term, and that this can cause them to trade more frequently, thereby lowering their returns. Buying individual stocks can be very risky and without the right advice on how to diversify investments, a naïve investor could end up losing a lot of money.

•

Since no online investing firms are the same, investors will value certain ones over others based on their needs. The new breed of investor that enjoys risk and likes to trade frequently will favor sites

- 63 –

that gives them low transaction costs and lots of control. However, beginning investors will want sites that give them more advice and handholding tools. More value-added knowledge should be added to as many sites as possible.

•

As the Internet becomes available to more people all over the globe, foreign investors will increase their purchases of U.S. stock and U.S. investors will begin to diversify by including more foreign stocks in their portfolios. These foreign investors will appreciate the opportunity to invest in U.S. stocks more conveniently and at lower costs. Foreign investors will now be able to pay lower transaction fees and stop paying higher fees to their brokers for international trades. The same can be said about U.S. investors trading foreign stocks. Many advisors suggest holding foreign stocks in a portfolio as it actually reduces undiversifiable risk, so online investing will give investors an easier way to acquire these international stocks.

•

More traditional brokers will need to start offering services via the Internet if they have not already. However, they should not go completely online as a majority of the investors like the security of knowing that there is an actual physical location where they can go if they need expert advice. For investors that want to experiment with online investing but are already clients of traditional brokers, the idea of setting up “play money” for them to invest with is a suitable idea.

Also, brokers could set up a mixture that allows both online trading and traditional trading. Traditional brokers should consider offering other services such as estate planning and tax planning, which will not be as easy to offer online.

•

However, there are indications that online trading has somewhat dampened since 2000. What began as an economic slowdown only got worst with the September 11th terrorists attacks. Investors have generally have become less tolerant and more risk averse. When dramatic events such as September 11th happen, it directly affected the overall performance of the economy and investors have the tendency to stay with approaches that they are most comfortable with and not try anything new (like online trading) while at the same time investing less (sine investments involve risk). If the market picks up speed, investors will change their minds. But, given the uncertainty in global oil prices and other issues, including ballooning U.S. trade deficits and the war on terrorism, investors are very unlikely to return to online trading in the near future. However, they will do so as soon as the market picks up and they once again become comfortable with this new approach to trading.

- 64 –

7.9 CONCLUSION •

The Internet is drastically changing how everyone does business, including the financial industry. Online investing has benefits to offer investors as well as brokers. These benefits include low transaction costs, convenience, speed, boundary spanning, improved communication, and risk management. However, these benefits do not come without costs. Some costs of online trading include information-processing costs, unobservable costs, information illusion, and smaller commissions for brokers.

•

The characteristics of online traders are somewhat different from traditional investors. Online traders tend to be males in their early twenties to mid-thirties, with high income and education levels. Yet this will be changing as more people gain access to the Internet and start doing more everyday things online. Foreign investors will also increase trading in U.S. stocks, and U.S. investors will begin investing in foreign markets.

•

Although online investing is gaining prominence, it will not be for everyone. Some will not trust the security of trading online and others will not have the time to do the research required and will prefer to have traditional brokers invest for them. Overall, online investing will only encourage new investors to trade in the stock market, bringing together buyers and sellers to make the market more efficient. After some of the kinks are worked out of online trading, it will tend to be more beneficial to the financial industry in the long run without many negative effects.

•

Even though online trading has slowed down somewhat at the present time, it is our belief that it will pick up speed in the future. Once investors have become more comfortable with the current economic conditions and foresee brighter economic conditions they will return.

- 65 –

- 66 –

8 ANALYSIS Below is the analysis done while doing the study on Online Trading in India.

Ans.1 What is your education qualification?

INTERPRETATION The people who are dealing with the stock market either online or offline. mort of them are graduate, 49%of the total respondent who are dealing with the stock market are graduate, then 16% are post graduate and 22% people is having professional degree. So here this is showing that qualification up to graduation or more than that is in the favor of the online trading pattern Ans. 2 What is your annual income?

- 67 –

- 68 –

INTERPRETATION 58% respondent are having the income level of 100000-200000 ,21% is having 200000-300000 , 12% in having 300000-400000 , 7% of the total respondent are having income more than 400000 per annum and only 2% are having less than 100000 per annum.

To invest in the stock market minimum 100000 or more than this should be the annual income level of the people. In India the per capita income in also increasing so we can say that there is a good opportunity for the online trading market Ans.3 What percentage of your monthly household income could be available for investment?

INTERPRETATION According to the data 23% of the total respondent invest less than 5% of their income, 41% respondents are saying that they invest 5%-10% of their monthly income (which is highest) Whereas the 21% investor do the investment 10%-15% of their total monthly income,13 invest between 15%20% of the total income and only 2% does more than 20% of their income invest in the market We can easily understand that 75% of the total population is having a good amount of investment, so the investment is there in the market, good number of people are ready to invest a good amount in the market 91% of respondent is in the income level of 100000 – 300000 (according to the last question analysis).

- 69 –

So we can say that stock brokerage houses will have to do a good business with the help of Online trading system with few value addition services

- 70 –

Ans.4 Where do you often invest your money?

INTERPRETATION Highest number of respondent is having their investment in the equity that is 65% whereas the investment available for the mutual fund, term deposit and insurance is 14%, 12% and 9% So the investor for equity is high which is again showing the n number of opportunity for online trading Ans.5 What is the primary objective of your investment?

INTERPRETATION 13% of the respondent invests the money for the reason capital appreciation but most of the investor is having same motive that is source of income and retirement plan, wealth preservation and education funding for children or other are only 10% - 71 –

From the analysis we can have idea that the main objective of the investor to earn the money through trading in stock market 77% of the respondent achieves their objective with the help of investment in the equity market, because most of the investment takes place in the form of equity (explanation of 4th ans.)

So we can say that there is a huge potential in the market for the trading in the stock market Ans.6 Do you owe a Computer?

INTERPRETATION 78% of the total respondent who are dealing with the stock market is having computer in their house and only 22% is not having computer in their house The people who is having computer that is 78% can also go for online trading which can be a large number of people who will go for online trading they don’t need to do a additional investment for computer to go for online trading

- 72 –

Ans.7 To operate a computer is easy for me

INTERPRETATION 76% (26+51) of the total respondent believe that operate a computer is easy for me whereas 20%(13+7) of the respondent is having problem to operate a computer out of that 20% , 75 believe that they can’t go for computer So, if 78% of the people who are dealing with the stock market is having computer at their house and around 76% of the same population don’t have any problem to operate a computer So around 60 % is there who is having computer and they don’t have problem to operate a computer Ans.8 Online trading is a secure way of trading?

INTERPRETATION

- 73 –

71% of the respondent is having a positive thinking that online trading is a secure way of trading whereas 185 of the respondent believes that online trading is not a secure way of trading Satisfaction about the process, by which they will be going to do a trading that is online trading, should be there in the mind of the customer.

If they believe that there is no risk over the money which they are going to invest in the market with the help of online trading, there will be a perception to go for online trading at least one time.

Ans.9 online trading is easy and fast way of trading?

INTERPRETATION 51% of the total respondent believe that online trading is a easy task Whereas 41% of the respondent believes that to deal with online Trading is not a easy task and 85 was confused to anything about that the trading via internet is an easy task or not.

There is a difference between the people who believe and who don’t believe is not very big that is only 10% , the reason of this problem can be if a person is doing its investment on its own he or she think of the problem of being mistaken in the transaction. So there is a need of proper training to do trading online.

- 74 –

Ans.10 At what time do you trade?

INTERPRETATION 45% of the total respondents do trading in office timing while 32% do trading in non office timing and 23% of the respondents do the trading in free time Here the people who do the trading in office timing they face the problem of not in the continuous touch of the stock market, so online trading can be one of the good solution of this problem.

Ans.11 Introduction of online trading helped to attract the new Investors thus increasing the trading volumes at Stock Market?

INTERPRETATION

- 75 –

76% of the respondents believe that the introduction of online trading helped to attract the new customer became the reason to increase the trading volume of the market On the other side 16% of the respondents believe that it doesn’t affect the trading volume Ans 12. What factor would you consider before choosing an account in a brokerage house?

RELIABILITY ANALYSIS OF THE DATA We calculate the value of cronbach’s Alpha to calculate how reliable the data collected by the sampling Reliability Statistics Cronbach's Alpha

Cronbach's Alpha Based on Standardized

Items N of Items

.880

.875

21

we also look for that if the value of cronbach’s Alpha is more than average so that data collected by the sample is showing the habit of the population the data is representing the whole population we are having the value of cronbach’s Alpha of 21 features that is .880 that is more than good , so here we can say that data is reliable enough to go further analysis

DESCRIPTIVE STATISTICS ANALYSIS OF THE DATA In the descriptive statistics analysis we calculate the MEAN and STANDARD DEVIATION Where low mean shows the average of the respondent who think that these quality should be in the product and deviation showing the differentiation in opinion of the respondent Low S.D. means small difference in the opinion about the particular factor which should in the product.

- 76 –

If we do the analysis the data through value, we will find that few features are most important for the customer. These are Brand, Compliance system, infrastructure, Regular delivery of contract notes, Efficiency at peak hours, Time to open an account, Variety of products offered Helpline services, Guidance, Research reports and Access to back office.

The mean of the given component is around 1.5 – 1.99. That is showing that customer is looking theses component in the product.

S.D. of the product features Guidance, Variety of products offered, Efficiency at peak hours, Brand, Compliance system, infrastructure is less than 1. Here the respondent is not having different opinion about these components.

FACTOR NANLYSIS In the factor analysis we look for the few component and each component is having 1 or more than 1 features of the product

- 77 –

If we analyze the given Rotated Component Matrix and Component Transformation Matrix we will find that there are six component are coming and each of them component include one or more than 1 features in its own If we talk of component 1 it include few features which are most important while designing the product Variety of products offered, Time to open an account, Brokerage charged, Customer services, Software, Research reports and infrastructure In component 2 it include four features of the online trading product that is Efficiency at peak hours, Customer relationship, Market exposure, Helpline services. In component 3 it include four features of the online trading product - 78 –

that is Effective execution, Regular delivery of contract notes. In component 4 there are three factor which are most important for the product and they are Access to back office, Comprehensive stock trading portal, Employees skill According to component 5 there is only a single feature which is Time to open an account is important And the component 6 is also having only a single product feature that is Recording confirmation. If we gone through the all component of the product we will find that there are few quality or features which a product like online trading should have.

These are Variety of products offered, Time to open an account, Brokerage charged, Customer services, Software, Research reports

- 79 –

9 CONCLUSION The online trading is growing with a rapid pace with the rising level of education among the customers. The other factors being that the Indian Investor nowadays wants to deal himself in trading rather than depending upon other middlemen. They also consider the factors like time saving in doing the online transactions, convenience etc. Although some people feel that online trading is not secure but the people doing the trading online is happy about the increasing security concerns among the companies.

The year 2008 has not been so good for the stock market and the Sensex and Nifty has been dipping and affecting the business negatively for these companies but the same trend reversed in 2009 - 2010. This is due to the fact that at these times people do not prefer to open the DMAT and Trading accounts. So the companies have to reduce their account opening fees to attract more and more customers. Also people trade very less in the bearish market and the company’s profits against brokerage fees soars downwards. It is also a found fact that during the bearish market the ratio of online trading becomes very less. Also there is an intense competition among the companies and the companies come up with new and new promotion schemes such as discounted and negotiable brokerages, Zero balance accounts, waiving a/c opening fee and AMC etc. As the internet penetration is growing in India this business holds a huge potential for growth.

Now if the existing company will have to capture the market they will have to look for the innovation in their product as well as service mix.

The mantra for success in the current situation will be educating the customers about the benefits of online trading and the amount of ROI that can be generated through it.

- 80 –

- 81 –

10 RECOMMENDATIONS The companies should come up with more and more innovative features in their web portals.

• We came to know about most important factor about the product with the help of factor analysis, so we should go for change the product according to the customer need.

• We should also focus upon the value added services. Generally company does claim that if you will by the product you will get these benefits but company doesn’t provide the services here. So services always does matter when we talk of ONLINE TRADING • Company should also look for the problem which customer generally face when they do trading (like problem of operating properly) • The customer should be educated regularly regarding the new technologies and techniques of trading online and also other relevant information.

• The companies should look after to develop more safe and secure ways of transacting business online.

• The companies should make maximum efforts to detect fraud cases and minimize them

- 82 –

- 83 –

11 INDUSTRY RELEVANCE My research project is quite relevant to the today generation of online trading community. The following things can be useful for online trading community • • • • •

They should know their market position with other competitors.

They should probe the broking company to get know some areas of improvement.

The changing perception of market and the companies will also be made clear.

They should get the broking companies to do effective segmentation of their market based their research analysis teams for better trading.

Everyone should understand the effects & advantages of today’s changing technology and should keep themselves abreast with the changing & upcoming technology.

- 84 –

12 LEARNING The last two months has been a great learning experience for me because I came to know about many aspects of online trading which I didn’t know in last 6 years of using the online trading facilities. Some of the learning of mine is: •

• • • •

I improved my communication skills by learning how to talk to different kind of people as it requires the different approach to handle each person.

I became aware about various aspects of working of stock exchange I learnt few things about back office work I learnt about the consumer perception about the stock market and online trading.

Patience was the thing I learnt the most as I have to approach various persons to whom I had to explain same things again and again while approaching or calling them at regular Intervals.

- 85 –

- 86 –

13 BIBLIOGRAPHY • • • • • • • • • • • • • • • • • • • • •

money.rediff.com www.reliancemoney.com www.icicidirect.com www.kotakstreet.com www.bseindia.com www.nseindia.com www.bseindia.com www.sebi.co.in www.investorwords.com www.advfn.com www.investsmartindia.com www.trendtraders.com www.indiainfoline.com www.sharekhan.com www.kotaksecurities.com www.indiabulls.com www.motilaloswal.com/home www.religaresecurities.com http://en.wikipedia.org/wiki/National_Stock_Exchange_of_India http://www.world-exchanges.org/statistics/ytd-monthly http://www.nse-india.com/content/us/us_factsfigures.htm

- 87 –