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Summer Internship ProjectRISK MANAGEMENT IN SHAREKHANSubmitted in partial fulfillment of PGDM program2012-14Submitted bySakshi Malik20/170Company MentorFaculty MentorMr. Jaipal SinghAssistant ManagerJhandewalan, New DelhiDr. Shalini VermaniApeejay School of ManagementNew DelhiJuly 20131

ACKNOWLEDGEMENTThis project has been as a part of internship required during the completion of PGDM program. Iwas involved with SHAREKHAN LIMITED, Jhandewalan, Karol Bagh, for 3 months , and Icome across a lot of people who put in their time and effort toward acclimatizing me to theworkings of their organizations.I express my thanks to my company guide Mr. Jaipal Singh (Assistant Manager) , Mr. Vijay (Senior Manager) who motivated me in all my efforts.I would also like to thank Dr. Shalini Vermani (Professor) Mentor for supporting, guiding andencouraging me during this project. I record my sincere thanks to her with deep gratitude.I would also like to thanks Dr. Alok Saklani ( Director of Apeejay School Of Management)providing me an opportunity to learn outside the class room. It was truly wonderful learningexperience. Last but not least, I express my gratitude to the entire staff of SHAREKHANLIMITED.These past 3 months were of utmost importance as they added value towards my path ofknowledge. I would like to end this acknowledgement by thanking the customers and the peopleat large with whom I have interacted during the course of my training.2

EXECUTIVE SUMMARYThis Project named as Risk Management in Broking Firm, is carried out at Sharekhan ltd from1st April to 31st June to analyze and understand the risk management of different broking firms. Ihave taken four different broking firms namely Sharekhan Limited, Angel Broking , KotakSecurities and Indian Bulls.Capital Market in India is an emerging market with a great potential Indian capital market hasgot a strong foundation and therefore has gained a confidence of Indian investors as well asForeign Institutional Investors. In India there are two Stock Exchanges (National StockExchange and Bombay Stock Exchange) through which securities are traded. Stockexchange is a body formed for the purpose of assisting, regulating or controlling thebusiness of buying, selling or dealing in securities. A n i n v e s t o r h a s t o t r a d e i ns t o c k m a r k e t t h r o u g h a r e g i s t e r e d s t o c k broker. A stock broker is a member of arecognized stock exchange who is permitted t o d o t r a d e s o n t h e f l o o r o f t h ee x c h a n g e . „ S t u d y o f R i s k M a n a g e m e n t i n S t o c k Broking Firm‟ the title, shows thatthe project revolves around the risks managed by Stock Brokers while handling their Subbrokers, branches, franchisees and investorsRisk and uncertainty go together. However, risk and return have a direct relationship, higher therisk, higher the chances of good return and vice versa. There is a growing competition betweenbrokerage in a post reform India. For investors is always to decide which brokerage to choose.Research was carried out to find out how brokerage firms manage their risk in comparison toother brokerage firms.Risk can be defined as “Possibility of suffering losses”“The chance of something happening that will have an impact upon objectives. It is measured interms of consequences and likelihood”.Risk management in a Broking Industry is a new concept in India, since it poses maximum riskin the financial market, managing it was felt most essential by the regulatory bodies andexchanges.3

In stock broking industry risks are high due to the volatility of the market. The risk may causedue to its sub brokers, investor clients, branches etc. there are uncertainties aboutpayments from clients or from clients to sub brokers and then sub brokers to thebroker. The high volatility of the market may cause the clients or sub brokers not tomake payments in specified time. Thus brokers are always exposed to market risks,financial risks, credit risks, liquidity risk and operational risks. To cope up with such eventsbrokers have to collect certain amount of margins and maintain the same with the exchange. Tomanage such risks Value at Risk margin, Mark to Market margin a n d e x t r e m e l o s smargin is maintained.A l s o , t h e b r o k e r s a r e a l l o w e d i n t r a d a y turnover and gross exposure limits.Brokers have to maintain minimum base capital and additional base capital with theexchange. Exchanges, SEBI and NSCCL have taken steps like KYC, continuouss u r v e i l l a n c e , m a n d a t o r y a u d i t e t c . T h u s , e v e r y broking firm has RiskManagement department. In all these companies which I have taken there is asurveillance department to deal with the risk management activitiesThis study suggests my own experience in Sharekhan Limited which is one of the leadingbrokerage firms. Every company has to bear risk at some point of time in the organization soSharekhan Limited manages its risk very well. It has its own separate department for riskmanagement. The analysis is done between four broking firms in order to know how thesecompanies manage their risk.Through this report we were also able to understand, what our company‟s (Sharekhan Limited)positive and negative points the company‟s hierarchy, its vision and mission, the product offermy Sharekhan Limited. It provide live terminal known as trade tiger for online trading. We alsogave suggest to the company what improvement can be done for the benefits of the customers.Risk can be defined as “Possibility of suffering losses”4

“The chance of something happening that will have an impact upon objectives. It is measured interms of consequences and likelihood”.Risk management in a Broking Industry is a new concept in India, since it poses maximum riskin the financial market, managing it was felt most essential by the regulatory bodies andexchanges.In stock broking industry risks are high due to the volatility of the market. The risk may causedue to its sub brokers, investor clients, branches etc. there are uncertainties aboutpayments from clients or from clients to sub brokers and then sub brokers to thebroker. The high volatility of the market may cause the clients or sub brokers not tomake payments in specified time. Thus brokers are always exposed to market risks,financial risks, credit risks, liquidity risk and operational risks. To cope up with such eventsbrokers have to collect certain amount of margins and maintain the same with the exchange. Tomanage such risks Value at Risk margin, Mark to Market margin a n d e x t r e m e l o s smargin is maintained.A l s o , t h e b r o k e r s a r e a l l o w e d i n t r a d a y turnover and gross exposure limits.Brokers have to maintain minimum base capital and additional base capital with theexchange. Exchanges, SEBI and NSCCL have taken steps like KYC, continuouss u r v e i l l a n c e , m a n d a t o r y a u d i t e t c . T h u s , e v e r y broking firm has RiskManagement department. In all these companies which I have taken there is asurveillance department to deal with the risk management activities5

TABLE OF CONTENTSSR.NO.1.2.3.4.5.6.78910PARTICULARSPAGE NO.AcknowledgementExecutive SummaryChapter 1 Area of Internship and Insight GainedChapter 2 Profile of the OrganizationChapter 3 Job Description and Functional ProfileChapter 4 Learning Experience and Insight GainedData AnalysisChapter 5 Recommendation and -4445-495051526

CHAPTER 1THE AREA OF INTERNSHIP AND LEARNING OBJECTIVEI worked as an intern in Sharekhan from 1 April 2013 to 31 June 2012. It was a very goodexperience for me. My area of internship comprises of both the fields Finance as well asMarketing. In finance I was given the theoretical knowledge of Online Trading, and inMarketing I was said to open Demat Account and do marketing of Share khan. I have learned alot there.learning objective Knowledge of Stock Market, Trading, NSE (National Stock Exchange), BSE (BombayStock Exchange).Information of Share khan (History, Products, Brokerage Charges, Mission, Vision)Ways to minimize the risk of Clients as well as Broking Firms.Knowledge of Demat Account and the procedure adopted to open Demat Account.CAPITAL MARKETA capital market is a market for share, securities; where business enterprises or companiesand governments can raise long-term funds. Through capital market or security market peoplewho have idle resources can most efficiently transfer those recourses who have productive needfor them. Securities market provides channels for allocation of savings to investment andthereby decouples these two activities. A Financial/capital market consists of investors (buyersof securities), and borrowers (sellers of securities), intermediaries and regulatory bodies.7

INDIAN STOCK MARKET OVERVIEWA stock market or equity market is a public entity for the trading of company stock or sharesand derivatives at an agreed price; these are securities listed on a stock exchange as well as thoseonly traded privately.Indian Stock Market consists of more than 20 Stock Exchanges. The Bombay stock exchange(BSE) and National stock exchange (NSE) are the two primary exchanges in India. BSE andNSE account for about 80% of the equity volume traded in India.BOMBAY STOCK EXCHANGEBOMBAY STOCK EXCHANGE (BSE) (Bombay Share Bazaar) The Stock Exchange, Bombayis a stock exchange located on Dalal Street , Mumbai and is the oldest stock exchange in Asia .The equity market capitalization of the companies listed on the BSE was US 1 trillion as ofDecember 2011, making it the 6th largest stock exchange in Asia and the 14th largest in theworld . The BSE has the largest number of listed companies in the world. As of March 2012,there are over 5,133 listed Indian companies and over 8,196 scrips on the stock exchange, theBombay Stock Exchange has a significant trading volume.8

NATIONAL STOCK EXCHANGENATIONAL STOCK EXCHANGE (NSE) The National Stock Exchange of India was set upby Government of India on the recommendation of Pherwani Committee in 1991. It wasincorporated in November 1992 as a tax-paying company. In April 1993, it was recognized asa stock exchange under the Securities Contracts (Regulation) Act, 1956. The National StockExchange (NSE) is a stock exchange located at Mumbai, India.It is the 16th largest stockexchange in the world by market capitalization and largest in India by daily turnover and numberof trades, for both equities and derivative trading. NSE has a market capitalization ofaround US 985 billion and over 1,646 listings as of December 2011. Though a number of otherexchanges exist, NSE and the Bombay Stock Exchange are the two most significant stockexchanges in India and between them are responsible for the vast majority of share transactions.The NSE's key index is the S&P CNX Nifty, known as the NSE NIFTY an index of fifty majorstocks weighted by market capitalization.purpose - Stock markets basic role is to provide a platform for the masses of the country toinvest their savings and also as a source of funds for various organizations and institutions. Itprovides an opportunity for any person to become a part-owner of the company by buying thecompany‟s shares. These shares can be sold and exchanged as well as used as collateral incertain cases. One can deal in a variety of financial instruments in a stock market such as Equity9