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Fundamental Analysis

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Stock Analysis: Stock Analysis is the evaluation of a particular trading instrument, an investment sector, or market as a whole. Stock Analysis attempts to determine the future activity of an instrument, sector or market. Stock Analysis is a method for investors and traders to make buying and selling decisions. By studying, evaluating past and current data, investors and traders attempt to gain an edge in the markets by making informed decisions. Fundamental Analysis and Technical Analysis are the most important types of Stock Analysis Definition of Fundamental Analysis Fundamental Analysis is a method of evaluating a security in an attempt to assess its intrinsic value, by examining related economic, financial, and other qualitative and quantitative factors. Fundamental Analysis is a stock valuation methodology that uses financial and economic analysis to predict the movement of stock prices. It is a holistic approach to study a business. It attempts to study everything that can affect the security’s value, including macroeconomic factors (like overall economy and industry conditions) and individually specific factors (like the financial condition and management of companies). Objectives of Fundamental Analysis The main objective of fundamental analysis is to determine the ‘intrinsic value’ of a stock. Intrinsic value or True value is the calculated value of a company, where the market price of  the stock tends to revert. Therefore it is also known as ‘Price target’. To project the business performance. To make a right Buying/Selling decision. Quality and Quantitative Analysis Fundamental Analysis involves Qualitative Analysis  & Quantitative Analysis of a Business. Qualitative is related to quality of a company’s  management, it’s brand recognition, patents or proprietary technology. Etc. Quantitative is anything which is measurable. Quantitative data of financial statements, revenue, profit, assets, ratios etc. Two approaches of Fundamental Analysis There are two approaches the fundamental analysis Top-down approach Bottom-up approach In the Top-down approach Macroeconomics of the Market is studies first. Followed by Industry/ Sector analysis is done in which the company under analysis . The analysis of Company is done in the end. The bottom-up approach is exactly the reverse of the Top-down approach. Top-down approach in fundamental analysis. Typical Analysis of the stock has three steps 1) Macroeconomic environment analysis Initially the firm’s macroeconomic environment is analyzed to project the future employment, inflation, income regulation, taxes etc. The macro analysis is done not only for the domestic market but also for the international markets that affects the firm’s operations. 2) Industry Analysis Industry/ Sector analysis in the next step Top-down approach of Fundamental analysis after Macroeconomics of the environment is analyzed properly Every sector/industry has a different level of sensitivity towards the changes in the macroeconomics aspects. 3) Company Analysis Only after a thorough analysis of the macroeconomic environment and the industry in which the company is operating, analysts proceed with Company Analysis. A SWOT analysis of a company, financial health determination etc, estimation of growth, management performance etc. is carried out using different tools.

Investor Protection Fund

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Investor Protection Fund (IPF) has been set up as a trust under the Bombay Public Trust Act 1950 under the name of ‘National Stock Exchange Investor Protection Fund Trust’ and is administered by Trustees. The Investor Protection Fund (IPF) is created in accordance with the guidelines provided by the Ministry of Finance, Government of India and the SEBI. The Objectives of the Investor Protection Fund (IPF) To compensate clients of defaulter trading members To make investor claims, which may arise out of non-settlement of obligations by the trading member, who have been declared defaulter/expelled, in respect of trades executed on the Exchange. To promote investor education, awareness and aid research activities. Quantum of Compensation The maximum amount of claim payable from the IPF to the Investor is Rs. 15 Lakh. Procedure for filing claims A notice is published in widely circulated daily newspapers notifying the trading member who has been declared defaulter/expelled member. Claims against the defaulter/expelled member specified in the notice are required to be made, on or before three months from the date of such notice. The claimant is required to submit the requisite documents/details in substantiation of his claim. The admissibility of the claim is decided by the Defaulter’s Committee which recommends the payment of the admissible amount out of the Investor Protection Fund in case of insufficient assets in respect of the defaulter/expelled member vesting in the Exchange. Both the Committee and the Trustees may at any time and from time to time require any person to produce and deliver any documents or statements of evidence necessary to support any claim made or necessary for the purpose of establishing his claim. In default of delivery of such documents, the Committee and the Trustees may disallow (wholly or partly) any claim made by him. On recommendation by the Defaulter’s Committee, the Trustees, if satisfied that the default on which the claim is founded was actually committed, may admit the claim and act accordingly. The Trustees have an absolute discretion as regards the mode and method of assessing the nature of the claims including their genuineness and at their discretion may accept, reject or partially grant or allow claims and make payment thereof subject to the limits mentioned above the Trustees in disallowing (whether wholly or partly) a claim for compensation shall serve notice of such disallowance on the claimant.

Settlement Guarantee Mechanism

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The concept of guaranteed settlements has completely changed the way market safety is perceived. It has eliminated the counterparty risk of trading on the Exchange. The market has full confidence now that settlements will take place in time and will be completed irrespective of possible defaults by isolated trading members. In this post we will learn about the Settlement Guarantee Mechanism. Settlement Guarantee Fund A large Settlement Guarantee Fund provides the cushion for any residual risk left after the fine-tuned risk management system. The Settlement Fund is an important element in facilitating the settlement process. The Fund operates like a self-insurance mechanism and is funded through the contributions made by trading members, transaction charges, penalty amounts, fines etc. recovered by NSCCL. A part of the Cash Deposit and the entire security of every clearing member with the Exchange has been converted into an initial contribution towards the Settlement Guarantee Fund. There is a provision that as and when volumes of business increase, members may be required to make additional contributions allowing the fund to grow along with the market volumes. Direct Pay-out of Securities On the pay-out day, pay-out directly goes to the Investor’s account. NSCCL has a system of directly pay-out of securities to Investor’s account in place. The trading Member/clearing Member indicates the beneficiary account to which the securities payout is made by the way of file upload. This system is applicable for both the depositories. In case of any wrong information provided by the trading member, the pay-out goes to the pool account of the trading member. No-delivery period To ensure that investor’s entitlement for the corporate benefits is clearly determined, the exchange sets up a ‘no-delivery period’ for the security in which book closure or a record date is announced by a company for corporate actions other than AGM, EGM, Dividend, Bonus etc. During this period, trading is permitted in the security under consideration but all the trades are settled only after the no-delivery period is over. Penalty The clearing corporation levies penalties on trading members for non-compliances and defaults like: Fund Shortages Securities Shortages Margin Shortages Security Deposit Shortages Client Code Modification Non-Acceptance/Rejection/ Allocation of Institutional trades Ineligible client in Inter-institutional deals Others. Investigation and Inspection As per the regulatory requirement, a minimum of 20% of the active trading members are to be inspected every year by Exchanges. Usually more members than regulatory requirements are scrutinized every year to verify the level of compliance with various rules, byelaws and regulations of the exchange. We have seen how the inspection process or Offline Monitoring takes place in the previous post ‘Online and Offline Monitoring‘ in this blog.

Circuits in share market

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Many retail investors buy stocks which have some corporate governance issues just because they are trading at cheaper prices after the heavy selling. But they don’t understand that catching a falling knife is the biggest mistake which they are doing. In such cases, those stocks closes Circuit-to-circuit on consecutive days destroying huge capital of investors. If they are lucky they get a chance to exit the stock after a few days to avoid further losses. I have seen many traders who don’t know what are the circuit levels for some particular security they are trading and end-up placing a Stop loss at such a deep level that they actually incur more losses in SL itself. Therefore, to avoid such things, one should know what the concept of circuit breakers in the Secondary Market. Let’s see what are the index-based market-wide circuit breakers and what are scrip-wise circuit breakers? Index-based Circuit breaker system An Index based market-wide circuit breaker system applies at three stages of the index movement either way at 10%, 15% and 20%. These circuit breakers bring about a coordinated trading halt in trading on all equity and equity derivatives markets across the country. The breakers are triggered by movements in either Nifty 50 or Sensex, whichever is breached earlier. 10% Circuit rules In the case of 10% movement in either of these indices, there would be a one-hour market halt if the movement takes place before 1:00 p.m. In case the movement takes place at or after 1:00 p.m. but before 2:30 p.m. there would be trading halt for ½ hour. In case movement takes place at or after 2:30 p.m. there will be no trading halt at the 10% level and market would continue trading. 15% Circuit Rules In case of a 15% movement of either index, there should be a two-hour halt if the movement takes place before 1 p.m. If the 15% trigger is reached on or after 1:00 p.m. but before 2:00 p.m., there should be a one-hour halt. If the 15% trigger is reached on or after 2:00 p.m. the trading should halt for the remainder of the day. 20% Circuit Rules In case of 20% movement of the index, trading should be halted for the remainder of the day. Scrip-wise Price Band Daily Price Bands of 2% (either way) on set of specified securities. Daily price bands of 5% (either way) on a set of specified securities. Daily price bands of 10% (either way) on a set of specified securities). Price bands of 20% (either way) on all the remaining securities (including debentures, warrants, preference shares etc. which are traded on CM segment of NSE) No price bands are applicable on scrip on which derivative products are available or scrips included in indices on which derivative products are available. However, in order to prevent members from entering an order at non-genuine prices in such securities, the Exchange has fixed an operating range of 20% for such securities. The Price bands for the securities in the Limited Physical Market are the same as those applicable for the securities in the Normal Market. For Auction Market the price bands of 20% are applicable The exchange views entries of non-genuine orders with utmost seriousness as this has market-wide repercussion. It may suo-moto cancel the orders in the absence of any immediate confirmation from the members that these orders are genuine or for any other reason as it may deem fit.

Online and Offline Monitoring

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In Indian share market Harshad Mehta and Ketan Parekh Scams have forced Stock Exchanges to be very stringent about their rules and regulations. To protect the interest of Investor, maximum use of technology and minimum interference of human was needed. Through their NEAT and BOLT screen-based trading system NSE and BSE respectively, achieved this to some extent. But apart from this there was a strong need to put an Online as well as Offline Monitoring system to keep track on the activities of Trading Members. Cases of Insider Trading, Share Price Manipulations, Operator-driven scrips have always created risk and posed new challenges in front of SEBI. We will see how these Monitoring systems are used in Risk Management. Online Monitoring NSCCL has put in place an on-line monitoring and surveillance system whereby exposure of the members is monitored on a real-time basis. A system of alerts has been built in so that both member and NSCCL are alerted as per pre-set levels (reaching 70%, 85%, 90%,95%, and 100%) when the members approach their allowable limits. The system enables NSCCL to further check the micro-details of member’s positions, if required and take proactive active action. The on-line surveillance mechanism also generates various alerts/reports on any price/volume movement of securities not in line with past trend/patterns. For this purpose the exchange maintains various databases to generate alerts. Alerts are scrutinized and if necessary taken up for follow up action. Open positions of securities are also analyzed. Besides this, rumors in the print media are tracked and where they are price sensitive, companies are contacted for verification. Replies received are informed to the members and the public. Offline Monitoring Off-line surveillance activity consists of inspections and investigations. As per regulatory requirement, a minimum of 20% of the active trading members are to be inspected every year to verify the level of compliance with various rules, bylaws and regulations of the Exchange. Usually, inspection of more members than the regulatory requirement is undertaken every year. The inspection verifies if investor interests are being compromised in conduct of business by the members. The investigation is based on various alerts, which require further analysis. If further analysis reveals any suspicion of irregular activity which deviates from the past trends/patterns and concentration of trading at NSE at the member level, then a more detailed investigation is undertaken. If the detailed investigation establishes any irregular activity, then disciplinary action is initiated against the member. If the investigation suggests suspicions of possible regular activity across exchanges and/or possible involvement of clients, then the same is informed to SEBI.

Margin

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What is Margin? Margin is the difference between the total value of securities held in an investor’s account and the loan amount from a broker. Borrowing on margin is the act of borrowing money to buy securities. The practice includes buying an asset where the buyer pays only a percentage of the asset’s value and borrows the rest from the bank or broker. The broker acts as a lender and the securities in the investor’s account act as collateral. Importance of Margin Margin form a key part of the risk management system. The uncertainty in the movement in the share prices leads to risk which is addressed by margining system of stock markets. Margins ensures that buyers bring money and sellers bring shares to complete their obligations even though the prices have moved down or up. Example of Margin Suppose an Investor purchases 1000 Quantities of ABC Ltd shares at a price Rs 100/- per share on 1st Jan 2019 Then the total Purchase amount = 1 Lac For Margin ( Initial Token Payment ) of 15% Investor have to give 15,000/- to Broker before buying the stocks. For every Buyer there is a Seller. To ensure that Seller gives 100 shares similar margin is levied on him. Imposition of Margin Impact Cost Impact cost shall be calculated on the 15th of each month on a rolling basis considering the order book snapshots f the previous six months. For Group 1, Impact cost less than or equal to 1 For Group 2, Impact cost is more than 1 On the basis of the impact cost so calculated, the scrips shall move from one group to another group from the 1st of the next month. For securities that have been listed for less than 6 months, the trading frequency and the impact cost shall be computed using the entire trading history of the security. For the first month and till the time of monthly review a newly listed security shall be categorized in that group where the market capitalization of the newly listed security exceeds or equals the market capitalization of 80% of the securities in that particular group. Subsequently,  after one month, whenever the next monthly review is carried out, the actual trading frequency and impact cost of the security shall be computed, to determine the liquidity categorization of the security. In case any corporate action results in a change in ISIN, then the securities bearing the new ISIN shall be treated as newly listed security for group categorization. Daily Margin payable by Members Value at Risk Margin Extreme Loss Margin Mark-To-Market Margin Daily margin, comprising of the sum of  VaR Margin, Extreme Loss Margin and Mark-to Margin is payable. VaR Margin Suppose you have Rs. 10 Lac in holding and you want to know how much your portfolio can lose in a ‘single day’? For 5% Value at Risk you will lose Rs12,500 per day. It means a)You are 95% confident that, maximum loses will not exceed Rs.12,500 in single day b) There is a 5% chance that portfolio losses will be minimum 12,500  or more in a single day   The VaR(5%) of Rs.12500 indicates that there will be a 5% chance that on any given day, the portfolio will experience a loss of Rs. 12500 or more. Definition of VaR VaR is the Rupee or Percentage loss in Portfolio value that will be equaled or exceeded only ‘X’ percent of the time. VaR is a single number, which encapsulates whole information about the risk in a portfolio. It measures potential loss from an unlikely adverse event in a normal market environment.  How VaR is calculated? Var is computed using exponentially weighted moving averages (EWMA) methodology. Based on statistical analysis, 94% weight is given to volatility on ‘T-1’ day and 6% weight is given to ‘T’ day returns. To compute volatility of 1st Jan 2019, first we need to compute day’s return for Jan 1st 2019 by using Ln (close price on Jan 1 2019/Close price on 31st Dec 2018) .Take volatility computed as on 31st Dec 2018. Use the following formula to calculate volatility for 1st Jan 2019    Square root of [0.94*(Dec 31, 2018 volatility)*(Dec 31, 2018 volatility) + 0.06*(Jan 1st 2019 LN return)*(Jan 1st 2019 LN return)] Example – Share of ABC Ltd Volatility on December 31, 2018 = 0.0314 Closing price on December 31, 2018 = Rs. 360 Closing price on January 1, 2019 = Rs. 330 January 1, 2019 volatility = Square root of [(0.94*(0.0314)*(0.0314) + 0.06 (0.08701)* (0.08701)] = 0.037 or 3.7% VaR Margin is a margin intended to cover the largest loss that can be encountered on 99% of the days (99% Value at Risk). For liquid securities, the margin covers one-day losses while for illiquid securities, it covers three-day losses so as to allow the clearing corporation to liquidate the position over three days. This leads to a scaling factor of square root of three for illiquid securities. For liquid securities, the VaR margin are based only on the volatility of the security while for other securities, the volatility of the market index is also used in the computation. VaR margin specified as per groups Liquidity Categorization One-Day VaR Scaling Factor for illiquidity VaR margin Group I Security VaR  1.00 Security VaR Group II  Higher of Security VaR and 3 times Index VaR  1.73 (square root of 3.00) Higher of 1.73 times Security VaR and 5.20 times Index VaR Group III Five Times Index VaR 1.73 (square root of 3.00) 8.66 times Index VaR Extreme Loss Margin The extreme loss margin aims at covering the losses that could occur outside the coverage of  VaR margins. The extreme loss margin for any security shall be higher of: 5% or 1.5 times the standard deviation of daily logarithmic returns of the security price in the last six months. How Extreme Loss Margin is computed? The margin rate is fixed at the beginning of every month, by taking the price data on a … Read more

Capital Adequacy Requirement

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Risks involved in Clearing and Settlement process of the Secondary Market are removed by implementing proper Risk Management System. NSCCL provides a transparent clearing and settlement system with no counter-party risk. It has created some frameworks and norms for its members based on some risk containment aspects. Risk containment includes: Capital Adequacy Requirement Stringent Margins requirement Online Exposure Monitoring Off-line Monitoring Index-based Market-wide Circuit breakers /Price bands for securities Settlement Guarantee Mechanism Investor Protection Fund Capital Adequecy Requirement The core of risk management is the liquid assets deposited by members with the exchange/clearing corporation. Members are required to provide liquid assets which adequately cover various margins and base minimum capital requirements. Liquid assets of the member include their Initial Membership Deposit including security deposits. Member may provide additional collateral deposits towards liquid assets, over and above their minimum membership deposit requirements. Let’s see some acceptable forms of capital towards liquid assets and applicable haircuts. Cash and Cash Equivalents Cash, Bank Fixed Deposits with approved custodians, Bank Guarantees from approved banks, Government Securities with 10% haircut, Units of liquid mutual funds or gilt funds with 10% haircut. Other Liquid Assets Liquid (Group I) Equity Shares in demat form, as specified by NSCCL from time to time deposited with approved custodians. Haircut applied are equivalent to VaR margin for the respective securities. Mutual Fund units other than those listed under cash equivalents decided by NSCCL from time to time. Haircut equivalent to the VaR margin for the units computed and traded price if available or else, using the NAV of the unit treating it as a liquid security. Capital Adequacy Norms for Membership of NSE Particulars (all values in Rs. Lakh) CM and F & O Segment CM,WDM and F & O Segment Net Worth 100 200 Interest Free Security Deposit (IFSD) 125 275 Collateral Security Deposit (CSD) 25 25 Annual Subscription 1 2 Additional Base Capital Clearing Members may provide additional base capital/collateral deposit (additional base capital) to NSCCL and/or may wish to retain deposits and/or such amounts which are receivable from NSCCL, over and above their minimum deposit requirements, towards initial margin and/or other obligations. Clearing member may submit such deposits in any one form or combination of the following . 1) Cash 2) Fixed Deposits Receipts with approved custodians 3) Bank Guarantee from approved banks 4) approved securities in demat form deposited with approved custodians. Effective Deposits All collateral deposits made by CMs are segregated into cash component and non-cash component. For additional capital, cash component means cash, bank guarantee, fixed deposit receipts, T-Bills and dated Government Securities. Non-cash component shall mean all forms of collateral deposits like deposit of approved demand securities. At least 50% of the Effective Deposits should be in the form of cash. Liquid Networth Liquid Networth is computed as total liquid assets less than initial margin payble at any point in time. The liquid Networth maintained by CMs at any point in time should not be less than Rs.50 lakhs (referred to as Minimum Liquid Net Worth)

Book Review: ‘Guide to Technical Analysis and Candlesticks’ by Ravi Patel

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Author: Ravi Patel Pages: 224 pages Publisher: Buzzingstock Publishing House; 1st edition (1 May 2010) Language: English Table of contents: Stock Market Basics Introduction to Stock Market Analysis Basics of Technical Analysis Introduction to Candlestick Introduction to Chart Patterns Introduction to Technical Indicators Technical Analysis Steps Stop Loss Theory Stock Selection Strategies Case Studies of Technical Analysis Source of Information   Pros:  Really lucid language and simple English is use Most of the basic concepts covered before starting Technical Analysis & Candlesticks explanation All the important charts and patterns are discussed with black and white images. Technical Indicators and their uses are explained really very well. Risk Management techniques like Stop loss, trailing stop loss etc. explained Stocks Selection Strategies are briefly explained. Case studies on Technical Analysis included Really good book for New traders and Beginners who don’t have any knowledge of technical analysis. Cons: The book is made keeping beginners in mind, so traders who already know basics of Technical Analysis doesn’t get anything new. For them it is just a revision You have to read book again and again to finally understand the concept better. This happens due to author’s attempt to include many concepts in one book. Book touches all the concepts once and doesn’t gives in-depth discussion on the same. Clearly you can’t start earning Money directly after reading this book. This book will help you get started your studies. Guide to Technical Analysis and Candlesticks is really good book for New Traders and Beginners who wants to understand  Basics of Technical Analysis subject. There are many better books available by foreign authors on this subject. So those who aren’t interested in reading big books and need a simply written book on Technical Analysis keeping Indian traders in mind. This is the right book for their book-shelf . Review by Stocksbaazigar

Risks in Settlement

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There are two types of risks in settlement system. Counterparty risk System Risk 1) Counterparty Risk      Counterparty risk arises if parties do not discharge their obligations fully when due or at any time thereafter. These have two major components, replacement cost risk prior to settlement and principal risk during the settlement 1.1) Replacement Cost Risk The replacement cost risk arises from the failure of one of the parties to the transaction. While the non-defaulting party tries to replace the original transaction at current prices, he loses the profit that has accrued on the transaction between the date of the original transaction and date of replacement transaction. The seller/buyer of the security loses the unrealized profit if the current price is below/above the transaction price. Both parties encounter the risk as prices are uncertain. It has been reduced by reducing the time gap between transaction and settlement and by legally binding netting systems. 1.2) Principal Risk The Principal Risk arises if a party discharges his obligations but the counterparty defaults. The seller/buyer of the security suffers this risk when he delivers/makes payment, but does not receive payment/delivery. This risk can be eliminated by delivery vs. payment mechanism which ensures delivery only against payment. This has been reduced by having a central counterparty (NSCCL) which becomes the buyer to every seller and the seller to every buyer 1.3) Liquidity Risk A variant of counterparty risk is ‘liquidity risk’ which arises if one of the parties to transaction does not settle on the settlement date, but later. The seller/buyer who does not receive payment/delivery when due, may have to borrow funds/securities to compete his payment/delivery obligations. 1.4) Third Party Risk Another variant is the third party risk which arises if the parties to trade are permitted or required to use the services of a third party which fails to perform. For example, the failure of a clearing bank which helps in payment can disrupt settlement. This risk is reduced by allowing parties to have accounts with multiple banks. Similarly the users of custodial services face risk if the concerned custodian becomes insolvent, acts negligently etc. 2) System Risk This comprises of operational, legal and systematic risks etc. The operational risk arises from possible operational failures such as errors, fraud, outages etc. The legal risk arises if the laws or regulations do not support enforcement of settlement obligations or are uncertain. Systematic risk arises when the failure of one of the parties to discharge his obligations leads to failure by other parties. The domino effect of successive failures can cause a failure of the settlement system. These risks have been contained by enforcement of an elaborate margining and capital adequacy standards to secure market integrity, settlement guarantee funds to provide counter-party guarantee, legal backing for settlement activities and business continuity plan etc.

Settlement Agencies

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Several entities are involved in the process of clearing. These are clearing corporation,  clearing members, custodians, Clearing banks, Depositories etc. Lets study the roles of each of these entities. Clearing Corporation The clearing corporation is responsible for post-trade activities such as risk management and clearing and settlement of trades executed on a stock exchange. The National Securities Clearing Corporation Ltd (NSCCL) while Clearing House of BSE called Bank of India Shareholding Ltd (BOISL) handles the clearing and settlement operations on behalf of respective exchanges. Clearing Corporations clear all trades, determine obligations of members, arranges for pay-in of funds/securities, receives funds/securities, processes for shortages in funds/securities, arranges for pay-out of funds/securities, guarantees settlement, and collects and maintains margins/collateral/base capital/other funds. Clearing Member Clearing members are responsible for settling their obligations as determined by the clearing corporation. They have to make available funds/or securities in the designated accounts with clearing bank/depositories, as the case may be, to meet the obligations on the settlement day. In the capital market segment, all trading members of the Exchange are required to become the Clearing Member of the Clearing Corporation. Custodians Custodians are clearing members but not trading members.  They settle trades on behalf of trading members when a particular trade is assigned to them for settlement. The custodian is required to confirm whether he is going to settle the trade or not. If he confirms to settle the trade, then clearing corporation assigns that particular obligation to him. If he rejects the trade, the obligation is assigned back to the trading/clearing member. Custodians empanelled by NSCCL are: Deutshe Bank A.G. ,HDFC Bank Ltd ,HSBC Ltd ,ICICI Bank Ltd ,Standard Chartered bank Ltd ,Axis bank Ltd ,Stock Holding Corporation of India Ltd ,DBS Bank Ltd ,J P Morgan Chase Bank ,Kotak Mahindra Bank Ltd ,SBI,Citibank N.A.,Obris Financial Corporation Ltd. ,IL&FS Ltd Clearing Banks Clearing Banks are a key link between the Clearing Member and Clearing Corporation to effect settlement of funds. Every clearing member is required to open a dedicated clearing account with one of the designated clearing banks. Based on the clearing member’s obligations as determined through clearing, the clearing member makes funds available in the Clearing account for the pay-in and receives funds in case of pay-out. Designated Clearing Banks: Axis Bank Ltd ,Bank of India Ltd ,Canara Bank Ltd ,Citibank N.A. ,HSBC Ltd ,HDFC Bank Ltd,ICICI Bank Ltd, IDBI Bank Ltd,Indusind Bank Ltd ,Kotak Mahindra Bank ,Standard Chartered Bank, State Bank of India Union Bank of India Depositories Depositories hold securities in dematerialized form for the investors in their beneficiary accounts. NSDL & CDSL are the two depositories of India Each clearing member is required to maintain a clearing pool account with the depositories. He is required to make available the required securities in the designated account on settlement day. The depository runs an electronic file of transfer of securities from accounts of custodians/clearing member of NSCCL and visaversa as per the schedule of allocation of Securities. Professional Clearing Member NSCCL admits a special category of members known as professional clearing members (PCMs). PCMs may clear and settle trades executed for their clients (individuals, institutions etc.) In such cases, the functions and responsibilities of the PCM are similar to that of custodians. PCMs also undertake clearing and settlement responsibilities of the trading members. The PCM in this case has no trading rights, but has clearing rights i.e. he clears the trades of his associate trading members and institutional clients

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