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Online Trading

Online stock trading has opened the world of stocks to millions of young investors who might not have considered investing in stocks otherwise. The get-rich-quick success stories have further boosted the attraction for stock market. However, it is not that simple as it looks on the ground and many have burnt their fingers. The continuing bull-run in the market is another reason for investors queuing up to enter the world of online trading without sufficient knowledge of the market and without any prior home work. However, once the bears take control of market trends, even for a short period of time, the investors realize that it is the time to harness their knowledge and strategies for playing the stock market game. The rule of the game is that though internet has made stock trading simple, it has not changed the basic fundamental of smart investing. The investors still need to follow certain rules and guidelines to help them make money the smart way, no matter whether they invest online or through traditional way.

Indian Capital Market Scenario

A huge range of websites and trading portals are available that provides an investor with daily market commentary, stock tips and trading fundamentals other than trading and depository facilities. But they all come along with high cost and extreme risk, none of them provides an emerging investor with a safe learning space at zero cost. Sensex at 14,000 is the most talked about topic these days and everybody seems to be interested. Every body is euphoric about this phenomenal rally. But most of them do not make sense of it. They only understand one thing that there is lot of money involved and some big bulls out there are making lot of money. But they really wonder as to where be their pie of 14,000 and here emerges Khelostocks that empowers masses to get their share of thrill, adventure and capital market education out of this rally. Khelostocks can cater to all these people, those who do not have money, those who have money but are risk averse, those who have money and also willing to takes risk but do not have the know how. Khelostocks is a one stop Virtual Stocks Trading Portal of India.

Liberalization and consistent economic growth of India in past decade has lead to the emergence of a bullish phase in the Indian stock markets. The exorbitant growth rate show cased by stock markets has attracted a whole new breed of investors, which consists of youngsters working in knowledge economy, students and housewives. These are the people with lot of liquid money in hand and free excess to internet together with a simple goal of making fast money. These youngsters, who splurge at malls, shopping plazas and multiplexes, have high disposable incomes. They are “the young and the restless”. These ‘spendthrift’ professionals have now chosen investing in stocks as an expressway to making fast bucks. But the point to notice here is that most of these potential customers belong to middle class, they are risk averse and they are huge in number.

How to learn

Khelostocks.com at this point emerges as the only opportunity for this emerging group of willing investors to test their trading fundamentals and techniques and learn new ones and turn themselves into savvy investors, before stepping into the real market. It is typically a stock game which provides learning as well as thrill of trading. At the same time high performers on Khelostocks can get cash prizes on daily basis.

Khelostocks is a virtual stocks trading portal. It’s a platform that helps an evolving investor to experience the dynamics of real time stocks trading at zero cost and zero risk. Here a willing investor can trade in equities of top Indian corporate in a virtual manner. It helps client to learn and test most of the online trading techniques and fundamentals. With my personel experience and analysis I can say it is the most safe way of experiencing stocks trading as close as real.

How it works

Every client, on signing up, which is free, is provided with virtual one million rupees. Market data is streamed on a real time basis into the Khelostocks systems from National Stock Exchange for 400 companies listed on NSE. A user can place buy or sell order on both intraday and delivery basis in the Khelostocks trading systems using the virtual cash provided to him. Order can be placed at both limit and market rates. Now as the desired trading rate by the client is reached in the spot market his outstanding order is materialized and client becomes an owner or seller of the script as the case may be. As long as the order remains outstanding in the Khelostocks order book, corresponding margin is blocked for the Client. On buy trade, money is deducted from his cash assets and in case of a sell trade money is credited to his cash assets. Client’s net profit, loss and net assets are updated to his Account summary. Hence the client is playing with real time stock values and trading techniques but with virtual money. To help traders to make a head start khelostocks provide them with daily Market Outlook and intraday as well as delivery based Stock Tips. It has easy to use Streamer, Get Quotes, Stocks Calls facility and gives explanation to niche market terms that helps evolving investor to understand the market lingo. It also facilitates clients to ask their queries and doubts. Khelostocks provides an exclusive News Room that provides the latest business and market news from various sources at one place. It even has hosted a number of Trading Tutorials that help investors to learn the basics of trading.

SEBI ON INSIDER TRADING

           

           

 

 

The Securities and Exchange Board of India (hereinafter referred to as SEBI) mandates that a company making public issue of shares lists them in a stock exchange.  After the shares are listed on a stock exchange, they are allowed to be traded like goods. Like in any other form of market, the forces of demand and supply regulate the prices of shares as well. When people buy the shares of a particular company from the stock market (i.e. the demand for the share increases), the price of the shares of that company increases. Similarly, it decreases when people sell  the shares (supply increases than demand).

 

By investing in a company’s share, an investor (share holder) becomes an owner of that particular company to the extent of the value of the shares held by him.  He therefore is entitled to a share in the profits earned by the company. This share in profits that is distributed to a shareholder is known as dividends.  Apart from the ownership, it is the dividend or the anticipation thereof that lures an investor into buying the shares of a particular company.  The performance of a company is of primary importance to the investors and the general public who might invest in the company.  The Indian company law provides that a company should prepare an annual account showing the company’s trading results during the relevant arrear (section210, Companies Act, 1956).It also makes it mandatory that the company publishes its assets and liabilities at the end of the period along with the financial results. This has been provided to ensure transparency in the functioning of the company which the shareholders also have a right to know.  Also, action 166 provides that the company calls at least one meeting of its shareholders each year.  This meeting is known as the Annual General Body Meeting (AGM) and is kept with a view to ensure that the shareholders come together once in a year to ensure and review the working of the company.  The information released in Annual Reports and Annual General Body Meetings relate to the performance of the company and hence play a valuable role in shaping the minds of existing and prospective shareholders.  

 

The General public and shareholders get knowledge of this information only during AGM or Annual Reports or when the company announces it in a press conference etc.  However persons in the company itself or otherwise concerned to the company are in possession of such information before it is actually made public.  For example, a Chartered Accountant auditing the accounts of the company, a lawyer giving the company any advice on its future endeavors, directors of the company taking decisions etc. come into possession of knowledge on the company’s performances.

 

The knowledge of this unpublished price sensitive information in hands of persons connected to the companies puts them in an advantageous position over others who lack it.  Such information can be used to make gains by buying shares a cheaper rate anticipating that it might rise. Similarly, it can be used to insulate themselves against losses by selling shares before the prices fall down. Such transaction entered into by persons having access to any unpublished information is called Insider Trading. Such trading is not based on a level playing field and can prove detrimental to the interests of the shareholders of the company. Consequently, SEBI banned insider trading and laid down the SEBI (Prohibition of Insider Trading) Regulation 1992.

 

Regulation 2(e) defines an ‘insider’ as a person connected or deemed to be connected and who is reasonably expected to have access to any unpublished price sensitive information in respect of securities [i.e. shares, debentures etc.] of a company, or who has received or has had access to such unpublished information. The directors, officer, employers of the company, & persons involving a professional or business relationship [like CA's lawyers etc.] are connected person as per regulations 2 (c). The definition of person would include a company, association or body of individuals whether incorporated or not. Apart from connected persons, the regulation also provides for ‘deemed to be connected persons’ which generally include intermediaries like an investment company, trustee company etc. Also included in the list is subsidiary of a company and relatives of connected persons etc.

 

It is important to note here that an employee, director or officer of a company does not become a connected person solely by virtue of his position in the company. To be considered as a connected person, it is important to prove that they have indulged in insider trading. Regulation 2(ha) defines price sensitive information as any information which relates directly or indirectly to a company, and if published, would substantially affect the price of securities of the company. It also provides a list of information that it deems to be price sensitive information which includes:-

 

•Ø      Periodical financial result of the company.

•Ø      Intended declaration of dividends.

•Ø      Issue or buy-back of securities.

•Ø      Any major expansion plans or execution of new projects.

•Ø      Amalgamation, mergers or takeovers,

•Ø      Disposal of the whole or substantial part of the undertaking

•Ø      Any significant change in policies, plans or operation of the company

 

A mere perusal of the list gives an impression that a price sensitive information would be any information that has direct nexus with the performances of the company in present and future time.

 

Regulation 3 & 3A enumerates the various acts that an insider and company are prohibited to do. These regulations prohibit an insider and a company to ‘deal’ in certain circumstances. The term ‘deal’ is defined under regulation 2(d) which describe dealing in securities to mean an act of subscribing, buying, selling or agreeing to do so by any person either as principal or agent.

 

Regulation 3 prohibits an insider to deal either on his behalf or on behalf of any other person in the securities of a company listed on a stock exchange when in possession of unpublished price sensitive information. It also prohibits the communication, procurement, counseling of such information directly or indirectly in writing or verbally unless such communication has been made in the ordinary course of business, profession, employment or under any law. Regulation 3A puts a similar prohibition on companies to deal in securities of another company or an associate of that company when in possession of unpublished price sensitive information. However, Regulation 3B provides that if the company proves that though the transaction was entered by an officer on its behalf, he was not aware of any such information. In such a case the company will not be held guilty of insider trading. It also provides with some other defenses which a company may advance in a proceeding for an offence under Regulation 3A.

 

Thus, Regulation 3 & 3A provides the acts that an insider or company is prohibited to enter into. Contravention of this provision shall amount to insiders trading and is punishable as per section 24 of SEBI Act, 1992. The section provides for a punishment of imprisonment for a term up to 10 years or a fine up to Rs. 25 Crores or both.

 

The SEBI (Prohibition of Insider Trading Regulation), 1992 also provides for certain measures that every listed company and other entities need to incorporate to facilitate prevention of insider trading.

 

Regulation 13 provides that any person holding more than 5% shares or voting right in any listed company shall disclose to the company the number of shares or voting rights held
by him. It also requires a director to inform the company about the number of shares or voting rights held by him within 4 days of his appointment. It also requires such shareholders and directors to make continuous declaration of any change in their share holding or voting rights to the company. The company in return is required to disclose such information received to all stock exchanges where the company is listed.

 

Regulation 12 requires all listed companies and organizations associated with securities to frame a code of internal procedure. The regulation also provides a models code to which the internal procedure should be in consonance. The model code provides that a listed company shall appoint compliance officer who shall set forth policies, procedures and also monitor adherence to the rules for preservation of price sensitive information. It also lays down certain trading restrictions that all directors, officers and designated employees are subject to. Designated employees are officers comprising the top three tiers of the company’s management or the employers designated by the company to whom the restrictions shall be applicable. It provides that such directors, officer and employees shall be eligible to deal in securities only during a trading period known as “Trading windows”, which shall be close at the time of:-

 

•Ø      Declaration of financial results.

•Ø      Declaration of dividends.

•Ø      Issue of securities by way of public/right/bonus etc.

•Ø      Major expansion plans or execution of new projects.

•Ø      Amalgamation, mergers, takeovers and buy back.

•Ø      Disposal of whole or substantial part of the undertaking.

•Ø      Any changes in plans, policies or operation of the company.

The directors, employees or officers of a company shall only be eligible to deal in securities when the trading windows are open.

 

It also provides that the directors etc. wanting to deal in the securities of the company beyond a threshold limit, which shall be decided by the company, a pre clearance of the same must be taken from the compliance officer. The deal should be affected within 7 days of pre-clearance failing which a fresh clearance is required.

 

The model code also provides for prevention of insider trading in other entities that may come in possession of unpublished price sensitive information due to their nexus to a listed company. It provides that such entities should adopt the ‘Chinese Wall’ policy which demarcates the area of the organization having access to confidential information- known as ‘Inside area’- from other areas of the organization – known as ‘public area’. The employees in inside area shall not communicate any information to an employee in public area. It provides that in order to monitor Chinese wall policy and trading in client securities based on insider information, the organization / firm shall restrict trading in certain securities and designate such list as restricted / grey list. Trading in any security on the restricted list by designated employees, directors etc. may be blocked or disallowed during pre- clearance.

 

The SEBI ‘has been indeed circumspect in formulating this regulation. It covers all possible incidences of insider trading and also provides for measures that facilitates its prevention. Thus it will not be wrong to say that SEBI has ensured a level playing field for all shareholders of a company who otherwise would have been at a loss in the absence of such regulations. These regulations have also ensured that insider does not undermine the interests of small shareholders in his endeavor to make profits or insulating himself against a prospective loss

With the doubling of the JAVA stock price on March 18, 2009 based on a Wall Street Journal report that IBM is bidding to buy Sun Microsystems, and with the StockTradersPlace sell action commentary on March 21, one open question is “Should the stock be shorted?”. Here is where other factors have to be considered beyond technical analysis. With speculation that other companies such as Hewlett-Packard (HPQ) and Cisco Systems (CSCO), among others, may want to buy Sun Microsystems, a bidding war can emerge. For this reason, it is probably risky to short the stock at this point, although selling the long position holding is the prudent thing to do.

I continue to be amused by corporate acquisitions and the price paid for such actions. I was involved in such a scenario in 2001 (at the onset of the tech/telecommunications industry meltdown) where the company I was working for ballooned to 95,000 employees largely on the contribution of various corporate acquisitions leading up to year 2001. Today, that company has less than 32,000 employees and has filed for bankruptcy protection.

The previous paragraph was not meant to suggest a similar fate for IBM but was simply old memories coming to the fore as this Sun Microsystems acquisition is being reported. The price is high at $8B. There will be corporate culture clashes and integration issues, as well as clear conflicts in technology in terms of Intel and Advanced Micro Devices microprocessors used in IBM server products versus the Sun Microsystems SPARC architecture microprocessors.

And what is the latest craze with Sun Microsystems anyway? Well, Sun’s legacy is in engineering workstations and server products. But in 2007, Sun changed its stock symbol from SUNW to JAVA to clearly re-orient the company strength and leadership in the JAVA programming language. As significant as the JAVA technology is to the Web computing industry, one must continue to question how they intend to make money from this. As an investor/trader, that is the most important question to answer.

It will be very interesting indeed to see how this unfolds if IBM does end up acquiring Sun Microsystems. Will IBM then customize JAVA for its own internal purposes, thereby creating a potential issue with the open JAVA standard? How does IBM intend to recover the $8B spent predominantly on the acquisition of the JAVA technology which rightly belongs in the domain of open standards.

As an investor/trader of JAVA now and IBM now and in the future, the company fundamentals are extremely important to analyze beyond the technical analysis indicators. This is the time to avoid being over-focused on technical analysis alone.

StockTradersPlace (http://stocktradersplace.com) provides a trend following system based on candlestick technical analysis. http://stocktradersplace.blogspot.com provides a “Stock Trading with StockTradersPlace” companion guide. Empower yourself and show that you can repeatedly execute winning trades using StockTradersPlace as an element of your trading tool box. StockTradersPlace provides viewable demo stocks for guest users and a 14-day free trial for sign-up to view all supported stocks.

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