Training Manual Standard Operating Process TSL Version 4.5 May 2011 2 INDEX About Tata Securities Limited (TSL) What is Capital Market... Understanding basic concepts-(MUTUAL FUND). Introduction to Insurance.. Pension Plans. Dealers Code of Conduct.. Know Your Customers.. Anti Money Laundering Settlement Process... DP Operations.. Risk Management Policy.. Margin Trading. Understanding Insider Trading... Surveillance and Trade Monitor.. About Tata Securities Ltd. Tata Securities is a 100% subsidiary of Tata Capital Tata Sons Tata Capital Tata Securities 100% The Distribution & Broking Business of Tata Capital is being conducted through Tata Securities Retail Finance Capital Markets Corporate Finance Private Equity Wealth Mgmt Tata Securities Tata Capital Retail Finance Capital Markets Distribution and Broking Corporate Finance Private Equity Wealth Mgmt Retail MF Equity F&O Institutional MF Equity F&O Architecture of the Distribution & Broking Business Distribution & Broking Business Unit Secondary Market Equity Broking Institutional Distribution Insurance International Offices* India Main Office TCL Office National Network of TCL Offices Retail AssetsRetail DistributionCommercial Finance Home loans Personal loans Auto finance Credit cards Securities broking MF & IPO distribution Insurance distribution Relationship Managers Non Life Life InsIPOs Mutual Funds Retail * To be taken up after domestic business stabilizes 1 Product Suite Product Suite Equity Mutual Funds IPO Depository Services Alternate Access Channels Call Center Internet News Provider DepositoryExchanges Banks RTA Data Services External Linkages Branch Alternate Channels Franchisee What is Capital Market ? The capital market is the market for financial assets that have long or indefinite maturity. When a company wishes to raise capital by issuing securities, it goes to the primary market which is the segment of capital market where issuers exchange financial securities for long-term funds. Importance of Capital Market Mobilization of savings and help capital formulation. Helps to build up huge pool of funds. Helps Industrial growth. Helps to create permanent capital. Helps allocation of resources to the most efficient companies. Helps to provide ready and continuous market. Helps to create a network of specialized services. Assistance in promotion of the companies. Pre issue and post issue management of capital. Provision of underwriting facilities. Portfolio management. Primary Market Comprises... The promoters of the company Rs 50k and up to Rs 2 lac Zonal HeadBusiness Head Risk Head (TSL) 197 Exposure Policy Cash market: Multiple of 4, 3, 2 and 1 times of Margin available The multiple is subject to change from time to time No exposure allowed in Z group Stocks Trade allowed in T2T Stock against 100% margin Liquidation at 70% margin erosion Derivative market: Liquidation at 70% margin erosion No fresh exposure allowed in securities in Ban Period 198 Margin Calls EOD/BOD Margin shortfall Margin shortfall calculation basis exchange specification Shortfall report will be provided to Branches' on daily basis RM will review the Shortfall report and take action Intraday margin MTM will be monitored by Risk Manager on real time basis Customer care will inform the Client regarding shortfall Mode of collection: Online transfer DD with Self declaration letter of client for ownership of fund with bank statement 1 199 Blow out of position (Due to MTM Loss) Intimation to Branch MTM Loss 50% of Margin Reminder to Branch about MTM MTM Loss Beyond 60% of Margin Liquidation of Position MTM Loss Beyond 70% of Margin 200 Blow out of position (Due to Debit) Intimation to Branch Settlement Debit (T+2) Reminder to Branch about Debit T+3 Days Liquidation of Position T+5 Days 201 Blow out of position (Intraday trades) Cancellation of pending order 3.00 PM Fresh Sq-off order placement 3.05 PM Liquidation of Position 3.15 PM 202 Debtor and Recovery Policy Settlement Debit BMs will initiate the settlement debit recovery process on daily basis Liquidation of Stock by Risk management on default by clients in term of Settlement and cheque bounce. In case of Cheque bounce: The client to be put on blacklist in case of second instance of cheque bouncing in span of 3 months. RMs will Initiate recovery by informing BMs giving three days notice to recover On clients default RM initiate action with consultation of RM 203 SUSPENSION, DEACTIVATION AND RE-ACTIVATION OF CLIENTS Client whose account is in debit will be temporarily suspended for trading. The account will be activated by RM after the Client funds the debit amount. The clients will be deactivated for trading based on intimation from Regulators or where Management feels in prudent that the Account be either suspended or deactivated. Margin Trading Introduction Margin Trading product -Within the framework of SEBI guidelines in both exchanges NSE and BSE in Cash Segment Maximum allowable exposure for Margin Trading Not to exceed the borrowed funds and 50% of Net Worth. Prior approval of both the exchanges. To start with Margin Trading an application has to be submitted to exchanges. A separate agreement will have to be signed by client for availing the Margin trading and should be registered client of TSL in cash market segment. Declaration from client to be obtained whether he has availed of any margin trading facility from any other broker and No-objection certificate in writing from other broker/s if availed. Client should open a separate DP A/c along with and POA with TSL. Prerequisites Objectives Margin Trading facility -Offered by TSL to clients wherein client pays only part of the amount(50 %) due from him towards his Securities purchase obligations with the balance(50%) being financed by TSL. The rationale -Client's portfolio will grow in value at a greater rate than the cost of borrowing, while (financer) TSL earns interest on the amount lent to client. Features Margin Trading product -Will be offered to TSL clients in Cash Segment on both the exchanges. Margin Trading facility will be offered in all the securities eligible for margin trading facility as may be prescribed from time to time by SEBI/Stock Exchanges and TSL RCC policy. However the same will be restricted to the scrips approved by RCC (Currently 366 Scrips). By availing the facility of Margin trading, a client can obtain finance up to an extent of 50% of the value of the stocks and the maximum tenure will be 60 days. Initially Overall limit for Margin Trading will not exceed Rs 3 crores and exposure to any single client at any point of time will be restricted to Rs 25 lakhs. Clients have to make initial margin payment to an extent of 50 % of the contract value before the execution of the trades Maintenance margin for the client will be 40%, calculated as a percentage of the market value of the securities, calculated with respect to the last trading days closing price, to be maintained by the client with TSL, to be paid in cash. Margin calls will be made to the clients for payment of the additional margin to TSL. The interest rate for Margin Trading would be 14% p.a. for clients giving cash margin up to Rs 10 lakhs and 13% p.a. for clients giving cash margin above Rs 10 lakhs. The interest will be charged on monthly basis / closure date and calculation will be on T+2 day. Control Measures Margin trading facility will be given to clients after checking fulfilled criteria of CIBIL and Dedupe. Risk for Margin trading product is comparative less as 50% margin is collected upfront basis. On daily basis interest calculation report client wise, securities wise and days remaining for each funded scrips will be generated TSL will liquidate the securities: if the client fails to meet the margin call made by TSL or fails to remit the amount on the day immediately following the day on which the margin call has been made or where the cheque delivered by the client has been dishonored Reporting and Disclosure of exposure TSL to disclose to the stock exchange/s details: Gross exposure including name of the client, PAN, name of the scrip Name of the lender and amount borrowed if the TSL has borrowed funds for the purpose of providing margin trading facility, before 12 noon on the following day TSL to submit to the stock exchange a half-yearly certificate, as on 31st March and 30th September of each year, from an auditor confirming the net worth. Such a certificate shall be submitted not later than 30th April and 31st October of the year. Client will be able to view holdings for designated DP A/c along with Beneficiary DP A/c. Understanding Insider Trading Topics to be addressed Background of Code of Conduct for Insider Trading Purpose Definition Applicability to TSL Terms explained Grey List Pre Clearance Procedure What is Insider Trading? A definition Insider trading means dealing in Securities of a company by its Directors, Employees or other Insiders based on unpublished Price Sensitive Information of such Company. Why a Code of Conduct for Insider Trading? Good Corporate Governance practices Ethical Behavior Protects the interests of the Investing Public To meet the statutory requirements of SEBI What Constitutes Insider Trading? Information about a Company regarding acquisition and divestiture of businesses or business units financial information such as profits, earnings and dividends announcement of new product introductions or developments asset revaluations investment decisions/plans restructuring plans major supply and delivery agreements raising finances The above list is not exhaustive. Background of Code of Conduct for Prevention of Insider Trading. The Securities and Exchange Board of India (SEBI), in its endeavor to protect the interests of investors in general, has formulated the SEBI (Prohibition of Insider Trading) Regulations, 1992 under the powers conferred on it under the SEBI Act, The Regulations deal with trading by directors / employees / other insiders in the stock of their own Company based on insider Price Sensitive Information available. Applicability to TSL Not applicable to TSL from that point of view However, TSL in the business of providing:- Financial Services (such as stock broking, Depository Participant, distribution of mutual fund products, research and advisory services). Hence, there is a likelihood of the Directors / Officers and Employees of TSL being in possession of Price Sensitive Information in respect of listed certain companies with whom it has dealings. Definition of some terms Price Specific Information (PSI): means any information, which relates directly or indirectly to Other Companies and which, if published, is likely to materially affect the price of the Securities of such Companies. Insider: means any person who, is or was connected with the Company and / or other Companies or is deemed to have been connected with such companies, and who is reasonably expected to have access to unpublished PSI in respect of Securities of such companies, or who has received or has had access to such unpublished PSI. Definition of some termscontd Compliance Officer: CFO / Company Secretary / Senior Officer appointed by the Board for implementing and overseeing compliance with the Regulations and the Code across the Company... Inside Areas: Those areas of the Company which routinely have access to confidential information. Unpublished Information: means any information which is not disclosed / disseminated/published by the company or its agents and not specific in nature. Note: Speculative reports in print or electronic media is not considered to be published information. PSI Includes i.Periodical audited or unaudited financial results; ii.Intended declaration of dividends (both interim and final); iii.Issue of securities or buy-back of securities iv.Any major expansion plans or execution of new projects; v.Amalgamation, mergers or takeovers; vi.Disposal of the whole or a substantial part of the undertaking; vii.Any significant changes in policies, plans or operations of the company; The Concept of Chinese Wall Policy A policy aimed at segregating Inside Areas from Public Areas. Main aim:-to protect PSI from the public domain. Ensures secrecy of PSI. PSI can be divulged to Public Areas (known as over the wall) on a need to know basis. Inside Area Outside Area What is the Grey List ? A list maintained by the Compliance Officer. Prepared when TSL has access to PSI of such a Company. The Grey List will contain names of securities when. TSL is preparing Research Reports on such companies Any activity carried out in the TSL Research Department which may give them direct access to unpublished information of a Company. Discussions / negotiations for investments, acquisitions, matters relating to capital markets are under process with TSL. Preparing appraisal reports. Handling any assignment for a listed Company. Important criteria Grey List & its effects Maintained confidentially by the Compliance Officer. Has the effect on dealings of all employees including those in the Research Department. Trading blocked or disallowed at the time of pre-clearance. Discussion on Pre Clearance 1)What is pre-Clearance? 2)When is required to be obtained? 3)The Pre-Clearance Process What is Pre Clearance? Written permission from Compliance Officer by Specified Persons for dealing in Securities The value of the deal > Rs. 5 lakhs (per security) per annum. Points to note: 1)Applicable to Employee & his / her dependants. 2)Also applicable on aggregate basis i.e. if dealing > Rs. 5 lakhs in total in a financial year. 3)Not applicable to Investments made under the discretionary portfolio management service agreement with a Portfolio Manager. Pre Clearance How to go about taking permission The Compliance Officer to give permission to deal in such securities. Permission to be granted after satisfaction of clear intent. tatacapital.com Compliance Officer (for approval ) Along with necessary documents Pre-Clearance How to go about taking permission. Necessary documents (1)Application (Annexure#4 of the Code of Conduct) (2) Declarations, Indemnity Bond & other paper documents as maybe prescribed by C.O. from time to time. Pre Clearance What you need to do. Signing of Acknowledgement & Undertaking (Annexure~1 of Code of Conduct) Filing of declaration in 21 days of joining service (Annexure~2 of Code of Conduct) Annexure 1 & 2 of Code of Conduct Annexure 1 & 2 of Code of Conduct Submission of biannual statements of transactions and holdings in Securities obtained from the depository participant, for the period ending 30th June and 31st December. (Annexure 6 of Code of Conduct) To be filed < 21 days from the end of the period to which the statement pertains. Annexure~6 Other Important points relating to Insider Trading / Pre Clearance Compliance Officer consent / rejection