COST OF INVESTING IN SECURITIES Dr Manish Dadhich

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COST OF INVESTING IN SECURITIES Dr. Manish Dadhich

COST OF INVESTING IN SECURITIES Dr. Manish Dadhich

COST OF INVESTING IN SECURITIES Cost of Investment in securities can be also termed

COST OF INVESTING IN SECURITIES Cost of Investment in securities can be also termed as transaction cost which arises while purchasing and selling of securities in stock market. Which can be divided into broad headings: Trading Cost Clearing Cost Settlement Cost

Trading Cost Trading costs consist of brokerage cost, market impact cost and securities transaction

Trading Cost Trading costs consist of brokerage cost, market impact cost and securities transaction cost. Brokerage Cost: Brokerage Cost is the brokerage paid to the broker. Due to heightened competition in stock broking, brokerage cost has fallen significantly. Market Impact Cost: It is the difference between actual transaction price and the 'ideal price'. Securities Transaction Cost (STT): It is the levy on securities transaction. Currently, for delivery based trades in equally b/w the buyer & seller. This means that for a transaction worth Rs. 100, the buyer and seller have to pay 10 paise each.

Clearing Cost When a negotiated trade takes place, the counterparty may default OR When

Clearing Cost When a negotiated trade takes place, the counterparty may default OR When a trade takes place on an exchange, the exchange may default in its payment. Clearing costs are costs experienced in resolving such defaults.

Role of clearing corporation While the stock exchange provides the trading platform, the clearing

Role of clearing corporation While the stock exchange provides the trading platform, the clearing corporation looks after the post- trade activities such as: Clearing all trade Determining the obligation of members Arranging for pay-in of funds/securities Arranging for pay-out of funds/securities Guaranteeing settlement Collecting & maintaining margins/collateral/base capital/other funds. The clearing corporation is connected electronically to the exchange, the clearing bank, depositories, custodian and members.

Settlement costs A trade is finally consummated when securities and funds actually change hands.

Settlement costs A trade is finally consummated when securities and funds actually change hands. Settlement costs are costs associated with such transfer. Today settlement costs have come down due to: Advent of dematerialization Elimination of stamp duty on dematerialized trades a Improvement of banking technology

Comparison of Cost MID-1993 TRADING BROKERAGE COST MARKET IMPACT COST CLEARING COUNTERPARTY RISK SETTLEMENT

Comparison of Cost MID-1993 TRADING BROKERAGE COST MARKET IMPACT COST CLEARING COUNTERPARTY RISK SETTLEMENT PAPERWORK COST BADPAPER RISK TOTAL TODAY 3. 75% 3. 00% 0. 75% Present 0. 40% 0. 25% 0. 15% Absent 1. 25% 0. 75% 0. 50% 5. 00%(+Risk) 0. 10% 0. 00% 0. 50%

TRANSACTION COSTS Thanks to the introduction of screen-based trading and electronic delivery transaction

TRANSACTION COSTS Thanks to the introduction of screen-based trading and electronic delivery transaction costs have fallen sharply in India.

LISTING OF SECURITIES Dr Manish dadhich 1 contentsLISTING OF SECURITIES Dr Manish dadhich 1 contents
Financial Services Intermediaries Dr Manish dadhich Financial serviceFinancial Services Intermediaries Dr Manish dadhich Financial service
Financial Markets Business Operations Dr Manish Dadhich FinancialFinancial Markets Business Operations Dr Manish Dadhich Financial
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CAPITAL MARKET Dr Manish Dadhich Ph D MCAPITAL MARKET Dr Manish Dadhich Ph D M
Auditing Introduction meaning objectives Dr Manish Dadhich ContentsAuditing Introduction meaning objectives Dr Manish Dadhich Contents