Stock brokers role in nepal docx.pdf(MAHESH) (1).pdf

Role of Stock Broker in liquidity management2015 A FIELD REPORT WRITING ON “Role of the Stock Broker in Liquidity management” Kathmandu, Nepal Submitted by: Amit Gyawali Jasmin Rajkarnikar Kalpana Subedi Mahesh Raj Joshi Tikaram budha Nepal Commerce Campus, New Baneshwor Submitted to: Mr. Nischal Risal Faculty of Management Nepal Commerce Campus In partial fulfillment of the requirement for the degree of Masters of Business Management (M.B.M) Kathmandu, Nepal July, 2015 Field work report writing Copy write @ Group E , NCC MBM, 3rd Semester Page 1 Role of Stock Broker in liquidity management 2015 1. Background of the study A stock is a certificate representing ownership interest in a corporation. Like debt securities, common stock is issued by firms or organizations to obtain fund. Securities market began with the floatation of shares by Biratnagar Jute Mills Ltd. and Nepal Bank Ltd. in 1937. Introduction of the Company Act in 1964, the first issuance of Government Bond in 1964 and the establishment of Securities Exchange Center Ltd. in 1976 were other significant development relating to capital markets. Nepal Stock Exchange, in short NEPSE, is established under the company act, operating under Securities Exchange Act, 1983.After establishment of NEPSE only started the systematic transaction of stocks in secondary market through stock broker in Nepal. Stock brokers can generally be categorized into full-service brokers, discount brokers and online brokers. While a full-service broker provides a bunch of services like investment research advice, tax planning, retirement planning and facilitating the buying and selling of stocks, discount brokers (or commission brokers) only perform buying and selling orders from their clients on a commission basis. Their job doesn’t entail providing analysis or advice to their clients. Online brokers, on the other hand, offer online services and charge less commission. “The government has only permitted discount brokers to carry out stock brokerage services so far,” said Murahari Parajuli, deputy spokesperson of the Nepal Stock Exchange (NEPSE). Trading through discount brokers means investors are left on their own to collect information on companies and analyze their financial statements before choosing to invest in them. “Fullfledged stock brokerage firms are still a rarity since we are yet to reach international standards in the way stocks are handled and traded,” added Parajuli. An aspirant broker needs to hold a graduate degree either in management or economics. Besides, the candidate needs to have a minimum two-year work experience in the financial sector. Moreover, all interested candidates need to score on analytical and communicative tests taken by NEPSE. Upon meeting all the criteria, the Securities Board of Nepal (SEBON) certifies them as stock brokers. According to Parajuli, all the licensed stock brokers had their heyday while NEPSE kept soaring until three years ago. He added that the last two years haven’t been fruitful due to several factors restricting the growth of the stock market. Nanda Kishore Mundada, president of the Nepal Stockbrokers Association, added that most stock brokerage firms were finding it hard to cover their office expenses due to the stock market consistently falling into the red zone. Field work report writing Copy write @ Group E , NCC MBM, 3rd Semester Page 2 Role of Stock Broker in liquidity management 2015 2. Basic Job description of Stock Broker Job Duties The focal point of a stock broker's job is finding and retaining a client base of investors with substantial liquid assets. He advises them on when to buy and sell stocks and keeps them apprised of market trends and projections. The broker uses a variety of sources to buy and sell stocks, including online trading sites and floor brokers at stock exchanges. Skill Requirements Expertise in Economics, Finance and statistical analysis is necessary for the broker to disseminate sound investment advice. Honesty and integrity attract investors to her and encourage them to make referrals. Time management abilities enable her to act quickly on buying and selling stocks. Preferred Background A bachelor's degree with emphasis in economics or finance is normally the minimum educational requirement. Some employers require a master's degree in business administration. Large investment firms frequently offer internships to promising job applicants. 3. Role of the Stock broker in liquidity management 1. Trading of security One of the major roles of the stock broker in liquidity management is trading of various securities in market. Seller can sell the security & buyer can buy the security through the help of stock broker. The broker helps to maintain liquidity because seller can sale & collect the money in their need of priority & urgency, similarly, broker facilitate the seller to sale their share in optimum price. 2. Seeks Best Deal A stock broker represents the client, seeking the best deal to buy or sell stocks. Most brokers deal in all types of securities and many also handle commodity futures. An individual broker may also advise a client on when to buy or sell a stock or what to watch for in market dealings, but is not a licensed investment adviser. Field work report writing Copy write @ Group E , NCC MBM, 3rd Semester Page 3 Role of Stock Broker in liquidity management 2015 3. Handling the Trade A broker takes an order from a client to buy or sell a stock, passes it along through his brokerage firm's network to a floor trader - in a market like the NEPSE. Once the transaction is completed, the broker relays the information to the client and arranges to transfer any stock certificates or other paperwork. 4. Paid on Commission Individual brokers are paid on commissions, usually as a percentage of the value of the trade. Commissions and fees vary. Some brokerage firms call themselves "discount brokers," offering trades at a single price. Brokers generally are governed by a "suitability role," meaning they should recommend only investments that meet a client's financial goals and needs. 5. Size intermediation (Matching) Another major role of stock broker in liquidity management is size intermediation in terms of fulfilling your requirement. For example, you are going to buy 500 kitta of Mega Bank Limited, but there were only 300 Kitta share, in this situation, the stock broker can purchase 300 kitta from one seller & remaining 200 Kitta from another seller & ultimately you will have 500 kitta in your hand. 6. Test and Registration Both brokerage firms and individual brokers are regulated by the Securities and Exchange Commission and specific markets, like the NEPSE. An individual broker must pass a test administered by the SEBON. Once a candidate passes that test, he must complete registration through a brokerage firm, which in some cases requires registering with a securities commission in each city in which he does business. 7. Recruit New Clients One of the main roles of a stock broker is to recruit new clients. Brokers use several tactics to attain new clients. They could call prospects, introduce themselves and offer a free consultation. Brokers contact the people they know such as family members, friends and past co-workers. They ask their current clients to refer their friends and family to them. Brokers also hold free seminars in their community where they offer advice on a financial topic such as planning for Field work report writing Copy write @ Group E , NCC MBM, 3rd Semester Page 4 Role of Stock Broker in liquidity management 2015 retirements. The broker's hope when holding these seminars is that some attendees will become clients. 8. Build Relationships with Clients A major attribute of good stock brokers is that they know how to build relationships with their clients. After a broker gets a new client he must learn about the client's financial situation and goals. He also must understand the client's tolerance for risk. Brokers need to get to know their clients in order to be able to give them appropriate advice and plan long term investment strategies that will meet their financial goals. Brokers should build a trusting relationship with their clients so that they remain clients for a long time. 9. Advise Clients After a broker understands a client's financial situation and the goals they are striving for she will make recommendations regarding the client's investment portfolio. The broker will use her knowledge and training to advise the client about portfolio changes and new investment opportunities. Brokers must always have the client's best interest in mind when making recommendations. Also, they are required to only give advice that is suitable for the client's goals, financial situation and risk tolerance. 10. Execute Trades When a client decides to buy or sell an investment, the broker fills out the appropriate forms and executes the trade. It is the broker's responsibility to ensure that the trade was filled properly. 11. Monitor Clients' Portfolios It is the broker's another role to keep watch over his clients' investments. If market conditions shift or a client's financial situation changes the broker must recommend the appropriate course of action. As a result, it is important for a broker to keep in close communication with his clients. The broker also must have a deep understanding of the markets and watch the market action on a daily basis. Field work report writing Copy write @ Group E , NCC MBM, 3rd Semester Page 5 Role of Stock Broker in liquidity management 2015 12. Requirements Brokerage firm requirements for individual brokers vary, but most require some on-the-job training before an applicant takes a test. Generally a candidate must have worked for a brokerage firm for at least four months before taking the test. Some brokerages require up to two years of experience to become a registered broker. 4. Summary & Conclusions A stock broker is an agent who represents clients to buy or sell stocks and other securities. The term is applied to both companies that deal in securities and their employees, who technically are registered representatives working for the brokerage. To most investors, however, the broker is the person they call when they want to invest in or trade stocks. Most individual brokers work in offices far removed from the stock trading floors. There were only starts Broker firm after establishment of Nepal Stock Exchange (NEPSE) in Nepal. Initially Broker number "1" is established namely Kumari Securities ( Pvt) Ltd, Director of this firm is Badri Prasad phuyal ( Cell no: 9851074240), Batuleghar, Kathmandu Nepal. Presently altogether there are 5o listed broker in NEPSE who are engaging in trading the securities in secondary market. Share broker have no direct role in primary market, but we cannot even imagine of secondary market without broker in the context of Nepal. Hence in this scenario there is key role of share broker for the functioning of trading activities. Such role should be fulfilled by the stock broker in effective & efficient manner to achieve individual as well as organizational goal in the dynamic environment. Field work report writing Copy write @ Group E , NCC MBM, 3rd Semester Page 6