ISE SECURITIES AND SERVICES LIMITED
ANNUAL REPORT 2007-2008
DIRECTOR'S REPORT
The Board of Directors of ISE Securities & Services Limited (ISS) are
pleased to present the Ninth Annual Report for the year ended March 31,
2008, together with the Auditors' Report and Audited Accounts for the
Financial Year 2007-08.
FINANCIAL PERFORMANCE
In the Financial year 2007-08 your Company has posted net profit of Rs.125
Lakh. Your Company earned a total income of Rs.962.60 lakhs during the
year, which is an increase of 30.39% compared to Rs. 738.24 lakhs during
the previous year. Expenditure before depreciation, interest and tax during
the year under review stood at Rs. 670.66 lakhs, compared to Rs. 562.45
lakhs during the preceding year, which is an increase of 19.24%. The other
income earned during the year 2007-08 was Rs.74 lakhs, compared to Rs.57.66
lakhs for the previous year. After considering interest, finance charges
and depreciation, the excess of income over expenditure for the year 2007-
08 was Rs.196.05 lakhs as compared to Rs. 73.19 lakhs for the previous
year.
The comparative picture of the financial of the Company for the last five
years is presented in the table below:
(all figures in RS. lakhs)
Particulars 2007-08 2006-07 2005-06 2004-05 2003-04
Income 962.60 738.24 684.61 617.91 587.79
Expenditure before
Depreciation,
Interest and Tax 670.66 562.45 469.26 351.89 377.22
Profit before Depreciation,
Interest and Tax 291.94 175.79 215.36 266.02 210.57
Interest and Finance
Charges 15.26 18.98 7.24 7.37 6.43
Depreciation 80.63 83.62 94.19 108.12 45.81
Profit/(Loss) before Tax 196.05 73.19 113.93 150.53 158.33
Provision for Tax 70.63 76.17 37.97 41.50 52.31
Profit/(Loss) after Tax 125.42 (2.98) 75.96 109.03 106.02
Proposed Dividend at 6% 33.00 - 27.50 - -
While income increased by 30.39%, the expenditure increased from Rs.562.45
lakhs to Rs.670.66 lakhs, i.e. by 19.24%. The profit increased from
Rs.73.19 lakhs to Rs.196.05 lakhs.
DIVIDEND
Keeping in view the overall performance during the year, your Directors
recommend payment of dividend for the year ended March 31, 2008 of Rs. 0.60
per share.
BACKGROUND
Market volumes, which had reached record levels in FY 2008, have corrected
sharply in April May. The current volume of turnover has dropped
substantially. Gaining market share and improving the volume of business
done is curial in order to grow in these market conditions. The company
plans to improve its performance by focusing on providing better services
to its Registered Intermediaries and Clients. The company also envisages an
increase in expenditure in order to adopt better technology to serve our
Registered Intermediaries and Clients better. The company, therefore,
proposes to rationalize it's brokerage charges in tune with the market
practice.
OPERATIONAL HIGHLIGHTS
During the year 2007-08, your Company recorded a turnover of IRS. 20,332
crore in the NSE capital market (CM) segment and Rs. 27,726 crores in the
NSE futures & options (F&O) segment, aggregating to Rs. 48,058 crore. The
corresponding figures for the preceding year were Rs. 17,736 crore in the
CM segment and Rs. 16,917 crore in the F&0 segment, i.e. a total of
Rs.34,653 crore. During the year 2007-08, turnover of Rs. 7,923 crore was
recorded in BSE Equities segment. The corresponding figure for the
preceding year was Rs. 4,408 crore. The turnover of NSE CM segment, NSE F&0
segment and BSE Equities segment taken together was recorded at Rs.55,981
crores during the year 2007-08. The corresponding figure for the preceding
year was Rs.39,061 crores.
The month-wise statistics of your Company for the financial year in the
Capital Market/ Equities Segment of NSE and BSE are given below and the
same are also represented below diagrammatically:
NSE-Capital Market / BSE-Equities Segment:
Month A B C D E F G H I
April 1457.07 368.97 1826.04 20 72.85 18.45 91.30 196 171
May 1594.57 469.32 2063.89 21 75.93 22.35 98.28 196 174
June 1363.41 478.62 1842.03 21 64.92 22.79 87.72 192 174
Jul. 1887.02 635.41 2522.42 22 85.77 28.88 114.66 196 182
Aug. 1615.69 516.03 2131.71 22 73.44 23.46 96.90 195 186
Sept. 1587.96 574.84 2162.80 20 79.40 28.74 108.14 200 188
Oct. 2269.06 930.26 3199.32 22 103.14 42.28 145.42 210 189
Nov. 1995.19 865.30 2860.50 22 90.69 39.33 130.02 204 196
Dec. 1813.10 769.21 2582.30 19 95.43 40.48 135.91 206 193
Jan.2008 1974.48 1065.68 3040.15 22 89.75 48.44 138.19 201 192
Feb. 1444.06 623.64 2067.70 21 68.76 29.70 98.46 204 188
March 1331.03 625.97 1957.00 18 73.95 34.78 108.72 203 186
Total
2007-08 20332.64 7923.24 28255.88 250 81.33 31.69 113.02
Total
2006-07 17736.49 4408.01 22144.49 246 72.10 17.92 90.02
Total
2005-06 22235.36 1511.97 23747.33 250 88.94 6.06 94.99
A = Total Turnover (Rs.Cr. - NSE
B = Total Turnover (Rs.Cr. - BSE
C = Total Turnover (Rs.Cr. - Total
D = No. of Days
E = Average turnover per day (Rs. Cr.) - NSE
F = Average turnover per day (Rs. Cr.) - BSE
G = Average turnover per day (Rs. Cr.) - Total
H = Active Intermediaries - NSE
I = Active Intermediaries - BSE
The month-wise statistics of your Company for the financial year under
review in the Futures & Options Segment of NSE are given below and the same
are also represented below diagrammatically.
NSE - Futures & Options Segment:
Month Total Turnover No. of Days Average Active
(Rs. Cr.) Turnover Inter-
per day mediaries
(Rs. Cr.)
April 2007 1740.29 20 87.01 92
May 2097.96 21 99.90 92
June 1691.33 21 80.54 97
July 2335.12 22 106.14 97
Aug. 2254.03 22 102.46 99
Sept. 2466.27 20 123.31 98
Oct. 3890.99 22 176.86 105
Nov. 3117.35 22 141.70 102
Dec. 2560.22 19 134.75 103
Jan.2008 2846.32 22 129.38 101
Feb. 1424.56 21 67.84 98
March 1301.82 18 72.32 92
Total 2007-08 27726.24 250 110.90
Total 2006-07 16917.69 246 68.77
Total 2005-06 16240.22 250 64.96
TECHNOLOGY AND SYSTEMS
Your Company has integrated back-office software called 'CLASS', sourced
from Market Place Technologies Limited (erstwhile 'Exchange Next Solutions
Ltd.') for carrying out the share accounting, securities handling and funds
handling functions. Data dissemination has now become vital to ensure
smooth operations.
Your Company uses cutting edge networking technologies like the MPLS-VPN
from BSNL, KU-band V-Sat from Tatanet and the RF-VPN from TULIP ITServices
Limited. These have helped us to improve the efficiency of the network and
are much more cost effective than the earlier technologies. The SCPC VSATs
have been phased out, since they had outlived their utility. Your Company
has the latest technologies in network security using the Netscreen
firewall. All web-based servers are secure from external attacks because of
this firewall. Centralized anti-virus and anti-spamware was also
implemented during the year. In order to provide reliable and speedy
connectivity to intermediaries located in a specific region with the
Exchanges, your Company has decided to decentralize its trading activities
and accordingly the trading activities at Coimbatore and Kolkatta center
have been decentralized.
Your Company has introduced internet trading facility for both clients
as well as sub-brokers using the Trade Any where product of Asian CERC
Technologies (P) Ltd. The product for the client has been christened as
'net profit' and that for the sub-broker 'net branch'. The Company
endeavours to constantly upgrade the software, in order to provide better
services to the clients.
NEW LAUNCHES IN 2007-08
This is the second year, when your Company has completed the implementation
of the SEBI (Stock Brokers & Sub-brokers) (Amendment) Regulations, 2003.
The Company has started dealing directly with the clients under the New
Business Model. Further, your Company has started providing Inter net
Trading facility to the clients.
OPERATIONS OF THE COMPANY
The status of registration of sub-brokers of your Company is as given in
the following table.
PARTICULARS NSE BSE
No. of sub-brokers registered in ISS as on 31.03.2007 398 210
Fresh Registrations 78 84
Resignations 14 3
Cancelled 8 1
Position as on 31.03.2008 454 290
Change (+/-) 56 80
The status of applications pending registrations as sub-brokers and
Authorized Persons at various stages is given below for all the segments.
Pending application status for sub-brokers and authorised persons
registration as on June 30, 2008:
Sr. No. of applications pending
No. Particulars NSE BSE NSE
(Capital Market (Equities (E & O
Segment) Segment) Segment)
1. Documents pending from
sub-broker applicants 10 7 NIL
2. Applications under process by
ISS (received recently) NIL NIL NIL
3. Applications pending at NSE 15 N.A. NIL
4. Applications pending at BSE N.A. 9 N.A.
5. Applications pending at SEBI 27 29 N.A.
Total 52 45 Nil
The distribution of intermediaries across the different geographical
regions of the country as on March 31, 2008 is as given below.
Geographical distribution of Registered Intermediaries:
Sr. Region States A B C D
No.
1. West Goa, Gujarat, Maharashtra 182 110 97 15
2. North Haryana, Jammu & Kashmir,
Delhi, Punjab, Rajasthan,
Uttaranchal and Uttar Pradesh 60 31 23 7
3. East Assam, Bihar, Jharkhand, Orissa
and West Bengal 154 125 69 17
4. South Andhra Pradesh, Karnataka, Kerala
and Tamilnadu 48 21 21 3
5. Central Chattisgarh and Madhya Pradesh 10 3 7 0
TOTAL 454 290 217 42
A = Trading Members - NSE
B = Trading Members - BSE
C = Authorised Persons (NSE F&O)
D = Remisiers (BSE)
OUTLOOK FOR THE YEAR 2007-08
The outlook for the future is promising. Your Company proposes to provide
online access to back office data to the clients. In addition to the
existing activities of securities trading, clearing and settlement, your
Company proposes to exploit opportunities offered by the dynamic Indian
Capital Market. The Company believes in continuous improvement and intends
to exploit latest technology to serve the Clients better. Your Company is
also proposing to foray into new areas of securities trading and
distribution, securities lending and borrowing and registration with BSE in
derivatives segment, subject to approval by competent authorities.
OFFICE INFRASTRUCTURE
The Company's registered office continues to operate at the same premises
as that of its Promoter Exchange, Inter-connected Stock Exchange of India
Limited (ISE). However, after the demutualization of the Parent Exchange
and its increased operational activities, ISE will need additional space.
Therefore, the company has acquired on leave and license basis, office
space admeasuring 2,500 sq.ft. area, in the same building as the registered
office. All the back office operations of the company have been shifted to
the new premises, however, the registered office of the Company continues
to be at the same premises.
COMPLAINTS REDRESSAL, ARBITRATION AND LEGAL CASES
The Arbitration and Investor Grievances Department of the Company attends
to complaints filed by clients against sub-brokers / intermediaries and
also handles arbitration and legal matters. At the beginning of the
financial year 2007-08, there were 6 complaints pending against the sub-
brokers of ISS. During the year under review, 12 new complaints against the
sub-brokers were received by your Company out of which 13 complaints were
resolved during the year. As on March 31, 2008, 5 complaints are yet to be
resolved. These complaints pertain to clients who were not registered with
the Company, hence these complaints cannot be resolved by the Company.
SHARE CAPITAL
The share capital remained the same during the year under review. However,
the company is awaiting approval from BSE for transfer of shares among the
new nominees of ISE, in place of nominees who have resigned from the
services. NSE has already conveyed their no objection to the transfer of
shares among the nominees of ISE. The present Shareholding pattern of your
company is as follows:
Sr. Name of the Member A B C D
No.
1. Inter-connected Stock
Exchange of India Limited 54,99,993 10 5,49,99,930 99.999872
2. Prof P. V. Narasimham,
Nominee of Inter-connected
Stock Exchange of India Ltd. 1 10 10 0.000018
3. Shri Milind Nigam,
Nominee of Inter-connected
Stock Exchange of India Ltd. 1 10 10 0.000018
4. Shri D. K. Gupta,
Nominee of Inter-connected
Stock Exchange of India Ltd. 1 10 10 0.000018
5. Shri Krishna Wagle,
Nominee of Inter-connected
Stock Exchange of India Ltd. 1 10 10 0.000018
6. Shri Hiren Kothari,
Nominee of Inter-connected
Stock Exchange of India Ltd. 1 10 10 0.000018
7. Shri Prasenjit Yesambare,
Nominee of Inter-connected
Stock Exchange of India Ltd. 1 10 10 0.000018
8. Shri Prasanna R. Dharmadhikari,
Nominee of Inter-connected
Stock Exchange of India Ltd. 1 10 10 0.000018
TOTAL 55,00,000 10 5,50,00,000 100
A = No. of Shares held
B = Face Value per share (Rs.)
C = Amount Paid up (Rs.)
D = %age of total
CHANGES IN THE BOARD OF DIRECTORS
The Board of Directors as on the date of this Report consists of:
Name of the Director Status Date of held
Appointment/
Re-Appointment
1. Shri R. Sadanandam Public Representative Director January 30, 2004
2. Shri R. M. Joshi Public Representative Director January 13, 2006
3. Shri Vivekananda Shareholder Representative Apri126, 2007
Pattanayak Director
4. Shri P. J. Mathew Director [Nominee of Inter-
connected Stock Exchange of
India Limited (ISE)] October 17, 2007
5. Shri Vinay Vaidya Chief Executive Officer/ June 18, 2008
Director
Prof. P.V. Narasimham, Chairman and nominee of ISE, resigned from office
with effect from July 28, 2007. Shri Govind Chavan, Chief Executive Officer
(Officiating) and Director, resigned from office with effect from March 05,
2008.
Shri R. Sadanandam, Shri R. M. Joshi and Shri Vivekananda Pattanayak were
re-appointed as Directors at 8t'Annual General Meeting held on June 28,
2007. Shri P.J. Mathew was appointed as Director (Nominee of ISE) at the
66th Board Meeting held on October 17, 2007. Shri Vinay Vaidya, Chief
Executive officer, was appointed as Director as well as Whole Time Director
at 73rd Board Meeting held on June 18, 2008.
According to the provision of Section 260 of the Companies Act, 1956 ('the
Act'), read with Article 87.1 of the Articles of Association of the
company, Mr.Vinay Vaidya holds office as an Additional Director up to the
date of this Annual General Meeting. The company has received notice from a
member under Section 257 of the Act signifying his intention to propose the
appointment of Mr. Vinay Vaidya as Director of the company. Approval of the
members will besought at the Annual General Meeting of the company to
appoint Shri Vinay Vaidya as the Whole Time Director of the company.
The remuneration and perquisites payable to Mr. Vinay Vaidya during the
tenure of his appointment for a period from June 18, 2008 till May 4, 2011
is subject to the limits specified in Schedule XIII of the Companies Act,
1956.
During the period under review, the following Board Meetings were held:
Board Meeting Date
No.
64 April 26, 2007
65 June 08, 2007
66 October 17, 2007
67 October 30, 2007
68 November 12, 2007
69 December 27, 2007
70 January 23, 2008
71 February 07, 2008
72 March 05, 2008
73 June 18, 2008
BOARD PROCEDURES
After approval of the Chief Executive Officer, the Company Secretary
prepares the agenda and the detailed notes for the Board Meetings, which
are circulated to all the directors and special invitees. The members of
the Board are free to recommend inclusion of any matter in agenda for
discussion.
The Board also approves by circular resolutions, important items of
business which are permitted by the Companies Act, 1956 and which cannot be
postponed till the next board meeting.
DETAILS OF ATTENDANCE OF THE DIRECTORS IN THE BOARD MEETINGS
During the period April 1, 2007 to July 18, 2008, the Board of Directors
met 10 times. The attendance record of the Directors at each Board
Meeting and the last Annual General Meeting held on June 28, 2007 is given
below:
Name of the Director & Status A B C
1. Prof P.V. Narasimham
Public Representative Director and Chairman 2 1 Present
2. Shri V Shankar
Director 2 2 N.A.
3. Shri R. Sadanandam
Public Representative Director 10 10 Present
4. Shri R. M. Joshi
Public Representative Director 10 8 Absent
5. Shri Vivekananda Pattanayak,
Shareholder Representative Director 9 5 Absent
6. Shri P. J. Mathew
Director 7 7 N.A.
7. Shri Govind Chavan
Officiating CEO / Director 7 7 Present
8. Shri Vinay Vaidya
Chief Executive Officer / Director 1 1 N.A.
A = No. of Board Meeting held during their tenure
B = No. of Board Meeting attended
C = Status at 8th AGM
GENERAL BODY MEETINGS
1. Location and dates of the last three Annual General Meetings (AGMs):
The last three Annual General Meetings i.e. 6th, 7th and 8th Annual General
Meetings of the Company were held on the following dates
6th AGM : September 24,2005 (at the Registered office of the Company)
7th AGM : August 02, 2006 (at the Registered Office of the Company)
8th AGM : June 28, 2007 (at the Registered Office of the Company)
2. Extra-ordinary General Meetings (EGMs):
There were no Extra-ordinary General Meetings held during the period under
review.
AUDIT COMMITTEE
The Audit Committee was first constituted in October 2002. The present
members of the Committee are Shri R. Sadanandam (Chairman of the
Committee), Shri R. M. Joshi and Shri Vivekananda Pattanayak, Directors.
The role, powers and functions of the Audit Committee are as stated below:
* Monitor the internal controls to ensure the integrity of the financial
performance reported to the shareholders.
* Provide bywayof regular meetings, a line of communication between the
Board and the Statutory & Internal Auditors.
* Consider the appointment of the Statutory and Internal Auditors.
* Review the interim and full year financial statements before recommending
them to the Board.
* Review reports of the internal Auditors and management's responses
thereto.
* Review the Company's financial control systems, in particular, the
procedures for identifying business risks (including financial risks) and
controlling their financial impact on the Company.
* Review the Company's policies for ensuring compliance with the relevant
regulatory/legal requirements and the operational effectiveness of the
policies and procedures.
During the period under review, the Audit Committee met 3 times i.e. on May
30, 2007,June 08, 2007 and October 17, 2007. The attendance record of the
members of the Audit Committee is given below:
No. of Meetings of No. of Meetings of
Audit Committee Audit Committee
held during attended
their tenure
1. Shri. R. Sadanandam, Chairman 3 3
2. Shri R.M. Joshi 3 3
3. Shri Vivekananda Pattanayak 2 1
Auditors:
M/s. A. J. Shah & Co., Chartered Accountants, were appointed by the Members
in the Eighth Annual General Meeting as Statutory Auditors to hold office
from the conclusion of the Eighth Annual General Meeting till the
conclusion of the forthcoming (Ninth) Annual General Meeting. There were no
qualifications in the Accounts for the year ended March 31, 2008.
M/s. M.P. Chitale & Co., Internal Auditors of the Company, have been
submitting quarterly reports on the functioning of the Company, which are
placed before the Audit Committee and the Board. Recommendations/
suggestions made by the internal Auditors to streamline the administrative
processes are taken up for implementation.
INTERNAL CONTROL SYSTEMS AND ADEQUACIES
Your Company has set up internal control systems commensurate with the size
and nature of business. These systems ensure optimum use of resources and
compliance with multiple regulatory authorities. Your Company is also being
guided by the internal auditors and the Audit Committee in constantly
upgrading the control procedures and systems. The Audit Committee also
reviews the adequacy of the internal control procedures.
HUMAN RESOURCES AND PARTICULARS OF EMPLOYEES
There are in all 72 persons working for the Company, out of which 47 are on
rolls and the remaining 25 are on contract basis. Further, the Company
follows a policy of outsourcing certain labour-intensive activities to
outside processing agencies. The particulars of employees as required under
the provisions of Section 217(2A) of the Companies Act, 1956, read with the
Companies (Particulars of Employees) Rules, 1975, as amended, are not
applicable to the Company.
STATUTORY DISCLOSURE OF PARTICULARS
The disclosure requirement in terms of Section 217(1)(e) of the Companies
Act, 1956, read with Companies (Disclosure of Particulars in the Report of
the Board of Directors) Rules, 1988 regarding Conservation of Energy,
Technology Absorption, Foreign Exchange Earnings and outflows do not apply
to the Company and therefore, no details are required to be given.
CORPORATE GOVERNANCE
The Company is committed to follow good corporate governance practices. The
Chairman, other Directors, and the staff of the Company, are committed to
serving the cause of the intermediaries, investors, and the public at large
with the highest level of efficiency All policies and strategic initiatives
undertaken by ISS apply reflect this commitment.
The disclosure specified under Schedule XIII of the Companies Act,1956
regarding the remuneration and perquisites payable to Mr. Vinay Vaidya are
given below:
1. All elements of remuneration package such as salary, benefits, bonuses,
stock options, pension etc. of Shri Vinay Vaidya are given below:
CTC Calculations for Shri Vinay Vaidya
(Scale: Rs.99,000/-
Rs.6,000/-
Rs.1,05,000/-
Rs.6,000/-
Rs.1,11,000/-)
Amount in Rs.
Basic 99,000/-
HRA @ 20% of the Basic Salary per month 19,800/-
T.A. @ 4.17% of the Basic Salary per month 4,128/-
Special Allowance @ 8.33% of the Basic Salary per month 8,247/-
Sumptuary Allowance 7,025/-
Gross Monthly 1,38,200/-
Gross Yearly 16,58,400/-
Medical Re-imbursement half month's Basic Salary per annum 49,500/-
Provident Fund @ 12% of the Basic Salary per month 142,560/-
Gratuity/ Ex-gratia @ half months' Basic Salary
for each completed year of service 49,500/-
CTC 18,99,960/-
2. Details of fixed component and performance linked incentives along with
the performance criteria: As approved by the Board of Directors, subject to
limit laid down in Schedule XIII of the Companies Act, 1956.
3. Service contracts, notice period, severance fees: Tenure of the
appointment is June 18, 2008 till May 4, 2011.
4. Stock option details, if any, and whether the same has been issued at a
discount as well as the period over which accrued and over which
exercisable: Nil
DIRECTORS' RESPONSIBILITY STATEMENT
Pursuant to the provisions of Section 217(2AA) of the Companies Act,1956,
the Directors confirm that:
1. In the preparation of the annual accounts, the applicable accounting
standards have been followed and no material departure have been made from
the same;
2. Appropriate accounting policies have been selected and applied
consistently and have made judgments and estimates that are reasonable and
prudent so as to give a true a fair view of the state of affairs of the
Company as at March 31, 2008 and Profit & Loss Account for the year ended
March 31, 2008;
3. Proper and sufficient care has been taken for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956, for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities;
4. The annual accounts have been prepared on a going concern basis.
ACKNOWLEDGEMENTS
Your Company has been able to operate efficiently because of the culture of
professionalism and continuous improvement in all functions in order to
ensure optimal utilization of resources.
Your Company sincerely acknowledges the support and co-operation extended
by SEBI, which has played a pro-active role throughout. The Company also
wishes to place on record its deep sense of gratitude to NSE and BSE for
their unstinted support at all times.
The Directors gratefully acknowledge the continued support provided by the
Parent Stock Exchange in conducting the affairs of the Company.
The Board wishes to place on record its appreciation for the services
rendered by Shri Govind Chavan, who served as officiating CEO of the
company till March 05, 2008. The Board also expresses its deep sense of
gratitude for the invaluable contribution rendered by Prof. RV. Narasi mham
who has served as Chairman from April 17, 2004 to J my 28, 2007.
The Directors also wish to place on record their sincere appreciation of
the significant contributions made by the esteemed intermediaries and the
employees.
By order of the Board of Directors
Sd/-
Place : Vashi, Navi Mumbai P.J. MATHEW
Date : July 21, 2008 Director
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