Sebi permitted mobile trading and smart order routing between stock exchanges

In a move that would give a big boost to equity trading, the Securities and Exchange Board of India on Friday permitted mobile trading and smart order routing between stock exchanges.

The former effectively means that stock market investors will no longer have to call up a broker or log on to a computer to buy or sell shares. All they need is an Internet-enabled mobile phone to access a trading terminal from their broker to buy or sell shares or transfer funds from their bank accounts for the purpose.

Brokers believe Sebi's move will help increase volumes manifold. According to July 2010 figures of the Cellular Operators' Association of India, there were over 470 million mobile connections in the country. However, there are only 10.6 million demat account holders that invest in equities.

Dinesh Thakkar, chairman and managing director of Angel Broking, which has a large retail clientele, said, "A larger number of people will have easy access to stock market information on a real-time basis, as mobile penetration is high. In the long run, the step will definitely increase volumes, as investors will be able to trade even while on the move."

Over a quarter of trading volumes on the Korean stock exchange, the world's largest bourse in terms of volumes, comes through handheld devices. In India, 15-20 percent of volumes on the National Stock Exchange were generated through Internet trading.

Clients of brokers will have to install special software on their GPRS-enabled mobiles or personal digital assistants. All mobile users will have to do then is to access the websites of brokerages and, using their user IDs and security token number, trade on the market. Most brokers in the country have trading websites that can be easily accessed by mobile phones.

Mobile trading was hitherto not allowed due to security concerns. The entire question revolved around what would happen if a client disowns trades conducted via his mobile phone. That could happen if the instrument is stolen or misplaced, leaving room for misuse. This issue had come up before Sebi's technical advisory committee headed by S Sadagopan, a professor at IIIT Bangalore.

Both the Bombay Stock Exchange and NSE have already put in place technology required for mobile trading. An NSE official said, "While mobile trading would go a long way in financial inclusion, the introduction of SOR will bring in a uniform eco system in stock markets."

SOR will mainly help to deepen the derivative segment and bring down the concentration of volumes on a particular exchange. It will also decrease the arbitrage opportunity. Currently, NSE generates an average daily turnover of nearly Rs 1,00,000 crore in equity derivatives and the Sebi move will lead to some trading volumes being generated on the BSE, too.

"Introduction of SOR will create a level playing field between stock exchanges and widen the derivative market as algorithmic trades are growing fast," said a top BSE official.

SOR is used for algorithmic trading and allows brokers' trading engines to systematically choose the execution destination between different exchanges based on factors like price, trading costs, speed, likelihood of execution and settlement, size, nature or any other consideration. In India, brokers' software would be able to choose between BSE and NSE.

Up until now, algorithmic trades could be routed only through NSE and it did not allow trades if the algo contained parameters of other exchanges. Algorithmic trading is programmed trading through a computer and does not involve human intervention. On the NSE, 15-20 percent volumes in the derivatives segment are currently generated through algorithmic trading.

Via : BS