Regulations
SEBI permits mobile-based trading and Smart Order Routing in stock markets

In one swoop, the capital market regulator has introduced two new systems for securities trading, which were the subject of much acrimony between rival exchanges BSE and NSE

Market watchdog Securities and Exchange Board of India (SEBI) today introduced two game-changing initiatives in securities trading, which could alter the dynamics of Indian stock markets. It has decided to allow Smart Order Routing (SOR) and trading using wireless technology, two subjects that have been the bone of contention between rival stock exchanges Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) for a while now.

The SOR mechanism allows the brokers' trading engines to systematically choose the execution destination based on factors like price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order. When an order has a reasonable chance of a fill at more than one location (when the instrument is dual-listed) there is an opportunity to search for a better price. SOR instantly performs that search for you, sending your order to the best place possible at that time. SOR uses a number of techniques to achieve best execution. For example, it stores real-time feedback on individual stocks at each venue, so that orders that are not getting filled can be onward routed instantly to a venue with a better chance of a fill.

This move will benefit the BSE immensely, which has been in a protracted battle with its larger rival over the matter of algorithmic trading. Until now, NSE's approval system for algorithms rejected any smart order routing that involved a transaction on BSE or on any other exchange. As such, if the software decided that BSE is where the best price is available, then that algorithm was flatly rejected by NSE's system. In doing so, BSE was short-changed out of huge potential volumes in the cash segment. The argument made by NSE was that it was merely trying to protect the sanctity of the market as it was not certain of the security system put in place by BSE. Its claim was that BSE had no time-stamping or audit trails in place, which could potentially create difficulties in trading algorithms.

In another victory for BSE, the market regulator has also allowed trading through wireless technology that will enable investors to place orders through their mobiles or wireless Internet devices, if they have an online trading account with their brokers. BSE has been rooting for this technology for some time. In December last year, the CEO of BSE, Madhu Kannan had told the audience during Moneylife's 'Big Ideas' essay contest event in Mumbai (see: http://www.moneylife.in/article/76/2877.html) about his desire to have mobile-based trading platforms in place, a facility that would greatly benefit lakhs of investors in the stock markets.

In allowing wireless trading facilities, SEBI has also asked brokers to ensure that investors are provided secure access, encryption and security of communication for Internet-based trading and securities trading using wireless technology. It has also asked that adequate measures should be taken for user identification, authentication and access control using means such as user-ID, passwords, smart cards, biometric devices or other reliable means, to prevent misuse of facility by unauthorised persons. The unique identification number as given in case of Internet-based trading will be made applicable for securities trading using wireless technology.

SEBI seems to have moved with surprising alacrity after facing a barrage of criticism about the shocking state of affairs in the stock markets. Minister of state for finance Namo Narain Meena's recent startling disclosures in Parliament regarding investor participation in stock markets, particularly on the NSE, seems to have put SEBI on the back foot. Moneylife has written about Mr Meena's revelations (see here: http://www.moneylife.in/article/72/8312.html). SEBI may also be reeling under pressure after the Multi Commodity Exchange-Stock Exchange (MCX-SX) openly criticised SEBI, alleging favouritism and support for NSE, regarding the delay in granting approval for its stock market segment. 

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COMMENTS

Tony Joe

6 years ago

Hi,

Why this clubbing of mobiles and other wireless devices in all news reports regarding this development? Now, Money Life too repeats this error. Lakhs of investors are already doing robust trading on wireless devices like wireless internet enabled laptops, net books, & handhelds. In fact broadband dongles like EVDO & WiMax are mainly used for this need while travelling. The new introduction by SEBI is only for mobile phones. It is unfortunate to see journalists getting such basic facts wrong. Of course, this problem is not only with Money Life but all media. Just repeating the errors seen elsewhere without thinking twice.

REPLY

Roopsingh

In Reply to Tony Joe 6 years ago

If the wireless technology is already in use-then what new SEBI has allowed?before asking Moneylife you should have asked SEBI chief about this new system-this just shows you are not sparing any chance to critise ML-

Amit

6 years ago

New Technology is always welcome. However, SEBI has once again failed to notify that the full liability of services under these new services will be of the Stock Broker and the Exchanges whichever the case may be...

If would be unfortunate if the exchanges and the stock brokers who will hugely benefit from increased business and huge commissions/charges are allowed to indemnify themselves through ridiculous disclosures making the investor liable for services provided by them.

Amit

6 years ago

New Technology is always welcome. However, SEBI has once again failed to notify that the full liability of services under these new services will be of the Stock Broker and the Exchanges whichever the case may be...

If would be unfortunate in the exchanges and the stock brokers who will hugely benefit from increased business are allowed to indemnify themselves completely through ridiculous disclosures making the investor liable for services provided by them.

Core infrastructure industries output up 3.9% in July

New Delhi: Output of core infrastructure industries expanded by 3.9% in July, as compared to 3.2% in the same month last year, reports PTI quoting data released by the government.

The six core industries - crude oil, petroleum refinery products, coal, electricity, cement and finished steel - registered a 4.5% growth during the first four months of this fiscal as against 4% in April-July, 2009-10, data released by the commerce and industry ministry said.

These six segments account for 26.68% of the country's total industrial output.

While crude oil and petroleum refinery output witnessed high growth in July, production of cement and finished steel dipped, the data showed. Crude oil production grew by 15.8% in July, while refinery output expanded by 13.7%.

However, cement production contracted by 0.2% and finished steel output by 0.9% year-on-year.

Coal output slowed to 4.5% against a robust growth of 10.5% in July, 2009. Electricity generation grew by 3.8% in July, 2010, the same rate as the corresponding month of the previous year.

The growth of the core infrastructure sector has been revised upwards to 3.6% for June from the earlier provisional estimate of 3.4%.

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Govt confident of allocating 3G spectrum by 1st Sept

New Delhi: The government today said the telecom operators, who had bagged third generation (3G) spectrum in the auction held recently, would be allocated airwaves from 1st September, paving way for launch of high-speed mobile broadband services.

The Department of Telecom (DoT) had set 1st September as the deadline for allocating spectrum, as per the schedule of auction, which fetched the government over Rs67,000 crore for selling 3G frequency.

There are, however, apprehensions in the industry as the defence forces are yet to vacate spectrum in several areas, as the alternate network for them is still not ready.

Asked whether government will be able to give spectrum on time, minister of state for telecom and IT Sachin Pilot said on the sidelines of an Assocham event, "After 1 September, 2010, allocation will take place and services will be rolled out."

The government had raised over Rs1.06 lakh crore from sale of spectrum for both 3G and Broadband Wireless Access (BWA) services.

As many as seven operators, including Bharti Airtel, Vodafone, Tata Teleservices, Reliance Communications and others had bagged 3G spectrum in select circles.

Operators are confident if the spectrum is handed over to them by September, they can roll out services by the end of this year or early next year.

Two leading operators Bharti Airtel and Reliance Communications had recently announced that they are ready with their 3G infrastructure and are waiting for the government to release spectrum.

"Our network is already ready for providing 3G services.

Our content and application are also getting ready for the same and the IT too has geared up. The only thing that needs to be added is the radio network,"

"I am hopeful that before the end of this calendar year, we should see some light on 3G and real user experience happening," Bharti Airtel chief executive for India and South Asia Sanjay Kapoor had said.

Expressing similar views on 3G infrastructure set-up, Reliance Communications president Mahesh Prasad had also said, "If the spectrum is allocated by September. We will roll out our services by the end of the year or by early next year.

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