SEBI permits mobile-based trading and Smart Order Routing in stock markets
Moneylife Digital Team 27 August 2010

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. 

Comments
Tony Joe
1 decade 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.
Roopsingh
Replied to Tony Joe comment 1 decade 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
1 decade 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
1 decade 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.
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