India Takes Steps Towards Online Stock Trading

In its efforts to modernize the markets in the country, the Securities and Exchange Board of India (SEBI) has taken first steps to lay foundation for Internet-based trading in India on a war footing.

To ensure that India is not left behind, SEBI has set up two working groups
to look into the modalities of ushering in Net-based trading. The committee
has been asked to give recommendations on prescribing standardized
message formats between networks in a month’s time.

Technology, connectivity, security, surveillance and monitoring are among
the issues the groups will investigate.

SEBI officials told the committee members that Internet trading has to be
introduced at the earliest and the markets cannot wait for every minute
detail to be worked out, revealed informed sources. Certain basic parameters
need to be outlined soon, they stressed.

The first working group, headed by DB Phatak from Indian Institute of
Technology(IIT), Mumbai, will look into the standardization of interface and
security protocols for Internet trading at various levels. The second
working group, headed by LK Singhvi, senior executive director, SEBI, will
examine surveillance and monitoring related issues arising due to Internet
trading.

A representative of the Department of Telecommunications (DoT)
on the committee for Internet-based securities trading and services too
indicated that, with the government clearing the connectivity between two
closed-user-group (CUG) networks, Internet trading could be introduced.

The committee unanimously maintained that Internet trading needs to be
introduced at the earliest as the concept is already catching on fast
globally. Incidentally, a recent survey conducted by Gomez Advisors revealed
that the international online investing crowd could swell by two-thirds to
8.6 million people in the next six months. So, if the new technology tools
are not introduced in the markets at the earliest, India could miss the bus.

However, the Stock Holding Holding Corp. of India Limited (SHCIL), India’s largest depository participant, has recently operationalized an automatic kiosk through which
transactions are carried out on a touch-screen with the help of a smart
card, has developed a software which links the kiosk through the Internet.

The kiosk can be accessed via the Net for about US$300 and an investor can
buy or sell shares sitting home. SHCIL has completed tests on the product.
Investor could install the facility on his computer.

“We are now sure of the product and can sell it to investors. To begin with,
the software, worth $23, will be given free of cost,” says an SHCIL official.

Internet trading, being a new system in India would pose newer challenges to
regulators and new ways of abusing the system would be found, say market
observers.

Hence, certain guidelines would need to be put in place. As some
companies are already working towards developing products which would enable
Net trading, the parameters need to be set early or such players would have to redevelop interfaces.