Indian Regulator Says No To Net Trading

The Securities and Exchange Board of India (SEBI) has made it clear that online trading will not be available in India as long as current networking regulations are on the books.

According to O.P. Gahrota, senior executive director, SEBI, Indian laws do
not permit online brokerage services.

“Until regulations are in place, the SEBI will not permit
online trading through the Internet,” he said.

At present, the Department of Telecom’s (DoT) rules and
regulations do not allow telecommunication networks to be linked, or in this case the Internet with stock exchange networks, said Gahrota. As per the existing laws, the Internet and the networks of a stock exchange are treated as separate networks.

Meanwhile, most of the stock exchanges are advocating Internet trading in India.

“The Indian market is ready for Internet trading, which
will help bridge gap between the Indian and overseas securities market,” said Ravi Narain, deputy managing director of the National Stock Exchange (NSE).

Advocating online trading of shares over the Internet as a eventuality, he
said India cannot let its financial markets lag behind and that a continuously
evolving market is imperative for positive growth.

However, a section of analysts felt that DoT can permit Web-based trading on
a case-to-case basis. But, even if the DoT were to allow online brokerages, SEBI must frame regulations on such trading and notify these regulations as law.

“We will seek DoT’s permission to allow (stock)broker’s networks to connect with exchanges’ networks to allow for online trading through the Internet. Once we receive this permission, we will draft the
regulations,” says SEBI sources. SEBI has set up a four-member committee to discuss feasibility of Internet Trading.

Gahrota says it is too early to say when the decks would be cleared for Internet trading in India. “Going by past experience, DoT’s permission could take more than a year,” he said.

In regard to the listing of Internet companies, the regulatory bottlenecks in the financial sector will inhibit the “Internet stock” phenomenon from taking off here.

Some of the main stumbling blocks are the market-entry rules of SEBI. The market regulator insists that companies should be profit-making before they can aspire to go public. This remains the case despite the recent relaxation in the guidelines; earlier, companies had to have declared dividends for three consecutive years while the new rules refer to the “ability” to pay dividends.

The fact that the minimum size of a
public issue should be at least $2.5 million in order to get a listing on
the country’s most prominent exchanges, the NSE and Bombay Stock Exchange
(BSE), is another hurdle.

It is obvious that as long as SEBI’s restrictive rules remain, Indian Internet start-ups cannot dream the big IPO dreams like their U.S. counterparts.

Currently, the Internet is only being used as a communication tool by investors for sell or buy order to their brokers. Some investor are trading through VSAT terminals, but many consider this a very expensive mechanism for the market.

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