Sebi opens smart order routing for SEs

Move will reduce arbitrage opportunity

 The move, analysts said will help general investors, but reduce arbitrage opportunity in the securities market. Till now it was up to the brokers to choose an exchange for executing an order.

“Sebi has put in an excellent framework in place to ensure that SOR functions smoothly. They have talked about the need for the exchanges to sync their clocks with globally recognised atomic clock, the need for storage of data...which are all very important in order to ensure that SOR benefits investors,” an official at the National Stock Exchange said.

Under SOR technology, the computer would automatically choose the lowest price (in case of buy order) and highest price (in case of sell order) to execute trade. “This system would be good for general investors as they can now trade in the best price available in the market. However, arbitrageurs would lose out as they can no longer play on the price margins of the two exchanges,” SMC Capitals Equity Head Jagannadham Thunuguntla said. An arbitrageur is an investor who attempts to make profit from price inefficiencies in the market by making simultaneous trades that offset each other and capturing risk-free profits.

“It could be a big blow to their business as the price differentials in the two exchanges gets removed. However, both the BSE and NSE need to have this technology to make the SOR successful,” Thunuguntla added. In order to ensure the successful SOR trading and fast redressal of investor grievances, the market regulator has asked the stock exchanges to strengthen investor grievance cell.

“Stock exchanges shall ensure that within a period of three months from implementation of SOR, a system is put in place to time stamp market data feed,” Sebi said. Further, the Securities and Exchange Board of India (Sebi) also permitted brokers to trade using wireless technology — like mobile phone, laptop with data card, that use Internet Protocol (IP).

Commenting on Sebi’s move permitting wireless technology, Kotak Securities Executive Vice President B Gopkumar said, “We at Kotak Securities are well prepared to launch trading via wireless technology. We are awaiting Sebi’s notice.” “The facility will be available to customers having JAVA enabled handsets and Blackberry. India is moving from advanced broking to mobile broking,” he added. Sebi permitted all registered brokers, who currently provide internet based trading, to provide trading using the wireless technology.

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