SEBI clears stock trading on the Net, plans Jan 1 start
Our Mumbai Bureau
17 DECEMBER
A PANEL set up by the Securities and Exchange Board of India today cleared Internet trading for stocks under the existing legal framework.
The panel also laid down the requirements for stockbrokers wanting to offer facilities to trade over the Internet.
Sebi will try and get an approval from its board before the year-end so that Internet trading can begin by January 1, '00, Sebi chairman DR Mehta told ET. The panel was headed by Indian Institute of Technology (Bombay) professor DB Phatak.
The panel has suggested the Internet be linked to the exchanges' trading system to reduce the delay in order execution.
"Now, it is for the department of telecommunication (DoT) to decide whether they want to treat the Internet as a closed user group and charge an interconnectivity fee," said OP Gahrotra, senior executive director, Sebi. Earlier, DoT had expressed its intention of charging an interconnection fee of Rs 15 lakh from each broker.
This means the Internet can be used for trading with hardly any time lag in fulfilment of orders. Some stockbrokers were till now using the Internet for receiving orders from the client and sending them confirmation through mail.
The panel has pegged a stockbroker?s minimum net worth requirement at Rs 50 lakh.But if more than one brokers get together to offer the services, then the individual net worth requirement will be relaxed.
Hardware and software requirements at the brokers' end have also been specified keeping in mind the security requirements. Client-broker relationship for Internet trading has been defined to ensure that the client knows the risk of trading over the Internet.
Brokers will have to take the exchange's permission before starting Internet trading services. The exchange will have to ensure that the brokers' systems meet the requirement set by the panel.
The exchange will check whether the broker meets the operational and system requirements. The broker will have to make a provision for security, reliability and confidentiality of data and use encryption technology. Adequate system capacity, qualified personnel, written procedures and signature verification/authentication technology will be required.
The panel has also recommended that DoT should allow 128-bit encryption technology for Internet trading. The stock exchanges will have to ensure that a proper risk management system is in place at the brokers' end.
The brokers? systems should be capable of assessing the risk of the clients as soon as the order comes and the client will have to be informed of execution within a reasonable period of time. The client will also be informed of the margin requirements, payment and delivery obligations through the Internet.
Contract notes will be issued to the client in the paper format within 24 hours of execution of the trade through Internet. Cross trades between the clients of one broker will not be allowed and all orders will have to be offered to the market for matching.
Security measures suggested by the panel are: user ID, first-level password; automatic expiry of password after reasonable duration; transaction logs to be maintained; secured socket-level security and suitable firewall to be set up.
Subsequent reports by the panel will cover the interconnection of the depository and the banks with the Internet to enable the transfer of funds and shares on the net.
economictimes.com
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