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Net-based trading will have far-reaching impact, says NSE's Patil

Our Correspondent in Hyderabad

The Internet-based trading launched by the National Stock Exchange on February 1 would have far-reaching impact on investor servicing, market liquidity and structure of the capital market, according to R H Patil, managing director, NSE.

Making a presentation on "Capital Markets in the 21st century: the Indian Perspective" during the two-day meet of the India Finance Forum here on Saturday, Patil said that Web-based trading is the cost-effective way to take the stock exchange to the personal desk of an ordinary investor.

Its impact would be felt on the viability of smaller stock exchanges. The structure of the capital markets would undergo a change and there might remain only a few independent stock exchanges, he noted.

Patil said that the Internet-based trading on the NSE was essentially an order routing mechanism and it has the potential to ensure wide coverage from anywhere in the world. The investor order would be routed through broker terminals and there would be automatic order/trade confirmation to the investor.

Patil said that there has been tremendous growth in the application of information technology in all spheres of life and this has virtually brought about a revolution in the way business is carried out. The capital markets, he felt, have been slow in absorbing technology and there has been hesitation on the part of some financial intermediaries to unfettered market competition.

However, growing global competition and the concept of a demutualised exchange would promote application of IT at a faster pace. The capital markets in the 21st century would be a function of application of technology.

Commenting on the structure of the Indian capital market, he said that there has been traditional monopoly of stock exchanges but the demutualised exchanges with national jurisdiction -- the NSE and the OTCEI -- have come to stay. Other stock exchanges are also permitted to spread and there has been integration of the hitherto scattered markets.

The NSE is the first exchange to use satellite-based communication technology for trading. This has helped facilitate high-speed of order entry and trade execution with individual NSE members operating from multiple cities and states. There has been a shift of business from other exchanges to the NSE and regional stock exchanges are setting up subsidiaries to take up the NSE membership.

The NSE has provided fully automated trading environment with satellite-based communication network. There is dispersal of trading activity from trading ring to brokers' offices in India and large broker-office network is taking shape across the country.

Terrestrial communication network is being implemented as a back-up for the VSAT network. Individual brokers are allowed to develop their own network and Internet-based trading is expected to give a major push to application of technology in capital markets.This would facilitate efficient risk containment for brokers.

Patil noted that the Indian investors were acquiring global outlook and an increase in cross-border trades could be expected. Indian companies are listing in overseas markets and the global competition might force local exchanges to change.

Stock exchanges are expected to spread overseas and this would mean greater focus on transaction clearing and inevitable technology upgradation. Moreover, heavy investment would be possible through demutualisation.

Pointing out that the NSE is shaping into a financial supermarket, he said that a single clearing corporation could manage with lower margins. He emphasised the need for integrating trading in equity and debt and to ensure better regulation and risk control. Efficient risk control mechanism, he said, needed access to participants' exposure in all markets.

Commenting on the emerging scenario, the NSE managing director visualised cross-border listing and regional emphasis on listing and trading. While the Indian investors would invest overseas, the multinational corporations would be raising funds in India for their Indian operations.

All this would facilitate competition with global markets. It would require high professional management of markets, mutual funds and other domestic issuers, cross border payment and securities settlement systems and continuous upgradation of technology.

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