Monday, August 30, 2010

SEBI clears smart order routing for all investors

Capital market regulator the Securities and Exchange Board of India (Sebi) has approved the launch of smart order routing to every class of investors on stock exchanges, putting an end to the conflict between the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

By using smart order routing technology, investors will be able to obtain the best possible price while buying or selling shares, similar to what is being done manually by stock brokers, except that this technology makes it much faster to execute. Stock brokers say that smart order routing determines which exchanges offer the best price at any given time. Speed is the key to the success of programme trading. If the price feed is not fast enough, the software will be unable to capitalise on some of the opportunities that last for a second or less.

The BSE had said in a public forum that the NSE was dragging its feet on allowing smart order routing on fears that it may lose some of the orders, if this was allowed. The NSE, on its part, said that security concerns related to audit trail had prompted a second look at the proposal.

“Smart order routing would help in better price discovery and also increase electronic trading volume,” Parag Gude, MD-consolidated equities, Morgan Stanley

Algorithm-based trading or programme trading has really not taken off in a big way in India and one reason, say stock brokers, is a lack of liquidity beyond the top 15-20 most actively-traded stocks. The other reason is the systems at stock exchanges are not equipped to handle very heavy trade volumes when the market is unusually active.

According to Sebi, stock brokers, who are interested in offering the smart order routing facility, will have to apply to the respective stock exchanges, which, in turn, will have to communicate their decision to brokers within 30 days. Brokers will also have to submit a third-party system audit of its smart order routing system and software.

Stock exchanges will disseminate a list of approved system auditors (CISA or equivalent) qualified to undertake such system audits. System audit of the smart order routing systems and software will be periodically carried out by brokers, and certificate, in this regard will have to be submitted to the exchange.

Brokers will have to provide an undertaking that the new system will route orders in a neutral manner. They have to provide an alternative mode of trading system in case of failure, besides maintaining logs to facilitate an audit trail.

Stock exchanges will have to provide a unique identification number (UID) for orders placed through this facility and maintain data on all orders and trades. Within three months from implementation of the smart order routing, bourses will have to ensure that a system is put in place to time stamp market data feed that’s disseminated to the market.

The regulator has also stipulated that apart from strengthening investor grievance cells to address complaints, exchanges will also have to share necessary data as and when required in order to facilitate necessary examination in case of investor complaints.

The broker server routing orders will have to be located in India. The markets regulator has also asked stock exchanges to communicate the status of the implementation of the provisions of this circular in the monthly development report.



Thursday, August 26, 2010

Reliance rejigs holding pattern to save on tax

Reliance Industries Ltd (RIL) has undertaken a significant restructuring of promoter holdings, under which a significant chunk of shares have been transferred to a limited liability partnership (LLP), reports Business Standard. The move would reduce the dividend distribution tax before the Direct Taxes Code (DTC) kicks in. In the financial year ended March 31, the company paid
dividend distribution tax of INR3.5bn. For FY09, the outgo was INR3.2bn. The promoter group, which held shares through 32 entities, would now transfer their shares, representing 34.17% of
voting rights, to a total of 61 entities, including 27 LLPs. The transaction was completed on August 11. LLPs are an alternative corporate business vehicle that offers the benefits of not only limited
liability, but also allows its members the flexibility to organise their internal structure as a partnership based on an agreement.

Wednesday, August 18, 2010

Amazingly Only 451 clients account for 50% of NSE daily turnover !!!

As many as 451 client identities accounted for about 50 per cent of the average daily turnover in the cash equity segment of the National Stock Exchange in the first quarter this fiscal.

This was stated by the Minister of State for Finance, Mr Namo Narain Meena, in a written reply to question posed by Mr Sukhdev Singh Dhindsa in the Rajya Sabha.

The number is even more intriguing in the derivatives segment, with only 106 clients accounting for 50 per cent of the average daily turnover.

Daily Average

While the average daily turnover in the NSE's cash segment is Rs 13,000 crore, it is about Rs 90,000 crore in the derivatives segment.

In the first quarter of 2010-11, more than 30.90 lakh clients traded in the NSE cash equity segment, Mr. Meena said.

About 52 per cent of the exchange's turnover was contributed by retail investors, high net worth individuals and corporate clients. While institutional clients contributed about 24 per cent, proprietary traders accounted for about 24 per cent of the exchange turnover, Mr Meena said.

Even in the case of derivatives segment, about 52 per cent of turnover in NSE was contributed by retail investors, high net worth individual and corporate clients. However, institutional clients accounted for only 12 per cent, while proprietary traders contributed 36 per cent of the turnover.

Mr. Meena also said that top 25 trading members of the NSE accounted for about 42 per cent and 43 per cent of cash and derivatives segment turnovers respectively during the first quarter this fiscal.

In a reply to a question from Mr. Mohammad Adeeb, the Minister noted that foreign brokerage firms with direct or indirect controlling interests in domestic brokerage houses accounted for 12 per cent and 9 per cent of the turnovers in NSE's cash and derivatives segment respectively.