Virtual solutions

Long after the groups on Internet trading set up by Sebi become functional, there will still be many stock exchange managements and brokers who will, ostrich-like, continue to regard Internet trading as a distant phenomenon. While there is truth in this, given the time required for a strong regulatory framework (what relevance will the cap on FII holdings have in such a scenario?) and the rough terrain reforms have to encounter here, these measures bring India in perilous cultural alignment with current global developments, where electronic communication networks (ECNs) are threatening the survival of stock exchanges. Or, where fund managers who are members of a "crossing network" are sidestepping brokers to clinch transactions mutually in a cyber price discovery system. So, what is today a redundancy problem staring the smaller Indian stock exchanges in the face, may engulf the larger ones, too, and more so with the growth of the Internet. After all, Sebi may want to take a leaf out of the SEC book which hascompelled no less a bourse than the New York Stock Exchange to change some of its protectionist regulations.

For the Indian investor, the benefit initially will be more by way of convenience and transparency. Even if Sebi does not permit mutual matching of trades and price discovery on the Net initially, the culture of greater transparency is bound to result in a shakeout where clients' preference will be for institutional, well-capitalised brokerage houses. Although the higher costs of technology investment in India may prohibit too great a lowering of brokerage costs initially, this will happen as volumes grow. In the interim, Indian investors can expect value-added services like prompt information, research reports -- all via e-mail, and minus the passed-on printing costs.

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