Internet Based Trading

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INTER.ACES

How Does Internet Stock Trading in India Work?
Chandana Goswami

presents articles focusing on managerial applications of management practices, theories, and concepts.

Executive Summary

KEY WORDS

E-finance Online Trading Online Brokerage SEBI

Internet trading started in India on 1st April 2000 with 79 members seeking permission to do so. Geojit Securities was the first to go online. On 1st .ebruary 2000, the National Stock Exchange (NSE) opened up the internet-based trading system for its members, the first stock exchange in India to do so. However, after two years of trading, only a dozen brokers continue offering online service. The SEBI Committee on Internet-based Securities Trading and Services has allowed the net to be used as an Order Routing System (ORS) through registered stockbrokers on behalf of their clients for execution of transactions. This paper aims at understanding the needs of the customers, comparing it with the offerings of the websites, identifying the gaps, and offering possible solutions for filling up the gaps. It is revealed that: Ø Online traders took buying decisions on their own. A few backed it up by analysts’ recommendations. Those who took decisions independently claimed to go through the websites, did fundamental and technical analysis, watched the trends, and then finally made a decision. No one solely followed brokers’ recommendations blindly. Well-educated people in their 30s and 40s, who were highly informed and also knew how to tap sources of information, took decisions on their own and did not depend upon the broker. They were self-directed traders. Ø The major perceived benefit of online system was its convenience. The broker’s reliability followed by the execution speed was the key to logging on to a website. Ø An analysis of the Indian sites indicated that they were mainly promotional and provisional in nature. Provisional information about stock quotes, database searches, research reports, etc. were provided in the site empowering the user to take independent decisions. Promotional activities in the form of facilities locator, educational forums, web designs, demos, etc. had lured many to visit their sites but whether this had converted into online clients could not be confirmed from the results of this study. Ø Indian websites offered a basic plain package with lot of scope remaining for value addition. Excluding the technical and legal aspects over which the e-finance service providers did not have much control, certain value additions could be done on the existing websites. Moreover, the Indian investors having access to the foreign websites were quite well versed with what was being offered by the American counterparts and hence they were highly demanding customers. The following services could make Indian sites more attractive to customers: • Interactive counselling • Customer care centre • Investment tips • Warning systems • Extended hours trade • Account management • Inter-organizational alliances.

VIKALPA • VOLUME 28 • NO 1 • JANUARY - MARCH 2003

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n India, the Securities Exchange Board of India (SEBI) has allowed internet trading of stocks in a limited form. In internet stock trading, the net is used as a medium to communicate orders to the stock exchange through the broker ’s website. The user cannot directly trade in the exchange because trading is permitted only for registered brokers. The user can, however, place orders through a broker ’s site. These ebroking sites also provide the client with an opportunity to buy and sell securities from the confines of one’s home or office. The client is able to track the fluctuations in a particular stock and the market as a whole while deciding to execute the order and also while the order is being executed. The confirmation of the executed order will be available in real time. Natarajan(2000) feels that prices will be determined by market forces and the availability of a particular...
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