13.1 Online trading system at exchange level

Hanumant Dhokle

Trading online

We have earlier discussed how trading on stock exchanges in India used to take place through open outcry without use of information technology for immediate matching or recording of trades. This was time-consuming and inefficient and imposed limits on trading volumes. In order to provide efficiency, liquidity and transparency, the NSE and BSE introduced a nationwide online fully automated screen-based trading system (SBTS) where a member can directly place an order without any direct help of a broker.

The SBTS electronically matches orders on a strict price/ time priority and hence cuts down on time, cost and risk of error, resulting in improved operational efficiency. NSE is the first exchange in the world to use satellite communication technology for trading. Its trading system is called the National Exchange for Automated Trading (NEAT) and it is a state-of-the-art client server-based application. To facilitate smooth transactions, the BSE replaced its open outcry system with the BSE Online Trading (BOLT) facility in 1995. This totally automated, screen-based trading in securities was put into practice nationwide within a record time of just 50 days. The capacity of the BOLT platform presently stands enhanced to 80 lakh orders per day. Such systems also help cut down on frauds. Earlier, at least in a few cases, brokers were blamed for rigging the orders from customers for their advantage. The introduction of online trading has enabled people to trade from anywhere irrespective of geographical locations. And that has increased the depth in the market and also liquidity. In a nutshell, the most important advantages gained from online trading are:

It enables market participants, irrespective of their geographical locations, to trade with one another simultaneously.

  1. Improves the depth and liquidity of the stock market.
  2. Provides full anonymity in accepting orders big or small from any member.
  3. Provides equal access to every trader, whether big or small.
  4. Yields an audit trail which in turn can help in resolving disputes. All you have to do is to log on to the execution process to be able to track a trade.

Today India can boast that almost 100 per cent trading takes place through electronic order matching. Technology was used to carry the trading platform from the trading hall of stock exchanges to the premises of the brokers. Exchanges carried the trading platform further to the PCs at the residence of investors through the internet and to hand-held devices through WAP for convenience of mobile investors. This has made a huge difference in terms of providing equal access to investors in a geographically vast country like India.

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