Sebi chairman DR Mehta told reporters on the sidelines of IOSCO's emerging market committee meeting that although investors will be able to access the stocks exchange's mainframe, all trades will have to be routed through brokers as electronic signatures will not be recognised. In its true sense, trading via the Internet (which includes both booking orders as well as making your payments) will be possible only after the cyber laws are enacted.

According to Mehta, "The Sebi board hopes to receive the BD Pathak panel report on Internet trading soon and a decision in this regard will be taken before Christmas." The chairman also said the committee is at present examining the technical, legal as well as safety issues of trading through the net. "The four working groups appointed by the Pathak committee are looking into critical issues like signature verification and validity of contracts," Mehta said. Internet trading will cut transaction costs (already the second lowest in the world), quicken trade and facilitate better price discovery.

Quizzed on the volumes expected through this new trading medium, Mehta said as none can stop the proliferation of Internet, "There will be volumes. In the new system, expected to be in place in the new millennium, strict filters will root out bad trades and check against misuse. For example, said Mehta, if a trade is punched in for Rs 25 crore and the brokers' exposure limit is Rs 10 crore, the order will automatically get cancelled.

The Sebi chairman was also hopeful that signature digitisation, which will be permissible once the cyber-laws are enacted by Parliament, will become a reality soon.

At present, trading through the Internet is done by brokers on behalf of their clients. Under the present system, an investor has to open an account with a broker by deposting a draft/cheque. On verification of the signature, the broker executes the buy or sell order. Orders are punched in by the broker only up to a certain limit. Under the new system, the investor will have to open an account, but he can punch the order directly into the stock exchanges' mainframe using the broker's code and trading will be almost on real-time basis.

"Fears of the brokers going out of business post-Internet trading is a myth; brokers will be an integral part of this system as without the broker code/seal, no trade can take place," said Mehta.

Rolling settlement not feasible : DR Mehta
A day after finance minister Yashwant Sinha spoke of introducing rolling settlement in the physical segment, Sebi chairman DR Mehta says it is not feasible. Speaking to reporters on the sidelines of IOSCO's emerging market committee meeting, Mehta said dematerialisation (or trading in the paperless mode) is a necessary pre-requisite for introducing rolling settlement.

The impracticality of introducing rolling settlement in the physical segment stems from the fact that such shares cannnot be transferred electronically and, hence, can lead to problems of bad deliveries. This may, in turn, result in inordinate delays, thereby jeopardising the whole process.

The rolling settlement, unlike the existing system where there is a fixed settlement day every week (like Fridays on the Bombay Stock Exchange and Tuesdays on the National Stock Exchange), allows roll-over of settlements on a T+5 cycle, reducing the risk of price manipulation and volatility.