Strengthen Regulatory Framework To Draw Big Numbers

Kolkata: | Updated: May 31 2002, 05:30am hrs
Although Internet users are on the rise in India, online securities trading is yet to catch up. In conversation with The Financial Express, Calcutta Stock Exchange Association executive director PK Sarkar highlights the reasons behind the unpopularity of online trading in the country. Excerpts from the interview:

P K Sarkar.
Why is electronic securities trading not popular in this country, even when the number of Internet users is growing
Electronic securities trading has not picked up because of the inherent deficiencies in the system. In a developed market, particularly in the US, there are more than 3 million customers who are using this facility. But in India, the bill on e-commerce is yet to be passed by the government. There are a lot of legal and policy issues involved.

What are these legal and policy issues
Any trading has to take place under a regulatory framework. Although the Securities Exchange and Board of India (Sebi) more than a year ago created a committee and it has given its recommendation for electronic trading for securities, it did not have much impact. The reason is there is no legal framework to guide the investor-broker relationship. The Internet regulatory authority is DoT, and for security trading it is Sebi. Unless these two authorities set up a common platform for regulation, which has to be under Sebi, there will always be problems in e-securities trading.

What is the redressal in the case of disputes in online trading
The legal validity of transaction done through electronic means has not yet been yet tested in the absence of laws. In the case of a dispute, the current stipulations provide that there have to be proper back up systems and the investor should be fully briefed about his rights and brokers obligations. The investor awareness in this area is minimum. And no attempt has been made by the broker community or any other agency to impart education.

Besides the legal issues, what are the other obstacles
I think investors are a little shy not only for electronic trading of securities but even for using Internet as a means for e-commerce. Customers are still indifferent to trading over the Net. Although the number of Internet users in India is expanding at an exponential rate, Internet users are not getting tuned to electronic operations. Even for bank transactions, very few people are using electronic facilities. On NSE and BSE, though there is e-trading facility, the volume is low compared to trading through brokers screen.

Are banks ready with their infrastructure like payment gateways for electronic trading
Even in the case of electronic trading, the broker has to deal through an exchange. The exchanges responsibility is to ensure that the broker conforms to regulations like execution of the contract note, broker-client agreement, etc. Now all exchanges are computerised and there is online network linking brokers, exchange and the clearing banks. In case of electronic trading, that kind of a linkage is missing. There are very few banks who offer electronic trading. There is even a problem of interface between two banks who offer e-trading facilities. Also, considerably enhanced encryption code is required for passwords in e-trading. Security in trading is a must, and it has to be standarised before one can attract a large participation.