The Security and Exchange board of India, SEBI has announced to introduce Direct Market Access system to institutional investors like Foreign Institutional Investors (FIIs), mutual fund houses and domestic institutions by providing them direct and more transparent trading system that will be highly benefited for these bulk investors.
The institutional investors were asking to implement this facility since long time.
Using this DMA facility, institutional investors will now be able to trade in the stock market directly without interfering the brokers. This will cut the brokerage charges in the trading shares and institutional investors will be benefited more in terms of impact cost. Here, the term, Impact cost is the movement of stock price on execution of large deals.
Now, institutional investors will get the best possible prices for their trade because of direct accessing system. The SEBI can also allow the better audit tracking of foreign investors due to new trading system, ‘Algorithmic trading’ system which has no ‘front-running’ technique that was not easy to track it. Algorithm trading is a program trading that is partially in used so far.
In the Algorithmic trading, user will get the best prices for their deal via computer power and complex algorithm and will also executes their own trading account not others. So, the transparency will be improved.
Algorithmic trading ensures the security of the trading by first ensuring user’s recognition, then checking about any front-running (the system of taking benefit of pro-knowledge of the bulk deals and taking early positions before the order of the client is passed through the system) and then checking the data tracking program to ban the forgery and to track the culprits.
SEBI has announced that brokers would be liable for all DMA trades and brokerage firms will have all the records of the clients including user details, user-ID and authorisation. SEBI has released a circular asking the interested brokerage firms to apply in stock exchanges giving details of software and systems proposed to be used. All the proposed documents will have to duly certify by a recognised and reliable security auditor.
For this SEBI has directed all the exchanges/ brokerage firms to prepare a model agreement, soon.
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