Smart New Trading Tool To Help Find Prices of Shares

Most investors would want to trade on both the major bourses simultaneously, the Bombay Stock Exchange, or BSE, and the National Stock Exchange, or NSE, to get the best possible price while buying or selling. But tracking both exchanges at the same time, before giving a buy or sell order, could only be done if brokers made the effort. Now, both exchanges have introduced a technology called smart order routing, or SOR, which allows the investor to do just that without brokers playing any role. Credit Suisse became the first broker to execute trades using SOR technology on the BSE and NSE recently.

How it works

If a share is traded on both exchanges, the buyer or seller checks the rate and quantity available on each exchange and then places his order. Earlier, all of it had to be done manually by brokers. From now on, the entire process of finding the best price available and then executing the order will be carried out by a computerised system.

Nalin Pant, Vice President at Elara Capital, says: "The SOR system constantly receives market data from the exchanges. It compares the market conditions at both exchanges, and based on prices, costs and liquidity, automatically forwards a particular order to the exchange where the best execution is likely to happen."

Its advantages…

The technology will help investors trade in the less liquid stocks, where the price differential can often be as high as 0.5 to 1.0 per cent between exchanges, by seamlessly finding the best price possible for their orders. Avinash Gupta, Vice President at Bonanza Portfolio, says: "Manually this process is tedious and timeconsuming and may not be a feasible proposition in the dynamic markets that we have. It will mean the optimum execution of trade for brokers as well as investors."

SOR could radically alter market dynamics, believe experts, with large traders and arbitrageurs expected to use it in a big way. Currently, only some brokerages offer SOR but it is expected that most will begin offering it over the next few months.

The cost of implementing an SOR system is not very high for brokers. This allows them to offer the service free to investors. The hardware cost is about Rs 3 lakh to Rs 4 lakh, while the software cost comes for Rs 8,000 to Rs 10,000 for a terminal each month.

...And its limitations

SOR will be used mostly by high net worth clients, or HNIs, foreign institutional investors and domestic institutional investors. Day traders and futures and options, or F&O, investors may stay away. Says Vinay Agrawal, Executive Director at Angel Broking: "The system will not be useful for intra-day and F&O trades as it will route orders to two or more exchanges for the best price."

Then, the broker offering SOR will have to take membership of both the exchanges. Initially, only the big brokers will be able to offer the service.

Courtesy: Money Today