The Hindu Business Line : SEBI allows institutional clients to have direct market access

What it means
This move offered clients direct control over orders, faster execution, reduced risk of errors associated with manual orders and better audit trails.
The move will also reduce the cost of transaction besides curbing possible ‘front- running’ by employees of broking outfits

Our Bureau

Mumbai, April 3 Institutional investors now can have direct market access (DMA) without brokers’ manual intervention if suitable infrastructure is created by brokers, a SEBI circular addressed to the BSE and the NSE said here on Thursday.

SEBI said DMA offered clients direct control over orders, faster execution, reduced risk of errors associated with manual orders and better audit trails.

Commenting on the nature of the new arrangement, Mr Raamdeo Agrawal, Director of Motilal Oswal Financial Services, said, “What the SEBI directive has implied is that institutional investors (such as FIIs, mutual funds, insurance companies, banks and hedge funds) too, could have a trading terminal similar to that of sub-brokers, in their offices.”

The physical location of the trading terminal is potentially an evidence of the place from where the order is emanating. That could lead to tax complications as it could be construed as evidence of ‘place of business’ – an important attribute for determining tax liability, said an expert with long years of experience in taxation and regulatory matters.

Mr Anil Saxena, CFO of Religare Enterprises, said that the move will reduce the cost of transaction besides curbing possible ‘front- running’ by employees of broking outfits. The improved confidentiality of trades might attract foreign hedge funds that were not willing to do business here earlier, he added.

Mr Sandeep Singal, Co-Head, Institutional Derivatives Business of Emkay Shares and Stock Brokers Ltd, said, “This allows execution of various products based on quantitative and algorithmic models that were not possible so far.

“It would lead to further consolidation in the institutional segment of broking business. Institutional players might prefer to pass their substantial business through their captive broking outfits.”

The broker shall enter into a specific agreement with the clients for whom they permit DMA facility. The client shall use the facility only to execute his own trades and not on behalf of any other person, SEBI said.

SEBI has also directed the brokers to carry out appropriate validation of all risk parameters including quantity limits, price range checks, order value, and credit checks before the orders are released to the Exchange.