Execute client’s trade at ‘best price’, SEBI tells brokers

Market regulator SEBI has asked stock brokers to execute client’s trade at the best available price. For years, many brokers had pre-programmed their trading software in such a way that orders flowed only to a particular stock exchange, irrespective of the ‘best price’ available on another bourse. For retail traders and investors, it was a ‘missed opportunity’.

Though SEBI had issued guidelines regarding this earlier, several brokers never paid any heed to them as no ‘non-compliance’ action was initiated against them. But, now, SEBI has restated that getting the ‘best available’ market price is a right of trading clients and brokers cannot have pre-programmed parameters that compromise this fundamental principle o the stock market. For example, if a stock is available at ₹10 on a particular exchange and ₹10.10 on another at the given time of the trade, the broker will have to buy it at the best available price irrespective of the exchange.

Margin woes

“Making brokers adhere to trade on the principle of ‘best price’ is the right thing to do. But SEBI and exchanges should also work on easing margin related woes. There is still tussle and issue over fungibility of margin requirement for brokers. If that is solved, it will enable the brokers to pass on all benefits to clients,” said Sudip Bandyopadhyay, Chairman of Inditrade Capital.

The BSE and the National Stock Exchange (NSE) are the largest stock exchanges in India. To avail themselves of trading limits, stock brokers have to deposit margin money with their clearing corporation. To save on the dual margin money cost, brokers earlier preferred to trade only on a single exchange that had a large pool. But even after allowing interoperability of clearing corporations that enabled brokers to trade on both exchanges via the same margin, some brokers did not change the parameters in their software that pushed trade only on a particular exchange. That will have to change now.

Circular to brokers

The BSE has already told the brokers that it will verify the implementation of the SEBI’s order during its inspection of brokers. In a circular issued to brokers, the BSE said it had received communication from SEBI on June 23, which specifies that brokers should be asked to stick to the ‘best price’ principle only.

“The existing electronic systems or applications, which have been approved by the exchange, are also required to conform to the requirements (of best price) by August 31. Brokers should submit their compliance report to the exchange on the same, which will be submitted to SEBI. Non-compliance will be reported too,” the BSE said.

COMMENT NOW