Smart New Trading Tool

Newly-introduced software provides instant information on the price of shares

across Bourses.

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 make
effort. Now, both exchanges have introduced technology called smart order routing
or SOR, which allows the investor to do just that without brokers playing any role.
Credit Sussie Company 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 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 computerized
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 time
consuming 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.4 lakh, while the software cost comes for Rs.8000 to Rs.10000for a terminal
each month.

And its limitations

SOR will be used mostly by High Net worth Clients, High net
Investors, Foreign institutional investors and domestic institutional investors. Day
traders and futures and options, investors may stay away. Says vinay Agarwal,
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 services