ONLINE TRADING INFRASTRUCTURE The emergence of online exchanges has facilitated faster transactions by providing online trading portals

and brokerage houses ease and flexibility. The Internet has indeed opened up newopportunities for conducting the business. The worldwide stock exchanges has made a major shiftfrom the traditional method of trading and now conduct a bulk of its business online through its brokers and partners. In the developed countries majorly all the exchange transactions areconducted online. The trend took off slowly in India and the National Stock Exchange (NSE) andthe Bombay Stock Exchange (BSE) two of the largest exchanges in India have been conductingonline trade successfully for some time. WHY ONLINE TRADING ENTERED LATE IN INDIA? The Indian exchanges and brokering houses have been very slow in moving their transactionsonline and the major reason has been the lot government regulations. The initial delay was due tolaying down the specifications for creating Closed User Groups (CUGs). This issue was resolved between the Department of Telecommunications (DoT) and the Finance Ministry around 1998 andafter that soon came the online trading portals like ICICIDirect.com, motilaloswal.com,sharekhan.com and smartjones.com. Connectivity related issue was perhaps the most importanttechnological factor. Traditionally the cost of leased lines and VSAT links has been very high andthe reliability of the links was very low. To commission the links it took a long time as one had tomake an application and wait for a few weeks for the link to be up and running. Many other issueslike security, backup and recovery procedural costs also acted as deterrents in the process. Nowwith the resolution of regulatory issues India no longer have any pressing connectivity and bandwidth issues. The entry of private players into the broadband scenario and the governmentopening up the telecom sector these issues have become almost non-existent. Security solutions andservices available in the market have matured and it doesn't cost a pretty packet anymore to put asimple backup solution in place.Through online trading everyday large volumes of data is being transacted. At BSE the averagedaily turnover in 2001-2002 (April-March) was Rs 1244.10 crore and the number of average dailytrades was Rs 5.17 lakh.To control Online Trading RBI made regulations making it mandatory for companies to store atleast 7 years of transactional and financial data.1.Design needs to be always-on, secure, redundant, and have adequate backup and recovery processes.2.For such high amounts of critical data it's natural to deploy network-based storage like NASor SAN.3.Security is a vital and integral part of the design architecture. The hardware and softwareelements should be built around layered security architecture and should be held in placewith a well-documented security policy.4.Ideally online exchanges should have 'five-nines' availability.5.It's difficult to deploy out-of-thebox applications at exchanges as each has a uniquearchitecture based on factors like operations flow, trading volumes, number of members,number of users, and number of locations. NSE has deployed NIBIS (NSE's Internet Based Information System) for real-timedissemination of trading information over the Internet and NEAT a client-server-basedapplication to help its operations.7.BSE has deployed an OnLine Trading system (BOLT) on a Tandem platform which has atwo-tier architecture. It claims to be able to support up to 2 million trades a day.

INDIAN EXCHANGES: NSE and BSE The NSE and BSE are among the largest exchanges in the country handling very large daily tradingvolumes, support large amounts of data traffic, and have a very large nationwide network.Thetrading volume in year 2000 was huge with the average daily turnover in the capital marketssegment at NSE is around Rs 2300 crore and in the derivatives segment, around Rs 1300 crore. Theaverage daily traffic volume was around one million trades per day in the capital markets segmentand around 50,000 trades per day in the derivatives segment and there were around 13,000registered users in both segments and an average of around 9500 users is logged in at a time.AtBSE the average daily turnover in 2001-2002 (April-March) was Rs 1244.10 crore and the number of average daily trades was Rs 5.17 lakh. THE NETWORK DESIGN Any online exchange should always be-on, safe, secure, redundant and should have adequate backup & recovery processes. The Vice President of NSE-IT G.M Shenoy tells that the basic designobjective of NSE was to provide fair, equal and transparent access across all NSE nationwidelocations and to provide connectivity to the trading members as soon as possible.The telecom sector is fairly liberal nowadays but way back in 1993 the technology was maturingand was very costly. The cost of lease lines was almost ten times as much as it is today. Satellitetechnology was a boon since it allowed quicker deployment than leased lines. Today NSE has thecountry's largest VSAT network with over 3000 VSATs and expects to grow to more than 4000VSATs very soon. NETWORK ELEMENTS When there are massive trading volumes and traffic bulk it makes one tensed even to think of theexpected losses in case of a ten minute downtime when daily trade crosses Rs 3000 crore. Network elements like security, storage, backup and recovery processes, availability and other differentapplications are to be planned carefully and commissioned. Also the RBI regulations to store atleast 7 years of transactional and financial data has to be followed and to store such high amountsof critical data it's natural to deploy network-based storage like NAS or SAN. NSE is implementinga SAN as it feels that its data volumes have grown widely.Security is a vital and integral part of thedesign architecture and the hardware and software elements should be built with layered securityarchitecture around and it should also be held in place with a well-documented security policy.According to Shenoy the security is the most crucial element in the network and at NSE allapplications have been built with a conscious approach towards security. All the security policiesare tightly integrated and regularly scrutinized thus not providing any room to compromise with.Also all the applications and OSs are hardened time to time for safety.The The Backup and recovery has emerged as one of the most important and vital aspects of businesscontinuity. When online exchanges were designed earlier a lot of emphasis was perhaps not placedon this aspect as it is done nowadays. However it's not difficult to add continuity processes to a programme which is existing. Shenoy said that a terrestrial-based trading network was deployed asa backup to NSE VSAT network in the middle of 2000 and it have more than 850 leased linesconnecting to

different locations in India. NSE is the only stock exchange in the country which hasa fully-redundant business continuity site in Chennai Availability : Ideally online exchanges should have 'five-nines' availability. Exchanges usually likesto host its infrastructure in-house and not use the services of an external or other data center. NSE claims to achieve uptime greater than 99.9% which is mostly due to internally formulated procedures and continuous review of SLAs with hardware vendors Applications: It is tough to deploy out-of-the-box applications at exchanges as each has a uniquearchitecture based on factors like operations flow, number of members, trading volumes, number of users and number of locations. The applications like trading, surveillance, index computation,listing, membership, clearing, risk-management and accounts may be developed in-house or byexternal software developers.There are two popular types of architectures-1. NSE architecture2. BSE architectureThese both exchanges keep on updating and upgrading their technology systems to keep deliveringaccording to commitments and promises made to its members, partners and customers. NEAT-THE NSE ARCHITECTURE NSE has deployed NIBIS (NSE's Internet Based Information System) for real-time dissemination itof trading information over the Internet and NEAT a client-server-based application to help itsoperations. All the trading information is stored in NEAT an in-memory database at the server endfor achieving minimum response time and maximum system availability for users. The tradingserver software runs on a fault-tolerant STRATUS mainframe and the client software runs onWindows PCs. The telecommunications network uses the X.25 protocol and is the backbone of theautomated trading system. Each trading member trades on the NSE with other members through aPC located in the trading member's office. The trading members on the Wholesale Debt Marketsegment are linked to the central computer at the NSE through dedicated 64 Kbps leased lines andVSAT terminals. These leased lines are multiplexed using dedicated 2 MB optical-fiber links. TheWDM participants connect to the trading system through dial-up links. The exchange uses RISC- based Unix servers from Digital and HP for backoffice processing. Applications like Oracle 7 andSQL/Oracle Forms 4.5 front ends are used for the exchange functions. BOLT-THE BSE ARCHITECTURE BSE has deployed an OnLine Trading system (BOLT) on March 14, 1995. It works on a TandemS74016 platform running on 16 CPUs. The Tandem Himalaya S74016 machines act as the backendto more than 8000 Trader Workstations networked on Ethernet, VSAT and Managed Leased Data Network (MLDN). The systems claim to handle up to two million trades a day. BOLT has a two-tier architecture. The trader workstations are connected directly to the backend server which acts asa communication server and a Central Trading Engine (CTE). Other services like informationdissemination, index computation, and position monitoring are also provided by the system. Atransaction monitoring facility in the Tandem architecture helps keep data integrity through non-stop SQL. With the help of MTNL, BSE has setup a

MLDN Network comprising 300 2 Mbps linesand 1500 64 Kbps lines which connect all regional stock exchanges and offices in Mumbai. Accessto market related information through the trader workstations is essential for the market participantsto act on real-time basis and take instantaneous decisions. BOLT has been interfaced with variousinformation vendors like Bloomberg, Bridge, and Reuters. Market information is fed to newsagencies in real time. The exchange plans to enhance the capabilities further to have an integratedtwo-way information flow ISSUES IN SELECTION OF AN E-BROKER Individual investors compare the brokerage provided by various online traders. Brokerage can be akey differentiator among different schemes offered by e-brokers in the present competitive market place. For example icicidirect.com was the first to enter into e-broking and charges the highest brokerage (for delivery transactions) at 0.85 per cent per trade as compared to InvestSmart whichcharges 0.75 per cent. Other competitors like 5Paisa.com, Sharekhan and Kotakstreet.com charges0.25 per cent of the transaction value for delivery-based trades. The pattern of entry into e-brokingshows that ``brokerage and associated costs'' can be the differentiators only for a timewhile.ICICIdirect.com as the first entrant, has touted itself as the first integrated e-broking service provider in the market. Although it charges high brokerage charges than its competitors it has positioned itself as the only player to have online broking, banking and depository interface in onemodule to offer a fully integrated online trading experience. Sharekhan, tried to overcomeicicidirect.com by introducing a flat fee product of Rs. 1,000 per month. This innovation helpedSharekhan to get the investors who traded heavily and had not to worry about paying heavy brokerage .But the next launch in e-trading halved the flat fee to Rs 500 and got an edge over Sharekhan. It also allowed short sales and offered clients the option of trading against securities upto three times sales marked for delivery providing for exposure.Thus innovation provides limited scope for it is a matter of time before almost all the schemes offer more or less identical features. All it depends is on the client's risk profile, preferences andrequirements and each client may have to choose the different schemes.Online trading is still at infant stage and all the major players which have set up ebroking outfitsaim to achieve two objectives-1.To broadbase the overall trading of investors, while holding their existing clientele intact.2.Most settled e-broking players like ICICIdirect.com, InvestSmart and Kotakstreet.com areusing their brick-and-mortar presence to encourage investors to go online.The investors are being assured if due to any reasons like poor connectivity or Internet infrastructure and thateven if the Internet order-routing system breaks down or investor access is broken for anyreason, online registered investors can have the option of putting through their ordersoffline.As this combination is still a new concept, most investors will be better off clarifying how theoffline environment will operate, if the online environment fails for any reason. For the investor,the important thing is to ensure that this switch from online to offline is seamless and that there areno associated hidden costs.From the opinion of an investor viewpoint the click-and-mortar approach to investing may be the best bet till the online trading market matures in terms of technology, infrastructure and service to become a self-sustaining business proposition. The brick-and-mortar brokerage outfit is likely tosubsidise the investment in online trading technologies and further in the ongoing/recurring costs.Unless the share of online trading volumes increase dramatically to 10-15 per cent of the totaltrading volumes the traditional brick-and-mortar outfits will continue to dominate the market..The

investor checklist is mainly a trendspotter's guide to the selection of an e-broker. With mostonline trading outfits still forging agreements with payment gateways for online banking and withdepository participants for online demat, it may be too early to differentiate the grain from the chaff among ebrokers. But the investors' checklist still looks at aspects that are expected to acquire prominence as online trading catches on the pedigree of the e-broker plays a great role as to decide the serious players. Going forward,consolidation is inevitable even in this industry and when that happens, online trading sites such asicicidirect.com, Sharekhan, Geogit securities, InvestSmart and Kotakstreet.com with a goodreputation have a much better chance of survival and growth than the stand-alone sites such as5paisa.com and Indiabulls. Technology and backoffice infrastructure used by these online companies may prove to a burden inthe long run. It is good for medium to term investors looking at online trading from a perspective,sites with deep pockets and a pedigree will be a good choice.With the consolidation in the industry and standardization of technology the quality of service becomes the key differentiator. In the initial stage from investors viewpoint holding at least twoonline trading accounts with two different outfits will be good in the long run which helps in theevaluation of the quality of service and security-related issues of the two companies. So investor can switch to the better player according to his comfort level..The integrated package provided initially by ICICIdirect.com offered a seamless 3-in-1 package of broking, banking and demat accounts. This helped in reduction of the paperwork and time involvedin settlements and transfer of shares or money. Although other players also started it but it gave aheadstart to ICICIDirect..Currently ICICIDirect offers online trading services only to investors who have a bank or a demataccount with ICICI bank and same is the case with Kotakstreet having a dmat a/c with Kotak securities and should have a bank account either with Citibank, HDFC Bank or Global Trust Bank

ADVANTAGES OF ONLINE TRADING: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Provides with the Freedom of Information Provides Control to Investors Money Provides access to the market Ensures the best price for investors Online trading offers greater transparency Provides hassle free trading Online trading allows instant trade execution It provides a level playing field Online trading reduces the settlement risk Provides live financial news & analysis Online help desk Instant order trade confirmations Keeps Information Secure

DISADVANTAGES OF ONLINE TRADING 1. In online terminal, investor cant get customized expert advice, whereas in offline the broker gives suggestions according to investors strategy (i.e. short term or long-term) 2. Brokerage is high compared to offline. 3. Privacy is less due to hacking scandals 4 .Transactional errors due to technical problems