‘Connectivity holds the key’

ICICIdirect.com was the first amongst e-trading sites which introduced integrated seamless operations for on-line trading and banking in the country. The company has capitalised on its banking arm and depository participant (DP) to be a part of this venture. The initial response from Indian investors is mind-boggling. Capital Market’s Anurag Singhai spoke to Anup Bagchi, chief operating officer, ICICIdirect.com, to discuss a host of issues pertaining to e-trading. Excerpts.

It’s almost eight months since e-trading has become a reality in the Indian markets. How far do you think it can deliver its basic purpose?
On-line trading has been able to deliver its purpose. In India net trading has picked up as the IT/telecom infrastructure continues to and can play a significant role in expanding the coverage throughout the country.

Net-trading has a lot to do with response time and the bandwidth that is made available. Due to the absence of a widespread high bandwidth telecom infrastructure, geographical expansion will take time. Hence, the trading experience will be constrained in areas where the connectivity and bandwidth are not up to the required demand.

For example ICICIDirect offers services in 35 cities now and the biggest benefit is that it should be possible to trade through all the cities making Net trading geographically independent. It is because of the seamlessness that ICICIDirect has been able to cater to 35 cities in the country.

What are the advantages and disadvantages (to both investors & brokers) of Net trading vis-à-vis traditional trading ?
We have already discussed the advantages of on-line trading including the advantage of geographical independence. One big drawback of Net trading is that you don’t have personal or physical interface with the broker or advisor. This could be very good for those who take their own decisions and are self-directed traders. If, however, somebody is not so, then Net trading is only an enabler and not the sole medium for decision-making for on-line trading.

The market will gradually evolve into two segments, where there will be self-directed traders and those who seek advice for making their investment decisions. The latter set will prefer to speak to the broker, get his advice and then trade through certain channels. So both have to co-exist, as is the case in almost all the mature markets. Net trading will pick up in India very fast.

Do you think security checks and the infrastructure in India are conducive to allow on-line trading? Is it too early to start on-line trading in India as the cyber laws have just been enacted?
Technology-wise, we are superior. We offer the highest commercially available security as of date.

As far as cyber laws are concerned, there needs to be clarity about the concept and enforcement of digital signatures, differing technologies and standardisation of these technologies for a seamless experience for the customer. For example, today, one has to physically sign a form before he can make a start. Improved telecom infrastructure and payment gateways across a wide network of different banks will make on-line trading more appealing to a wider market of investors/businesses. Our telecom infrastructure is definitely improving and hence this an opportune time that we have gone on-line for trading.

When did you launch e-trading? How many active clients do you have at present?
ICICIDirect commenced services on 17 Apr. 2000. It is and remains the first to offer integrated services of banking, depository services and e-broking, all on-line right from day one seamlessly. All the settlements are paperless, ie, when the customer buys or sells, on the settlement date, it is electronically debited or credited and the customer need not sign any paper at all.

ICICIDirect offers the highest level of security, ie, SSL with 128-bit encryption. The success of the launch has surpassed our initial expectations. On-line trading on ICICIDirect has appealed to all income levels. There are customers who also go to cyber cafés to trade through ICICIDirect. Every day we are adding more and more customers.

What is the marketing strategy that ICICIDirect intends to adopt in the competitive scenario?
The marketing strategy should be such that people are made aware of the of advantages of on-line trading. The other important thing is customer service. If you ask me as to what ICICIDirect is doing in customer service, I would put it succinctly as the ease of allowing trading, back-office operations and seamless connectivity to the bank and the DP.

We are going to launch margin trading soon. As margin trading has an inherent element of risk, our risk mitigation process needs to be fairly automated to handle a large number of transactions. One large customer’s risky position should not affect other smaller customers. Ultimately, the exchange holds the broker responsible for proper risk management. A broker then has to manage all the risk for the clients and that has to be done properly.

Can you pinpoint a few common practical problems your clients have faced while trading on-line?
Only connectivity issues, which is basically a function of the telecom infrastructure. But we have parallel off - line trading arrangements. More dispersed services are bound to be affected with connectivity problems which is no exception even for most western countries.

Do you think Net trading encourages speculation and day trading? Stock prices may reflect greed and avarice rather than economic and industry fundamentals...
With on-line trading, definitely the market will expand once people are accustomed to the concept and understand the convenience of the same. With that, the trading behavior will undergo a change.

People, who trade may be once a month, will start trading four times a month. So surely the number of trades will increase gradually. Speculative trading is an inherent characteristic in any market including the Indian stock markets. It is the nature of most markets, take forex, commodity or any other market. Speculation is a part of them. Now the time has come when speculators also need to be categorized into different sets of people. So long as speculation provides liquidity to the markets it is desirable and leads to a healthy market. Currently, more than 82% of the volumes on the exchanges is non-delivery based trading. On-line trading facilitates hassle free trading. Investors might trade more frequently as their perceptions of a cumbersome share trading is slowly dispelled by the advantages of on-line trading.

What more do you except from the regulatory bodies in order to penetrate large investor masses for on-line trading?
Our regulators are fairly pro-active. What the industry needs most is to come out with best practices about the on-line trading service. The trading side can be divided into three, viz. commerce, content and community. When I say community, I mean chat, bulletin boards, etc. In the US, there has been a tendency to spread rumors, etc. over the bulletin boards, which affect gullible on-line investors. So clear guidelines for such media are very important for a healthy market.

The second part is content. Every site should have responsible and reliable content. Regulators should also ask for periodic undertakings from the on-line trading providers that they are following the best practices. The third part is commerce where our regulators are fairly clear. It is only the content and community where I think Sebi is taking steps to look into these matters.

What are the prospects for traditional broking firms? What strategies should they need to adopt to survive the onslaught of the online trading?
The future of off-line brokers is equally bright. It may be a contrarian opinion of mine. However, they need to improve on customer service with regard to timely dissemination of relevant information and access to all customers. Currently, the issue of off-line brokers is that the customer has to virtually run a parallel back office at his home to maintain delivery status, TIFDs, cheques, etc. This service is normally provided by any quality conscious and customer driven off-line broker. Off-line brokers do have one advantage as their service offers a more personal trading experience, which gives them edge over on-line broking.