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Buying shares at a cheap price and selling it at a significantly high price, is the wish that every investor holds. Market regulator Securities and Exchange Board of India (SEBI) is working on a policy to improve the ‘Best Price Execution’ mechanism. In very large transactions, where a single exchange is unable to meet it, there is a thought to merge the order books of two exchanges. Zee Business’ Brajesh Kumar has this exclusive report.
Kumar said that brokers have been pointing out that there are times when stocks are available at cheaper prices at one exchange but there are not enough share available to execute the entire order. To deal with this, SEBI is working on a plan where brokers will be able to buy stocks at lower prices available on any of the exchanges first in whatever quantity they are available. The remaining shares could be brought from the other exchange.
This arrangement will be beneficial for investors, he added.
The regulator is likely to come out with the rules by the end of this month. A decision has to be taken by that time and the board is broadly agreed upon the proposal. But the final rules will be made after that, a source told Zee Business.
However, another market analyst said on the condition of anonymity that ‘the idea of a regulator is good but it will be costly for the brokers as there will be major changes in software etc.’
Another expert on the market is of the opinion that it might be good for some people. But sometimes those who see value in the stock are not bothered much by the small price difference. Similarly, if someone is in need of quick money by selling shares, then perhaps it will be more important for him/her to complete the deal early and not to get the best price.
Many times, a large quantity of shares are found on an exchange but the best price is not available.
While it also happens, that shares are available cheaply from other exchanges, but they are not available in the quantity the investor wants.
However, it has always been the intention of the regulator that if an investor can get a better price for his share, then he/she should definitely get it. And the brokers should give the best price and opportunity.
SEBI has been working for several years to review the existing system of best price execution. But till now the matter had not progressed on this. Now the final rules are expected to come soon after the recommendations of the Working Group come in the stipulated time frame.
Theoretically, best price execution focuses on the price of the share, the cost of purchasing the share, the speed of the transaction, the size of the settlement and the likelihood of the transaction being completed. But sometimes, due to practical difficulties, the best price execution may not yield as much benefit as it is likely to.
How to Understand the Benefits of Best Price Execution
For example – Buy 10,000 shares
Price on Exchange A Rs 112.25
Rate on Exchange B Rs 112.50
Cost on exchange A Rs 11,22,500
Cost on exchange B Rs 11,25,000
Saving Rs 2500
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