MARKET INTEGRATION THROUGH CROSS MARKET INTEGRATION THROUGH CROSS BORDER TRADING USING INTERNETBORDER TRADING USING INTERNET

INTRODUCTION STOCK EXCHANGE OF MAURITIUS--- INTERNET

BASED TRADING SYSTEM (I-NET) PROPOSED MODEL ESSENTIAL SET UP AND REQUIREMENTS COSTS AND BENEFITS CONCLUSION

STOCK EXCHANGE OF MAURITIUSSTOCK EXCHANGE OF MAURITIUSI-NET TRADING SYSTEMI-NET TRADING SYSTEM

(a)(a) OPERATIONAL FLOW- OPERATIONAL FLOW-Opening of CDS Opening of CDS Securities Account/ I-NET TradingSecurities Account/ I-NET Trading

b)b) OPERATIONAL FLOW - OPERATIONAL FLOW - Placing of Orders/ Placing of Orders/ Order MatchingOrder Matching

((c)c) OPERATIONAL FLOW – OPERATIONAL FLOW – Clearing & SettlementClearing & Settlement

MODEL-CROSS BORDER TRADINGMODEL-CROSS BORDER TRADING

Extended I-NET System- The INET system described focused on one Exchange only Key Features of the Model - involving 2 exchanges in 2 countries (include) Main players are Exchanges and Brokers of the respective countries Investor-Broker relationship for opening of securities account and placing of orders & settlement. Agreement between Brokers for cross border trading and clearing and settlement Involvement of Exchanges in terms of provision of internet trading facilities through automated

trading system and market information through web sites.

OPERATIONAL FLOW OF THE MODELOPERATIONAL FLOW OF THE MODEL

(i)(i) OPERATIONAL FLOW OPERATIONAL FLOW- - Opening of Securities Opening of Securities AccountAccount

(ii)(ii) OPERATIONAL FLOW- OPERATIONAL FLOW- Application for I-Net Application for I-Net FacilitiesFacilities

((iii)iii) OPERATIONAL FLOW- OPERATIONAL FLOW- Placing of orders Placing of orders and Order Matchingand Order Matching

(iv)(iv) OPERATIONAL FLOW- OPERATIONAL FLOW- Clearing & Clearing & SettlementSettlement

MODEL– INVOLVING 3 EXCHANGESMODEL– INVOLVING 3 EXCHANGES

SET UP AND REQUIREMENTS OF THE SET UP AND REQUIREMENTS OF THE MODEL MODEL (include)(include)

Automated Trading and Central Depository Systems in operation at different Exchanges. Trading systems should have facilities to carry out transactions through internet.

Close and full involvement of Exchanges by signing MOUs in respect of cross border trading. Exchanges to have updated web sites so that both Brokers and Investors of different countries can easily access.

Broker to Broker Agreement in respect of trading, clearing and settlement operations.

Currencies fully convertible No exchange control Easy access to internet and communication facilities between

countries. User friendly websites of Exchanges and Brokers. Training of Brokers involved in cross border trading in respect of legal

requirements and operational aspects of different Exchanges.

COSTSCOSTS

The costs for the implementation of the proposed Model of Cross Border Trading will be at two levels: the Stock Exchanges and the Brokers. For the Exchange not having the infrastructure, it will be an investment in modernizing their infrastructure (ATS, CDS and Internet based trading facilities) and stock market operations. On the other hand they will benefit from increased volume of transactions and wider shareholder & investor base. Brokers will also increase their turnover through increased volume of transactions.

Transactions costs will be born by investors. The income from transaction fees to be shared between the partner Brokers of the different Exchanges based on an agreement between them. As incentive, to encourage Cross Border Trading the Exchanges could share a percentage of their income from cross border transactions with Brokers involved in the trades. The money to be shared between the partner Brokers of different countries.

BENEFITS BENEFITS ( include)

 No need to have harmonized trading & settlement Rules, Regulations and Operational Procedures. Also, no need to change existing ones. Each Exchange will maintain its own Rules, Regulations and Procedures. Brokers will act as advisors and facilitators to their local clients and carry out transactions on the different Exchanges.

It will be an Exchange to Exchange, Broker to Broker involvement based on stock market and financial market development needs.

Investors will have access to a broader range of securities for investment purposes. It will broaden the shareholder and investor base in the respective countries

involved in Cross Border Trading. It will increase liquidity on the market. Create understanding and motivation for Exchanges to move towards

harmonization of market operations, rules, regulations and procedures in the long term.

Create the required set up for exchange and sharing of market information and help to establish a market information network.

Boost access to capital by indigenous companies for development purposes. Accelerate financial markets development and improve the investment environment

at national level.

CONCLUSIONCONCLUSION

Cross Boarder Trading through Internet is a mean and is an initial process to achieve market integration in the long run. Its implementation will not disturb existing market practices, rules, regulations and procedures. It does not require significant investment by Brokers and Exchanges having ATS, CDS and I-NET systems. It requires agreement between the parties involved in the process: Stock Exchanges and Brokers; and setting up of appropriate training and educational programs.

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