The National Securities Depository Ltd (NSDL) is all set to gain a higher market share in the business of providing software services for settlement of trade in India’s stock markets. This is after the SEBI on Thursday rejected business permission for 63 moons technologies that held a monopoly in the segment.
So far, NSDL was the distant second and only other player in the segment. NSE IT, the tech arm of the National Stock Exchange (NSE), has a negligible market share.
Vital settlement link
In the technology jargon the software service for trade settlement mainly for institutional players is known as STP (Straight-through Processing) services. It is like providing a software link for settlement of trades between brokers (who mainly act on behalf of institutional traders) and custodians (again acting for institutions) and clearing corporations. When a fund manager trades, he or she may just punch or dictate the trade orders. But, the broker has to deal with the custodian of assets of the institution for other settlement for transfer of funds and shares.
End-to-end processing
STP is a mechanism that automates the end-to-end processing of transactions of the financial instruments. It involves use of a single system to process or control all elements of the work-flow of a financial transaction, including what is commonly known as the Front, Middle, and Back office, and General Ledger. In other words, STP can be defined as electronically capturing and processing transactions in one pass, from the point of first ‘deal’ to final settlement. In terms of money, the STP business is very small and does not have a major impact for large technology companies. But the STP service provider has a lot of clout among institutions since it is a key link without which trading comes to a complete halt. Also, there are only two large STP service providers in India as of now. Simply put, without STP service from either 63 moons or NSDL, both foreign portfolio investors and domestic mutual funds and insurance companies and the likes cannot trade at all.
Nearly three years after 63 moons made an application to SEBI seeking a ‘renewal of permission’ for providing technology related services to brokers and fund houses, the market regulator on Thursday rejected it. SEBI’s reasoning for the move is that the company and its promoters were assessed not ‘fit and profit’ by the erstwhile commodity market regulator Forwards Market Commission in 2013. 63 moons on Friday said that it is challenging the SEBI order in court. In 2018, a clause was inserted in SEBI rule book which said that a STP technology provider has to be a 'fit and proper' person.
63Moons had sought SEBI approval for renewal of its trading technology services are different from this. 63 moons, which was earlier known as Financial Technologies India Ltd, had started providing STP services sometime in 2004 and holds a monopoly in the segment since, with more than 90 per cent market share as per a release by the company.
63 moons is also in the business of providing frontend and backend trading technology for stock brokers and exchanges, but that does not come under SEBI’s jurisdiction.