Internet Based Trading
Also written IBT · Internet Based Trading (IBT) · Internet-based Online Trading
An order-routing facility, approved exchange-by-exchange, letting a broker route client orders to the exchange trading system over the internet instead of only from an exchange-provided terminal.
In plain language
Not every client can, or wants to, sit at a broker's office terminal to place an order. Internet Based Trading lets a client's order travel from wherever they are, over the internet, to the exchange's trading system.
A broker cannot simply switch this on. It has to seek permission from each exchange it wants to offer the service on, and the exchange checks the broker meets a list of minimum conditions before approving it.
How it works
The workbook (Chapter 8, section 8.8) explains that IBT works through order routing systems, which route client orders to exchange trading systems for execution on the existing exchanges. SEBI-registered brokers can introduce IBT after obtaining permission from the relevant stock exchange, which must grant or reject the application within 7 calendar days of receiving the completed application.
Before granting permission, the exchange checks minimum conditions SEBI sets, including:
- Net worth: the broker needs a minimum net worth of Rs 50 lakh if offering IBT on its own; if several brokers approach a service provider collectively, the exchange sets its own net-worth criteria instead.
- Operational and system requirements: encryption, adequate backup systems, sufficient data-transfer capacity, alternative communication if the internet link fails, and suitably qualified personnel.
- Client-broker relationship: the broker's website must display rules affecting the client-broker relationship, arbitration rules and investor protection rules, with a prominent hyperlink to the relevant exchange's website.
- Risk management, network security and system operations: system-based trading and exposure limits, mandatory user IDs, first-level passwords with automatic expiry, audit trails, secure socket-level security, and firewalls between the trading set-up and the internet.
- Cross trades are not permitted — every order must be offered to the market for matching, exactly as under any other trading channel.
A worked example
A broker with a net worth of Rs 65 lakh wants to launch Internet Based Trading on its own, without pooling resources with other brokers.
It applies to the exchange, meeting the minimum Rs 50 lakh net-worth requirement, submits its system's encryption and backup arrangements for review, and commits to displaying investor protection and arbitration rules on its trading website, along with a hyperlink to the exchange's own site.
The exchange must approve or reject the completed application within 7 calendar days. Once approved, a client logging in over the internet places a buy order; the broker's system routes it to the exchange, and — because cross trades are barred — the order is matched against the wider market, never quietly matched against another client of the same broker.
Why NISM asks about it
Chapter 8 (section 8.8, Internet Based Trading (IBT) and Securities Trading Using Wireless Technology (STWT)) sets out the eligibility conditions and the 7-day approval timeline for IBT, immediately before extending the same framework to STWT. Expect the Rs 50 lakh net worth and 7-calendar-day approval window tested directly.
Common exam traps
- The Rs 50 lakh net-worth requirement applies when a broker offers IBT on its own — brokers pooling resources through a shared service provider instead follow the exchange's own criteria.
- The exchange has 7 calendar days to approve or reject a completed application — not 7 working days.
- Cross trades are never allowed under IBT — every client order must still be offered to the market, exactly as under any other channel.
- IBT eligibility is the gateway to Securities Trading using Wireless Technology — a broker cannot offer STWT without already being eligible to provide IBT.
Check yourself
1.The minimum net worth for a broker providing Internet Based Trading on his own is:
- a)₹10 lakh
- b)₹50 lakh
- c)₹3 crore
- d)₹5 crore
Show the answer
Answer: (b) ₹50 lakh
The broker must have a minimum net worth of ₹50 lacs if the broker is providing the Internet based facility on his own. However, if some brokers collectively approach a service provider for providing the internet based trading facility, net worth criteria as stipulated by the stock exchange will apply.
And permission is required: SEBI Registered Brokers can introduce this service after obtaining permission from respective Stock Exchanges. The stock exchange should grant approval or reject the application as the case may be and communicate its decision to the member within 7 calendar days of the date of completed application submitted to the exchange.
IBT permission carries wireless with it: SEBI registered brokers who provide Internet Based Trading shall be eligible to provide securities trading using wireless technology. All relevant requirements applicable to internet based trading shall also be applicable to securities trading using wireless technology. STWT shall include devices such as mobile phone, laptop with data card, etc., that use Internet Protocol.
Do not confuse the figure with ₹3 crore for margin trading or ₹5 crore for a portfolio manager.
2.A SEBI-registered broker applies to a stock exchange for permission to offer Internet Based Trading. Within what time must the exchange communicate its decision?
- a)Within 30 days of the application
- b)Within 21 calendar days of the application
- c)Within 7 calendar days of the date of the completed application
- d)No time limit is prescribed
Show the answer
Answer: (c) Within 7 calendar days of the date of the completed application
The workbook: “SEBI Registered Brokers can introduce this service after obtaining permission from respective Stock Exchanges. The stock exchange should grant approval or reject the application as the case may be and communicate its decision to the member within 7 calendar days of the date of completed application submitted to the exchange.”
Also: “SEBI registered brokers who provide Internet Based Trading shall be eligible to provide securities trading using wireless technology”, and all IBT requirements apply to STWT too.
Why the others are wrong:
- 30 days — not the figure.
- 21 calendar days — the timeline for investor grievance redressal, not IBT approval.
- No time limit — a 7 calendar day limit is prescribed.
3.Which brokers are eligible to provide the margin trading facility?
- a)Any registered broker with net worth of ₹50 lakh
- b)Only corporate brokers with net worth of at least ₹3 crore
- c)Only individual brokers with net worth of at least ₹1 crore
- d)Any broker, with no net worth condition
Show the answer
Answer: (b) Only corporate brokers with net worth of at least ₹3 crore
Only corporate brokers with net worth of at least ₹3 crore are eligible for providing margin trading facility to their clients.
Both limbs matter — the corporate form and the ₹3 crore figure.
And permission is also required: the stock brokers wishing to extend margin trading facility to their clients shall be required to obtain prior permission from the exchange where the margin trading facility is proposed to be offered. The exchange shall have right to withdraw this permission at a later date, after giving reasons for the same.
Do not confuse this with the other net worth figures in the chapter. ₹50 lakh is the requirement for Internet Based Trading, where the broker must have a minimum net worth of ₹50 lacs if the broker is providing the Internet based facility on his own. And a portfolio manager needs net worth not less than five crore rupees.
Those three figures — ₹3 crore, ₹5 crore, ₹50 lakh — are the most commonly confused numbers in this chapter, and with 25% negative marking they are worth memorising precisely rather than approximately.
Where this is taught
Free preparation for NISM Series VIIRelated terms
- Algorithmic tradingAny order generated by automated execution logic rather than typed in by a person — software that pushes buy and sell orders into the exchange once its parameters are met.
- Direct Market AccessA facility, introduced by SEBI in 2008 for institutional investors, that lets a client send orders straight into the exchange trading system through the broker's infrastructure without manual intervention by the broker.
- Securities Trading using Wireless TechnologyTrading through internet-protocol devices such as mobile phones or laptops with a data card, available only to brokers already eligible for Internet Based Trading and governed by the same conditions.
- Trader WorkstationThe terminal through which a trading member logs in to the exchange's trading system to enter orders and view its own orders, trades and market information.