Automatic broker system - Ideas and suggestions I just created in head when traveling in public transport

General
1

Area 1 - Mutual Funds

This will make payin and payout automatic and brokers need to focus on better services and platform to customers.

This is an interesting concept that leverages existing infrastructure for more efficient mutual fund transactions. Here’s a breakdown of your idea and some potential considerations:

Your Idea:

  • Centralized Clearing: propose utilizing the existing Clearing Corporation (CC) for all mutual fund transactions. This leverages the existing infrastructure for settlement and risk management.
  • Automated Workflow:
    1. Order Placement: When a mutual fund unit is redeemed on a platform like Zerodha Coin, the platform ZERODHA sends an API to BSE STAR MF after doing necessary RMS and accepting the request.BSE STAR MF will send an auto payin API to CDSL.
    2. Holding Verification: CDSL validates the investor’s holdings in their demat account.
    3. Automated Pay-in: CDSL sends an automated pay-in initialisation API to Zerodha’s Depository Participant (DP).
    4. RMS and Confirmation: Zerodha acknowledges APIs and instructions from cdsl.
    5. Unit Blocking: Units are blocked in favor of the CC using cdsl block mechanism.
    6. Automated Debit and Settlement: CC automatically debits the units by EOD and settles the transaction x days.
    7. Confirmation to Platforms: Both CDSL and BSE Star MF send pay-in confirmation APIs to the DP. BSE STAR mf will send Status APIs time to time.

Potential Benefits:

  • Reduced Broker Operations: Automating the process significantly reduces manual intervention for brokers, streamlining operations and potentially lowering costs.
  • Increased Efficiency: The automated workflow can lead to faster transaction processing and settlement times.
  • Enhanced Security: Centralized clearing and automated processes can potentially reduce the risk of errors and fraud.
  • Improved Transparency: The system could provide greater transparency into the transaction process for both investors and market participants.

Potential Considerations:

  • Integration Challenges: Integrating multiple systems (BSE MF, CDSL, CC, broker platforms) seamlessly can be complex and may require significant development and testing.
  • Data Security and Privacy: Ensuring the secure and confidential handling of investor data across multiple platforms is crucial.
  • System Reliability: The system’s reliability and uptime are critical to ensure smooth and uninterrupted transactions. Any system failures or delays could have significant market impact.
  • Regulatory and Compliance: The proposed system would need to comply with all relevant regulations and guidelines from SEBI, RBI, and other regulatory bodies.
  • Investor Education: Investors may need to be educated about the new process and its implications.

Overall:

Your idea has the potential to significantly improve the efficiency and security of mutual fund transactions. However, careful planning, development, and testing are essential to ensure a smooth and successful implementation. It would also be crucial to address the potential challenges and ensure compliance with all relevant regulations.

I hope this analysis is helpful!

These are excellent suggestions for enhancing the mutual fund transaction experience and improving investor convenience and compliance. Here’s a breakdown of the proposed new features and compliances:

New Features:

  • Instant Auto Pay-in/Debit:

    • Benefit: Enables near-instantaneous withdrawals for liquid funds and overnight funds, improving liquidity and investor access to funds.
    • Implementation: Leverage the existing automated workflow and integrate with real-time payment systems to facilitate faster settlements.

  • SWP/STP on BSE Star MF End:

    • Benefit: Provides a centralized platform for managing Systematic Withdrawal Plans (SWP) and Systematic Transfer Plans (STP) within BSE Star MF.
    • Implementation: Integrate the SWP/STP functionality within the BSE Star MF platform, allowing investors to easily set up and manage these plans directly.

New Compliance:

  • BSE Star MF Transaction Notifications:

    • Benefit: Enhanced transparency and communication with investors.
    • Implementation: BSE Star MF should send email and SMS notifications to investors for all mutual fund transactions, along with transaction reports.

  • AMC Transaction Notifications:

    • Benefit: Reinforces investor awareness and provides a direct communication channel from AMCs.
    • Implementation: AMCs should continue their existing compliance measures and additionally send email and SMS notifications to investors with transaction details and folio reports.

  • BSE Star MF Consolidated Reports:

    • Benefit: Improved data accessibility and reporting for investors and brokers.
    • Implementation: BSE Star MF should provide consolidated reports (weekly, fortnightly, monthly, quarterly, half-yearly, yearly) on all transactions, holdings, and folios. Brokers can access these reports via APIs and customize them for their clients.

Key Considerations:

  • Technical Integration: Ensure seamless integration between BSE Star MF, CDSL, CC, broker platforms, and payment gateways for smooth and efficient execution of instant transactions and automated workflows.
  • Data Security: Prioritize robust data security measures to protect investor information across all platforms and during data transmission.
  • Regulatory Compliance: Ensure all new features and processes comply with relevant SEBI regulations, KYC/AML guidelines, and data privacy laws.
  • User Experience: Design user-friendly interfaces for investors to easily access and manage their investments, including setting up SWP/STP and accessing transaction reports.
  • Testing and Pilot Programs: Conduct thorough testing and pilot programs to identify and address any potential issues before full-scale implementation.

By implementing these enhancements, the Indian mutual fund industry can significantly improve investor experience, enhance operational efficiency, and strengthen compliance frameworks.

Disclaimer: This analysis is for informational purposes only and does not constitute financial or investment advice. The actual implementation of these suggestions would require careful planning, development, and regulatory approvals.

Note- Used AI to improve grammar and spelling correction

Long back I randomly sent an email to sebi on direct payout of mutual funds and securities in 2020. Happy that’s it’s implemented.

@nithin @Neelesh

2

STILL IN DRAFTING AND SORRY FOR BAD ENGLISH.

Area 2 - Client Account opening and modification, more efficient.

ALL EXCHANGES, Depository, CLEARING CORPORATION WILL CONNECT THEMSELVES THROUGH THEMSELVES, THIS WILL CREATE COMMON CLIENT ACCOUNT CREATION AND UPDATE UNIFORM PROCESS THROUGH APIs
THE API FILE WILL HAVE
PART 0- MARKET PARTICIPANT DETAILS. EXCHANGES, DEPOSITORY, CLEARING CORPORATION TO BE ENABLED.
PART 1- CLIENT DETAILS AND KRA , AND UCC
PART 2- EXCHANGE REQUIRED DETAILS INCLUDING SEGMENT DETAILS.
PART 3- ALL DETAILS NECESSARY FOR DEPOSTROY
PART 4- ALL DETAILS NECESSARY FOR CLEARING CORPORATION
PART 5- ANY OTHER
(IF NY PART IS NOT NEED, THEN PART SHOULD BE DISABLED IN PART 0)

For this, KRA is nodal agency for everything
Bank Account - NPCI recently building system to verify beneficiary can be used.
Digi Locker - to securely fetch all documents.

I think this is one way
KRA will store
Full Name( AADHAAR) , PAN full name, Gender , DoD, Father Name, Mother Name, Spouse Name(one is mandatory and rest is option, but if aadhar and pan have different, then both will captured)
Income Range and Employment
Permanent address and residential address

Change’s and taken from
Full name- based on aadhar and changed as per aadhar
Pan full name or ITR name - as per pan
Gender and dob, both pan and aadhar same.
Father Name, Mother Name, Spouse Name as per pan or aadhar or both
Rest as per legal documents.
Email and phone no

Steps of client registration online-

  1. Basic details, then email and mobile no verification through otp and sebi compliance of phone no and email.
  2. Use digilocker to verify aadhar and pan, then send an API to kra to get user details.
  3. Here is my part,
    A) user can go with same KRA details with no changes and open account.
    B) user needs to change few details or update kra
    Step 1-
    Aadhar full name and pan name, gender , DOB will auto fetched from digilocker and automatically auto update in kra if kra details is different from digilocker given aadhar and pan details.
    ( These changes will be updated throughout all brokers, Mutual funds client is in)

Step 2-
Rest, permanent address address can be auto fetched from any legal documents through digi locker.
Income details through bank statements, auto fetch using AA framework, connect with ITD for ITR or others. And occupation, enter manually

These changes will be updated throughout all brokers , mutual funds automatically through kra sending updation APIs request to Market participants.

Step 3-
Residential address through digilocker using legal documents. email, phone no verify through otp.
Now,
No change in KRA - this phone no and email or residential address is only for zerodha.
Good because I may have no of residence, phoneno or e-mails.
Change in KRA - throughout or across all participants
Partial change in KRA- two options
Can select of changes need across all participants of that segment, say all participants of stock brokers, all mutual funds, PMS ,AMF etc etc
Or other is we can select where changes is needed. Like zerodha, hdfc Mutual funds, zerodha mutual funds etc.
4. Zerodha will capture bank details of user, through kra, npci will do beneficiary verification and send api back to zerodha, better and less costly than Penny drop. AA or manual entering of bank details can be used.
5. All details will be sent to KRA to verification , KRA will do authentication digilocker and other’s. After verification, KRA will send api of confirmation to zerodha, and also send APIs to other participants where details should be changed and will continue to be in contact until all details in changed
6. Zerodha after getting KRA will start API process to exchanges, Demat and clearing. ( Here is my process)
ALL EXCHANGES, DEPOSITORYS, CLEARING CORPORATION WILL CONNECT THEMSELVES THROUGH THEMSELVES, THIS WILL CREATE COMMON CLIENT ACCOUNT CREATION AND UPDATE UNIFORM PROCESS THROUGH APIs

zerodha will send api to to nodal point which can be any one exchange or depository, can any be used anytime as nodal.
Let’s take cdsl for now
Step 1 - CDSL will do authentication of details with kra . Once done it will send API to others exchanges/CC.
All exchange/CC which for API from cdsl will do authentication with kra.

Exchange and CC will send confirmation or rejection to CDSL as it’s nodal. Of rejection will convey to DP

Step 2- If successful accross exchanges/CC. Then they will register the client, cdsl will create an BO id. Exchange/CC/cdsl will send emails and sms to client.
And send API to nodal agency and cdsl to zerodha of account creation.

NOTE- an nodal agency can be used to update data. Day of you want to update secondary bank accounts, send api will be sent to bse as nodal. BSE will send api to nse, and CC to update the same.

Present system uses mix of APIs and files and updation should be done seperately in nse, bse, cdsl.
This system can be built on fault tolerance where re request through api can be done and changes can be made in on go.

Just like kra system, where I can update my permanent address in one go across all sebi regulated participants.

It reduces compliance and also mismatch of any.

3

No offence mate, but what are you even trying to convey? I’m lost from the third line of your post.

4

Don’t bother… it’s AI written post.

1 Like
5

I understand, I did use chat gpt to rephrase it.
Kindly ignore 2nd post

The 1st post is when u redeem an mutual fund, cdsl will automatically debit the mutual fund units from your demat account and give it to CC.

This way, instant withdraw of liquid and overnight fund’s can be given and broker need not send instructions to CDSL to debit the unit’s for payin to CC.

Thanks for feedback, I will spend my free time to make it better.

6

I only used AI to re phase it.

7

This is already happening, the broker is not involved, cant happen realtime coz of industry infrastructure challenges.

8

Nice, so when I redeem my mutual funds, zerodha don’t have to give debit instructions to CDSL through
files instead it’s auto debited.

Hope cdsl and exchanges update there infrastructure so we can have better STP and instant redeem.

It’s hard to digest for me that I have use other apps to invest in liquid fund’s and keep all other investments in zerodha.

10

Might be coming in a few months or a year or 2. SEBI has started discussions on same day and instant settlement for stocks and demat stuff