Which of the following is NOT an advantage of screen-based trading?

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → It allows shares to be transferred to some other account just like cash.

Option (1) It allows participants to see the full market during real time. — An advantage of screen-based trading. This is transparency: the prices of all securities are seen while business goes on.

Option (2) It allows shares to be transferred to some other account just like cash. — Not an advantage of screen-based trading. This is a benefit of dematerialisation. Shares held in demat form can be moved to another account just like cash.

Option (3) It enables people who do not know each other to buy or sell securities through brokers. — An advantage of screen-based trading. Traders anywhere can deal through brokers. This improves the liquidity of the market.

Option (4) It increases the efficiency of operations through reduction in time, cost and risk of error. — An advantage of screen-based trading. Deals are done with less time, cost and risk of error.

NCERT (Pre-rationalised Edition): “TRADING AND SETTLEMENT PROCEDURE … Electronic trading systems or screen-based trading has certain advantages:
1. It ensures transparency as it allows participants to see the prices of all securities in the market while business is being transacted. They are able to see the full market during real time.
2. It increases efficiency of information being passed on, thus helping in fixing prices efficiently. The computer screens display information on prices and also capital market developments that influence share prices.
3. It increases the efficiency of operations, since there is reduction in time, cost and risk of error.
4. People from all over the country and even abroad who wish to participate in the stock market can buy or sell securities through brokers or members without knowing each other. That is, they can sit in the broker’s office, log on to the computer at the same time and buy or sell securities. This system has enabled a large number of participants to trade with each other, thereby improving the liquidity of the market.
5. A single trading platform has been provided as business is transacted at the same time in all the trading centres. Thus, all the trading centres spread all over the country have been brought onto one trading platform, i.e., the stock exchange, on the computer. …”

“Dematerialisation and Depositories … The Securities and Exchange Board of India (SEBI) has made it mandatory for the settlement procedures to take place in demat form in certain select securities. Holding shares in demat form is very convenient as it is just like a bank account. Physical shares can be converted into electronic form or electronic holdings can be reconverted into physical certificates (rematerialisation). Dematerialisation enables shares to be transferred to some other account just like cash and ensures settlement of all trades through a single account in shares. These demat securities can even be pledged or hypothecated to get loans. There is no danger of loss, theft or forgery of share certificates. It is the broker’s responsibility to credit the investor’s account with the correct number of shares. …”