Published on Thursday, July 20, 2017 by Dilip Davda
There has been a lot in the media recently on Algo trading and the co-location issue at NSE, which is said to be delaying its IPO process for a while. According to market sources, most Algo-trading firms are extremely tech savvy as technology is a critical part of ALGO. Quite a few of them are top-notch in doing algorithmic trading globally and not just in India. In fact Algo trading volumes have been rising consistently with more firms undertaking the same on Indian markets, these firms have also been making profits consistently and growing even after the preferential access issue at NSE (under investigation). Although NSE went multi-cast, these firms continue to grow with rising volumes and turned money spinners.
The exchanges in our country are quasi-regulators under SEBI, the supreme regulator. And in that era, when ALGO had been introduced and rules were still being framed for Algo Trading, to insinuate or allege that the Algo trading firms were able to make money only due to couple of micro- seconds of information, is nonsensical. As known, currently Algo trading matter is under audit to find out the exact process that lead to money making to a very few tech savvy operators/brokers/firms. As per technical experts, dissemination of market feed data is done using either Unicast or Multicast mechanism, which defers in methodology with a basic difference in the approach.
All major exchanges in the world had started with unicast and gradually moved to multicast when their brokers' capability handle technology matured. NSE has done the same and moved to multicast in May 2014. The time differential in giving data sequentially is so tiny that even in HFT world it does not bestow any benefit to brokerages receiving first. That's the reason why the technology was used by all exchanges across the world.
NSE co-location case has become the talk of the town, more so since NSE's IPO was announced and media has been tracking it as it has been causing delay in the listing of the country's largest stock exchange with nearly 85% market share in equity and F&O tarding. We have seen the BSE evolving from a club of brokers with physical trading to NSE's electronic trading platform revolutionizing equity trading and stealing a march on Asia's oldest exchange to the BSE changing and playing catch- up. But many still wonder how the co-location issue is given all the importance in Algo Trading as such trading needs various elements. Simply it has benefitted those tech savvy's who were tuning with the times.
During interaction with a few of broker friends and a couple who indulge in algo trading. The answers were incredible, while some pooh-pooh the idea, some said if this is how they could make profits why bother with complicated trading strategies and sophisticated software (both cost significantly and requires constant up gradation). Investors internationally are also wondering why this matter us taking so long and awaiting the market watchdog's order. The Stock Exchange is the face of the country to global investors. Matter has become clumsy with technical words like dark fiber, co-location and so on.
It is best if SEBI resolves this matter at the earliest by penalizing those responsible for preferential access or by consent and give it a decent burial. While on this, the technical glitch at NSE on Manic Monday, which halted trading for over three hours in both the cash and derivatives, is worrying. NSE needs to ensure that its systems, processes and governance are spotless as Asia's largest should be.
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.
(SEBI registered Research Analyst-Mumbai).
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
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