The Gateway to Algorithmic and Automated Trading

India calling liquidity: HFTs need apply

First Published 7th July 2014

With investor optimism in India on the rise, the Bombay Stock Exchange is coming out full force to attract foreign liquidity with a little help from its friends.

Ashish Chauhan, CEO, BSE

Ashish Chauhan, CEO, BSE

"Speed has become ten times faster than the competition in India."

A combination of new technology and streamlined regulations iss set to make India an easier place to do business. Mumbai is home to two major exchanges, of which the National Stock Exchange dominates market share. But BSE is accelerating ever since switching to Eurex's trading platform for derivatives and cash equities.

Since April, when its cash equities segment went online, the BSE has increased market share by 5% to about 18%. In just six months since implementing technology for currency derivatives, the BSE is at between 30 and 35% market share, whereas in equity derivatives that's at some 20%.

As part of its growth strategy, BSE is in full promotional swing to bring in foreign trading firms and HFT liquidity is welcome. Ashish Chauhan, CEO of the exchange, said he expects two of the largest high speed trading firms globally to be signed on in July. Other applications are pending.

Domestically, there are 105 algorithm trading firms of which 45 operate from the BSE's colocation facility. "Foreign participants have not been on the BSE in HFT area because BSE was slow," he said. "After implementing Deutsche Boerse technology, speed has become ten times faster than the competition in India."

Round trip response time is now 200 microseconds, with plans to take that down to 20 microseconds in the next couple of years, while throughput capacity is 500,000 orders per second. Four years ago, the platform was getting 10 million orders per day, now that number has exploded to 330 million orders - and is going up.

"Demand on the trading system has increased manifold, and so the cost (of system) increased manifold...that was also one of the reasons why we had to change our trading system," he said.

The new platform is open source with a Linux operating system while data is in MY SQL, and commodity hardware is used, he added. "Now, our costs are phenomenally low per transaction, literally 90% lower in futures and 99.5% lower in options than the competition," he said.

Handling increased trading hasn't been free of glitches, and currently there are investigations into why trading was halted on BSE for a couple of hours last week. Chauhan confirmed that it was a network outage and that the network was upgraded last year, but added that no trading disruption occurred because the exchanges can route orders to each other. Several algorithm-related glitches have been reported at both Mumbai-based exchanges over a few years, reasons for which the regulator SEBI is yet looking into.

All-weather friends

Deutsche Boerse, which owns Eurex and is a 5% stakeholder in the BSE, has taken a hands-on role in promoting it to members.

Javier Tordable, DB's global executive for India and the BSE, said that since SEBI streamlined regulations, accessing the markets is set to ease considerably. Registration and ID processes can now be handled by custodians, a change that has brought on-boarding time down to between two and six months as opposed to some 18 months-plus previously.

Clients will still have to go through a domestic broker, and Tordable said that there is no expectation of foreign firms being given remote membership any time soon.

"Visibility of prices plus execution upon those prices can be technically facilitated by the colo systems of the big brokers (in India), and the BSE's colo facility, which is amazingly sophisticated," he said.

His team has visited 50 firms in the last four months across the world's major financial centres, of which about 10 were HFT firms.

"We let our members using our technology know that it is a minimum effort into connecting because all the software (and) all the quoting engines they develop for Eurex, now it can be used for the BSE," Tordable said.

In the next couple of years, he would like to see 10 new members across the buy side come to the BSE. Aside from connectivity, Deutsche Boerse sells exchange market data outside of India.

"2% of the population (in India) is in capital markets. The upside in 2030 is 30% for a country of 1.3 billion (people)," he said, adding that the automation of markets and sophistication of trading strategies is developing rapidly.

Aside from the technological and business partnership with BSE, the European operator is keen to evaluate duplicating such efforts in other regions where it has partnerships - Israel, Korea, Singapore and Thailand, for example.

"Deutsche Boerse has made no secret that Asia is a priority, so BSE fits very well. The growth is there, as an economy and for market trading expertise."