FiNETIK – Asia and Latin America – Market News Network

Asia and Latin America News Network focusing on Financial Markets, Energy, Environment, Commodity and Risk, Trading and Data Management

Deutsche Börse exclusive licensor of BSE (Bombay Stock Exchange) market data to international clients

Deutsche Börse will be exclusive licensor of BSE market data to international clients New partnership gives market participants easier access to market data and information products of both exchange groups Deutsche Börse Market Data + Services and BSE today announced a partnership under which Deutsche Börse will act as the exclusive licensor of BSE market data and information products to all international clients. The new cooperation will benefit existing and potential customers by giving them access to both exchanges’ market data products under a single license agreement. A signing ceremony was held in Frankfurt on 2 October 2013.

The partnership also allows Deutsche Börse to deepen its client service capabilities in important Asian markets such as India, as well as strengthen the strategic alliance between the two exchanges.

“By partnering with BSE we give customers access to the full suite of real-time, delayed and end-of-day data products offered by both exchanges under a single license agreement. This approach meets clients’ market data needs while reducing their administrative requirements and increasing overall efficiency,” said Georg Gross, Head of Front Office Data + Services, Deutsche Börse.

“BSE is once again happy to partner with Deutsche Börse as this will enhance BSE’s visibility with international clients in the area of market data and information products. BSE will also get access to the innovative product development expertise of Deutsche Börse, which shall help BSE to provide an improved customer experience,” said Balasubramaniam Venkataramani, Chief Business Officer, BSE Ltd.

Under the new cooperation, Deutsche Börse will be responsible for sales and marketing of all BSE market data products to customers outside of India, while BSE continues to serve its domestic clients. Deutsche Börse will also share joint responsibility for product development and innovation, which includes extending its existing and the creation of new market data solutions and infrastructure to support BSE’s product offerings.

Products covered under the cooperation agreement include Real-time, Delayed and End-of-day data for BSE’s Equity and Derivatives markets, corporate data such as Results, Announcements, Shareholding Patterns and Corporate Actions as well as Real-time and Delayed Indices.

This market data agreement also further strengthens the cooperation between Deutsche Börse and BSE that began earlier this year. In March 2013, the two exchanges announced a long-term technology partnership in which BSE will deploy Deutsche Börse Group’s trading infrastructure.

Source: Bobsguide, 07.10.2013

Filed under: Data Management, Data Vendor, Exchanges, India, Market Data, , , , , , , , , ,

EUREX Group and Bombay Stock Exchange (BSE) in Technology Alliance

Eurex Group and the Bombay Stock Exchange (BSE) announced today that they have agreed to deepen their strategic partnership through a long-term technology alliance under which BSE will join the Eurex technology roadmap and deploy Deutsche Börse Group’s trading architecture in a first step. BSE aims to replace its derivatives market platform in the course of 2013 and plans to subsequently replace also its cash market platform. This agreement is an important step in further developing the strategic partnership between Eurex and BSE.

The new partnership in the technology sphere will allow BSE to quickly achieve the highest global standards for speed, reliability and order-handling capacity. It will bring to BSE state-of-the art levels of capacity and latency, already in place at the International Securities Exchange (ISE) since summer 2011 and in roll-out at Eurex Exchange. By aligning BSE, Eurex Exchange and ISE markets on a common trading infrastructure, IT costs for shared customers will be significantly reduced. This will also reduce technology development and installation efforts for Eurex and ISE members who wish to connect to BSE and vice versa as well as strengthen the case for cross-listing.

“We expect our technology alliance with Eurex will help BSE to compete more effectively in India, to help us attract more international participants into our marketplace and improve our market share in derivatives and equity trading,” said Ashish Chauhan, MD and CEO of BSE. “It will quickly put BSE into the Premier League of exchanges in terms of the performance of our matching engine and overall technology infrastructure.”

“This technology alliance strengthens our long-term partnership with BSE, and is another milestone in our Asian strategic roadmap, in which India obviously plays an important role. This technology alliance also contributes to growing our global liquidity network, based on common market infrastructure, for the benefit of both our partners and our members,” said Andreas Preuss, CEO of Eurex and Deputy CEO of Deutsche Börse AG.

Source: MondoVision, 12.03.2013

Filed under: Asia, Exchanges, India, Trading Technology, , , , , , , ,

Securities and Exchange Board of India issues Algo trading guidelines

It has been observed that adoption of technology for the purpose of trading in financial instruments has been on a rise over the past few years. Stockbrokers as well as their clients are now making increased usage of trading algorithm (hereinafter referred to as “algo”).
1. Based on recommendations of Technical Advisory Committee (TAC) and Secondary Market Advisory Committee (SMAC), it has been decided to put in place the following broad guidelines for algorithmic trading in the securities market.


2. Algorithmic Trading – Any order that is generated using automated execution logic shall be known as algorithmic trading.

Guidelines to the stock exchanges and the stockbrokers

3. Stock exchanges shall ensure the following while permitting algorithmic trading:

(i) The stock exchange shall have arrangements, procedures and system capability to manage the load on their systems in such a manner so as to achieve consistent response time to all stockbrokers. The stock exchange shall continuously study the performance of its systems and, if necessary, undertake system upgradation, including periodic upgradation of its surveillance system, in order to keep pace with the speed of trade and volume of data that may arise through algorithmic trading.

(ii) In order to ensure maintenance of orderly trading in the market, stock exchange shall put in place effective economic disincentives with regard to high daily order-to-trade ratio of algo orders of the stock broker. Further, the stock exchange shall put in place monitoring systems to identify and initiate measures to impede any possible instances of order flooding by algos.

(iii) The stock exchange shall ensure that all algorithmic orders are necessarily routed through broker servers located in India and the stock exchange has appropriate risk controls mechanism to address the risk emanating from algorithmic orders and trades. The minimum order-level risk controls shall include the following:

a. Price check – The price quoted by the order shall not violate the price bands defined by the exchange for the security. For securities that do not have price bands, dummy filters shall be brought into effective use to serve as an early warning system to detect sudden surgstem to detect sudden surge in prices.

b. Quantity Limit check – The quantity quoted in the order shall not violate the maximum permissible quantity per order as defined by the exchange for the security.

(iv) In the interest of orderly trading and market integrity, the stock exchange shall put in place a system to identify dysfunctional algos (i.e. algos leading to loop or runaway situation) and take suitable measures, including advising the member, to shut down such algos and remove any outstanding orders in the system that have emanated from such dysfunctional algos. Further, in exigency, the stock exchange should be in a position to shut down the broker’s terminal.

(v) Terminals of the stockbroker that are disabled upon exhaustion of collaterals shall be enabled manually by the stock exchange in accordance with its risk management procedures.

(vi) The stock exchange may seek details of trading strategies used by the algo for such purposes viz. inquiry, surveillance, investigation, etc.

(vii) The stock exchange shall include a report on algorithmic trading on the stock exchange in the Monthly Development Report (MDR) submitted to SEBI inter alia incorporating turnover details of algorithmic trading, algorithmic trading as percentage of total trading, number of stock brokers/clients using algorithmic trading, action taken in respect of dysfunctional algos, status of grievances, if any, received and processed, etc.

(viii) The stock exchange shall synchronize its system clock with the atomic clock before the start of market such that its clock has precision of at least one micro-second and accuracy of at least +/- one milli-second.

4. Stock exchange shall ensure that the stockbroker shall provide the facility of algorithmic trading only upon the prior permission of the stock exchange. Stock exchange shall subject the systems of the stock broker to initial conformance tests to ensure that the checks mentioned below are in place and that the stockbroker’s system facilitate orderly trading and integrity of the securities market. Further, the stock exchange shall suitably schedule such conformance tests and thereafter, convey the outcome of the test to the stockbroker.

For stockbrokers already providing algo trading, the stock exchange shall ensure that the risk controls specified in this circular are implemented by the stockbroker.

Additionally, the annual system audit report for a stockbroker, as submitted to the stock exchange, shall include a specific report ensuring that the checks are in place. Such system audit shall be conducted by Certified Information System Auditors (CISA) empanelled by stock exchanges. Further, the stock exchange shall subject the stockbroker systems to more frequent system audits, if required.

5. The stockbroker, desirous of placing orders generated using algos, shall satisfy the stock exchange with regard to the implementation of the following minimum levels of risk controls at its end –

(i) Price check – Algo orders shall not be released in breach of the price bands defined by the exchange for the security.

(ii) Quantity check – Algo orders shall not be released in breach of the quantity limit as defined by the exchange for the security.

(iii) Order Value check – Algo orders shall not be released in breach of the ‘value per order’ as defined by the stock exchanges.

(iv) Cumulative Open Order Value check – The individual client level cumulative open order value check, may be prescribed by the broker for the clients. Cumulative Open Order Value for a client is the total value of its unexecuted orders released from the stockbroker system.

(v) Automated Execution check – An algo shall account for all executed, unexecuted and unconfirmed orders, placed by it before releasing further order(s). Further, the algo system shall have pre-defined parameters for an automatic stoppage in the event of algo execution leading to a loop or a runaway situation.

(vi) All algorithmic orders are tagged with a unique identifier provided by the stock exchange in order to establish audit trail.

6. The other risk management checks already put in place by the exchange shall continue and the exchange may re-evaluate such checks if deemed necessary in view of algo trading.

7. The stockbroker, desirous of placing orders generated using algos, shall submit to the respective stock exchange an undertaking that –

(i) The stockbroker has proper procedures, systems and technical capability to carry out trading through the use of algorithms.

(ii) The stockbroker has procedures and arrangements to safeguard algorithms from misuse or unauthorized access.

(iii) The stockbroker has real time monitoring systems to identify algorithms that may not behave as expected. Stockbroker shall keep stock exchange informed of such incidents immediately.

(iv) The stockbroker shall maintain logs of all trading activities to facilitate audit trail. The stock broker shall maintain record of control parameters, orders, trades and data points emanating from trades executed through algorithm trading.

(v) The stockbroker shall inform the stock exchange on any modification or change to the approved algos or systems used for algos.

8. The stock exchange, if required, shall seek conformance of such modified algo or systems to the requirements specified in the circular.

9. Stock exchanges are directed to:

(i) take necessary steps and put in place necessary systems for implementation of the above within a period of one month from the date of this circular.

(ii) make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision.

(iii) bring the provisions of this circular to the notice of the stockbrokers of the stock exchange and also to disseminate the same on the website.

(iv) For stockbrokers that are currently executing orders through algos, a period of three months is provided to the stock exchanges within which the approval process shall be completed and minimum risk controls shall be established, if not already done.

(v) communicate to SEBI, the status of implementation of the provisions of this circular in the Monthly Development Report.

10. This circular is being issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

Filed under: India, Risk Management, , , , , , ,

Brazil: BM&FBOVESPA – News October 2011 – Nr.21

BRIC exchanges announce alliance

The exchanges of the BRIC emerging markets bloc announced a joint initiative on October 12, during the 51st AGM of the World Federation of Exchanges (WFE) in Johannesburg, to offer investors access to their dynamic economies. Initially the exchanges – which accounted for over 18% of all exchange-listed derivative contracts traded by volume worldwide as of June this year – will cross-list benchmark equity index derivatives on the boards of other alliance members. Following this, the alliance will develop innovative products to track the BRIC exchanges.

The seven exchanges are:

  • BM&FBOVESPA – Brazil
  • MICEX – Russia
  • RTS – Russia
  • Hong Kong Exchanges and Clearing Limited (HKEx) – China
  • Johannesburg Stock Exchange (JSE) – South Africa
  • The National Stock Exchange of India (NSE) – India
  • BSE Ltd (formerly known as Bombay Stock Exchange) – India

These seven exchanges represent a combined listed market capitalization of USD9.02 trillion, equitymarket trading value/month of USD422 billion and 9,481 companies listed.

BM&FBOVESPA new trading hours

In view of the start of daylight saving time on October 16, 2011, since October 17, 2011, the new trading hours (Brasília Time) for the BM&FBOVESPA markets – BOVESPA and BM&F segments – will be as follows:

Regular session: 11:00 a.m. – 6:00 p.m.

– After-Market: 6:30 p.m. – 7:30 p.m. (pre-opening phase to trading phase);

– Blocking / Exercise on the stock options market
Days prior to expiration: 11:00 a.m. – 5:00 p.m. (exercise of holder position).
Expiration date: 11:00a.m. – 12:30 p.m. – trading of the expired series to the offset of the position, that is, the sale for the holder of the position and purchase for blocking for the writer of the position / 12:30 p.m. – 2:00 p.m.: exercise of the holder position;

– Blocking / Exercise on the Index Options Market:
Days prior to expiration: 11:00 a.m. – 2:00 p.m. (exercise of holder position).
Expiration date: 11:00 a.m. – 2:00 p.m. – trading of the expired series to the offset of the position, that is sale for the holder of the position and purchase for blocking for the writer of the position / After 6:00 p.m. – automatic exercise of the expired series which fit the following situations: call option (settlement index higher than the exercise price; and put option (settlement index lower than the exercise price).

– Over-the-Counter Market: 11:00 a.m. – 6:00 p.m.

> Complete information of the new trading hours (Circular Letters 009-2011-DO-Ofício Circular)

The trading hours for the BOVESPA and BM&F segments are available at this link

Market Makers for Options on the Stock of Banco Bradesco, Gerdau and Banco do Brasil

BM&FBOVESPA announced on August 3rd the start of the bidding process to select up to three market makers for options on stock of Banco Bradesco S.A. (BBDC4), Gerdau S.A. (GGBR4) and Banco do Brasil S.A. (BBAS3). This is the third stage of the Competitive Bidding Process to select market makers in equity options and BOVESPA Index (Ibovespa) options, developed by BM&FBOVESPA. The institutions (including nonresident) that wish to participate have until November 29, 2011 to deliver proposals and the winners will be announced on December 14, 2011.

> More info

Market Makers for Options on Ibovespa and on Stocks of BM&FBOVESPA and Usiminas

BM&FBOVESPA announced on October 11 the winning institutions in the second selection process for market makers for options on stocks and on the BOVESPA Index (Ibovespa). The market maker obligation shall last twelve (12) months as of December 12, 2011. Banco Citigroup Global Markets Limited, Banco Itaú BBA S.A. and Timber Hill LLC shall be market makers for options on the BOVESPA Index (IBOV), complying with a maximum volatility spread of half a percentage point (0.5%). The institutions selected for options on stocks in BM&FBOVESPA S.A. (BVMF3) were Citadel Securities LLC, Citigroup Global Markets Limited and Morgan Stanley Uruguay Ltda, which shall be market makers complying with a maximum volatility spread of four percent (4%). Meanwhile, the institutions selected for options on stocks in Usinas Siderúrgicas de Minas Gerais S.A. (USIM5) were Banco BTG Pactual S.A. and Morgan Stanley Uruguay Ltda, which shall be market makers complying with a maximum volatility spread of twenty percent (20%).

> More info

Options on OGX Petróleo and Itaú Unibanco rise with Market Maker activity

The trading volume for options on the stocks of OGX Petróleo and Itaú Unibanco rose significantly in September, strongly influenced by the fact that they have had Market Makers since September 9. The Exchange launched the Market Maker program for stocks this year in order to encourage trading in options and increase their liquidity, as well as to stimulate longer expiries on these contracts. Options on the stocks of OGX Petróleo and Itaú Unibanco now have three Market Makers.

Comparing the average daily volume in September to that of January to August, there were the following increases: OGX Petróleo ON 51.9% (BRL 13.7 million against BRL 20.8 million) and Itaú Unibanco PN 205.6% (BRL 1.7 million against BRL 5.1 million).

ETF financial volume more than doubles in the past two months

BM&FBOVESPA Exchange Traded Funds (ETFs) reached BRL 1.4 billion financial volume in August and September, at 78,809 and 75,740 trades respectively. This is more than double the BRL 668 million financial volume and 31,997 trades in July.

Common Shares in Desenvix Energias Renováveis start trading on BOVESPA MAIS

The shares of electricity company Desenvix Energias Renováveis S.A. begin to be traded on October 3 on the BOVESPA MAIS segment of the BM&FBOVESPA Organized OTC Market, under the DVIX3M ticker symbol.

USD11 billion in public offerings and follow-ons in 2011

In the year to October, 15, BM&FBOVESPA registered USD11 billion in public offerings and follow-ons. There were eleven Initial Public Offerings (IPOs) in 2011: AREZZO&CO (ARZZ3), SIERRA BRASIL (SSBR3), AUTOMETAL (AUTM3), QGEP PART (QGEP3), IMC HOLDING (IMCH3), TIME FOR FUN (SHOW3), MAGAZINE LUIZA (MGLU3), BR PHARMA (BPHA3), QUALICORP (QUAL3), TECHNOS (TECN3) and ABRIL EDUCAÇÃO (ABRE11).

BM&FBOVESPA on Twitter

BM&FBOVESPA launched its Twitter account in English last week. Please access this link


 The World Cup of ETFs and Indexing Latin America

BM&FBOVESPA is lending its support to the World Research Group’s “World Cup of ETFs and Indexing Latin America.” The event aims at providing attendees with the best practices for ETF use, as well as a comprehensive analysis of market structure, regulations and current and future opportunities. The expected audience includes pension funds, hedge fund managers and investors, investment advisors, financial consultants, and other market participants. A BM&FBOVESPA representative will talk about the Exchange’s ETF products.

Location: São Paulo (TBC)
Date: October 17-18, 2011.
> Full Agenda and Registration

2nd FX Growth Markets Series: Brazil – Profit & Loss

BM&FBOVESPA will join the Profit & Loss FX Growth Markets conference on October 20, 2011 at the Tivoli Hotel in São Paulo. Profit & Loss has been operating its highly successful series of Forex Network and FX Growth Markets conferences for more than 10 years, with regular annual events held in London, New York, Chicago, Singapore, Brazil, Mexico, Colombia, Chile, Shanghai and Toronto, and comes to Brazil for the second time. A BM&FBOVESPA representative will talk at the event.

Location: Tivoli Hotel São Paulo, São Paulo, Brazil
Date: October 20, 2011.
> Full Agenda

2nd Brazil–China Capital Markets Forum

BM&FBOVESPA and the Shanghai Stock Exchange are coordinating the Second Brazil–China Capital Markets Forum. This event follows the First Brazil–China Capital Markets Forum, which occurred in February in São Paulo, Brazil. At the event, the Shanghai Stock Exchange shall bring 300 to 500 Chinese asset and insurance managers and representatives of listed companies.

Location: Xijiao State Guest House Shanghai, China
Date: October 27, 2011.

Volumes and trades by Direct Market Access (DMA)

BM&F Segment
In September, BM&F* market segment transactions carried out through order routing via Direct Market Access (DMA) registered 35,144,357 contracts traded and 4,311,865 trades. In August, the volume reached 41,417,494 contracts traded and 4,431,750 trades.

The volumes registered by each access modality in the BM&F segment were as follows:

  • Traditional DMA – 12,583,334 contracts traded, in 1,366,264 trades, in comparison to 17,540,231 contracts and 1,306,241 trades in August;
  • Via DMA provider (including orders routed via the Globex System) – 13,976,949 contracts traded, in 374,992 trades, compared to 14,088,756 contracts and 435,281 trades in August;
  • DMA via direct connection – 2,636 contracts traded in 447 trades, against 4,210 contracts and 830 trades in August;
  • DMA via co-location – 8,581,438 contracts traded, in 2,570,162 trades, compared to 9,784,297 contracts and 2,689,398 trades in August.

In September, transactions carried out by foreign investors presented by CME to BVMF (who use the Globex-GTS order routing system or access BVMF markets via co-location) totaled 4,685,186 contracts traded, in 1,164,510 trades, compared to 5,308,308 contracts and 1,235,349 trades in August.

In September, order routing via DMA in the BOVESPA* segment totaled BRL 111.41 billion and 14,298,483 trades, from BRL 138.52 billion and 17,021,408 trades the previous month.

Trading volumes per type of DMA in the BOVESPA segment:

  • Traditional DMA – Volume of BRL 95.77 billion and 11,763,618 trades from BRL 120.45 billion and 14,098,638 in August;
  • DMA via co-location – Volume of BRL 14.29 billion and 2,357,270 trades from BRL 16.69 billion and 2,755,498 in August;
  • DMA via provider – Volume of BRL 1.34 billion and 177,044 trades from BRL 1.37 billion and 167,272 in August.

* Direct access to the BM&FBOVESPA market segments is carried out through DMA models 1, 2, 3 and 4. In model 1 or traditional DMA, the client accesses the GTS or Mega Bolsa through technological intermediation of a brokerage house. In model 2 or via DMA provider, the client does not use the technological intermediation of a brokerage house, but rather connects to the system through an authorized access provider. DMA via order routing with CME Globex is also a form of DMA model 2. In model 3, the client connects to the system through a direct connection. In model 4 or via co-location, the client installs its own computer within the Exchange’s facilities.


The volumes registered by access modality include both buy and sell sides of a trade.

The volumes by access modality for both the BM&F and the BOVESPA market segments have been reported in a consolidated manner in the BM&FBOVESPA statements since May 2009.


BM&F Segment September 2011

Derivatives markets in the BM&F segment (including financial and commodities derivatives) totaled 59,365,524 contracts and BRL 4.35 trillion in volume in September, compared to 78,606,873 contracts and BRL 5.23 trillion in August. The daily average of contracts traded in the derivatives markets in September was 2,826,930, in contrast to 3,417,690 in August. Open interest contracts ended the last trading day of September with 36,620,797 positions, compared to 37,821,302 in August.

BOVESPA Segment September 2011

In September 2011, the equity markets (BOVESPA segment) financial volume totaled BRL 131.437 billion, in 13,551,487 trades, with daily averages of BRL 6.25 billion and 645,309 trades. In August, financial volume totaled BRL 177.906 billion, the total number of trades 16,234,673, and the daily averages BRL 7.73 billion and 705,855 trades respectively.

Source: BM&FBOVESPA, 18.10.2011

Filed under: BM&FBOVESPA, Brazil, China, Events, Exchanges, Hong Kong, India, Risk Management, , , , , , , , , , , , , , , , , , , , , , , , , ,

Brazil: BRIC exchanges form alliance

The exchanges of the Brics emerging markets bloc have announced plans to form an alliance in cross-listing and to expose foreign investors to their dynamic economies and to increase the liquidity of their trading venues (Brazil, Russia, India, Hong Kong (China), South Africa)

This initiative was announced at the 51st AGM of the World Federation of Exchanges (WFE) in Johannesburg.

The initiative brings together BM&FBOVESPA from Brazil, MICEX from Russia (currently merging with RTS Stock Exchange), Hong Kong Exchanges and Clearing Limited (HKEx, China) and Johannesburg Stock Exchange (JSE) from South Africa. The National Stock Exchange of India (NSE) and the BSE Ltd (India) have signed letters of support and will join the alliance after finalizing outstanding requirements.

At the first stage of this project the exchanges will begin cross-listing of financial derivatives on their benchmark equity indices. It is planned to launch cross-listed products by June 2012.

“Global investors are increasingly seeking exposure to leading developing markets,” says Ronald Arculli, chairman of HKEx and of the WFE. “Thanks to this alliance, investors will gain easier access to major equity index derivatives of the BRICS markets which will now be offered in local currency on the alliance exchanges”.

This is an important milestone in the history of developing countries, continues Mr Arculli. “The alliance enables more investors to gain exposure to the emerging economies of the BRICS group whose economic power is on the rise. From a global perspective this alliance highlights the growing significance of the BRICS economies and financial markets for the coming decade, and further underlines the importance of enhancing cooperation between the BRICS members”.

At the second stage of the project members of the alliance plan to jointly develop new products for cross-listing on their exchanges. “In addition to measuring market performance, equity indices may be used as underlying assets to create new products, which can be the next step in the alliance development”, says Russell Loubser, CEO of the JSE.

“The products designed at the second stage would then be cross listed and traded in local currencies,” says Edemir Pinto, CEO of BM&F BOVESPA. “They will also ensure easy access for investors to other emerging markets through locally listed products.”

The third stage may include further cooperation in joint products design and new services development.

“Apart from cross-listing products, there are other opportunities for growth and development within this alliance. For example, creation of joint products combining various underliers which will facilitate liquidity growth in the BRICS markets and improve the understanding of other developing markets by local investors,” says Ruben Aganbegyan, President of MICEX.

All the partnering exchanges estimate the potential for cooperation created by this alliance very positively.

“The BRICS exchanges alliance has a great potential as it will create avenues for Indian investors to diversify their portfolios and expand into other emerging markets. It will also provide unique opportunities to investors in other BRICS nations to participate and contribute in India’s growth. BSE will actively work towards bringing world-class products to India as well as developing new products for other BRICS markets.” says Madhu Kannan, CEO of BSE Ltd.

Interest towards the BRICS markets is supported by the above-average growth forecast for these regions, as well as the rising consumer power generated by growing middle classes in each of the participating economies” says Ravi Narain, MD of the National Stock Exchange of India.

According to the WFE these six exchanges represent a combined market capitalization of USD 9.02 trillion, the number of their ussuer companies totals 9.5 thousand.

As per the research by the Futures Industry Association these six exchanges accounted for 18% of the global turnover in financial derivatives in H1 of 2011.

Source: BM&FBOVESPA, FinExtra, 12.10.2011

Filed under: BM&FBOVESPA, Brazil, China, Exchanges, Hong Kong, India, News, , , , , , , , , , , , , , ,

India: Co-location services at BSE premises

Bombay Stock Exchange permits DMA and Automated trading. Since Both DMA and Automated trading make use of strategies that exploit short-lived market opportunities and have a high dependence on speed of execution, the co-location facility will facilitate faster trade execution required for DMA and Automated trading. This Co- location Facility will be extended to members to host their servers near to BSE’s trading platform within BSE premises.

In this regard Trading Members may please note the following:

–   In view of limited availability, racks will be allotted on first come first basis based on the receipt of complete application along with the payment. However, if there is more demand than the availability, additional space will be made available.
–   The minimum period for which the racks are allotted will be one year and any renewal would require an advance notice of 30 days.
Format of the Application form for applying for usage of Co-location facility is enclosed Annexure-1
The racks will be allotted on 1 rack basis. No partial rack would be allotted.
Members may take private leased lines to the co located rack(s) for ongoing system administration of their servers. These lines can be availed from Airtel / MTNL / Reliance / Tata

–  Due to security reasons,  Physical access to co-location data centre will be restricted only to the initial set up and access for periodic or urgent maintenance if any would be only with prior permission from BSE and that such permission will be allowed only after Exchange trading hours.

–  The Exchange would not be responsible for insuring the member assets at the co-location premises.
–  The co location facility will be Tier3 grade with following specifications: –

  • Standard 19 Rack(s) with 3KVA power.
  • Uplink ports to BSE Campus LAN for BSE connectivity.

–    The Exchange will provide co-location facility on best efforts basis and it will not be responsible for any direct / indirect / consequential, harm / loss / damage of any kind for whatsoever reason including but not limited to power failure, air conditioning failure, system failure and loss of connectivity. Further, the Exchange shall not be liable for any stoppage in co-location facility owing to legal or regulatory requirement.

Format of the Application form for applying for usage of Co-location facility is enclosed in Annexure -1.

Further you can avail Co-location facilities offered by Third Party Providers. The charges and facilities offered through Third Party Providers will be intimated to the members in due course.

For further technical clarification and queries kindly contact Mr. Jitendra Choudhari on telephone number +91 22 22728301 and email on

Source: BSE, 26.02.2010

Filed under: Asia, Exchanges, India, News, Trading Technology, , , , , , ,

BSE launches new access platform and terminal: Fastrade

Mumbai, Nov 24 (PTI) The Bombay Stock Exchange today launched its new market access platform–Fastrade. Fastrade is a terminal and Internet-based market access solution developed by Marketplace Technologies, a group firm of the BSE, the exchange said in a circular.

However, the current market access solution–BSE On-line Trading BOLT)–provided by the exchange will continue to function on as is basis, the circular added. “Fastrade is being offered in addition to the BOLT. The BOLT will continue to be supported by the BSE,” the bourse said.

For trading on the BSE cash and derivatives segment, the new market access platform will be provided free of cost to all members of the exchange, it added.

Source: Yahoo India, 24.11.2009

Filed under: Asia, Exchanges, India, News, Trading Technology, , , ,

India: Exchange big hitters in battle for market share

India’s stock exchange heavyweights – the National Stock Exchange and the Bombay Stock Exchange – are gearing up for a fight for market share.

Spurred on by the threat of competition from new entrants and the prospect that India’s economy will continue to see growth of at least 7 per cent over the next few years, the NSE and BSE have announced a series of new products, hires and alliances.

India’s benchmark Sensex index has risen more than 70 per cent so far this year, making it one of the 10 best performing markets around the world. GDP, meanwhile, grew 6.1 per cent in the three months to the end of June, indicating the economy may have bottomed out.

The timing of the rebound, in the economy and stock market, could not be better for Madhu Kannan, chief executive of the BSE, the oldest of India’s more than 20 or so exchanges.

The appointment of Mr Kannan, who was only 36 when he took over in May, marked something of a change of strategy for an exchange that has been struggling to regain market share since its cross-town rival the NSE burst on to the scene nearly 15 years ago.

Before its arrival, the BSE had 80 per cent of the market. In 12 months the NSE hit the same level and the BSE has been trying to claw back market share ever since.

Mr Kannan hopes to upgrade the exchange’s technology, improve client relationships and make better use of its existing relationships with the Singapore stock exchange and Deutsche Börse.

In August, the BSE announced it had taken a 15 per cent stake in the newly formed United Stock Exchange to help drive the development and growth of both interest rate and currency derivatives markets. It will also start trading interest rate futures in the next couple of months.

But the NSE has pipped it to the post, becoming the first exchange, at the end of August, to resume trading in interest rate futures. A previous attempt to introduce the contract flopped in 2003 due to pricing issues and the regulator’s failure to allow banks to trade the product. The new contracts can now be traded by banks and are open to some foreign participation.

Ravi Narain, chief executive of the NSE, is upbeat about the exchange’s ability to grow and innovate and says he welcomes competition. He also wants the exchange to offer a full range of asset classes.

Since 2000, the NSE has, among other things, rolled out internet trading, exchange traded funds, a volatility index and currency futures. It is also looking at creating a platform for small and medium-sized enterprises, and appears to be responding to increased competition where it hurts. It said this month it would lower trading costs in futures and options and cash segments by 10 per cent.

Adding to the pressure on the NSE and BSE is the arrival of a significant new entrant to the market. The Multi Commodity Exchange of India, controlled by Indian markets entrepreneur Jignesh Shah’s Financial Technologies group, is poised to start its own stock exchange.

MCX-SX will form part of a portfolio offering trade in interest rate futures, ETFs and fixed income. The exchange already offers trading in currency futures.

Joseph Massey, chief executive of MCX-SX, believes there is room for another stock exchange at a time when the government is moving towards financial deregulation and is pushing to give India’s rural population the same access to financial services as their urban counterparts.

Currently 1.4 per cent of India’s population participates in the capital markets compared with 40 to 45 per cent in developed countries. In addition more than 90 per cent of exchange trade is confined to only 10 cities in India, according to the MCX.

Mr Massey says the scope for growth in the types of products on offer is also large, adding that while SME’s, currency, bonds and derivatives make up to 80 per cent of trade in other markets, many of these asset classes are still only in their infancy in India.

“Until recently the asset class in the public domain was equities. Other products were non-existent. Now we have the opportunity to provide different shades of investment products,” says Mr Massey.

Analysts say the combination of greater competition between the exchanges and strong fundamentals is great news for investors.

“The last 10 years have been remarkable. We’ve gone from being one of the least efficient markets to one of the most efficient. There are now 7,000 stocks listed,” says Sukumar Rajah, managing director and chief investment officer for Asian equities at Franklin Templeton Investments in India.

Mr Rajah says at the moment less than 5 per cent of personal savings in India are invested in the market. But with Indian GDP expected to grow at between 7 to 9 per cent on average over the next five to 10 years, he says the outlook for India is good.

“With this type of growth there is room for companies to expand . . . so for both local and global investors, this market will continue to be interesting.”

Source: FT, 20.09.2009 by Mary Watkins

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Electronic Debt Trading in India, Celent Report

India’s debt markets have experienced rapid growth and along with that electronic trading also risen sharply, with the market growing at a CAGR over 75% since 2005.

India’s debt markets have experienced rapid growth and along with that electronic trading also risen sharply, with the market growing at a CAGR over 75% since 2005, according to a recent Celent report. In spite of being a late starter, India is expected to have around 80% share of debt transactions being conducted electronically by the end of 2009, making it competitive with the US and Japan, the world’s leading global debt markets. However, the Indian debt markets are small by international standards, constituting just about 1% of the global market, according to the new report, E-Trading in the Indian Debt Markets: Growth in the Downturn. Celent is a Boston-based financial research and consulting firm. Key findings of the report include:

India is one of the world’s leading emerging markets, growing at a rate of 5-6% even through a period of global economic downturn. The introduction of electronic trading has increased transparency and liquidity in the market. The CAGR for the government bond market has been nearly 79% since the introduction of electronic trading.

Electronic trading will continue to become more popular, and the role of voice-broking will decrease further. NDS-OM has already set the trend, and the exchanges and the interdealer brokers (e.g., ICAP) are following it with a greater emphasis on electronic trading.

The corporate bonds market is dwarfed by its government bond counterpart. Currently, the corporate side of the bond market accounts for only 8% of the overall debt market, while government securities account for as much as 92%. The government debt market has greater liquidity and depth, and this is expected to continue even after the success of NDS-OM, the electronic platform.

India’s retail market has failed to meet expectations. There had been high expectations for a rise in retail participation in the markets, especially from the exchanges. This has failed to materialize and both NSE and BSE have seen no trading in the segment. However, retail interest in debt funds is high because they are an attractive means of reducing volatility in the current economic climate. As much as Rs. 1.3 trillion has been mobilized in April-May 2009 by debt mutual funds, as opposed to an outgo of Rs. 285 billion in the previous financial year (i.e., April 2008 to March 2009).

A couple of the leading global IDBs have entered the market. However, the Indian market environment as it stands is not conducive to the entry and growth of IDBs due to the nature of the market and regulatory issues. But it is believed that the IDBs have an important contribution to make if the Indian market is to achieve its true potential by global standards, as they aid price discovery and improve access to large pools of liquidity while maintaining anonymity.

The derivatives market has suffered from regulatory hurdles and a lack of participation. It had seen high volumes for OTC interest rate swaps (IRS) until July 2008, but there has been a decline, and the turnover of IRS is only 30-35% of July 2008 levels. However, Celent believes that fixed income derivative products will increase in number and volume.

The Clearing Corporation of India (CCIL) has had a critical role to play in the growth of the industry. Its contribution has been vital in the success of the NDS-OM platform as well as the money markets for instruments such as collateralized borrowing and lending obligations (CBLOs). More innovative participants such as CCIL are required for the debt markets to succeed in the long run.

India’s retail market has failed to meet expectations. There had been high expectations for a rise in retail participation in the markets, especially from the exchanges. This has failed to materialize and both NSE and BSE have seen no trading in the segment. However, retail interest in debt funds is high because they are an attractive means of reducing volatility in the current economic climate. As much as Rs. 1.3 trillion has been mobilized in April-May 2009 by debt mutual funds, as opposed to an outgo of Rs. 285 billion in the previous financial year (i.e., April 2008 to March 2009).

NSE has created a niche in the debt markets. The wholesale debt market of NSE commands an 8% share of overall government debt trading. Similarly, it has a 46% share in 2009 (until June) in the corporate bond market. However, BSE is struggling in the government bond market and has a 16% share in the corporate bond market.

Source: Celente, Advanced Trading, 18.09.2009

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Celent: More positive reviews for India shares

Celent is the latest to sing the praises of India’s stock market.

The Indian equity markets are showing signs of recovery, according to Celent, a Boston-based financial research and consulting firm. Although India’s equity market capitalisation is still some way off the 2007 high of $3.3 trillion, it is expected to exceed 2008 levels in 2009 at $1.9 trillion, the firm says in its latest report on India shares.

Celent is the latest to sing praises for India’s stock market. Earlier this month, Credit Suisse unveiled a new target of 17,000 for India’s Bombay Stock Exchange benchmark index (Sensex). In June, BNP Paribas recommended its clients to reduce their exposure to China, which it has lowered to neutral from overweight, and increase their allocations to India, where the bank remains overweight. BNP Paribas’ own target for the Sensex is 16,500. The Sensex closed at 15,160.24 on Friday.

The key findings of the Celent report include:

India is one of the main emerging equity markets. The country’s leading stock exchange, National Stock Exchange (NSE) is ranked third in terms of the number of equity trades of individual exchanges. The Bombay Stock Exchange (BSE) is also one of the leading exchanges worldwide, and the Indian market continues to hold further promise, as the economy is expected to grow 5-6% even in the current economic downturn.

The NSE is expected to overtake the Bombay Stock Exchange (BSE) in market capitalisation in 2009. Already far ahead in turnover, the NSE is expected to further its lead. It has already cornered the exchange-based debt markets and the equity derivatives business and become the exchange of choice in India.

The NSE is preferred by foreign institutional investors (FIIs), while retail investors, domestic brokers, and sub-brokers prefer the BSE. NSE turnover is two times that of the BSE because FIIs hold on to shares for a shorter period of time than their local counterparts.

India’s debt market is underdeveloped. In spite of growth, the Indian corporate debt market is far behind developed and emerging economies worldwide. At an expected turnover value of $70 billion in 2009, it is equal to less than 10% of the government debt market.

In the equity derivatives market, volatility has meant that the investors prefer to trade more in index derivatives because they are far more liquid than stock futures and options. Index futures and options now comprise 64% of the trading done in futures and options. Just like equities, the equity derivatives market has also recovered, and the turnover in the fiscal year 2010 is expected to be around $3 trillion, close to the figure in FY 2008. The growth in turnover and volume has made NSE one of the top 10 derivatives exchanges in the world. Having one of the highest growth rates in 2008 (56%), it is expected to do even better in the future. Interestingly, in spite of being more complex a product than cash equity, the equity derivatives market is quite popular with retail investors, and they had more than 50% of the market share consistently throughout the period of June 2008 to May 2009. This bodes well for the breadth of participation in the market.

The equity derivatives market is dominated by the NSE, due to the superior use of technology and better strategy. Also, the NSE has a high growth rate, and it is expected to break into the global top five by volume in the near future. In 2008, it had a trade volume of 590 million contracts and grew by 55.4% over the previous year. This made it the eighth largest derivatives exchange in the world.

Stock futures and options are not very liquid. The stock futures developed as the number of stocks traded has gone up from around 30 to 40 stocks to between 150 and 200. However, stock options are illiquid, except in the case of leading companies, meaning that a lot of transaction volume is driven by a few signatures. This situation could be worrisome in the long run, and there is certainly room for improvement.

Index futures and options dominate the NSE’s equity derivatives portfolio. Reasons for this include: recent volatility in the global markets, the participation of retail investors (comprising 53% of the turnover in the NSE in May 2009) in the derivatives market, and the fact that it is easier for investors to use index futures and options.

Currency futures have started promisingly. In the period between October 2008 and June 2009, the total volume traded on the NSE and MCX-SX was 132 million contracts, which compares favourably with 577 million exchange-traded currency futures globally in 2008. The combined monthly volume was above 29 million contracts for the two Indian exchanges.

Interest rate futures are expected to be reintroduced before the end of 2009. The Indian capital markets have been undergoing incremental reform, and once currency futures have established themselves, the Reserve Bank of India, the central bank, the Securities and Exchange Board of India (Sebi), and the capital market regulator plan to establish new regulations and reintroduce interest rate futures.

For the interest rate futures market to succeed, banks should be allowed to trade. Futures failed miserably in 2003 because the banks were only allowed to hedge. As the main participants in these markets, banks should be allowed to trade and build up the demand-side of the market.

Volatility is high, and a product such as NSE’s volatility index would be useful. NSE has come out with a volatility index, which is a market-wide index. At present, it is not available for trading. However, it is important that NSE soon introduce trading in an index because this will be very useful for market modelling and will help investors cope with the uncertain capital markets better.

Foreign institutional investment has begun to reverse its decline in recent months. FII drives the Indian equity markets. There is a high correlation of0.38 between the between the performance of the Sensex and FII over the period of January 2004 and May 2009, and it had been affected by the recent crisis. However, April and May 2009 have been the first months with positive net monthly investment in equity in more than a year. There are signs that these investors are rediscovering their faith in Indian equity markets. The share of Asian FIIs has risen, comprising 25% of all the registered FIIs in India, closely following the US, which has 29%.

The role of domestic institutional investors (DIIs) and the retail investors is becoming more prominent in the Indian markets.

Retail investment will grow as technology improves and reach increases. While it may be some time before the retail investors become the main driver of the markets, they are becoming stronger, and the advent of exchanges such as the NSE and recently, MCX-SX will improve the possibility of domestic savings being invested in capital markets.

Indian capital markets are advanced technologically but need to continuously improve to be competitive internationally. Strategic partnerships with the world’s leading exchanges and an understanding of the importance of technology to improve both price and speed, is crucial. The exchanges need to work continuously to ensure they remain attractive destinations for international capital.

Supervision and innovation in the capital markets can be improved. Sebi has done a great job in fostering the rapid development of Indian capital markets. However, market manipulations need to be dealt with severely, and Sebi needs to play a more active role. Due to the late development of the Indian market, the regulator has so far been prudent, but as the Indian markets get more globalised and mature, Sebi could introduce innovations such as alternative trading venues to add breadth to and modernise the Indian capital markets sooner than would have been possible a decade ago.

Market-making should be allowed to provide greater depth and liquidity to the markets. Presently, market-making is not permitted by Sebi, possibly because it might be very complicated to monitor. However, it is an internationally accepted practice that is essential for the development of the markets, and Sebi should introduce it sooner rather than later.,10.08.2009  Rita Raagas De Ramos

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SMX announces clearing and settlement mandate

Standard Chartered will be the first bank to provide electronic funds transfer and settlement processing to the Singapore Mercantile Exchange’s members. Standard Chartered Bank will provide clearing and settlement to the new Singapore Mercantile Exchange (SMX) when it goes live in the fourth quarter.

The bank will be the first bank to provide electronic funds transfer and settlement processing to the exchange’s members. It will also provide banking services to SMX employees.

All settlement will be in US dollars, but additional currencies will be added based on member demand.

“This appointment as clearing bank for Singapore Mercantile Exchange reflects our position as a leading clearing bank for exchanges in Singapore,” says Jiten Arora, South Asia regional head of transaction banking at Standard Chartered Bank. “We have developed special capabilities to provide extended processing hours and timely reporting to the Singapore Mercantile Exchange and their clearing members.”

The bank has worked with SMX since its February inception helping to map out its clearing and settlement infrastructure. Standard Chartered will extend its hours from 9am to 3am Singapore-time in order to cover Asia-Pacific and the US. In addition, the bank has acted as a consultant on commodities trading.

Negotiations for the mandate were conducted from April to July, with SMX officially appointing Standard Chartered its first banking partner last week. According to sources, the three month negotiation period is an “internal record” for the bank.

SMX is a new commodities derivatives exchange aimed at filling the gap in Asia between equity and single-product commodity exchanges. It is owned by India-based Financial Technologies, a financial services group that also owns the Dubai Gold and Commodities Exchange and various Indian markets including the Mumbai Commodities Exchange.

Currently in the testing and regulatory approval phase, SMX hopes to begin trading sometime after October 15. Once operational, products on the exchange will include agricultural stuffs, energy and base and precious metals.

Traders in Singapore are wary of the exchange’s ambitious opening timeline with many taking a wait-and-see attitude to the post-October 15 start date.

“A lot of benchmarks are unaddressed in Asia,” says Thomas McMahon, chief executive of SMX. “If you look at metals markets, the majority of production is here but prices are disconnected from market exchange. We see an opportunity here.”

McMahon explains that by using the term “mercantile” the exchange sees itself as a market for a broad-base of products. This differs from the Malaysia bourse and the agricultural futures exchange of Thailand that specialise in palm oil and rice respectively. By creating such a broad based exchange, SMX hopes to increase trading transparency and risk mitigation for commodities derivatives products in Asia.

A potential competitor is the Dubai Mercantile Exchange but McMahon dismisses it as energy focused.

When selecting Standard Chartered as its first clearing and settlement bank, McMahon cites its “seamless” reach across borders in Asia. This correlates well with SMX’s plans to become a pan-Asia exchange.

“For example, Standard Chartered’s India, Singapore and Hong Kong product offerings are very similar,” he says. “We [also] aim to be borderless.”

Sumit Aggarwal, Standard Chartered’s head of transaction banking in Singapore, reiterates the bank’s strong regional proposition, saying: “In Asia, our nearest foreign bank competitor has only half as many branches as we do. [SMX] is tapping the breadth of our presence and capability to provide specialised solutions.”

But the bank will not remain SMX’s only clearing and settlement partner.

“Standard Chartered is just one of a number of banks we will eventually have on board,” says McMahon. “As we reach into different regional markets, we’re going to look for entities with good, strong local connectivity.”

The exchange is currently in talks with three additional banks to provide clearing and settlement services. SMX declined to name the institutions but says it plans to bring on a mix of local and global banking players.

Clearing and settlement provided will be conducted through Standard Chartered’s Straight2Bank wholesale e-banking platform. The system will work with SMX’s straight-through processing (STP) solution from India’s Financial Technologies.

The exchange plans to achieve STP from day one though McMahon admits that “all exchanges are STP+1” for settlement.

“Customers will know where they are in their positions at the end of each day,” he says.

Standard Chartered is not new to servicing stock exchanges. The bank has been providing clearing and settlement services for various exchanges since the late 1990s starting with the Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE). Today, in addition to the BSE and NSE, it has mandates with the Jakarta Stock Exchange through its Permata Bank subsidiary, Nasdaq Dubai and Singapore’s other two exchanges — the Singapore Exchange and the Singapore Commodity Exchange.

When SMX does launch, whether in the fourth quarter or later, it aims to have at least 29 clearing and trading members. It is currently in talks with these entities.

Source:, 29.07.2009

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Bombay Stock Exchange Delivers Low-Latency Market Data

Listed equities market data from the Bombay Stock Exchange (BSE) is now available via a low-latency direct feed from Thomson Reuters.

This move comes after the introduction of direct market access (DMA) trading that was recently announced by Securities Exchange Board of India (SEBI), according to a Thomson Reuters release.

Utilizing Reuters Data Feed Direct, clients can access BSE’s Low-Latency Feed (LLF), which provides real-time market data for all BSE-listed stocks, including prices, indices and volumes up to five levels.

BSE clients can connect from their own datacenter or using either Thomson Reuters’ hosted service in combination with the Reuters Market Data System (RMDS), or its application programming interfaces (APIs) directly. This allows BSE clients to build proprietary trading applications.

“The introduction of Low-Latency Feed by BSE is significant considering the fact that SEBI has permitted DMA to institutions across the globe through BSE member brokers. Moreover, the Indian economy is projected to grow at a rate of over 7 percent, even during the current crisis, and the interest in Indian stocks among global institutions has sustained reasonably and from this perspective, the Thomson Reuters solution comes at an opportune time,” says Mahesh Soneji, officiating managing director and CEO of BSE.

Source: Waters, 24.03.2009

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Nomura revives Lehman’s Indian equity trading unit

Japanese investment bank Nomura has launched onshore equity sales and trading in India, leveraging the local assets of investment bank Lehman Brothers that it purchased in 2008. A new entity offering a range of investment banking services, Nomura India, will be staffed by both Nomura and former Lehman Brothers employees.

“India is one of the most important regions for Nomura’s global expansion. Under the leadership of Vikas Sharma, President and CEO of Nomura India, I am confident that our footprint in India will significantly expand,” said Takumi Shibata, COO of Nomura Holdings, in a statement.

In October last year, Nomura acquired the majority of Lehman Brothers’ employees in India, including the equities sales and trading, equity research, fixed income liquid markets sales and trading and investment banking teams. The firm also obtained Lehman’s merchant banking licence and memberships to India’s two bourses – the National Stock Exchange and the Bombay Stock Exchange – which have allowed it to launch the equity sales and trading business.

Nomura India will initially focus on sales and trading of Indian equities, futures and options, but is seeking regulatory approval to offer direct market access (DMA) for institutional clients in Q2 this year. The firm said Lehman was among the first firms in India to launch algorithmic DMA and had market-leading capabilities in listed derivatives.

Nomura also intends to launch a fixed income business in India, pending regulatory approval.

Lehman Brothers’ entire equities and fixed income liquid markets team joined Nomura India. The combined group is led by Pankaj Vaish.

Source: The New Trader, 05.02.2009

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Global economic slowdown is not stopping Asia’s exchanges.

A  year ago, traders and technology vendors in Asia were riding a growing wave of liquidity and technology adoption. Direct market access (DMA), alternative trading systems (ATSes) and crossing networks steadily increased throughout the region as regulatory barriers began to fall away. While the financial crisis is putting a damper on the party, don’t expect opportunities in Asia to dry up, experts say.

“Asia is on a path of evolution that is going to converge eventually with the technology in the West,” says Neil Katkov, the Tokyo-based managing director of the Asia research group at Celent, a global financial market research and consultancy. With many traders and brokerages tightening their belts, adoption may slow, he says, but it will not disappear.

The opportunities are greatest for Asia’s exchanges themselves, which could take advantage of the slowdown to improve their own technology and compete with some of the trading networks that have been entering the region. “I think we’re going to see more of a realization from the exchanges that adopting modern technology is a competitive imperative,” Katkov says.

While algorithmic trading and order management systems (OMSes) have continued to grow in the region, the trends that attracted the most attention in 2008 were trading networks and DMA capabilities. Regulators in the region spent much of the year grappling with how to accommodate the dark pools, crossing networks and off-exchange trading platforms that were arriving and expanding.

These networks have been driven in part by an expansion of asset classes. A wide range of investors has been diversifying, adding new products into their portfolio. “Traditional buy-side firms such as pensions are starting to look into over-the-counter (OTC) derivatives, commodities and foreign exchange (FX),” Katkov says. “More products are being traded more frequently by more types of people.”

Local brokerages are also starting to make a difference, says Nevin Price, regional manager for Asia at Fidessa, a global trading systems, market data and connectivity solutions vendor. Aiming to compete with larger international firms, local brokerages are looking to adopt the newest technologies and gain access to new markets. As markets tighten, brokers want to keep costs down, and technologies that help to streamline trading and provide easy access to exchanges have been on the rise.

Many of these brokerages had their options expanded in the last year. Joining Liquidnet and ITG, which have been operating crossing networks in Asia since 2007, a new network entered the market.

BlocSec, an Asian electronic crossing network that opened in May and is owned by brokerage CLSA, now has 70 customers and operates in Hong Kong, Japan and Singapore. Liquidnet and ITG’s Posit network have also expanded their networks in the region. Still, with only a handful of players, there is ample room to grow.

“While dark pools have exploded in the US, they are still at their beginning stages in Asia,” says Ned Phillips, CEO of BlocSec. “I really think the more platforms the better in Asia, as it will grow the market but will not result in the fragmentation seen in the US.”

Crossing networks have an easier time entering Asia, as they don’t require a wholesale change in regulations, says Katkov. The arrival of DMA and the push of alternative trading networks, however, signal the loosening of some regulatory barriers in the region. “India has just allowed DMA this year and Australia is considering allowing off-exchange trading,”

While regulatory changes opened up markets in the past year, the financial crisis could prompt some exchanges to act defensively, blocking the incursion of off-exchange trading platforms and other networks that could cut into their liquidity.

Exchanges have taken defensive positions in the past, like  Australia as a recent example. While three off-exchange networks have applied to operate in the country, a call to review the regulations governing exchanges in the country has delayed the process for more than a year. Malaysia has also delayed allowing DMA on that country’s exchange.

Sang Lee, co-founder and managing director of Aite Group, an independent research and consultancy firms focusing on the financial services industry, says he believes the economic slowdown will help Asia’s exchanges view the competition in a new light. “Ironically, with all this mess happening the exchanges themselves are in great positions,” Lee says. “In the Asia market, real competition has not happened yet. All of the exchanges in Asia have the opportunity to become more innovative and more aggressive and competitive against some of these new smaller players.”

Many of the problems of the financial crisis appeared in the OTC market, Lee points out, which do not boast the transparency that traditional exchanges offer. “All indications are that we will see a heavier hand in terms of regulation in the coming year,” he says. “The global exchange market will have a lot of opportunities to take advantage of that.”

This is an opportunity that is unique to Asia. In Europe and the US, traditional exchanges are already losing significant amounts of liquidity to alternative trading venues. “For the European market it might be too late already,” says Sang. “But in Asia, exchanges have the chance to come out ahead.”

Exchanges in Asia could move to beat dark pools at their own game, offering their own alternative-type trading venues. Partnering with already-established networks in the West such as Chi-X could be another strategy Asian exchanges employ in the future.

“These are defensive moves, but not in a conservative way,” Katkov says. “Instead, they are trying to embrace new technologies and attract the most efficient services they can. I think that is the type of defensive move we’re more likely to see.”

Source: Waters Online, by Lauren Hilgers 06.01.2009

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DMA India: Excessive paperwork to hit smooth takeoff of DMA trading

MUMBAI: Too much of paperwork in terms of agreements with clients to avail the direct market access facility (DMA) may well slow down the pace of algorithm trading in India, say institutional investors. Algorithm, or program trading, is the backbone of DMA that will help players capitalise on the available arbitrage or hedging opportunities.

FIIs who were given the green light by SEBI in April this year to avail DMA facility, are finding the going slow due to the time taken to get their end clients to sign up on additional agreements.

Apart from this, FIIs also need additional approval from the exchange for the algorithm they will use for trading.

DMA, is an electronic facility offered by brokers to their clients, enabling them to place orders directly into an exchange-traded system. Currently, all investors – both institutional as well as retail – place their orders with brokers who, in turn, enter them into the exchange’s system. With DMA, clients can directly place their orders into the exchange system, using their broker’s infrastructure. Very popular abroad, DMA allows funds using algorithm or program trading to have direct control over their orders.

“India has some inconsistencies in that. Apart from submitting approvals for DMA, we also need approval on the algorithm that we will use for trading from NSE,” said an FII.

Algorithmic trading or program trading refers to orders that are automatically placed in the market by software programs, built on certain mathematical models. In its simplest form, algorithmic trading could be based on a program designed to detect an arbitrage opportunity between the cash and the futures market and placing orders real time to capitalise on any anomalies in pricing.

“For our external clients, it’s a matter of extra eight-10 pages of paperwork that need to be signed. This slows down the process, by when we would be good to go,” said the head-equity at the Indian arm of a foreign brokerage.

Several FIIs have been meeting with NSE and BSE seeking to operationalise their DMA facility. “The exchange is looking for assurance that the algorithm being used by the end client to brokers are stable and does not involve significant market impact,” said an institutional broker. On their part, FIIs are looking for increased ‘throughput’, meaning whether the exchange can handle increasing traffic and whether the execution of an order would be on time and efficient. On their part, given the new IT migration, NSE would be able to handle 3-4 times the peak trades they are handling at present, say officials.

While DMA is new to India, globally the system has succeeded in garnering a substantial share of the daily turnover. For FIIs like Credit Suisse, today roughly 40% of their business flowing into the Asia-Pacific region is going through DMA. “For markets like India, trading via DMA would mean increased volumes, liquidity, narrowing spreads. In fact, India is probably one of the easier market to trade in terms of narrow spreads (7 bps on an average and that is the narrowest in Asia),” said Brook Teeter, director of equities, (advance execution services) at Credit Suisse (Hong Kong).

“That makes electronic trading in India very good as it makes our algorithms work very efficiently. Now you will see increased volumes in India for overseas clients funds such as hedge funds and large institutions who will want to trade in India because of the anonymity it provides. We will see new entrants to the market. And those who were not trading in India will come in because of the anonymity,” he added.

Amongst those who currently have the DMA facility are Macquarie, Lehman, CLSA and Credit Suisse shortly.

Source: The Economic Times, 12.09.2008

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