Malaysia and India: DMA and Algos, Linking Markets Across Asia

Stephanie Lawton reports on the latest from the Face2Face Forums in Mumbai and Kuala Lumpur.

Few exchanges have seen such dramatic transformations as those in India. Technology looks set to play a major role in meeting market demands with the BSE announcing its adoption of FIX 5.0 and the NSE using FIX 4.2, with plans to upgrade to 5.0 as needed. Both the NSE and BSE seem determined to not only meet, but exceed their members’ expectations and have aggressive plans to build on existing capabilities and develop new products.

Bringing together the Exchanges
Three exchanges (NSE, BSE and MCX) came together to debate the role of technology, regulators and, of course, competition.

Jim Shapiro, head of market development for the Bombay Stock Exchange (BSE), stated that the ability of an exchange to innovate and stay ahead of the market, would be the key to its success. Correctly reading how the regulators may react to situations and evolve regulations in India would also be key, he added. Vidhu Shekhar, vice president of new products for the National Stock Exchange of India (NSE), agreed that keeping pace with market growth was essential. “You need to keep your eye on the ball,” he urged. “We need to recognise what’s going on outside India and decide how we, as an exchange, respond to the challenges and opportunities of globalization.”.

Latika Kundu, head of market operations for the MCX-SX, focused on the role of technology. “It’s about awareness of products on the market and how we ensure maximum accessibility to these new products,” she argued.

Looking at the progress of DMA and automated trading, the BSE felt the process was still in its infancy, with DMA still showing market constraints. However, algorithms were attracting a lot of interest from most market participants. New players, in particular, were ramping up this aspect of their technology and product offerings, with the BSE keen to attract these new market entrants.

On the subject of regulatory changes, all the exchanges agreed that the regulators had come a long way in engaging with the market and the exchanges. The main concern centered on systematic risk and in better understanding their clients’ requirement. On the idea of a MiFIDstyle system, the exchanges said that though the issue of best execution was being actively discussed, it still remained a complex issue. According to Shapiro, dark pools wasn’t high on the regulators’ priority list and block trading provoked more interest.

The Keynote – High Frequency Trading

High Frequency Trading as the New Market Makers was addressed by Ronald Gould, Chief Executive Officer, Asia- Pacific, Chi-X Global.

To start his presentation, Ron questioned whether High Frequency Trading is ‘bad’ or just ‘badly understood’. He gradually unfolded the story by looking at the development of HFT in the US and Europe in terms of regulatory evolution and the technology arms race. He also illustrated that an Alternative Trading System (ATS) has a positive impact on trading volume, which was reflected by the explosion of trading activity in Europe and in the U.S. He predicted that Asia-Pacific markets will undergo many of the same changes as the U.S. and Europe with HFT will playing a critical role in many existing Asia-Pacific markets with relatively low liquidity.

What are the major issues for electronic trading in India?

The major drivers were still the foreign institutional investors that were showing a strong appetite for algorithms, explained Murat Atamer, vice president equities, at Credit Suisse AES. “FIXatdl would be attractive to our clients,” said Atamer, adding that India was not a market that should be traded without algos.