The NSE, India’s largest stock exchange by volume, is considering lowering the cost of high-frequency (algo) trading facilities for its members.

One possible option being considered is to make individual co-location servers available to smaller brokers, bringing their costs down to about a tenth of where they stand now.

For high-frequency trading (HFT), which is driven by fast computer algorithms, brokers need their servers located close to the exchange’s own data centre, a facility called co-location.

To set this up, they must rent out physical space at the exchange’s data centre (called a rack), set up and maintain servers and buy software that makes HFT possible. A person familiar with the working of the system said costs of co-location amount to as much as ₹30-50 lakh a year for members at NSE, making it unaffordable for smaller, retail brokers.

BSE currently provides co-location facilities gratis to all members. However, NSE leads significantly by trading volume and the prohibitive cost of co-location has led to some disgruntlement about HFT’s growing popularity in India among larger traders with more financial muscle.

The person quoted above said NSE is considering options that will reduce the cost of co-location for smaller members, by either offering a basic version free of cost, like BSE now does, or by selling the facility in bulk to vendors who will instead rent them out to brokers.

“With the third-party model, a vendor can take over a rack and then rent out individual servers to smaller brokers, bringing down their cost to about ₹3-5 lakh a year. It also brings down operational difficulties for NSE,” a vendor said.

NSE did not respond to a query about these proposals.

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