Will co-location trading gain traction post-SEBI move?

Co-location facilities at the exchanges, which have been at the centre of controversy, are used by 36 per cent of traders, according to the Handbook of Statistics released by the market regulator this week. These traders enjoy the advantage of getting their orders through before anyone else, as they operate from very close proximity of the exchange server.

According to the statistics, updated till December 2017, Internet-based and mobile trading are gaining traction while trading through algo and non-algo (normal) segments is waning in the derivative segment on the NSE.

From 45 per cent in March 2014, normal trading now accounts for 37.4 per cent, while algo accounts for just 3.4 per cent.

Recently (in March), to facilitate small- and medium-sized trading members, SEBI asked bourses to introduce ‘managed co-location services’, wherein space would be provided to vendors along with technical know-how and other expertise. According to SEBI, small- and medium-sized trading members find it difficult to avail co-location facility due to various reasons, including high cost, and lack of expertise in maintenance and troubleshooting.

‘Managed co-location’

Under the ‘managed co-location’ facility, space/rack will be allotted to eligible vendors by the stock exchange, along with provision for receiving market data for further dissemination of the same to their client members and the facility to place orders (algorithmic or non-algorithmic) by the client members from such facility. Further, in order to have fair competition, exchanges have been asked to ensure that multiple vendors are permitted to provide such services at their co-location facility.

Besides, the regulator had also strengthened the algo trading framework, including providing some services free of cost.

SEBI has asked exchanges to provide tick-by-tick data feeds to all members, free of cost.

One has to wait and see whether it will really help retail traders in negating the advantage of the affluent, who are stationed near the main server of the bourses.

Bank Nifty — numero uno

Nifty 50, the erstwhile Nifty, once the darling of derivative traders, has lost its way sharply. The famous index now account for only 35 per cent of the turnover among the NSE indices, according SEBI data.

No prizes for any guesses here — it is the Bank Nifty, which is now the star attraction for traders. Derivatives on Bank Nifty, which also has contracts settled on weekly basis, accounts for 65 per cent of the total trading of index.

In comparison, in March 2014, the Nifty index was clocking almost 90 per cent, with the Bank Nifty making up the remaining.

As the Bank Nifty turned volatile in the last few years due to various reasons, including NPA woes, investors have tried to take advantage of the wild swings.

Less price rigging

It seems strong vigil and the risk management tools employed by SEBI and bourses have started yielding results.

According to SEBI, investigation related to market manipulation and price rigging is now at the lowest in the last eight years. In 2017-18 (up to December), just 36 cases of market manipulation and price rigging have been investigated. Year 2016-17 saw 185 such cases being investigated. Similarly, insider trading is also at the lowest point, at nine cases, against 34 in the previous year.

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