India always offers an excellent perspective on the opportunities and challenges for trading technologies across the region. Proving the point, the gloves were off at the latest Face2Face held in Mumbai in early September, with the buy-side, vendors and the exchanges pulling no punches in their assessment of DMA, algorithms, extended trading and competition across the trading venues.
Deutsche Bank’s Greg Lee provided context to much of the day’s discussion with some blistering data on trading growth in India. The introduction of DMA and algorithms in 2008 had spurred trading, with orders more than quadrupling over the past six months alone, he said. The post credit-crunch Indian market was emerging as much more mature, stable and efficient, and better able to benefit from the advantages offered by DMA and algorithms, Lee explained. The challenge now, he cautioned, was to make it happen.
The FIX Protocol, Portware’s Damian Bierman argued, was an integral part of the solution. Bierman focused on the latest developments and implementation of the FIX industry standard, also highlighting Algorithmic Trading Definition Language (ATDL). ATDL, Bierman explained, defines how buy-side, sell-side and technology firms can use common definitions and formats to simplify the design and reduce the time to market for algorithms. The FIX-based standard was passing on these benefits to technology providers as well directly to buy and sell-side firms. Judging from the response from the delegates, ADTL has a strong future in India, particularly given that FPL announced that the launch date has been penciled in for March 2010.
Another hot topic between the buy-side and the exchanges was the issue of FIX and Straight Through Processing (STP). Metabit’s Daniel Burgin stressed that market conditions unique to India, cost and a comfort level among users, were key challenges that need to be addressed to improve connectivity between the buy-side and the exchanges, and between the buy and sell-side. Burgin stressed that FIX was a global standard designed to be supportive to local needs. He applauded the growth of local software vendors, saying these players were often the drivers in creating domestic technology solutions, supported by FIX. This would, in turn, provide greater competition to global providers to develop Indiaspecific, cost-effective solutions.
Competition alive and well between the exchanges
India’s two dominant exchanges provided one of the most heated debates of the day, with the National Stock Exchange of India (NSE) and the Bombay Stock Exchange (BSE) both putting forward strong cases for their respective trading platforms. NSE, which is already using FIX4.2 and has shared its willingness to upgrade to FIX5 gave a clear message: our members wanted DMA and algorithms, so we gave it to them, said NSE’s R Nanda Kumar.
The BSE, with its new management team, was equally bullish. Head of market development, Jim Shapiro, told delegates that his team was focused on making BSE a more competitive market. BSE challenged NSE on its algorithm trading policy, which Shapiro contended included penalties. “It’s hard to believe that our members have to be approved for trading on our exchange by the NSE”, Shapiro said. The NSE countered that the increase in orders and capacity that algorithms had generated needed to be taken into consideration. The challenge from the BSE was that by preventing SOR they were holding back the advancement of equities trading. Calm was restored when talking about extended opening hours, with both exchanges telling delegates that they were working closely with the Securities and Exchanges Board of India (SEBI) to make the change to longer trading a smooth process. The exchanges said they were also in discussions with SEBI on DMA investor requirements and margining costs.
Appealing to the buy-side
The day drew to a close with views from the buy-side. Fidelity’s David Mulvany said electronic trading was used for different reasons depending on the order, for example, providing institutions with greater anonymity. Speaking from the perspective of a local buyside firm, Vinoth Ramakrishnan of Sundaram BNP Paribas said, time and efficiency were the greatest benefits that DMA and algorithms brought to his firm. From both the global and local buyside, the message to brokers was clear: if you want to differentiate yourselves, you need quality and variety of algorithms, and the support staff to ensure the reliability of these technologies.
With views from all sides of the industry during the formal sessions, the delegates retired to debate the main points over a relaxing drink.