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Algo Trading Scaling Up in India

LiveMint: Algo trading “encouraging” in India, says Goldman

The resurgence of interest in the Indian markets in the past six months has spawned a new phenomenon—the growth of direct market access and algorithmic trading facilities offered by brokers. Goldman Sachs, a leader among sell-side electronic trading service providers globally, has had reasonable success since launching this facility in India early this year.

Goldman Sachs has been offering direct market access to its clients since 2008, a few months after the Securities and Exchange Board of India allowed these facilities for institutional investors. In early 2009, it offered its electronic trading clients three algorithmic trading strategies and last month it expanded this to nine algorithms. Siddharth Chhabria, head of India sales for Goldman Sachs Electronic Trading, says, “A large number of orders placed with Goldman for the Indian markets are using the direct market access route. Of this, as much as 90% are orders that use algorithms. The most popular algorithms are based on liquidity-seeking strategies due to the lack of depth in liquidity in many securities in India.”

For instance, one strategy popular with Goldman’s clients is “participate”, which works a large order on an exchange by placing small limit orders or “child orders”, depending on the existing liquidity in the stock. The algorithm watches market action on a tick-by-tick basis to keep in line with the exact liquidity situation in the stock and at any given time there are a number of child orders at different price points to participate in the existing liquidity.

There is enormous action in this space, and I can actually see bots placing orders in various options (and yanking them off nearly instantly) every so often. So much that the NSE decided enough is enough and will charge a penalty for “too many unexecuted orders” – a charge of 1 paise to 4 paise per order if the order to execution ratio is greater than 100 to 1.

Execution algorithms take precedence – for mutual funds or for the buy side, getting “VWAP”, or “Volume Weighted Average Price” may be useful for large orders (and to know they aren’t being stiffed by the broker). An algorithm can easily split orders into small parts and use tick-based liquidity information to get as close to the VWAP – reported by the exchange – as possible.

With the great squid perking up electronic trading in India, liquidity flows will be enormous. As a retail trader can you get electronic trading access? There is just one electronic trading platform I know of – and it’s a bit expensive – Interactive Brokers. Yes, they are in India now.

  • Anonymous says:

    >Don't you feel NSE is putting up restrictions on the order flow just because it is getting insecure about its system going down taking all the load that may get generated. Basically it simply doesn't have any buffer. Basically complacency has set in and so no technology upgrades were done and so people have to pay penalty for "unsuccessful orders"

  • arun says:

    >check out they have pretty many trading platforms including ones for which you can create custom formulas yourself…

  • Anonymous says:

    >Please provide a write up on how the algo trading will affect ordinary retail traders and also brokers who dont depend on algo trading.

  • Anonymous says:


    My 2 cents:
    – It might change intraday behavior (and hence effect intraday traders) so that strats that worked may not work anymore and one may need to find new intraday strats. Especially running out stops and stuff might be easier with algo trading. This is more speculation on my part though but it entirely feasible.
    – the biggest impact is in the institutional space. Insti block orders are now handled by brokers and they use techniques to reduce market impact and get good execution prices for the block order. Algo trading will drive them out of business – see Joe Saluzzi's whining on this in the US as to what happens to these brokers.

    NSE is in contrast with NYSE. NYSE has an SLP program whereby algo traders get a rebate (a frikkin' rebate!) as they supposedly provide liquidity. Who's willing to bet on how long before NSE is in GS's pocket?

  • Anonymous says:

    >Oh and by the way, do people remember the report about Goldman's stolen code having the potential to manipulate markets in the "wrong" hands?

  • Ramaiah says:

    >So, vampire squid is jamming its blood funnel(HFT) into India.

  • The Green Man says:

    >Oh fu** why don't they let the stock markets be simple anymore. Eventually people forget why they are 'investing' in the market in the first place – buying a piece of the profit making corporations and make this some numbers game

  • Anonymous says:

    >Green Man,

    HFT does not affect investors. It operates in time intervals of seconds or lower and at best will affect intraday strategies. It does not affect long term prospects for businesses and their stock performance over longer durations.

    "why don't they let the stock markets be simple anymore"

    this argument comes up over and over for every technology and every generation. For example; people from a generation or two back wonder why they have to start using computers at work instead of on paper. Move on…

  • Mohan C Nair says:

    >Hey Deepak, Y not have a LOS – Long Only Strategy .. now that the senses looks north

  • uniyal says:

    >Go through provide Strategies Studio to design and execute strategies with their ATS Platform. Regarding Algo trading for Retail market I am not sure Big Boss NSE thinks Indian Investors are mature enough for it..