Electronic Trading in India

No Country for Old Men
by Anshuman Jaswal, PhD, May 6, 2011
Industry Trends
Asia-Pacific

Abstract

The uneven pace of financial sector liberalization in India has been a bone of contention for some time. There have been similar disagreements about the manner in which electronic trading has been regulated. Foreign firms have entered India expecting it to be like other developing markets, but have found it much more difficult to compete effectively, facing hurdles in rolling out their services.

In a new report, Electronic Trading in India: No Country for Old Men, Celent studies the growth of electronic trading in Indian exchange-based markets, including equity, foreign exchange, and commodities. The Indian capital markets have gone through a gradual pace of liberalization. Over the last decade, steps have been put in place to allow technologies such as algorithmic trading, direct market access (DMA), and smart order routing (SOR). The country’s financial markets are poised to become international centers for electronic trading.

"In spite of the hiccups, the Indian market is set for some interesting times ahead," says Anshuman JaswalCelent Senior Analyst and author of the report. "As the issues between the exchanges are resolved and regulators become more adept at handling the rapid advances in trading technology, the Indian exchanges and brokerages will compete for dominance in the Asia-Pacific region."

This report compares the local market with some of its Asia-Pacific counterparts. It then studies the current levels of electronic trading in India, including algorithmic trading in equities, currency and commodity markets, buy side adoption of electronic trading, DMA, and SOR. This is followed by an algo vendor comparison, supported by an appendix which examines the offerings of some leading vendors. Finally, the report analyzes the regulation concerning the industry.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

3

Introduction

5

Market Overview

8

 

Comparison with Leading Asian Markets

8

 

Algorithmic Trading in Equity Markets

10

 

“So-Called” DMA

11

 

“Not So Smart” Order Routing

12

 

Other Asset Classes: Laggards or Dark Horses?

12

 

Common Algorithms

14

 

Comparison of Vendors

15

Overcoming Regulatory Issues

16

 

Smart Order Routing Issues

16

 

Direct Market Access and Subaccount Requirements

16

 

Flash Crash and the Need for Better Surveillance Technology

17

 

Dealing with Fat Finger Syndrome and Similar Mishaps

18

 

Record FII Inflow and the Need for Transparency

18

 

Securities Transaction Tax (STT)

19

 

Infant Industry Argument

20

Conclusion

21

Appendix: Analysis of Algorithmic Technology Providers

23

 

First Futures Software

23

 

Greeksoft

25

 

Omnesys

26

 

Symphony FinTech

28

 

TCS BaNCS

30

Leveraging Celent’s Expertise

33

 

Support for Financial Institutions

33

 

Support for Vendors

33

Related Celent Research

34

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