BSE plans trading in commodity derivative segment

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Leading bourse BSE on Saturday has said that it plans to launch commodity derivative segment which will allow trading in metals and has approached market regulator Sebi for approval.

“BSE plans to set up a commodity derivative segment as soon as approvals are in place. It would consist of non-agricultural commodities like metal, oil and gas,” BSE Managing Director and CEO Ashishkumar Chauhan said.

Post the merger of the capital market regulator Sebi and commodity market watchdog Forward Market Commission (FMC), the exchange members need not create a separate subsidiary to start commodity trading.

“As and when that (merger) process is complete, our members can trade in commodities. Earlier, they had to open a separate subsidiary to become member of commodity exchange.

Now they are allowing us to trade as part of BSE as and when the approvals come,” Chauhan said.

At present, there are two major national and six regional bourses which offers commodity futures trading in the country.

As BSE completes 140 years of operations, Chauhan said BSE wants to position itself as “investment bourse” of any type of asset class rather than just be confined to being an equity trading platform.

He further said that they have got board approval for setting up of an international exchange in Gujarat’s GIFT City.

“We will apply to regulator Sebi. This is first time that an international finance zone is set up and we plan to offer all asset classes which will include equity derivative, currency derivate, interest rate derivative, and international and domestic commodities in the international exchange,” he said.

The new exchange will also help global companies raise finance from other overseas investors.

“We want to raise funds for Indian companies and foreign companies using international finance zone. For international finance zone to succeed and compete with Singapore, Hong Kong and others we need to ensure that it is able to provide all options under one roof,” Chauhan said.

He said the planned international exchange would be a BSE subsidiary through which companies can raise funds through issue of depository receipts.

“Currently, we are in the process of discussion with MCA and others what names are available,” Chauhan said when asked what would be the name of the new exchange in the GIFT City.

GIFT city, situated in Gujarat, caters to India’s large financial services potential by offering global firms a world—class infrastructure and facilities. It aims to attract the top talent in the country by providing the finest quality of life all with integrated townships, IFSC and multi—speciality special economic zone.

 Source – The Hindu (July 9, 2016).

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Brokers urge traders to adopt Algo Trading

Objective of the move is to use automation to maximise trading profits.

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‘Completely automate your strategy with only a few clicks’; ‘Maximise trading profits by using approved execution strategy’, ‘Customise your strategy with custom target and stop-loss, bullish or bearish signals without any programming knowledge’.

These are some of the benefits of algo (algorithm-based) trading highlighted by Ludhiana-based broker MasterTrust on its website. MasterTrust is not the only one goading retail traders to adopt algo-based strategies to trade. A slew of other top domestic brokers such as Edelweiss Financial Services, Sharekhan, IIFL, Prabhudas Lilladher and Reliance Securities have started selling the concept to traders.

The objective remains the same: use automation to maximise trading profits. The broker too benefits by getting an additional fee from the traders — as high as Rs 15,000 to Rs 30,000 per month per strategy — to use the facility. “These strategies help traders tap opportunities in a milli-second, which is practically impossible through human intervention. Besides, algos can provide an additional source of revenue to brokers since customers are willing to pay a fee for using the facility,” said B Gopkumar, chief executive of Reliance Securities. He said Reliance Securities currently have three or four standard algo strategies in place and might do a mass rollout to its clients in the next month or so.

The simplest algo strategies could involve buying a stock when it rises above the 200-day moving average, or selling a particular stock when it moves into overbought territory. There are many other sophisticated strategies such as pair trading and scalping. Scalping, for instance, involves making profits on small price changes. Traders who implement this strategy will place anywhere from 10 to a couple of hundred trades in a single day to capture small price moves.

“At Edelweiss, we are addressing the needs of professional traders and high net worth individuals who have large trading teams,” said Harish Sharma, business head — brokerage and wealth management, Edelweiss Broking, adding they were looking to expand the suite of algo products in the coming months.

Algo trades use advanced mathematical models for effecting transactions and can pump thousands of orders in a second. There are multi-client and single-client algos. The former are automated strategies targeted at multiple clients and based on a preset system of rules developed by brokers or algo vendors. Single-client algos are customised according to the needs of a particular client. Popular algo vendors in the market include Omnesys, Symphony Fintech, and Greeksoft Technologies.

Brokers cite several benefits of employing algo-based strategies. It takes away the emotions from decision making, enabling traders to honour stop-losses and other targets. It also helps clients size their trades more effectively and ensure they don’t become over-leveraged in the market.  Some experts, however, believe algo-based strategies are not suited to individuals because of the complexity and the risks involved.

“Retail traders may not be in a position to understand some of these strategies and burn their fingers,” said a broker, on condition of anonymity.

While algo trades provide liquidity as more orders are placed, they can distort prices if wrong programmes are allowed to run unchecked. However, this is mostly a problem only in cases of large orders executed by institutional clients.

As a precautionary step, stock exchanges currently audit all algos to back test them and assess their risk parameters, and might take 25-40 days to before greenlighting a particular strategy.

Interestingly, in September last year, the Association of National Exchanges Members of India (Anmi), a body of stockbrokers, had written to the regulator, suggesting ways to minimise risks arising out of algo trades. At present, about 20 per cent of the turnover on the exchanges comes through the algo route.

Source – Business Standard (May 30, 2016)