@nithin In continuation of the below topic and the link to the SEBI order on NSE in the colo issue that you shared
I am part of a bunch of trading communities. From yesterday many seem to be blaming some of their losses to NSE, Colo etc. How would this issue have affected me as a retail investor.
Does Colo etc is detrimental to retail investor/trader interest?
As a retail investor, news like this against the largest exchange in the country might be disconcerting. Firstly this case is about preferential access to certain members/brokers of the exchange on the exchange colo.
Colo, is a data center facility offered to members in order to have low latency connection to the exchange - a data center within the exchange premises. This type of connection is important if executing high-frequency trading strategies (HFT) or generally any algorithm trading strategy which is time sensitive. Typical speeds in colo for executing a strategy is in microseconds (1/100000 of 1second). In the HFT world, the person who can execute faster typically wins. For example, cash future arbitrage strategy, market making strategies, etc. But here is the thing, there might be just a couple of hundred brokers/prop desks who actually run such latency-sensitive strategies in India and having space on the exchange colo. If there was preferential access like SEBI says to a few of brokers, it would have affected the rest of the 200 brokers/prop desks. This wouldn’t have had any impact on retail traders/investors.
Retail investors/traders don’t use algo’s to execute trades and the strategies aren’t latency sensitive. Looking at certain fundamental data/chart/news and then manually placing can take from few seconds to many minutes. This is a different world and doesn’t compete with the HFT strategies at all. In fact, the HFT strategies are responsible for creating liquidity in the system reducing the impact cost (the cost incurred due to the bid-ask spread for your quantity) for a trader/investor. We had recently done a study and concluded that the retail trader loses more money in terms of impact and transaction costs (STT, Stamp, etc) than to the market itself. HFT/Colo helps reduce this.
While there could be people blaming some of their trading losses to NSE Colo, this ain’t really true. It wouldn’t have affected retail investors and traders in any way. And like I mentioned here, if anything it would have helped reduce their impact cost and hence increase profits.
OPG securities has been barred for five years. How will its clients trade/invest or disinvest? Or its clients will get an opportunity to choose another broker as SEBI barred OPG securities from accessing security market.
What gonna happen to MFs, stocks , pledged equities and other open positions with OPG ?
I think they are a prop shop, which means they trade for themselves and don’t have clientele business. If they had clients, of course all their clients could move out everything to another broker.
Going a little off topic here - could you share results of this study please? It sounds interesting. And kudos to you for researching this.
GIve me a few days, will try to post something.