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India's Stock-Trade Matching Platform to Buoy Volume, Credit Suisse Says
India’s automated trading platforms to match equity buy and sell orders with the best prices on the two major exchanges will help increase turnover by boosting investor confidence, according to Credit Suisse Group AG.
“Investors will get the best price and they will save money,” said Murat Atamer, head of electronic trading product for Asia Pacific at Credit Suisse. “Exchanges will benefit as it will induce more trading to go to India.”
The systems route prices from the stock exchanges to software running on traders’ computers, automatically identifying the best matches for customers’ orders. Indian stockbrokers now manually decide whether to trade with the Bombay Stock Exchange or the National Stock Exchange, and prices differ from one to the other. India’s stock market regulator approved use of automated trading platforms on Aug. 27.
India’s fastest economic growth in 2 1/2 years has spurred a 60 percent increase in foreign funds inflows this year. Average daily equity turnover has climbed 28 percent since January 2007, while it’s dropped 34 percent in Asia-Pacific, Credit Suisse said. Billionaire George Soros last month bought a 4 percent stake in the Bombay Stock Exchange, Asia’s oldest bourse, according to people familiar with the transaction.
Transparency, Confidence
“This will bring transparency and boost the confidence of investors,” said Jagannadham Thunuguntla, chief strategist at SMC Global Ltd. in New Delhi. “Instead of the broker, the machine will decide which exchange offers the best price.” Investors who trade on the price difference between shares trading on the two exchanges will see their business disappear, he said.
India’s daily turnover has the potential to rise to third- biggest in Asia from seventh in five years, Atamer said. That would put it behind China and Japan, while displacing Hong Kong, he said.
“India trades between $4 billion to $8 billion in a day, and 80 percent of the flow goes to the National Stock Exchange,” said Atamer. “The BSE has a better price 35 percent of the time. If you have an engine that routes between both the exchanges, then it is very good for investors.”
For foreigners, access to India’s capital markets remains restricted by “too much” bureaucracy that discourages investors, said Vikas Pershad, Chicago-based chief executive officer of hedge fund Veda Investments LLC.
“We would expect that smart order routing will help improve BSE’s market share,” said James E. Shapiro, Bombay Stock Exchange’s head of market development, declining to elaborate.
The Bombay Stock Exchange, founded in 1875, is introducing new products and cutting prices to win back market share from its larger rival. Competition between Indian exchanges is likely to rise when the MCX Stock Exchange begins operating. The bourse is awaiting regulatory approval to commence trading.
“The NSE is a very liquid exchange and that is not likely to change,” the National Stock Exchange said in an e-mailed response to questions. “An audit trail of orders executed will go a long way in ensuring that the system works in the interest of investors.”
To contact the reporter on this story: Rajhkumar K Shaaw in Mumbai at rshaaw@bloomberg.net.
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