Just a few traders generate most of the volume on bourses, say FinMin data.
The average daily turnover of around Rs 1.25 lakh crore in cash and derivative segments of domestic equity markets could be because of short-term speculation. According to finance ministry data, nearly 67 per cent transactions on the National Stock Exchange’s (NSE’s) futures and options (F&O) segment are intra-day, while over 68 per cent transactions in the cash segment are generated by those who do not take delivery of shares.
The data, which indicate lack of depth in the markets, was revealed by the Minister of State for Finance, Namo Narain Meena, to members of Parliament Sukh Dev Singh Dhinsa and Mohammed Adeeb. Contrary to the perception that institutional investors dominate the markets, during April-June 2010, 52 per cent volumes on NSE were generated by high net worth individuals and retail and corporate investors Institutions accounted for 24 per cent turnover on NSE, while proprietary trades made up for another 24 per cent.
According to market players, over half of these proprietary volumes came through algorithmic or automated trading. Proprietary trade refers to a trade executed by an exchange member or a brokerage for direct gains and not commissions.
NSE saw total turnover of Rs 8,47,300 crore in the cash segment and Rs 58,31,715 crore in the F&O segment during April-June. According to Meena, only 390,000 investors traded in the cash market of NSE in the June quarter, whereas India has eight million investors (according to a 2009 report by the Swarup Committee. The data showed that the top 10 companies listed on NSE generated a turnover of 24 per cent in the June quarter. NSE has 1,987 companies on its platform, of which 203 are available in the derivatives segment. NSE is a monopoly player in the domestic equity markets, with over 95 per cent market share in cash and derivatives combined.
At present, index futures account for close to 11 per cent daily derivatives turnover, while index options account for around 55 per cent of daily trading. The S&P CNX Nifty index of NSE is the largest-traded index product.
Data showed that 90 per cent trading came from just 192,200 investors. Breaking it further, 80 per cent turnover was generated by just 41,654 investors. In other words, 150,546 investors (78 per cent) accounted for just 10 per cent of the trading turnover.
Cut it further and it gets worse. Only 8,727 investors accounted for 70 per cent of the turnover, among which 413 were proprietary traders, mainly brokerage houses. The minister said 60 per cent trading was done by a mere 1,563 traders and half the trading turnover came from a minuscule 451 clients, of which 156 were proprietary traders.
In the US, a paper of Federal Reserve Bank of Chicago said high-frequency trading conducted by proprietary trading desks at big banks and private hedge funds accounted for 70 per cent of equity trading volume in 2009. But turnover in the US is much higher than in India. In 2009, the Chicago Mercantile Exchange generated a turnover of $36,935 billion compared to NSE’s $3,238 billion.
Over 600 million shares are traded daily on the New York Stock Exchange, which has over 2,300 common stocks and 3,600 company bonds. It has about 1,500 members who own seats and trade for themselves or their firms. Membership seats are also traded. In March 2009, the seats were sold for $1.4 to $1.5 million.
