 "National Stock Exchange")
The National Stock Exchange (NSE) plans to open its co-location facilities to smaller brokers, at low costs. Through co-location, one can have his server at the exchange building, facilitating faster trading.
Currently, member brokers use a co-location rack or half a rack. The new facility, to be started soon, will allow five-six brokers to share a single rack or half a rack, enabling smaller brokers to access co-location facilities at a lower cost. About 120 members use NSE's co-location facility.
A single rack costs Rs 12 lakh. Setting up the entire infrastructure and software could push up costs to about Rs 30 lakh for those using full-rack facilities. With five-six brokers sharing the co-location facility, however, the cost per broker will fall to Rs 5-6 lakh.
About two years ago, the cost for owing a rack stood at Rs 24 lakh.
“While the actual co-location rack space might not be that expensive, the rest of the technology and software are a little expensive. The vendor will set up the infrastructure for the co-location and allow five-six brokers to share the facility,” said a person familiar with the exchange’s plans. “Some medium-sized brokers are keen on using the facility,” he added.
“The new facility makes commercial sense for both the exchange and brokers. This is a good move, as the NSE’s rival has also been aggressively pushing co-location facilities,” said Sudip Bandyopadhyay, former head of Destimoney Securities.
Recently, the Association of National Exchanges Members of India had written to the Securities and Exchange Board of India (Sebi), asking it to make co-location facility accessible to smaller brokers, at lower costs. It had also sought an increase in risk layers to manage the interaction between participants and exchanges, including controls on the number of messages per second, the number of orders per second and maximum open orders for a product.
This came in the backdrop of the market regulator’s plans to impose curbs on algorithmic trading. “Algorithm-based trade or high-frequency trades are prone to high risks. We are examining a number of options to bring down these risks,” Sebi Chairman U K Sinha had said in July.
Algo-based trades use advanced mathematical models for transactions and can pump in thousands of orders in a second. While such trades provide liquidity, as more orders are placed, these could distort prices if wrong programmes are allowed to run unchecked.
As of June, 18 per cent of the turnover on exchanges came through the algo route. Another 24 per cent was accounted for by co-located servers.
