Over 60 percent of trading in India now powered by algorithm, shows data

In recent months, there has been a marked increase in the interest shown by major global trading firms in setting up high-frequency trading (HFT) desks in India, for proprietary trading, with the likes of Citadel Securities, Tower Research and others seeking regulatory approvals.

As much as 60 percent of the trading in India is now taking place via algo or High Frequency Trading (HFT), a senior BSE official said on November 21 at an event hosted by Association of National Exchanges Members of India (ANMI), showing the continued dominance of speed trading in the equity derivative segment.

This trend of HFT's dominance has gathered momentum in last few years, data from NSE has shown, as Sebi's measures to rein in excessive retail F&O trading activity kick in from this week. India now accounts for over 80% of the global futures and options trading volume, a leadership that the regulator is not extremely happy about. Ashwani Bhatia, Whole-Time Member, SEBI had recently said at an event in October that this is a 'crown we should not wish to wear', and that 'F&O cannot be and should not be a national pass time.'

In recent months, there has been a marked increase in the interest shown by major global trading firms in setting up high-frequency trading (HFT) desks in India, for proprietary trading, with the likes of Citadel Securities, Tower Research and others seeking regulatory approvals. There no official number of how many global HFTs have sought to have presence in India, but industry estimates suggest about two dozen players have taken the local breakage route.

V Sundaresan, Executive Director, SEBI said the regulator will ensure investor protection while encouraging innovation this space. "As stockbrokers increasingly prioritize investments in AI, blockchain, and algorithmic trading, SEBI remains committed to fostering an environment of innovation, transparency, and investor protection," Sundaresan said at the ANMI event in Mumbai.

A study by Sebi has shown that high speed trading yielded Rs 58,840 crore ($7 billion) worth of gross profits in the options market, powered by algorithms that have helped proprietary desks.

In April US-based Jane Street informed that one of its strategies in India resulted in $1 billion worth of profits.

A Sebi study in F&O trading, released in September show that the availability of sophisticated trading platforms and lower transaction costs enabled retail investors to actively trade in Options and Futures contracts, contributing to the surge in market liquidity.

The same Sebi study showed that 306 out of 376 FPIs traded through algorithms, while 347 out of the 626 proprietary traders traded through algorithms. On the other hand, only 13% of 95.7 lakh individual traders traded through algorithms. As much as 97% of the profits of FPIs, and 96% profits of proprietary traders came from Algo entities, it said. Nine out of 10 retail derivatives traders lost money during the three-year period of the study till March 2024, with average loss per trader amounting to about Rs 2 lakh, Sebi report showed.