Big brokers offer high-speed trading strategies to prop up volumes

MUMBAI: Snippers, sniffers, gorillas and guerrillas are on sale with icebergs thrown in occasionally. These are no online games, but complex, high-speed stock trading strategies that leading brokers are offering to prop up volumes and hold on to top clients.

Till a few months ago, these algorithmic trading products were sold solely to institutional clients. But a tough market, slowing volumes and greater uncertainty are driving brokers to invite well-heeled individual traders to this exotic world of stock betting.

Clients, well aware of the complexity, are using algos to punt in a choppy market as well as hedge bets.

"We’re not left with many options now. To retain high margin clients, we’ve to offer speed trades and algo options," said the retail broking head of a listed intermediary. The sign of desperation is palpable with the advent of discount brokers who are offering trades virtually free.

Motilal Oswal Financial Services (MOFS), Edelweiss, IIFL and Kotak Securities are amongst leading broking houses that have started offering algorithmic options to clients. "We’re doing generic algos for all our clients… These algos are customised further to accommodate clients who desire more complex strategies," said Shubham Agarwal of MOFS.

As per NSE scrolls, algo trades in cash markets is up 2% in the past one year to 19.4%. In the equity derivatives, share of algo has touched 5% last month. The share would have been higher but for rigorous approval requirement.

Sebi mandates all ‘direct execution’ algo factors (strategies) to be vetted and approved by NSE before putting them to use. Clients who seek complex direct execution algos are required to be an ‘authorised partner’ (like a sub-broker) of the broker. To make the arrangement flexible, investors are allowed to design strategies.

"Our algo clients are mostly in the F&O segment. We ask for 25 – 50% extra margin, apart from regular margins, to manage risk," said Kamlesh Rao, CEO of Kotak Securities.

While algo trades may boost volumes, it will not increase brokers’ profit margins as investors are charged just about Rs 15-20 for every Rs 1 crore worth of trades.

But even if algos attract HNI clients, it can never be a mass product, Nithin Kamath, CEO of discount broking firm Zerodha. "Also, the approval process needs more clarity," he said.