Who: Algorithm Trading Test Environment
What: Launched by BSE
When: 18 January 2016
The Bombay Stock Exchange (BSE) on 18 January 2016 launched Algorithm Trading Test Environment (ATTE) service in partnership with Symphony Fintech Solutions Pvt Ltd.
The BSE is Asia’s oldest stock exchange and, at present, is the world’s fastest stock exchange with a speed of 6 microseconds.
Features of the ATTE
• This will enable all market participants to test their trading algorithms in Equity, Equity Derivative and Currency Derivative segments free of cost.
• The members will be able to test their trading strategies with live market data feed during market hours and historical market data.
• There is also a provision to generate data analytics reports to check the performance of the strategies.
• BSE will provide individual test session for each member and there is no time slot booking for login sessions for trading members.
About Algorithmic Trading
• It is also known as Algo-Trading or Black-Box Trading.
• As per SEBI’s Broad Guidelines on Algorithmic Trading, released in March 2012, algorithmic trading is defined as any order that is generated using automated execution logic.
• In simple terms, it is nothing but usage of Computers to execute trades based on pre-defined instructions.
• Advantages: It helps in executing trade at a huge speed and frequency, not possible for a human trader. As a result, emotional human impacts on trading activities can be circumvented.
• It makes markets more liquid as more orders are placed in the market.
• It helps in identifying trading opportunities in a milliseconds based on the codes written by the trader ensuring that trading opportunities are not missed.
• It helps in identifying mispricing and instances of inefficiency very fast by rapidly closing in on arbitrage opportunities.
• Disadvantages: It increases the volatility in the market and stock prices by generating massive orders within few seconds. Volatility in Indian stock markets on 6 May 2015 is a case in point.
• If erroneous programmes are allowed to run they can distort market prices to a large extent.
• As per an estimate, Algorithmic trading accounts for a third of the total volume on Indian cash shares and almost half of the volume in the derivatives segment.
• As per the SEBI’s guidelines of March 2012, all the Algo-Trading orders must be routed through broker servers located in India in order to regulate them