Updated on 2 June 2016 10.25am to include response from NSE
In what market participants allege as algo or high frequency trading (HFT) gone ‘rogue’, there was a massive spurt in Tata Motors Ltd’s trading volume and turnover mainly on the National Stock Exchange (NSE) and to a much smaller extent in the BSE during last half hour of trading on 31 May 2016. In fact, the turnover in the scrip jumped five times on BSE and over 13 times on NSE, when compared with the average of past 10 trading sessions.
Past 10 day’s average trading volume of Tata Motors on the BSE is 7,11,421 (7.11 lakh) with the average turnover of Rs28.09 crore. On 31 May 2016, the scrip recorded trading volume of 32,31,089, (32.31 lakh) 4.5 times higher, when compared with past 10 day’s averages.
A much bigger jump happened on the NSE, where the 10-day average trading volume of Tata Motors is 96,43,203 (96.43 lakh) with an average turnover of Rs381.65 crore. On 31 May 2016, the scrip recorded trading volume of 11,07,44,326 (11.07 crore) almost 11 times higher.
A look at the hour-by-hour volume will tell you this strange story. It seems to be a fit case of investigation by the market regulator.
There was nothing by way of news to warrant this kind of crazy volumes. Our emails sent to top executives of BSE and market regulator Securities and Exchange Board of India (SEBI) remained unanswered till writing the story. We will include their responses as and when we receive it.
Update: Replying to our mail, an official from NSE says, “Please note that we did not notice anything wrong as was indicated in your email. Also as you may know we do not comment on fundamental reasons, traders behaviours, market perceptions etc attached to any price movements of listed entities / instruments, unless of course asked by appropriate authorities.”
According to market players, such extraordinary volume is the fingerprint of algo trading or HFT. The Indian market opened up to this controversial form of trading when NSE started it in 2010. This form of high-speed trading rose 12% on the BSE, to account for almost 30% of total trades. Its share is higher in the NSE, with nearly 46% of trades happening on the platform from HFT, according to a report from The Huffington Post. Higher volumes, of course, translate directly into higher revenues and profits for the exchanges, which are now completely bottomline-oriented.
The Financial Stability Report (FSR) for June 2015 released by RBI on 25 June 2015, warns against the rising popularity of superfast algorithm trading, saying its complex coding and ultra-low latency due to its advanced communication platforms increase risks of erroneous trades and manipulations in stock markets. Further, the fact that the share of algo orders in total orders and the share of cancelled algo orders in the total number of cancelled orders is around 90% creates concerns relating to systemic risks, the FSR says.
Global regulators, in a report last year had warned that rapid-fire trading firms’ use of increasingly complicated computerised trading programs may pose risks to the financial system, says a report from Wall Street Journal. ‘Regulators’ growing concerns about algorithmic traders’ relentless push for speed intensified in the wake of market shocks such as the “flash crash” of May 6, 2010—when markets swung wildly amid a flurry of technology glitches and heavy selling by computer-driven firms—as well as the loss of more than $400 million in less than an hour by electronic-trading firm Knight Capital Group Inc. in August 2012, the report added.http://moneylife.in/article/humungous-jump-in-tata-motors-trading-volume-on-nse-in-the-last-30-minutes-on-tuesday/47081.html