DMA Opens Opportunities in India
Modern infrastructure could boost global profile
August 25, 2008
BNP Paribas offers direct-market access (DMA) to exchanges across the Asia-Pacific region--in Australia, Hong Kong, Japan, Korea, Singapore, Taiwan and Thailand. This summer, India, Asia's second-largest economy, joined the list.
In fact, BNP last month became the first brokerage to execute a DMA order in the country, placing a trade on the National Stock Exchange of India (NSE) through a local broker partner, Kochi-based Geojit Financial Services. BNP, which owns 49 percent of Geoji, has invested more than EUR500 million ($743 million) over the past three years in Indian securities firms. In July, the French bank announced that it had created a joint-venture firm with Geojit--expected to begin operations within two months--to handle institutional business.
In beating other brokers to the punch on DMA, BNP credited the technology expertise of its partner. "Geojit has an IT subsidiary company which specializes in electronic trading and execution services," Pierre Rousseau, head of Hong Kong-based BNP Paribas Securities Asia, told Securities Industry News. BNP and Geojit collaborated to get the necessary systems in place, according to Rousseau.
Regulators approved DMA trading in India on April 3, spurred largely by foreign brokerages like BNP Paribas, hedge funds and domestic institutional investors seeking to lower trading costs and reduce front-running.
"Hedge funds came into the market with more trading patterns, and they immediately wanted to do DMA," said Rousseau. "When we first started a DMA boutique in Asia in the '90s, it was seen as something exceptional. Today, providing DMA is a necessity if you want to be listed by a client as a broker. More or less all our clients are using DMA."
Until October, many hedge funds operated in India without registration, using the back-channel mechanism of promissory notes. According to Sandeep Hebbar, Bangalore-based senior analyst with Celent's banking group, as much as 45 percent of foreign institutional investment was entering India through that channel. Regulators have been phasing out promissory notes, forcing hedge funds to register as overseas institutional investors to continue doing business in India.
Many funds have not been keen to register, said Hebbar, because it would increase overhead costs and require that they make a bigger commitment to the Indian market. Direct-market access helps ameliorate some of these issues, he said, reducing trading costs, eliminating errors due to rekeying orders, speeding up executions, introducing the possibility of more sophisticated strategies and algorithmic trading, and allowing a firm to place large trades without moving the market.
"All our clients are interested," said BNP's Rousseau. "Now, when we open an account with a client we systematically implement DMA connectivity, with the exception of some local clients."
Foreign Partners
Many international institutional investors and sell-side firms who have long enjoyed the benefits of DMA across the globe have been eager to obtain direct access to Indian exchanges. And many of India's major brokerages have global securities firms as shareholders, noted Hebbar in a recent Celent report, which will increase the impact of DMA on the Indian market. "Since many of these firms are users of direct access services in the U.S. and Europe, they will want to implement the technology with the brokers," he said in an interview.
Morgan Stanley has already started offering direct-market access to its clients in India. Scott Field-Marsham, managing director and head of electronic trading in Asia for Morgan Stanley, said that his firm has "been able to successfully integrate our electronic trading platform with our Indian counterparts to offer our clients direct-market access seamlessly." He added that "a wide range of client types, including hedge funds, long-only asset managers and dedicated funds from different regions globally--that are registered in India--have shown interest in DMA."
