The Financial Express: Tweaking co-location norms may hit institutional brokers

Nithin Kamath, Founder/CEO of Zerodha shares his view on SEBI’s proposed move.

The Securities and Exchange Board of India’s (Sebi) proposed move to make co-location facilities more fair and transparent — ensuring that even those that do not avail of this facility get a fair chance to execute their trades speedily — might significantly impact large prop and institutional brokers who currently use the facility. However, smaller prop traders might benefit as their orders will get a better chance of getting executed.

Among other things, Sebi’s recently released discussion paper proposes to implement an architecture comprising two separate queues for co-located and non-colocated orders such that orders are picked up from each queue alternatively. “It is expected that such architecture will provide orders generated from a non-colocated space a fair chance of execution and address concerns related to being crowded-out by orders placed from co-location,” said the Sebi paper.

Market watchers fear that this alternative queuing of orders might impact the speed of trades executed at the co-location servers. “If the speed of execution drops, the participation from traders will decline as well. It is the arbitrage participation that gives the market its depth and any reduction in arbitrage activity is not good for the market,” said Nithin Kamath, founder, Zerodha, a discount broker.

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