BSE corners bigger share of cash market

A significant rise in trading in small and mid-cap stocks over the past three months has pushed up the market share of the Bombay Stock Exchange by over 3 percentage points in the cash segment of the equity market.

BSE's market share in the cash segment had declined from nearly 30 per cent in 2008 to around 23 per cent at the start of 2009. It is now over 26 per cent. A rise of close to 1 percentage point was seen in every month since October 2009. The rest of the volumes are accounted for by the National Stock Exchange.

Over 6,500 companies are listed on BSE while nearly 1,200 are listed on the National Stock Exchange. The jump in volumes, say analysts, will be a much-needed breather for BSE, which has been trying to launch its initial public offer.

The monthly turnover in small-cap stocks has risen from Rs 700 crore (Rs 7 billion) in October to over Rs 1,119 crore (Rs 11.19 billion) in January till date. Much of this could be linked to the rise in share prices. In the mid-cap segment, the turnover is over Rs 1,300 crore (Rs 13 billion).

Another reason for the rise in volumes in the cash segment, according to analysts, is less volatility. Generally, during high volatility, volumes in the derivatives segment shoot up.

However, according to stock brokers, trading volumes on BSE face a grave threat from algorithmic trading (automated trading using computer programmes), which is likely to gain swift ground in the coming months.

"The concept of algorithmic trading could prove to be dangerous for day traders and jobbers. Such trading allows orders or trades to be executed within micro-milli seconds and even highly-skilled jobbers are no match to it," said the managing director of one of Mumbai's oldest brokerages.

Sources say around 200 brokers in India, some catering to large foreign institutions, have got permission to launch algorithmic trading, out of which 60 brokers are already putting the trading strategy in use.