Atyant Capital to launch India-focussed algorithm fund

Technology with exchanges may need to be ramped up rapidly

MUMBAI: Traders, get ready for some new games. Next time you punch that order on your screen, you could be dealing with a whole new animal-an algorithm. Algorithm-driven funds are all set to hit the Indian markets and the first one of them is just round the corner.

Atyant Capital, a US-based hedge fund, has launched an India-focussed offshore fund, which will use advance algorithms to trade in the Indian market.

The fund will use the DMA (direct market access) platform, which was allowed by Sebi in April, this year.

Vedant Mimani, managing partner, Atyant Capital, who will run the Mauritius-based offshore fund says, “We will start testing next week. And, after seeing the results we will go live soon.”

Mimani says the fund will be leverage the DMA platform to deploy advance algorithms they put to use in the US markets. Typically, these funds execute thousands of trade in a day and close them out by the end of day.

Experts feel the introduction of algo-trading will lead to lower impact costs and higher liquidity in the system. Algorithmic models use complex mathematical relationships amongst several technical, economic and fundamental parameters to bring out investment recommendations. Though one touch DMA, wherein the dealer intervention is needed at the point of execution of trade was available for a few years now, not many have been using these techniques in India as the transaction time and delayed trade execution time meant that the investor did not get the exact price that the model threw up.

The introduction of DMA has removed that inefficiency and more statistical hedge funds should start using their models in India, feel experts.

Seth Freeman, CEO, EM Capital Management, a San Francisco-based fund, which focuses on long-only strategies, says, “We follow the fundamental approach. Some of the quantitative funds would be looking at exploiting the facility. But it’s still early days.”
Freeman said he doesn’t see the entry of quantitative funds affecting the investment approach of long only funds.

Managers of quantitative funds feel the exchange platform needs to be upgraded further for algorithms to work smoothly. While the NSE has capability to handle around 35-100 orders per second, a single algorithm of a single fund can generate thousands of orders and use up the entire capacity, they say.

Speaking at Trade tech conference on Wednesday Vidhu Shekar, vice president, NSE, agreed that such faster matching of orders is required for successful high frequency trading. “If we have to reduce the time lapse to one second or half-a-second, then the amount of data that needed to be pumped out will be manifold. The exchange is constantly looking to bring in the technologies which are essential for the development of market,” he said. 

Apart from technology, quant managers are also concerned about regulatory issues like restrictions on short-selling and circuit breakers on stocks not in the F&O segment.
Mimani of Atyant says these measures would kill half the liquidity and restrict the algorithms from achieving their full potential.

“You have these restrictions because you don’t want someone to drive down the stock. But what it is also doing is it is stopping someone who will pick that stock when it comes down. That’s killing half your liquidity,” he says.

Exchanges world over are improving the environment for algo-trading, which is likely to drive up volumes. The LSE recently made changes in its tariff to abolish a 7.5 pence execution charge and a 1 pence order management charge. A Financial Times report said on September 1 said the changes were “designed to attract a new breed of trader that uses complex computer algorithms to drive large numbers of orders in rapid-fire fashion, often in response to minute data shifts.”

n_subramanian@dnaindia.net