Archive for April 4th, 2008

SEBI lays roadmap for algorithmic trading

April 4, 2008

SEBI has proposed starting Direct Market Access (DMA) Facility:

Direct Market Access (DMA) is a facility which allows brokers to offer clients direct access to the exchange trading system through the broker’s infrastructure without manual intervention by the broker. Some of the advantages offered by DMA are direct control of clients over orders, faster execution of client orders, reduced risk of errors associated with manual order entry, greater transparency, increased liquidity, lower impact costs for large orders, better audit trails and better use of hedging and arbitrage opportunities through the use of decision support tools / algorithms for trading.

It will be great if it could lead to lower costs in the financial system. Though, algorithmic trading will add on to the costs as now financial firms will look for experts/fancy technologies who can program various fancy arbitrage seeking programs. Also we will now see Indian financial markets employing statisticians, physicists etc all trying to create arbitrage. Despite their best efforts and intention it has been seen these strategies don’t beat markets and some even blame the 1987 crash to program/algorithmic trading

SEBI will have to ensure that brokers practice stringent risk management practices to avoid any problems. It will be a challenging task for sure.

Addendum:

Mint has some comments

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Inflation is always an Indian phenomenon

April 4, 2008

It is always good to go back to history. I had written earlier what would Ricardo do if he was granted a wish (realign trade theories with empirical work).

Now I want to add on to the famous Milton Friedman saying –Inflation is Always and Everywhere a Monetary Phenomenon“. It can be added that “Inflation is Always and Everywhere a Indian Phenomenon”.

The inflation (based on WPI) has increased to 7% for the week ended 22 March 2008. The inflation has been rising every week. The annual rate of inflation, calculated on point to point basis, stood at 6.68 percent for the week ended 15 March 2008 and 5.92 percent for 8 March 2008.

I have always pointedto the rising food prices in the world economy and the possibility of rising inflation in the economy. The central banks have been ignoring the inflation signals (in US, UK, Canada) but few Central Banks are concerned (India, Australia, New Zealand). This has divided the central banks in 2 camps – one lowering interest rates and two rising/high interest rates. This is surprising given the fact that inflation rising is a global phenomenon.

It actually points to an irony in India – the food prices are rising and farmers are dying. The reason is lack of reforms in the real economy and more so in rural economy. There have been suggestions for a longtime but nothing has been done. There are bottlenecks in all possible areas.

The experts might again blame the RBI but clearly the inflationary pressures are due to two points- global crisis in agriculture and supply side issues in India. The Central Bank can only manage the demand and with moderating growth/demand we should see moderating inflation. But inflation is actually rising and is expected to be that way.

It is time we get big reforms in the real economy and remove the bottlenecks. Most likely, the measures taken now will be short-term in nature and will again revisit Indian economy (it does revisit many a times). Hence the addition- Inflation is Always and Everywhere an Indian Phenomenon.

Addendum:

Here is an excellent paper from FAO on the subject.

Assorted Links

April 4, 2008

1. WSJ Blog points to a new IMF study that says Central Banks should have rising housing prices in their monetary framework.  Simon Johnson clarifies the findings.

I had said the same long back in this research note

2. Rodrik points to a new paper on soccer violence and culture

3. JRV points to a new google facility

4. TTR points to Soros article on financial crisis3

5. ID Blog has some lessons from grassroots level

6. MR on future of economics


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