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Technology WorkshopDelhi, 15th January 2010

N MuralidaranCEO - NSETECH

National Stock Exchange of India Limited

Copyright © 2010 National Stock Exchange of India Ltd.

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Topics

Recap Market Models NSE Today Market Needs NSE Infrastructure/ FIX Preparedness Emerging Ideas in the Indian Context

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Recap – Indian Context

Pre 1994 Low Transparency Low Reach Weak Risk Management Long and Uncertain

Clearing & Settlement Cycles

Paper Intensive Physical Share

Certificates Event Based Surveillance Information Scarcity

Post 1994 Full Transparency Nation Wide Reach Real Time Risk Management Guaranteed T+2 Clearing &

Settlement Cycles Electronic Matching Full De-materialization F&O, Currency & IRF Real Time Cross Margining Real Time Online and Offline

Surveillance Abundance of Information

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Reliability Challenge

NSE Today

Nationwide Reach via High Resiliency High Bandwidth IP Backbone Infrastructure

6,000+ connections (Both Terrestrial and Satellite) 1,500+ Locations 1,000+ Members 2,20,000+ Terminals Processing about 100 Million messages and

10 Million trades every day

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Market Needs – Faster, Cheaper, Easier

Technology Reliability Recoverability Throughput (Capacity) Scalability Low Latency Wide Spread Reach

(Network Connectivity) Low Transaction Costs Business Continuity Business Intelligence

Product Capability Transparency Rich Functionality Liquid Depth Resiliency Low Impact Cost Real Time Risk

Management

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Nationwide POP Topology

Multiple STM4

AmdavadPOP

Primary Data Center

ChennaiPOP

Business Continuity

Data Center

2

DelhiTwo POPs

1

32

Mumbai Three POPs

1

RajkotPOP

2Kolkata Two POPs

1

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POP Connectivity for Members

PrimaryData Center

Business Continuity

Data Center

Delhi POP

1

Delhi POP

2

To MembersLast Mile

Connections

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Emerging Ideas in the Indian Context

FIX DMA – Direct Market Access ALGO Trading Low Latency Co-Hosting/ Co-Location NOW

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NSE’s FIX Preparedness FIX Version 4.2 used as it is the current preferred version for

Sell Side Firms with plans to move to FIX 5.x as needed Minimal deviation from FIX Protocol 4.2 Specific Custom messages for

– Multi Leg Orders – Exercise of Options– Give up reports

Market data not implemented in FIX, will continue in our current proprietary format

Beta testing in progress for Cash, F&O and Currency Derivatives segments

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ALGO Trading De-mystified

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ALGO Trading

Proprietary– Arbitrage across Exchanges, across Asset Classes– Identifying Buying/Selling Opportunities

Sell Side Firms– Smart Order Routing– To Support Buy Side Orders

Buy Side Firms– Minimizing Impact Cost

Speed, Scaling, Strategies Requires Skills in Mathematics and Statistics and a

Good Understanding of the Market

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Some Examples of Types of Strategies

Moving Average Cross Over– User will make Buy/ Sell decisions on moving averages at

different time intervals TWAP

– User wants to trade 10,000 shares in 4 waves during the trading day. The TWAP will generate 4 waves with quantity of 2,500 shares at equal time intervals

VWAP– User wants to trade 10,000 shares in 5 waves during the

trading day. The VWAP Algo will generate 5 waves with quantity being proportional to the average historical market volume

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Key Considerations for ALGOs

Entry (Buy) & Exit (Sell) Indicators Back Testing to determine

– Effectiveness of Strategy/ Algo– Max Drawdown– Value at Risk– Ratio of Profitable to non-Profitable Trades– Maximum Profit for a Trade– Maximum Loss for a Trade– Costs (Execution, Interest etc)

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Algo Trading Needs – How We Meet Them

Increase in Order Messages

(X100 ~ X1000)

Proactive Capacity Planning & Scalable

Architecture

Speed of

Execution

Low Latency – High Throughput Trading

Platform

Sophisticated Algorithms

Fast Market DataFull Order Book via Tick-by-Tick Data

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$

Member- Broker

Cost Associated for Trading Setup

Current Paradigm

A near “Zero” cost alternative

Scalable

Rich Features

Speed

Security

Reliability

And Above all a superior trading experience

Access Markets

NSE Cash Market

NSE Futures and Options

NSE Currency and IRF

NCDEX

Launching Soon NMCE

New Paradigm

NOW – Virtual Infrastructure for Members

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NOW (Application

Service Provider)

Dealer1 Dealer2 Dealer3

$

Member- Broker

Dealer-HO

Now Admin

Web Clients

Dealers Connecting via Internet/LL/VSAT

Internet/ NSENet

Exchanges

LL Link

NOW – How does it works?

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Risk Manager

Admin

Comprehensive Rules

Managing All Levels

Manage Users

Monitor Dealers and

Clients

Block Orders

Send Messages

Functionality GridFunctionality Grid

Multiple Products available

Risk Management

Admin

Reports and MIS

Real Time Margin

calculation

Multi Market and Multi Segment

Fast Broadcast

Basket /Spread Orders and AMO

Orders

Dealers

Online IV’s for Option Traders

Common Login for Multi

market/segment

Live Streaming Market data

Online Fund Transfer

Investor Clients

Roles

User Creation

Creation and Assigning of

Roles

Master Creation and Maintenance

Alerts / Square Off

Alerts and View History

SMS Alerts/ Confirmations

NOW – Framework

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Potential Changes in Landscape

Increasing FII inflows Equity Investments by Pension Funds Greater Adoption of Algorithmic Trading More Sophisticated Algorithms More Investors Entering the Market New Products Created as a Result of “FSR” Ability to Trade Globally Narrowing Spreads New Regulations Market Fragmentation

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Potential Impact of Changes in Landscape An Order of Magnitude (x10) Growth in Transaction

Throughput (x100 ?) Cross Border Capital Mobility An Order of Magnitude Growth in Listed Entities Ample Liquidity Across All Asset Classes An Order of Magnitude Growth in Financial Sector

Employment Ubiquitous Use of Mobile Devices for Financial

Transactions Greater Efficiency of Financial Intermediation Mumbai Pre-eminent as a World Financial Center

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Imperatives

Architecting for Scale on all Dimensions– Management– Technology– Operations

Speed of Execution/ Implementation of New Initiatives

Business Intelligence

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Conclusion

NSE will continue to bring New and Innovative Products to meet and exceed market expectations

NSE will continue to provide Best-of-Breed Solutions to the market participants - proactively and also as requested by the participants

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Thank You

nm@nse.co.in+91 22 2659 8205