Why turn SME stocks into speculators’ hub?

It is usually tough to pinpoint the exact time or the specific change that led to drastic alterations in stock trading patterns. The way algo trading took over Indian stock market around 2010 is a case in point. SEBI had given permission for direct market access to foreign investors and allowed exchanges to set up colocation facilities in 2008 and 2009. Algo trading followed stealthily in the wake of these changes, taking over more than two-thirds of the cash and derivative trading volume in just few months. Regulatory framework for algos followed much later.

Weekly index options are another example. SEBI had permitted weekly index options in 2015, with the noble intent of introducing product differentiation in derivative contracts. Nobody could have foreseen that traders would discover the quick road to riches by trading in the final hour of expiry day of these contracts and that exchanges would launch contracts which expire every day of the week to make the most of this hysteria. Despite the regulatory clamp-down over the last two years, these instruments still account for over two-thirds of the equity derivatives’ turnover.