Trading solutions for the Indian capital markets: The current landscape

The Indian capital markets are experiencing a period of rapid development. The growth of the wider economy is creating increasing numbers of institutional and retail investors. Indian exchanges are also deploying operational innovations, such as next-day settlement. In this expanding and increasingly sophisticated market, Indian brokers are handling both high trade volumes and complex customer requirements. In this post, we’ll examine some of the challenges that brokers are facing and the factors that they must consider in this rapidly changing landscape. We’ll also discuss how software vendors can help to address these issues and support the growth of the Indian market.

Operational demands

For Indian brokers, several different factors are driving the increased complexity of their software requirements. From an operational perspective, the Indian market is uniquely demanding. In the middle and back office, the recent switch to T + 1 settlement means that trades need to be processed more quickly than in most other markets around the world. Meanwhile, front-office systems need to cope with high order volumes, and a high order-to-trade ratio. Throughout the whole order and execution lifecycle, the Indian market requires streamlined processing and intelligent use of automation.

The growth of Indian ETF trading

The development of the capital market itself also produces new requirements. One of the major stories in recent years has been the growth in passive investing, principally through ETFs. Between 2021 and 2023, the total assets under management (AUM) of Indian ETFs increased by nearly 70%. Passive investors are looking to control their costs and reduce fees. In response to this, brokers are seeking to expand their low-touch trading capabilities. Algo solutions, optimized for the Indian market, and backed by advanced analytics, are increasingly in demand.

Multi-asset requirements

Expansion and development are not confined to equities. Derivatives and commodities markets are also experiencing strong growth, and brokers are increasingly operating across multiple asset classes. From a software perspective, using separate platforms for each asset class adds overheads in terms of upfront costs, maintenance, and user training. Multi-asset solutions are therefore increasingly appealing to Indian brokers. The goal of having a single solution for all trading activity may be unrealistic, but market participants are seeking to deal with as few platforms as possible.

The need for investment and delivery

These wide-ranging requirements illustrate how innovation in the Indian capital markets needs to be matched by developments in trading technology. There is a desire for software vendors to commit to investment and ongoing development. Brokers and other market participants also want to see new technologies delivered in an agile way, and for vendors to be responsive to the rapid pace of change.

International vendors, need to demonstrate that they understand the unique features of the Indian markets. For example, solutions need to take account of the high order-to-trade ratio in Indian equities markets, and the associated fees and regulations. Future developments, such as the global growth of algo trading, are also vital. Indian investors are increasingly seeking to deploy advanced algos and require platforms designed for low-touch trading. Other advanced features, like integrated Transaction Cost Analysis (TCA) can also add value in this area. And vendors need to be able to provide all this functionality at just the right price point. Market participants are focused on achieving value for money, and longstanding vendors are used to delivering high-specification solutions at competitive prices. New entrants to the market need to take this into account.

Solutions beyond software

Vendors also need to consider what else they can offer, over and above software and trading solutions. Firms have always offered support and consultancy, but there are numerous other ways in which they can add value. For example, offering a fully managed platform can help to reduce the customer’s operational overheads. The customer no longer must take on the costs (and risks) of maintaining infrastructure, and no longer needs to recruit and retain in-house IT specialists. Managed solutions also allow for a more agile and responsive service. Vendors can roll out new features more frequently, and customers are spared the overheads associated with managing upgrades. However, there are regulatory hurdles to the adoption of managed solutions, and some brokers also perceive them as a potential compliance risk. Vendors must be willing to engage with investors and regulators to address these concerns.

Vendors can also enhance their solutions by offering API access to data and functionality. This can empower customer developers to focus on activities that deliver a competitive advantage. For example, building custom algos, creating integrations with other systems, or developing bespoke reporting. Extensible solutions allow customers to take greater control over their trading activity and achieve their specific business goals.

Commitment and investment

There are many ways in which software vendors can support the growth and development of the Indian capital markets. But it’s essential they understand the context in which Indian brokers are operating. Are vendors willing to engage with regulators and exchanges to address concerns around risk? Are they also willing to make long-term investments in their technology to support the growth of the Indian market? Vendors that can provide convincing answers to these questions will be best placed to achieve success.