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Algorithmic Trading - The Financial super car of next generation

Thu, 27 Jun 2019 01:57:55 +0000

“Speed alone cannot be a mark of success unless backed by the character of good intentions”

The imperative need for speed cannot be denied in any segment. Finance being no exception, the markets have taken leaps and bounds on adding speed to the concepts. The concept of a super car might bring a thrill and a spark to the eyes, but to run the full potentials of this super car, we need super infrastructure, super support system, and a well-controlled regulatory environment. Algorithmic trading and its different facets have already put forth the potentials and resultant dominating volumes are indicating the acceptance of the concept. What is not convincing is the concentration of trade in the hands of few institutions and High net worth investors.

If a market practice is expected to have constructive outcomes, it should be widely accepted and not restricted to few hands. The regulators and exchanges have a regulatory and moral responsibility to penetrate the concept to the vast spectrum of traders.

Traders and investors who are not updated with facets of Algorithmic Trading would soon find the market potentials declining for them, leading to an exit. This could be hazardous over a long term as the concentration of wealth would build-up in hands of few leading to widening of the income disparity levels.

A mature market would seek the interest of all and hence any activity that leads to disparity of income and erosion of confidence should be addressed with utmost importance.

Algorithmic trading turns a blessing in disguise as it facilitates in minimising the mispricing of the assets across the market, hence reduces noise and volatility. Moreover, it also adds liquidity over a short term by increasing the turnaround time of a trade. Amidst all these advantages, what algorithm trading does not address is capital formation, the main objective of capital market in any economy.

It should not be reiterated that capital formation is the key driving force for any economic growth. Capital markets are created to facilitate the mobilization of savings of all surplus economic units and convert them into capital assets (long term assets). Algorithmic trading does not facilitate capital formation as the trades are driven for a very short span.

India’s capital formation rate has been consistently declining at a CAGR of -4.10% in last 9 years. Whereas the volumes in algorithmic trading in last 7 years has been growing at the rate of 5.11%.

Figure 1.1 below indicates the Capital Formation Rate of India from 2008 to 2016

Figure: 1.1

Source: World Bank

Figure 1.2 below indicates the Growth of Algorithm Trading in India from 2010 to 2016

Figure: 1.2

Source: SEBI

In the light of the above-stated facts algorithmic trading should be acceptable to the market but in controlled numbers. Moreover, the amount of money diverted to capital market should be used for both the purposes, capital formation and liquidity enhancement.

The proposers and supporters of algorithm trading in India are just looking at the market volumes as indicators of growth and success. The statistics on support say that developed countries like USA (having close to 70% of the total trade coming from Algo Trade) as compared to India (having close to 46% of the total trade coming from Algo Trade).

Comparing the algorithm volumes of India with markets like USA and Japan would not be appropriate as these developed markets already have a very high gross capital formation, whereas India's gross capital formation in absolute scale is not even comparable.

Figure 1.3 below gives a comparative analysis of the gross capital formation of India vis-à-vis other countries.

Figure: 1.3

Source: Trading Economics

The above statistics indicate that India should concentrate on increasing the capital asset base as a priority and later facilitating the expansion of short term trading strategies.

Among other things, algorithm trading is leading to concentration of income in the hands of few. This could be an alarming sign as already warned by IMF that India and China of facing the social risk of inequality of income distribution.

In its regional economic outlook for Asia and Pacific, IMF said that Asian countries are unable to replicate the “growth with equity” miracle and pointed out that inequality has only increased in the past two and a half decades, lowering the effectiveness of growth to combat poverty and preventing the building of a substantial middle class.

Economic inequality can be measured by Gini Coefficient, which has been showing alarming signs for India.

India’s Gini coefficient rose to 51 by 2013, from 45 in 1990, mainly on account of rising inequality between urban and rural areas as well as within urban areas. China’s Gini coefficient also rose to 53 in 2013, from 33 in 1990. At a time when inequality has been coming down for most of the world, the average net Gini coefficient for Asia rose to 40 in 2013 from 36 in 1990, the highest among the rest of the world. Gini coefficient is a widely used measure of inequality and takes into account income distribution among residents of a country. The income, in this case, has been calculated net of taxes and transfers. The higher the Gini coefficient, the greater is the inequality.

The above facts clearly indicate that our key focus should be on addressing fundamental issues of our country that would ensure stability and growth in future.

Suggestions for achieving a sustainable long term economic growth

In the light of facts stated above, following suggestions are proposed for Regulators and market participants.

The regulator of the market should ensure traders strike a balance between long term trades and short term trades
Training and education of algorithm trading and techniques should be disseminated across the market
A proportion of earnings through algorithm trades should be used for promoting financial literacy
Market wide limits should be defined linked to capital formation rate

The regulator in any market should evaluate the trade-off between short term liquidity and long term growth. The super car, algorithmic trading would turn a blessing for the next generation only when the economy is stable and promising consistent growth backed by capital formation. Rishi MehraVisiting Faculty, ICoFP

Faculty Development Program

Tue, 05 Mar 2019 05:01:42 +0000

In line with its mission to spread financial education in the country, ICoFP has taken a unique initiative in the form of 'Faculty Development Program'. Aimed at empowering faculty members/teachers/lecturers to take more informed decisions and manage their finances more efficiently, the program was conducted on 16th Feb'19 by our team of expert trainers. The session was led by Mr. Anil Chopra Group Director - Corporate Affairs who emphasized on the need of Goal Setting on Financial Planning followed by Mr. Kushal Bhateja who elaborated on various investment opportunities available in today's market. Mr. Dinesh Gupta, CFP and head of Financial Planning program at ICoFP, further expanded on how to create a balance of various assets under one's portfolio to be able to meet the financial goals both short term as well as long term. The session witnessed participation from faculty members from various colleges including PGDAV, Hansraj, Aurobindo and more. ICoFP looks forward to more such events.

UTI Mutual Fund (Chandigarh)

Tue, 05 Mar 2019 04:42:48 +0000

UTI Mutual Fund (Chandigarh)- IFAs Training- Retirement Planning (Mr. Dinesh Gupta & Mr. Awadhesh Singh)

ICoFP successfully conducted One Day Training on 'Retirement Planning' for IFAs of UTI Mutual Funds at Chandigarh on 23rd Mar'19.

The workshop was custom designed for Financial Advisors aiming to penetrate the retirement market.

The training was delivered by Mr. Dinesh Gupta & Mr. Awadhesh Singh. Mr. Ashok Kumar, Regional Head of UTI, welcomed the trainers & introduced the topics to IFAs. There were more than 50 IFAs who attended the event.

Our trainers who are certified financial planners #CFPCM shared tools and techniques that would help IFAs rope in clients and close bigger, better cases by helping clients construct their very own retirement plans.

It was a very informative & very interactive training session.

GUEST LECTURE AT NDIM:

Tue, 05 Mar 2019 04:35:37 +0000

A 1 hour 15 minutes guest lecture was organized by New Delhi Institue of Management Studies at their premises, 50B&C Tughlakabad Extension on 7^th February, 2019.The guest lecture was delivered by Mr. Anil Chopra (Group director Bajaj Capital). Prof Ruchi Arora from NDIM welcomed the students & introduced the topics to students. There were more than 60 students of NDIM What is Behavioral Finance & what are the Wealth Creation Strategies were presented Some of the key points discussed during session were

Set your financial goals
Know your risk profile
Create an investment plan
Choose asset mix
Choose investments
Timely review of Investment plan

It was a very informative and very interactive session which was followed by facilitation of Mr. Anil Chopra.

The Failure of Corporate Governance – DHFL Perspective

Tue, 05 Mar 2019 01:10:53 +0000

The importance of corporate governance becomes the talk of the street when a corporate fraud becomes a piece of breaking news. On 29th January 2019, Cobrapost, an investigative journalism company, held a press conference to debut its coverage of a huge banking and financial scam in India. This financial scam was uncovered by closely auditing and examining public records of government authorities as well as information available in the public domain. The scam is reported to involve a sum of more than Rs. 31,000 crore. The suspects of this huge financial fraud are claimed to be the primary promoters of Dewan Housing Finance Corporation Limited (DHFL) and their associated companies. This is an example of a systematic craft to steal public money in broad daylight. The scam has been pulled off mainly by sanctioning and paying out funds in unsecured and dubious loans. These loans amount to thousands of crores of rupees and were provided to dubious shell companies which were related to DHFL’s own primary stakeholders through their proxies and associates. Added to that, no security or collateral and the proceeds were utilized for private asset creation, neither offshore nor in India. Such large loans were disbursed for new projects to the shell companies, which were newly incorporated, without scrutinizing the feasibility and viability of those projects. A lot of these shell companies are operating from the same email addresses and are run by the same group of initial directors. What raises more concern is the fact that DHFL has hidden the terms of loan and terms of repayment in the financial statements. They also ensured that most of the shell companies have hidden the name of the lender – DHFL. By lending to shell companies without due diligence, DHFL has ensured that the recovery of such dubious loans is impossible since the companies or their directors themselves do not own any assets. This way the private assets acquired by the promoters and their associates by using the funds from these dubious loans are completely ring-fenced from any recovery process. Thus, only public sector banks such as State Bank of India and Bank of Baroda are the primary losers. The loss amounts to a staggering sum of over Rs. 11,000 crore and Rs. 4,000 crore, respectively. Other entities that share the losses are foreign banks and shareholders from among the public or investors of DHFL. After the press conference, DHFL shares plunged by 11% in the market. While the investors are waiting for further investigation by the authorities, the reputation of the company has already been dented. The credit rating agencies like Brickwork has downgraded various loan facilities by one or two notches. The scam represents a complete and absolute failure of corporate governance, and there is no way to even pretend that corporates are reliable and can commit to the best practices of the industry as required or expected by the law. The investigation brought to light the illegal insider trading, violation of takeover regulations of SEBI, creation of assets offshore for tax evasion, or laundering money illegally. With AAA rating to the company’s credit worthiness, DHFL’s inner working raises the question about the credibility and conduct of all credit rating agencies, which have failed miserably to identify its irregularities, as unearthed in this investigation. Even auditors have failed to address the irregularities in the annual audit reports.The participation of promotors in directing loan amounts to shell company without scrutiny or security shows a complete deviation from the corporate governance policies. This isn’t the first time when the corporate governance has failed to promote corporate fairness, transparency and accountability. Scandals or scams such as 2G Scam, PNB Scam, Satyam Scam or Sahara Scam etc. all are the result of bad corporate governance. In Satyam Scam, Raju brothers proposed merging with a company known as MAYTAS which is nothing but Satyam spelled backwards. This involved major non-existing cash inflows of funds in the balance sheet, falsely making balance sheet heavy to remain competent. This scam made the need of corporate governance felt very badly along with the importance of good corporate governance and this was the reason that corporate governance became an integral part of the Companies Act, 2013. Not only in India, but companies around the world like Enron in US and Parmalat in Italy fell out because of the corrupt practices followed by the board of directors and the management of the said companies and their financial consulting firms. The main goal of virtually every publicly-owned company business is to maximize profits for its owners or stakeholders while maintaining corporate social responsibility. Shareholder value gets lost when things are done illegally, when principles of corporate governance are not adhered to, when cohesive action is not taken. Difficulty arises for an analyst when even companies like DHFL, with AAA ratings and strong corporate governance norms, fails to comply with ethical business practices. With such scams coming in the light regularly, it raises a question on the ability of analysts, demanding a stricter monitoring of internal control system within an organization.The most common issues in corporate governance include conflict of interests, oversight issues, accountability issues, transparency, and ethics violations. An analyst should look out for red flags such as accounting anomalies, consistent growth during weak performance of the industry, frequent related party transactions and off balance sheet transactions, etc. to identify any possible irregularities in the financial statement of the organization. The scrutiny of Audit Committee is a vital process to understand the strength of corporate governance norms. An analyst can focus on the audit committee's powers, functions, responsibilities, and relationships within the framework of corporate governance to gain an insight about the effectiveness of the norms. With the DHFL scam easily escaping the sight of auditors, credit rating agencies, analysts, authorities and regulators, the investigative journalism acted as a watchdog in the public interest. By indulging in the public records and presented documents of DHFL, they were able to unravel the channel of money laundering of the promoters. Such deep dive analysis consumes months of investigation and scrutiny by dedicated journalists and financial market experts. Work of Cobrapost is commendable for bringing the swindle in the notice of the authorities. The true scale of the scam can be arrived at only after investigative agencies conduct a thorough forensic audit of the money trail. Sanchita BhatiaMBA-FA (2018-2020)

International College of Financial Planning (ICFP) Celebrates “Annual Cultural Fest & Young Achievers Award 2014”- Tarang

Sat, 23 Aug 2014 00:42:14 +0000

In an attempt to boost the morale of young and dynamic minds, International College of Financial Planning (ICFP) one of the renowned names in the field of International College of Financial Planning(ICFP) with Fashion Designing Education (ICF) celebrated “Tarang- the Annual Cultural Fest & Young Achievers Award 2014” recently in the heart of New Delhi. The aim of the fest was to nurture and nourish young and creative mind so that they can dream, focus, perform and achieve in their life without losing the passion and patience. The event was joined by various students, alumni and industry experts who are eager to do something creative in the field of arts and crafts.

The event was held at the heart of New Delhi ICCR, Azad Bhawan, I.P. Estate laimed designers which featured many entertaining and creative programs performed by young, dynamic and enthusiastic minds of ICF and ICFP. The event bestowed by blessings of one of the most renowned and acclaimed designer Duo-Shantanu & Nikhil Mehra who were the chief guest of the occasion.

The fest commenced with lighting of the lamp by Ms. Vani Bajaj, Chief Mentor, ICF & ICFP who welcomed the chief guests, Shantanu and Nikhil Mehra after which the acclaimed designer duo presented theYoung Achievers Awards to various young and dynamic minds. Some of the gems who were awarded by the designer duo were:

Professional Achiever FE – Saumya Sharma

Professional Achiever FE – Rashmi Shankar Some other important awards those were awarded by the designer duos were: Professional Achiever FP – Anant Sharma, Product Head at SMC Global Contribution to ICOFP FP – Mr. Gagandeep Singh, Senior Analyst with Citicorp Services India Ltd

Best Faculty of the Year awarded to:

Best Faculty (2013-2014) FP – Mr. Kishan Sachdeva Best Faculty (2013-2014) FA – Mr. Vinmre Anand Best Faculty (2013-2014) FE -Ms. Sunita Chauhan

Life Time Achievement Award

Mr. I.C. Dhingra

Students of the Year

FP – Rahul Kumar FE – Riya Goel & Vidushi Gulati

On this eve ICF and ICOFP presented a special award to the designer duo “Designer of the Year” for their huge and comprehensive contribution to the world fashion industry. The presentation was also given for taking India to a new height in the field of arts and crafts. While honored the duo said “We feel honored to receive this special award and we are pleased to be a part of ICF that not only teaches their students the “business of fashion” but also encourages them to display their creative talents. We really appreciate such an initiative that concentrates on overall development of students by turning them into successful entrepreneurs in the fashion industry”.

Speaking on the fest, Ms. Vani Bajaj, Chief Mentor, ICF & ICOFP said, “TARANG” the Annual Cultural Fest and Young Achievers Awards are designed to honor our institutes’ exceptional youth. Through this nationally recognized platform, we help our students to showcase their talent, encourage and prepare them for leadership and excellence in various sectors of the Fashion and Finance industry.”