“Unfortunately, today there is no level playing field in the cash market. The best price execution policy, which is stipulated by the regulators to the exchange, is yet to be implemented by many of the brokers,” he told ET in an interview.
“If you open a mobile trading app, you will find that there is no level playing field in many apps. BSE does not even appear. Some of the apps will go straight only to NSE. You can say that no, they want NSE. No, they have not seen the price of BSE,” Ramamurthy,62, said.
He added that unless the best price execution methodology is fully applied by all the retail brokers, the retail clients are losing money.
The executive also pitched for a common contract note for institutional investors.
“Today, it is split across exchanges and they are not getting a single contract note. All institutions are dealing with public money. So, they have a fiduciary responsibility to ensure best price execution. In the absence of a common contract note, it is not happening,” he said. “That is exactly why we have been requesting repeatedly for best price execution and common contract notes. If these two happen, the HFT (high frequency trading) players are actually liquidity providers. They trade in both places to ensure liquidity comes up, to make the prices match and bring them to equilibrium,” he said.When asked whether markets are globally moving to a single derivatives expiry day, he disagreed.
“US markets have everyday expiry, i.e., index options to offer investors with expirations every trading day of the week…and there are common days of expiry, there is a best price execution method. In India, we are still struggling for best price execution and common contract notes,” he said.
“There, exchanges are on the same pedestal. They have been there for a longer time. Here one exchange has been there for more than two decades in the derivatives arena. Another one is just not even two years complete. In Brazil, in the same exchange for different products, there are different expiries. In Singapore,Korea, Japan, Hong Kong, exchanges have multiple expiries within the same exchange with different indices,” he said.
Last month, NSE chief Ashish Chauhan had advocated for a unified derivatives expiry across all exchanges to enhance risk management. Ramamurthy, who took charge at the country’s oldest exchange in January 2023 from Bank of America, said a single day expiry results in concentration risk.
“There is concentration in venue, trading, product, governance, risk, clearing and settlement. On that day if there is system failure and everything is concentrated, then it’s gone,” he said.
Last month, Sebi stepped in after competition intensified between NSE and BSE for the derivatives market. It has proposed to have two expiry days in a week, Tuesday or Thursday, to avoid weekend proximity. Each stock exchange will have to choose one of the two days. Across all exchanges, there will have to be two expiry days.
“If you have all expiries of different but correlated index on the same day, if your risk requirement makes you look at a slightly longer time horizon…you have to roll over to the next week, that is costlier. If it is three days you will roll it over to the nearest other contract which is correlated but different. Your cost comes down but the purpose is served. And in this process no product will be traded as an expiry day product. There will be meaningful hedging or directional view taken on every product,” he said.
Ramamurthy, who was heading the F&O segment at NSE in 2000, strengthened BSE’s derivatives segment by introducing Sensex derivatives on May 15,2023 and increased the technological capability.