 "Trading")
Rich traders are paying for servers close to the stock exchange system in order to benefit from faster execution.
The use of such co-location services, usually associated with sophisticated institutional investors, has become more common for high net worth individuals (HNIs) in recent years, according to market participants.
Co-location is useful for those using high frequency trading algorithms.
They can execute 400,000 orders or more in the time it takes a person to blink, according to a 2016 study.
Shaving off fractions of a second from the duration it takes an order to travel to the stock exchange can provide an edge to those using these powerful systems. They can quickly take advantage of small, short-lived price differences.
The cost of having a presence on the exchange premises, including co-location hardware and software expenditure, can work out to around ₹1 lakh a month, according to Kunal Nandwani, cofounder and chief executive officer (CEO) at algo provider uTrade Solutions.
This is usually spent by investors with a trading book or margin of ₹5 crore or more, he added.
“You can pay more for quality and faster access,” he said, adding that the number of HNIs making use of co-location rose significantly during the post-pandemic boom.
Some HNIs operate on a profit-sharing basis with brokerages and other related entities, who take care of the infrastructure, including the co-location space and required software, said Nitish Shukla, vice-president at discount brokerage firm 5paisa.
He added that there has been a significant increase in wealthy investors making use of these services after Covid-19, with the amount of required capital not being very large by HNI standards.
“The entry barrier is very, very low,” he said.
The number of HNIs making use of co-location services has gone up in the last two to three years, said the CEO of another venture, which provides algorithmic trading services to clients.
Connectivity and server expenditure are among the costs which can make it prohibitive for smaller traders, he said.
Technology providers also allow smaller entities to use co-location as a service (CaaS). The providers involved take care of putting in place all of the infrastructure required for co-location as well as managing it on a day-to-day basis. These services are available for small and mid-sized members who may otherwise find it difficult to meet the costs or other requirements associated with making use of co-location.
The share of co-location in the cash market has seen a steady rise on both the major bourses — the BSE and the National Stock Exchange (NSE).
It has risen to 36.7 per cent of the value of trades in the cash market in 2023-24 on the BSE compared to 32.3 per cent in 2018-19. It was at 34.3 per cent on the National Stock Exchange (NSE) for 2023-24 compared to 28.2 per cent in 2018-19.
The rise has been sharper on the derivatives segment for the NSE where it accounts for more than half of the derivatives turnover.
The NSE accounts for bulk of the derivatives trading in India, though the BSE has been catching up of late.
The share of co-location in NSE’s derivatives segment was at 51.21 per cent, according to the latest data for February 2025, and 40.18 per cent in the cash segment. The share of co-location on the BSE also shows a similar increase.
Market participants have pointed to the boom in derivatives trading in particular as having been a major driver of the trend.
The Securities and Exchange Board of India (Sebi) has moved to increase the minimum investment required for derivatives trading in the last 6 months, and introduced other norms to protect retail investors.
This led to derivatives turnover dropping by 37 per cent, and this also affected growth for HNI co-location services, according to those watching the segment.
The downturn in market sentiment amid the economic slowdown has dampened growth for HNI use of co-location, according to Nandwani.
“Now, the numbers are shrinking slowly according to market volumes and trading opportunities,” he said.
