Today's Business Line carries a article titled - Just 451 clients account for 50% of NSE daily turnover (Link) .What's worse is that the article also says that just 106 clients contribute more than 50% of Derivative Volume.
Personally I believe this is a Serious issue that can have large term consequences for the majority of market players. Think about how much liquidity is concentrated in so few hands. No wonder we get moves such as the one today where market tanked in matter of minutes.
Its a well known fact that Volumes are dominated by a select few and liquidity is abysmally low. But if 106 clients contribute to nearly 50,000 Crore of Volume (that is equal to approx 470 Crores per person), that is trouble brewing.
US Markets too are dominated by few and the impact was felt on 06/05/2010 when the select few just withdrew (remember, the liquidity providers did not sell, they just stopped Buying) and market tanked all the way to near selling freeze in a matter of minutes. If this can happen to US markets which are deep in terms of liquidity think about the consequences of similar happenings in our market.
I believe that the Freeze in the markets that happened on Election Results were a product of not actual Buying but clear cut manipulation to squeeze out the bears. If a Buying freeze can happen (which incidentally as far as I can remember has not happened in any other market in the world - major markets), so can a selling freeze (which in recent memory we have suffered twice.
I believe that the low number actually shows that our market has a very high systematic risk possibility since risk being concentrated in so few hands can actually work either way and even the best of margin systems prove inadequate to bring a smooth closure of positions.
Cheers
Prashanth
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