High frequency firms see India profits surge despite regulatory curbs

High-frequency trading firms have posted strong profit growth in India despite regulatory curbs, showcasing their agility in tapping opportunities across the country’s $5.4 trillion equity market.

Hudson River Trading LLC led the charge with a 156% surge in profit for the fiscal year that ended on March 31, according to filings. Optiver Holding BV and homegrown firms AlphaGrep Securities Pvt and Graviton Research Capital LLP also reported robust growth for the year.

The performance highlights India’s growing appeal for market makers even as the Securities and Exchange Board of India (SEBI) tightens rules to temper retail speculation in derivatives. At the same time, regulators have taken steps to strengthen cash markets, expand ETFs, and deepen commodity derivatives.

The fiscal year for these firms ended about five months after SEBI started imposing curbs on derivatives trading by limiting the number of weekly contracts to one index per exchange, charging upfront for options premiums, and increasing the contract size. The regulator also imposed a temporary ban on Jane Street Group in July, accusing it of manipulative transactions involving options and shares — allegations that the firm has denied.

Jane Street and Citadel Securities LLC have yet to report their figures.

Even with the curbs, futures and options trading “has been the largest segment for HFT firms given the large volumes,” said Sanchit Suneja, chief strategy officer at India’s Motilal Oswal Financial Services Ltd. He added that algorithmic trading accounts for more than 50% of the total trading volume in the equity derivatives segment by value on the National Stock Exchange.

Hudson River reported a profit of about 22 billion rupees ($246 million), while its revenue from operations jumped 155% to 31.4 billion rupees, according to a filing to the Ministry of Corporate Affairs.

Graviton, a significant player in cash equities, reported a 17% rise in profit to nearly 12 billion rupees. AlphaGrep saw its profit jump 77% to 4.74 billion rupees. Dutch firm Optiver reported a $44 million profit in its first full year in India, reversing losses in the first six months. The figures may not solely reflect income generated within India for the firms.

Algorithmic traders are also profiting from market making on exchange traded funds, and cash-to-futures arbitrage, Suneja said. Proprietary traders accounted for about 50% of the options turnover in the latest fiscal year, about 30% of cash equity trading and roughly 35% of futures, he said.

Meanwhile, HFT firms are also adapting and looking into multi-frequency strategies. Companies are also diversifying into other segments, while smaller retail investors are moving away from derivatives.

“There is a churn in users,” Ishan Bansal, the chief financial officer of digital broker Groww, said on an earnings call on Friday.

The firm said a 10% to 20% growth in average order value per user in the derivatives segment over the last few quarters, Bansal added. That’s because smaller participants are moving away from the futures and options segment, he said.