1. 1/53 Technology Workshop Delhi, 15 th January 2010 N Muralidaran CEO - NSETECH National Stock Exchange of India Limited Copyright © 2010 National Stock Exchange of India Ltd.

2. 2/53 Topics  Recap  Market Models  NSE Today  Market Needs  NSE Infrastructure/ FIX Preparedness  Emerging Ideas in the Indian Context

3. 3/53 Recap – Indian Context Pre 1994  Low Transparency  Low Reach  Weak Risk Management  Long and Uncertain Clearing & Settlement Cycles  Paper Intensive  Physical Share Certificates  Event Based Surveillance  Information Scarcity Post 1994  Full Transparency  Nation Wide Reach  Real Time Risk Management  Guaranteed T+2 Clearing & Settlement Cycles  Electronic Matching  Full De-materialization  F&O, Currency & IRF  Real Time Cross Margining  Real Time Online and Offline Surveillance  Abundance of Information

4. 4/53 Reliability Challenge NSE Today  Nationwide Reach via High Resiliency High Bandwidth IP Backbone Infrastructure  6,000+ connections (Both Terrestrial and Satellite)  1,500+ Locations  1,000+ Members  2,20,000+ Terminals  Processing about 100 Million messages and 10 Million trades every day

5. 5/53 Market Needs – Faster, Cheaper, Easier Technology  Reliability  Recoverability  Throughput (Capacity)  Scalability  Low Latency  Wide Spread Reach (Network Connectivity)  Low Transaction Costs  Business Continuity  Business Intelligence Product Capability  Transparency  Rich Functionality  Liquid  Depth  Resiliency  Low Impact Cost  Real Time Risk Management

6. 6/53 Nationwide POP Topology

7. 7/53 POP Connectivity for Members

8. 8/53 Emerging Ideas in the Indian Context  FIX  DMA – Direct Market Access  ALGO Trading  Low Latency  Co-Hosting/ Co-Location  NOW

9. 9/53 NSE’s FIX Preparedness  FIX Version 4.2 used as it is the current preferred version for Sell Side Firms with plans to move to FIX 5.x as needed  Minimal deviation from FIX Protocol 4.2  Specific Custom messages for –Multi Leg Orders –Exercise of Options –Give up reports  Market data not implemented in FIX, will continue in our current proprietary format  Beta testing in progress for Cash, F&O and Currency Derivatives segments

10. 10/53 ALGO Trading De-mystified

11. 11/53 ALGO Trading  Proprietary –Arbitrage across Exchanges, across Asset Classes –Identifying Buying/Selling Opportunities  Sell Side Firms –Smart Order Routing –To Support Buy Side Orders  Buy Side Firms –Minimizing Impact Cost  Speed, Scaling, Strategies  Requires Skills in Mathematics and Statistics and a Good Understanding of the Market

12. 12/53 Some Examples of Types of Strategies  Moving Average Cross Over –User will make Buy/ Sell decisions on moving averages at different time intervals  TWAP –User wants to trade 10,000 shares in 4 waves during the trading day. The TWAP will generate 4 waves with quantity of 2,500 shares at equal time intervals  VWAP –User wants to trade 10,000 shares in 5 waves during the trading day. The VWAP Algo will generate 5 waves with quantity being proportional to the average historical market volume

13. 13/53 Key Considerations for ALGOs  Entry (Buy) & Exit (Sell) Indicators  Back Testing to determine –Effectiveness of Strategy/ Algo –Max Drawdown –Value at Risk –Ratio of Profitable to non-Profitable Trades –Maximum Profit for a Trade –Maximum Loss for a Trade –Costs (Execution, Interest etc)

14. 14/53 Algo Trading Needs – How We Meet Them Increase in Order Messages (X100 ~ X1000) Proactive Capacity Planning & Scalable Architecture Speed of Execution Low Latency – High Throughput Trading Platform Sophisticated Algorithms Fast Market Data Full Order Book via Tick-by-Tick Data

15. 15/53 Cost Associated for Trading Setup Current Paradigm A near “Zero” cost alternative Scalable Rich Features Speed Security Reliability And Above all a superior trading experience Access Markets NSE Cash Market NSE Futures and Options NSE Currency and IRF NCDEX Launching Soon NMCE New Paradigm NOW – Virtual Infrastructure for Members

16. 16/53 NOW (Application Service Provider) Dealer1Dealer2Dealer3 Dealer-HO Now Admin Web Clients Dealers Connecting via Internet/LL/VSAT Internet/ NSENet Exchanges LL Link NOW – How does it works?

17. 17/53 Risk Manager Admin Comprehensive Rules Managing All Levels Manage Users Monitor Dealers and Clients Block Orders Send Messages Functionality Grid Multiple Products available Risk ManagementAdmin Reports and MIS Real Time Margin calculation Multi Market and Multi Segment Fast Broadcast Basket /Spread Orders and AMO Orders Dealers Online IV’s for Option Traders Common Login for Multi market/segment Live Streaming Market data Online Fund Transfer Investor Clients Roles User Creation Creation and Assigning of Roles Master Creation and Maintenance Alerts / Square Off Alerts and View History SMS Alerts/ Confirmations NOW – Framework

18. 18/53 Potential Changes in Landscape  Increasing FII inflows  Equity Investments by Pension Funds  Greater Adoption of Algorithmic Trading  More Sophisticated Algorithms  More Investors Entering the Market  New Products Created as a Result of “FSR”  Ability to Trade Globally  Narrowing Spreads  New Regulations  Market Fragmentation

19. 19/53 Potential Impact of Changes in Landscape  An Order of Magnitude (x10) Growth in Transaction Throughput (x100 ?)  Cross Border Capital Mobility  An Order of Magnitude Growth in Listed Entities  Ample Liquidity Across All Asset Classes  An Order of Magnitude Growth in Financial Sector Employment  Ubiquitous Use of Mobile Devices for Financial Transactions  Greater Efficiency of Financial Intermediation  Mumbai Pre-eminent as a World Financial Center

20. 20/53 Imperatives  Architecting for Scale on all Dimensions –Management –Technology –Operations  Speed of Execution/ Implementation of New Initiatives  Business Intelligence

21. 21/53 Conclusion  NSE will continue to bring New and Innovative Products to meet and exceed market expectations  NSE will continue to provide Best-of-Breed Solutions to the market participants - proactively and also as requested by the participants

22. 22/53 Thank You nm@nse.co.in +91 22 2659 8205