LAHORE: In an effort to embrace more innovative technology, the Lahore Stock Exchange (LSE) on Friday introduced the Algo Trading Software for the simultaneous purchase and sale of shares, which will allow investors to make risk-free profit from the difference between prices on the LSE and Karachi Stock Exchange (KSE).
The purpose is to increase liquidity in the Lahore market as investors currently opt to trade on the KSE due to better liquidity and timely execution of orders.
“Our initial target is to retain the liquidity in the LSE, which currently goes to the KSE,” said LSE Managing Director Aftab Ahmad Chaudhary while briefing the investors.
At present, 25% of orders from the investors in Lahore are being executed on the KSE, he added.
The software is based on the arbitrage and algorithm trading mechanism, where orders will be updated in real time in line with the rates and liquidity position of the Karachi Automated Trading System (KATS).
As soon as a buy or sell order is executed on Ultra, the software will place a counter-order on KATS to square the position. Opposite positions will net off in real time on the execution of covering order.
“The only problem the LSE faces is that its members put orders on the KSE, we are working on it as we know that there are huge investment opportunities in Lahore and Karachi, we are educating the members to put their orders in the Lahore trading system before putting in the KSE,” Chaudhary added.
The introduction of client-level margins in 2009 has encouraged LSE brokers and investors to trade more on KATS as KSE brokers offer them to trade at low or no margins.
Chaudhary said that since 2006, with the decline in stock market activities, the LSE’s market share has partially shifted to other exchanges, the reason being low liquidity and insignificant trading volumes and the subsequent flight of investors from the exchange.
He explained that Algo will not only improve liquidity at the exchange, but will also benefit the brokers who engage in arbitrage.
“Algo Trading is software which will find arbitrage opportunities automatically on the basis of pre-defined parameters to be entered into the system by the brokers themselves,” he said.
“Algo will take advantage of the price difference between the two exchanges based on the spread defined by the broker.”
The improvement of liquidity will attract institutional investors to the LSE and it is hoped that trading activities would increase significantly there.
In addition to this, the LSE management is also working on incorporating different companies for initial public offerings (IPO) from Punjab. In the past one year, the LSE has managed three IPOs.
“Owing to our efforts, more companies, especially in the steel sector, are taking interest in being publicly listed, this will further improve liquidity on the LSE,” Chaudhary added.