Stock traders using algorithmic software to bet on the market are a worried lot following the securities market regulator’s recent move allowing bourses to inspect their trading programs.

These traders are perturbed that such scrutiny by exchanges could lead to divulging confidential details of software-based trading programs – some of which might be secret or proprietary information.

Algorithmic – or simply ‘algo’ – trading, also known as program trading, uses powerful computers that buy and sell shares at lightning-fast speeds to take advantage of quick price movements.

“Asking for exact details behind an algo trade will mean infringing on intellectual property,” said Rajesh Baheti, MD at Mumbai-based Crosseas Capital. “One can reveal what the principle behind a trade is, but not the exact numbers or values involved. Otherwise the trading will become free-for-all,” he said.

The Securities and Exchange Board of India (Sebi) circular said stock exchanges “may seek details of trading strategies used by the algo for such purposes, viz. inquiry, surveillance, investigations, etc.” The move is part of Sebi’s attempts to reduce potential systemic risk caused by the use of sophisticated automated software.

A top exchange official said bourses are evolving further guidelines to clarify on Sebi’s circular on inquiry and surveillance of algorithmic trading. “If we notice suspicious price discovery, we will ask the broker to reveal the exact trading program and logic behind that price,” said the official on the condition of anonymity.

Owners of such trading algorithms feel revealing finer details of such software may not help mitigating risks.

“It is like asking for the Coca Cola recipe to test for its safety,” said Sandeep Tyagi, CMD at Estee Advisors, which manages funds that use algorithms to trade. “While it is correct for the food regulator to ensure safety of the soft drink by conducting tests, asking for the drink’s secret recipea¦ the situation is similar with algo trading programs,” he said.

While stock exchanges do not publish the breakup of algorithmic versus manual trading, industry sources say algo trades constitute 25-30% of total trading volumes. Such high-speed trading has also caused sharp market movements, such as last Friday, when market benchmarks fell sharply within minutes after a large selling was misinterpreted by some algo trading programs, which sparked a larger sell-off.

Bourses already have a stringent process in place for approving such software, but it doesn’t yet involve revealing the trading logic.

“As of now stock exchanges don’t go deep down into the running of the algo program,” said Rakesh Zaveri, head – solutions consulting at algorithmic programs provider Progress Software. “Instead, what is required is real-time surveillance of trading, unlike the prevalent system which runs checks at a big gap of one day after trading or T+1,” Zaveri said.

Source:http://economictimes.indiatimes.com/markets/stocks/market-news/stock-traders-averse-to-letting-ses-to-inspect-trading-software/articleshow/12696081.cms

Ultimate Software Group (Nasdaq:ULTI) has been downgraded by TheStreet Ratings from buy to hold. The company’s strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we find that the company’s return on equity has been disappointing.

Highlights from the ratings report include:

Compared to its closing price of one year ago, ULTI’s share price has jumped by 54.78%, exceeding the performance of the broader market during that same time frame. Looking ahead, however, we cannot assume that the stock’s past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. In comparison to the other companies in the Software industry and the overall market, ULTIMATE SOFTWARE GROUP INC’s return on equity is significantly below that of the industry average and is below that of the S&P 500.
ULTI’s debt-to-equity ratio is very low at 0.06 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.29 is very weak and demonstrates a lack of ability to pay short-term obligations.
The net income growth from the same quarter one year ago has significantly exceeded that of the Software industry average, but is less than that of the S&P 500. The net income increased by 28.6% when compared to the same quarter one year prior, rising from $0.26 million to $0.33 million.
The revenue growth came in higher than the industry average of 7.2%. Since the same quarter one year prior, revenues rose by 15.9%. This growth in revenue does not appear to have trickled down to the company’s bottom line, displaying stagnant earnings per share.
The Ultimate Software Group, Inc. designs, markets, implements, and supports unified human capital management (HCM) software-as-service (SaaS) solutions to businesses, providing a single source for comprehensive human resources, payroll, and talent management technology. The company has a P/E ratio of 523, below the average internet industry P/E ratio of 719.1 and above the S&P 500 P/E ratio of 16.7. Ultimate Software Group has a market cap of $1.6 billion and is part of the technology sector and internet industry. Shares are up 16.4% year to date as of the close of trading on Tuesday.

Source:http://www.thestreet.com/story/11097024/1/ultimate-software-group-inc-stock-downgraded-ulti.html