InvestorQ : Is it still possible to arbitrage between different stock exchanges in India?
Angel dcosta made post

Is it still possible to arbitrage between different stock exchanges in India?

Answer
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NISHA Nayak answered.
2 years ago


Inter-exchange arbitrage used to be a big business in the past. Prior to the establishment of the NSE in 1994, the only active exchanges were the BSE and a host of regional exchanges. At that point of time, smart traders would capitalize on these prices differences. For example, if RIL was quoting at Rs.1100 on BSE and at Rs.1160 on the DSE, then the trader would buying on the BSE and sell on the DSE, pocketing the difference of Rs.60, after adjusting for the costs. After the NSE commenced operations in 1994, many traders identified these arbitrage opportunities between the BSE and the NSE and capitalized on the same.

Arbitrage is a risk-free method of pocketing the difference in price as you are buying the same stock at different exchanges at different prices. However, in the past 2 decades most of the regional stock exchanges have shut down due to stringent capital requirements. The advent of rapid flow of information and online trading models combined with algos and co-location of servers has made arbitrage spreads almost negligible between the NSE and the BSE. Even if they do exist, these arbitrage opportunities tend to vanish in a matter of milliseconds.