Can You Buy Shares On NSE And Sell On BSE?

Is it possible to buy shares on NSE and sell on BSE? The short answer is yes. But this question conceals far more profound and fundamental matters than has to do with buying and selling shares.

The point is why would one want to do such a thing? After all there is a risk- that the price may fall by the time you make the sale. One plays the stock market for profits and no risk is worth it, unless there is a clear chance to profit. So welcome to the world of hedge funds.

For arguments sake let us say that scrip A is in demand in the NSE but is under selling pressure in BSE. The price of scrip A gets pushed up in NSE while it is pulled down in BSE. Implicitly the price of the scrip A will rise at the NSE and fall in the BSE.

A price differential, or in stock market parlance, a spread, however momentarily, emerges. An opportunistic speculator will seize the moment to buy the scrip A from BSE and sell it at NSE. A handsome profit may be made depending on the size of the investment.

The learned men who manage the two exchanges would be aware of the possibility. Hence between them they would surely put in place a mechanism for synchronising prices in the two exchanges.

And yes, there is such a mechanism. The mechanism also takes very little time to affect the synchronisation of share prices. Much less than the time taken to make a purchase and a sale manually. But the time taken is a finite period. Too small for human beings but not quite so for computers. So now, welcome to the world of Algorithmic or Algo trading.

When it comes to financial innovation United States of America is The go to place. Out there they even change laws to suit innovation. And yes, this is old stuff there. They have done it all.

Roger Lowenstein in his outstanding book “When Genius Failed” describes a company called Long-Term Capital Management managed by two Nobel laureates. Algo trading was just one of the many in their repertoire of tricks. They even mastered cashing in on currency exchange rate spread. The Black-Scholes equation was the most perfect stock exchange mantra ever created. To cut a long story short, in about five years’ time, when LTCM collapsed the write down was of the order of One Trillion Dollars. All of it, less 100 billion, borrowed from banks. It is believed that LTCM was the first shot in a series of events which eventually lead to the global financial meltdown of 2008. Algorithmic trading is now banned worldwide.

Can we buy on NSE and sell on BSE?

Which brings us back to the original question of whether you can buy in NSE and sell in BSE. Of course, we can. This is what most traders do and is commonly called as arbitrage opportunities. However, intra day traders cannot but shares on the NSE and sell on BSE and vice versa.

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