Harsh Raj Pathak

Type of the article: Research Article

Abstract
This paper examines the impact of colocation (permitting traders to place their servers in close proximity to exchange servers) on the price volatility at India’s fastest exchange, which operates at 6 microseconds. The study employs the event study method to examine the relationship between colocation and price volatility. The study analyzed daily trading data from the Bombay Stock Exchange (BSE) Sensex-30 index from January 1, 2000 to December 31, 2023. The findings of the study suggest a remarkable level of stability at BSE following the implementation of colocation in November 2010. Furthermore, there is substantial evidence of improved price volatility following the reduction in latency at BSE. The colocation has positively supported high-frequency trading, leading to improved price volatility in the Indian securities market. The study conducted additional analyses to assess its robustness and found qualitatively similar results. The study has implications for regulatory bodies, retail investors, market participants, and other interested stakeholders, providing valuable insights into the efficiency of colocation implementation at BSE.

Acknowledgments
The authors would like to acknowledge that this research work is fully funded by Kingdom University, Bahrain, through the research grant number KU-2025-26-02.