HC asks Centre, SEBI to reply to plea on automated trading

The algorithmic trading, which is faster, gives an edge to big investors in selling and purchasing shares, the plea said

The Centre and stock market regulator Securities and Exchange Board of India (Sebi) were today asked by Delhi High Court to respond to a plea seeking to abolish automated or algorithmic trading at stock exchanges here as the facility was not available to small investors.

Automated or algorithmic trading is a system for trading through a programmed software that can make around 800 transactions per second. The software-helped trading was allowed by Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) in 2005.

Besides Sebiand Finance Ministry, Justice Rajiv Shakdher has also issued notices to Reserve Bank of India, BSE and NSE on the plea alleging algorithmic trading put small investors at a disadvantage in comparison to big brokers and FIIs.

The court, which was hearing the plea of a group of retail investors 'Intermediaries and Investor Welfare Association', has fixed the matter for hearing on January 29.

The Association, in its plea, alleged algorithm trading system "discriminates between rich and influential brokers and common investors/ retail investors and creates inequality and finally casts a deceptive data to common investors and retail investors while trading in shares and securities on online trading platforms of BSE and NSE".

It also alleged that Sebi and Finance Ministry have been "silent spectators" on the issue and "not bothering to check the fallout" of algorithmic trading.

It said algorithmic trading "creates unfair advantage" to members who use the software against ordinary investors.

The algorithmic trading, which is faster, gives an edge to big investors in selling and purchasing shares and hence, this is discriminatory, the plea said.

The petition also raised the issue of buying of co-location servers by big investors which allows them to trade faster than others.

Automated trading in securities has caused "flash crash" in the market, which has "dented" the reputation of Indian capital market globally, it said.

It also sought a direction to Finance Ministry and Sebi to "immediately abolish or suspend" algorithmic trading as it is "arbitrary and discriminatory".

It also seeks a direction for framing of guidelines to provide a "level-playing field" to all.

The petition seeks removal of co-location servers that were allowed to be established by some brokers.