SEBI to bring algo trading guidelines in two months

We are examining a number of options to bring down the risk associated with such trade, said SEBI chairman U K Sinha

The Securities and Exchange Board of India (Sebi) plans to introduce within two months new norms to regulate algorithmic trading.

“Algorithm-based trade or high frequency trades are prone to high risks. We are examining a number of options to bring down these risks,” said Sebi Chairman U K Sinha on Thursday.

These are trading systems that utilise advanced mathematical models for transaction decisions in financial markets. As of May, 15.1 per cent of the BSE turnover came through the algo route. These trades account for 19.8 per cent of the total on the National Stock Exchange, with an additional 24.3 per cent of volumes coming through co-located servers.

The Reserve Bank of India had recently cautioned against these trades. “The increased complexities of algo coding and reduction in latency due to faster communication platforms need focused monitoring, as they may pose risks in the form of increased possibilities of error trades and market manipulation,” it had said in June.  Separately, Sinha said fund raising through the primary market had risen substantially. A total of Rs 9,750 crore was raised from the primary market last year and this had been crossed in this financial year’s first quarter, at Rs 9,800 crore, he disclosed.

As many as 24 issuers, he said, had filed their Draft Red Herring Prospectus, to raise combined capital of Rs 1,00,000 crore. Sinha added many new-age companies earlier thinking of listing abroad were now planning to do so here.

He said the steps the regulatory body had taken in this regard, already reported. These include relaxing many of the earlier norms to encourage start-ups to list in the country. To keep retail investors away from the soon-to-launch trading platform for start-ups, Sebi has prescribed a high trading lot size of Rs 10 lakh. However, it has included mutual funds in the definition of qualified institutional buyers, enabling indirect entry of non-wealthy individuals in the trading segment.