BSE asks brokers using algo trading to submit audit reports

Leading stock exchange BSE today asked brokers using super-fast algorithmic trading facility to submit system preliminary audit report for the first half of the fiscal by November 30.
The brokers can submit executive summary report and corrective action report by February 28, 2017 and follow on report by May 31 of next year, BSE said in a circular.
Algorithmic or algo trading refers to orders on bourses that are generated using high-frequency and automated execution logic.
According to BSE, the audit should be conducted by an auditor having minimum three years of experience in IT audit of securities market participants -- stock exchanges, clearing corporations, depositories, stock brokers and depository participants.

The auditor should not have any conflict of interest in conducting fair, objective and independent audit of the stock broker. Further, the directors and partners of auditor firm would not be related to any stock broker including its directors or promoters either directly or indirectly.
The auditor may perform a maximum of three successive audits of the stock broker.

BSE would charge Rs 100 per day for December 2016 and will withdraw trading facility for non-submission of system audit report from January 2, next year.
The system audit report and related documents have to be filed only in electronic form through BSE electronic filing system (BEFS).

Further, BSE said delay in filing the audit reports for the half year ended September 30, 2016 beyond November 30, 2016, would attract disciplinary action.
Increasing volume of algo trades and their attendant risks have forced regulators world over to have a closer look at gaps in the existing regulations and explore ways of strengthening them.
Markets regulator Sebi has also proposed new framework for algorithmic trading including suggesting 'speed bumps' and separate queues for algo and non-algo trades.