Sebi norms soon on algo trading

Sebi will come out with a fresh set of guidelines soon to curb very high order-to-trade ratio taking place through algo trading, its Chairman U K Sinha said today.
He was talking to reporters after launching a transaction aggregation portal, MF Utility, promoted under the aegis of Association of Mutual Funds in India.
The portal seeks to act as transaction aggregator of MF transactions, thereby bringing in operational efficiency and convenience.
"Sebi will come out with a fresh set of norms in the near future to curb very high order-to-trade ratio taking place through algo trading," its Chairman U K Sinha said

"We had recently come out with a discussion paper on algorithm trading during an international seminar. All arguments in favour of algo trading have been the fact that it provides liquidity.
"And more the liquidity in the system, the lesser chances of any manipulation. But various instances across the globe and within the system have shown that they add up to the exit mechanism. So the liquidity dries faster than in the open trade," Sinha said.

Sebi was the first regulator globally to come with a ruling on algo trading in 2013.
"We provided for higher penalties if there was very high order/trade ratio which means people are placing orders without any intention of executing those trades. So far we have not come across any such instances. Now other regulators are also looking at it", the Sebi chief said.

Sebi has already said algo trading will be tested by stock exchanges.
"We have announced that algorithms will be tested by stock exchanges. There was resistance from algo traders as well as from the service providers that it is intellectual property and hence they can't share it. So Sebi came with a view that it is in public interest to test the same from time to time. So the system is getting tested."
On Sebi trying to rejig the distributor commission in MFs, Sinha said "we have not taken any call on the commission structure so far. We are working on it internally."

RBI has allowed banks to convert debt into equity and it is now working on a formula in consultation with Sebi. This will take some more time. But we are in dialogue with RBI and the Finance Ministry too. We will come out with a discussion paper shortly before final implementation, he said.