Sebi plans to bring 'congestion charge' to disincentivise algo

Markets regulator Sebi is considering a proposal to disincentivise algorithmic trading by traders with a 'congestion charge' for high volumes along with other restrictions.

The proposal which was made at a recent meeting of an expert panel is aimed at addressing concerns that high-frequency or algo traders have unfair access to the trading system of exchange.

Algorithmic trading or 'algo' in market parlance refers to orders generated at a super-fast speed by use of advanced mathematical models that involve automated execution of trade.

The issue is likely to be discussed at the board meeting of the Securities and Exchange Board of India (Sebi) this month, senior officials said.

Under the proposed norms, the regulator plans to impose a higher fee on traders who unnecessarily clog the trading systems with high number of orders, the officials said.

To strengthen the regulatory framework for algo trading and co-location facility, Sebi in 2016 had come out with a proposal to introduce resting time for order, random delays and random speed bumps, separate queues for co-location and non-co-location orders.

However, the proposals were not implemented due to opposition from market participants.

The co-location facility involves setting up servers on the exchange premises.

The speed bump mechanism involves introduction of randomised order processing delay of few milliseconds to orders.

Sebi had proposed to begin minimum resting time mechanism, wherein orders received by the stock exchange would not be allowed to be amended or cancelled before a specified time of 500 milliseconds is elapsed. Besides, it had proposed to eliminate 'fleeting orders' or orders that appear and then disappear within a short period of time.

As per the proposal, the regulator had planned to introduce separate queues and order-validation mechanism for co-lo orders and non-colo orders.