Sebi to tighten norms for algo trade; hike penalty for misuse

Concerned over misuse of the high-frequency or algo trade, Sebi Chairman U K Sinha today said a strong set of regulations will be put in place in 3-4 months to ensure fair opportunities to those without such latest-technology trading tools while penalties could be increased manifold for any misdemeanour in this space.
In an interaction here, Sinha said regulators across the world are looking to find an effective solution for this menace but have not been able to find anything concrete.
"While Sebi is among the first regulators to have some kind of regulations in place on HFT (High Frequency Trading), there is a need to make it more stronger. We are working on that.

"It is not only about misuse of algo trade and co-location facilities, but also about fairness and we are trying to address the issue. We are now looking to increase the penalty for its misuse," he said.
"We have also asked stock exchanges to look into it and put systems in place to stop any misuse. We will soon put out a discussion paper on the entire issue and the final regulations would be framed after taking into account inputs from all stakeholders.
"All the measures that we want to take should be there in the next 3-4 months," he said.

Various options being looked into by Sebi include a minimum resting time for order, random delays and random speed bumps, separate queues for co-location and non-colocation orders, Sebi's Whole Time Member Rajeev Agarwal said.

The dissemination of information is also being looked into to ensure whether there are any preferential treatments.
"We are looking into more explicit guidelines on checking the manipulative activities," Sinha said.
He also raised concerns about growing threat for the marketplace on cyber security front.
"We have some guidelines in place but there is a need to revamp them. We are working with experts to address the gaps and appropriate action would be taken soon.

"There are some government agencies also looking into the aspects of cyber security from the perspective of national security and they have also given us some inputs," Sinha said.
On HFT, Sinha said the percentrage is over 40 per cent in trading volumes, while in case of orders it is even much higher.
On self-listing of stock exchanges, Sinha maintained that
the regulations are very clear on this and an exchange has to list on another's platform.
Asked further on NSE's request for being allowed to either self-list or be regulated by Sebi directly rather than a rival exchange, he said, "Some countries do have Central Listing Authority like structure but that may not be relevant in India and here the stock exchanges must function as front line regulators.

"It is a problem between the exchange, its board and its shareholders. Sebi is not asking them to get listed and it is the exchange which has to decide on whether to list or not, but the regulations are very clear," he said in an apparent reference to NSE.