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Home / News / Business News / SEBI to review proposed algorithmic trading regulations
  • Business

    SEBI to review proposed algorithmic trading regulations

    Ramya Patelkhana
    Written by
    Ramya Patelkhana
    Mail
    Last updated on Oct 21, 2016, 07:15 am
    SEBI to review proposed algorithmic trading regulations
  • The Securities and Exchange Board of India (SEBI) would reportedly begin a second consultation round with market players on algorithmic trading regulations and drop some of its previous proposals.

    SEBI had earlier proposed seven norms to level the field between regular market users and high-frequency trading (HFT) users.

    However, some users had protested the proposed methods prompting the SEBI to take a second look.

  • In this article
    What is high-frequency trading? Slowing down high-frequency trading Proposed norms could have an adverse impact on market "Little to nil" global precedence SEBI to review proposed algorithmic trading regulations Proposals could impact the market liquidity Execution of trade Options that could have acceptance from the market at large Leveling the playing field
  • Introduction

    What is high-frequency trading?

    What is high-frequency trading?
  • High-frequency trading (HFT) is a type of algorithmic trading that gives users advantage over regular users.

    It uses powerful computers and complex algorithms to analyze markets and execute orders based on market conditions at very high speeds.

    It is characterized by high turnover rates and high order-to-trade ratios.

    HFT turnover in fiscal 2016 has jumped to 42% from 25% in the last four years.

  • 05 Aug 2016

    Slowing down high-frequency trading

    Slowing down high-frequency trading
  • Securities and Exchange Board of India proposed seven norms to regulate HFT.

    The rules include: introducing minimum resting time between HFT orders, matching all orders under a batch system, introducing random delays (of milliseconds) in order processing, randomly revising the order queue every 1-2 seconds, capping of order-to-trade ratio, having order queues for co-located servers and other servers, and reviewing the tick-by-tick data feed.

  • 16 Aug 2016

    Proposed norms could have an adverse impact on market

    Proposed norms could have an adverse impact on market
  • The SEBI's proposed norms on algorithmic trading faced opposition from some users.

    They said the rules wouldn't help in reducing HFT's unfair access but rather impact liquidity adversely.

    The norms would push the market to the 2005 era of manual trading and increase trading cost.

    Another adverse effect would be the migration of foreign investors to other jurisdictions to seek exposure to Indian firms.

  • Information

    "Little to nil" global precedence

  • Domestic brokerages and foreign institutional investors (through Asia Securities Industry & Financial Markets Association) had reportedly written to the SEBI the proposed norms for regulating algorithmic trading "were too onerous with 'little to nil' global precedence."

  • 21 Oct 2016

    SEBI to review proposed algorithmic trading regulations

    SEBI to review proposed algorithmic trading regulations
  • The Securities and Exchange Board of India (SEBI) would reportedly begin a second consultation round with market players on algorithmic trading regulations and drop some of its previous proposals.

    SEBI had earlier proposed seven norms to level the field between regular market users and high-frequency trading (HFT) users.

    However, some users had protested the proposed methods prompting the SEBI to take a second look.

  • Proposals

    Proposals could impact the market liquidity

    Proposals could impact the market liquidity
  • SEBI had proposed revising the order sequence, introduction of minimum resting time between high-frequency trading orders, and uniform access to market data.

    Certain market users protested these proposals as they could impact the liquidity of the market and increase the cost of trading.

    However, two proposals - capping the order to trade ratio and reviewing tick-by-tick data feed - would reportedly be implemented initially.

  • Information

    Execution of trade

  • In high-frequency trading, a huge number of orders are canceled when compared to trades that are actually executed. SEBI wants to ensure the execution of at least one trade for a given number of orders to decrease hyperactive order book participation.

  • Proposed options

    Options that could have acceptance from the market at large

    Options that could have acceptance from the market at large
  • By capping order to trade ratio and reviewing tick-by-tick data, SEBI wants to make access to information easier.

    The data-heavy feed that gives real-time information on all trades and orders is currently available to HFT users for a fee, but SEBI wants to provide the feed to all players.

    SEBI reportedly wants to finalize norms for algorithmic trading based on "sound research" by 2017.

  • Quote

    Leveling the playing field

  • Of the SEBI's two proposed options, uTrade Solutions CEO Kunal Nandwani said, "Capping order to trade ratio will help in leveling the playing field between algo and non-algo users and has been implemented by several global exchanges with good results."

  • Securities and Exchange Board of India
  •  
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