SEBI Proposals on Algo Trading

As per brokerage houses, proposal by SEBI to treat all orders emanating from application programming interface (API) as algorithmic or algo order might hamper the growth of such trading in India.

Highlights

• Algo trading refers to any order which is generated using automated execution logic.
• The algo trading system monitors the live stock prices, automatically and initiates an order when all the criteria are met.
• This system frees the trader from monitoring the live stock prices and initiate manual order placement.

What are the concerns raised by Brokerage houses?

Brokerage houses are of the view that, there is a need to regulate nascent algo market, especially in the light of media reporting on a number of cases of retail clients who lost money based on false promises made by some vendors.  However, to tackle the few bad cases, SEBI’s regulation is putting in hurdles which in turn can restrict the growth of algo trading in India. It would become difficult for brokers to provide APIs, if conditions mentioned in consultation paper are implemented.

Algorithmic Trading

Algorithmic Trading is a method to execute orders using automated pre-programmed trading instructions accounting for variables like price, time, and volume. Such trading leverages the speed and computational resources of computers relative to human traders. This trading has been gaining traction with retail as well as institutional traders. It is used by investment banks, mutual funds, pension funds and hedge funds.  According to a 2019 study, around 92% of trading in Forex market was performed by trading algorithms.

Securities and Exchange Board of India (SEBI)

SEBI is the regulatory body for securities & commodity market in India. it works under the ownership of Ministry of Finance. SEBI was established as non-statutory body on April 12, 1988. It was given Statutory Powers & became autonomous body on January 30, 1992 by the SEBI Act, 1992.