SEBI mulling to place barriers on Algorithmic trading

Capital market regulator SEBI could well be the first regulator in the world to form rules on Algorithmic  Trading (Algo Trading). SEBI may put some restrictions on the Algo trading in order to make it a level playing field for retail investors who are most of the time placed at an disadvantage due to High Frequency Trading  (HFT) practised by certain brokers and traders with access to technology. 

HFT is a trading platform which uses powerful computers to transact. The unique advantage lies in its ability to place large number of orders at extremely fast speeds. Complex algorithms are used to identify buying and selling opportunities and to execute orders based on market conditions. SEBI could put in place artificial barriers which will act as speed breakers to HFTs. The artificial barriers could be in the form of restriction on tick by tick data, bunching of orders and order randomisation. 

Algo trading is a global practice and constitutes to more than 85 per cent of the total volumes. Globally there is an on going debate on whether Algo Trading should be allowed with certain restrictions. In India HFT contributes to almost 50 per cent of the total volumes including both cash and derivatives segment. There is a fear amongst market participants that the volumes may drastically drop down in case HFT trading is restricted or drastic steps are taken to curb HFT trading. 

Meanwhile BSE, in partnership with Symphony Fintech Solutions Pvt Ltd., has migrated its Algorithm Trading test environment to Amazon Web Services (Cloud), enabling all market participants to test their trading algorithms in Equity, Equity Derivative and Currency Derivative segments free of cost.