SEBI sets rules on Algorithmic trading

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SEBI sets rules on Algorithmic trading
The market regulator Securities and Exchange Board of India (Sebi) has set new guidelines on Algorithmic trading as many traders are adopting technology for the purpose of trading in financial instruments.

Algorithmic Trading means any order that is generated using automated execution logic shall be known as algorithmic trading.

SEBI's new guideline aims to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

Following are the few guidelines by SEBI

  • The stock exchange shall have arrangements, procedures and system capability to manage the load on their systems in such a manner so as to achieve consistent response time to all stock brokers.
  • In order to ensure maintenance of orderly trading in the market, stock exchange shall put in place effective economic disincentives with regard to high daily order-to-trade ratio of algo orders of the stock broker.
  • The stock exchange shall ensure that all algorithmic orders are necessarily routed through broker servers located in India and the stock exchange has appropriate risk controls mechanism to address the risk emanating from algorithmic orders and trades.
  • The stock exchange may seek details of trading strategies used by the algo for such purposes viz. inquiry, surveillance, investigation, etc.
  • The stock exchange shall include a report on algorithmic trading on the stock exchange in the Monthly Development Report (MDR) submitted to SEBI
  • Stock exchange shall ensure that the stock broker shall provide the facility of algorithmic trading only upon the prior permission of the stock exchange.

For stock brokers already providing algo trading, the stock exchange shall ensure that the risk controls specified in this circular are implemented by the stock broker.

The stock broker, desirous of placing orders generated using algos, shall submit to the respective stock exchange that it has real-time monitoring systems, and shall maintain logs of all trading activities and shall inform the stock exchange on any modification or change to the approved algos or systems used for algos.

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