Proposed Performance Validation Agency Aims to Enhance Retail Algorithmic Trading Transparency

A stock exchange official announced plans to establish a performance validation agency to assess claims made by algorithmic trading systems aimed at retail investors. BSE Ltd's managing director and CEO, Sundararaman Ramamurthy, mentioned this during a capital markets session organised by the Merchants’ Chamber of Commerce. The agency will ensure that the claims made by these systems are accurate.

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Algorithmic Trading for Retail Investors

The Securities and Exchange Board of India (Sebi) has proposed measures to encourage retail participation in algorithmic trading, which has primarily benefited institutional investors. Sebi introduced algo trading through the Direct Market Access (DMA) facility to improve market efficiency and transparency. This initiative offers advantages such as quicker order execution, lower transaction costs, enhanced transparency, better audit trails, and increased liquidity.

Sebi's proposal aims to provide retail investors with faster order execution and improved liquidity while ensuring safeguards are in place. This move is part of a broader effort to make the benefits of algorithmic trading accessible to a wider audience, ensuring that retail investors can also take advantage of these technological advancements.

Ownership Structure of Clearing Corporations

Regarding Sebi’s consultation paper on the ownership structure of clearing corporations (CCs), Ramamurthy stated, "Regulations are evolving, and regulators co-create them with market participants." However, he did not provide further details on this topic. Sebi's consultation paper suggests diversifying CC ownership, currently fully owned by stock exchanges.

The proposal includes distributing shares pro-rata to existing shareholders of the parent exchange. It also suggests gradually reducing their holdings or completely transferring shareholding to shareholders, allowing them to trade shares freely. Sebi has extended the deadline for comments on this proposal until 31 December.

Ramamurthy emphasised BSE's commitment to expanding within the evolving capital market ecosystem. He expressed enthusiasm for growth by stating, "We now have fire in our belly to grow the exchange and perform better." This reflects BSE's dedication to adapting and thriving in a changing financial landscape.