The International Advisory Board (IAB) of SEBI deliberated the effects of high frequency trading on market volatility, liquidity and its ability to influence markets.
The advisory board also discussed trade annulment policies and the need for pauses to respond to sudden movement in prices to reduce uncertainty.
In its second meeting held on November 3 and 4, the IAB discussed the importance of maintaining trust among marketmen and ensure market orderliness.
The heads of NSE, BSE, MCX-SX and USE participated in this discussion.
Set up in September 2011, SEBI’s IAB consists of its Chairman U. K. Sinha, Viral Acharya of New York University Stern School of Business; Jane Diplock (Independent Director of Singapore Exchange Ltd ); Mark Maletz (Senior Fellow at Harvard Business School); Arvind Panagariya (Columbia University); Andrew Sheng (Chief Advisor to the China Banking Regulatory Commission); Prashant Saran; and Rajeev Kumar Agarwal, Whole Time Members of SEBI.
Capital Adequacy
Capital adequacy requirements for market intermediaries based on exposure in terms of volumes, number of clients, use of algorithms, extent of proprietary trading undertaken, were discussed.
The need to review these norms to meet the unknown and non-market risks faced by intermediaries was acknowledged.
It was suggested that risk management at the Central Counter Party (Clearing Corporations) should factor in, the practices of trading members, while adjusting its norms and level of deposits.
The need to regulate collective investment schemes and money circulation schemes in India in tandem with State Governments was emphasised. This was due to its localised nature, and the existence of a criminal enforcement angle attached to the regulation of such schemes. The need for an independent and separate regulator with sufficient resources was underlined.
The advisory board also deliberated upon regulating research analysts providing services for a fee under SEBI’s proposed Investment Advisor Regulations. A separate code or set of guidelines for analysts was also mooted.
The IAB also discussed the role of mutual funds in managing pension money- uniform tax treatment of retirement related investments, and the need to have an appropriate cost structure for handling pension investment.