To address the challenges posed by algorithmic/high frequency trading (HFT) and co-location of servers alongside stock exchanges, SEBI plans to organise a two-day international research conference starting January 27.

The theme of the conference is “HFT, Algo Trading and Co-location.”

Sessions will delve on aspects of the impact of HFT and algo trading on market quality, financial stability, information asymmetry, retail investors and HFT in developing countries, besides regulatory mechanism and technology as an enabler to re-level the field.

HFT is one such product of technology innovation which has become a topic of regulatory focus around the world in a very short time span.

In response to an automated trading process, market participants developed trading algorithms which were designed to replicate human behaviour during the trading process, such as agency floor brokers or proprietary market-makers.

These trading algorithms have been refined, computing technology continues to advance, and orders to buy and sell are appearing and matching at a faster rate than ever before.

Algorithm trading is the use of technology where sophisticated computer aided tools are deployed to execute trading and trading-related activities.

SEBI guidelines

SEBI, on its part, spelt out broad guidelines for algorithmic trading in the securities market in 2012. These guidelines included additional risk management measures/checks for algorithmic (algo) trading, required minimum levels of risk controls, managing the load at exchanges, economic disincentives for high daily order-to-trade ratio of algo orders and penalty for repetitive instances of high daily order-to-trade ratio.

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