SEBI has asked the stock exchanges to implement economic disincentives to brokers who are heavy algorithm trading users. Exchanges also have to ensure that all algorithm orders are routed only through broker servers in India.

The stock market regulator unveiled broad guidelines on algorithmic trading on Friday. Any buy or sell order generated using automated execution logic is called algorithmic trading.

SEBI has directed stock exchanges to upgrade their systems and surveillance mechanisms for algorithmic trading.

Exchanges are also required to continuously monitor their performance to keep pace with the speed and volume of data arising due to algorithmic trading.

In addition, exchanges are also expected to monitor possible order flooding by algorithms. SEBI has directed exchanges to have risk controls with checks at the price levels and quantity limits.

Exchanges are also expected to shut down a broker's terminal if it is found to run dysfunctional algorithms.

Dysfunctional algorithms are programmes that lead to a loop or a runaway situation. Disabled terminals can only be enabled manually by exchanges, said SEBI.

Exchanges may seek details of trading strategies used by the algorithms for inquiry, surveillance and investigation. Exchange should synchronise their systems clock with the atomic clock before the start of market.

Stock brokers cannot offer algorithm trading without permission from exchanges. Stock brokers on their part also have to maintain checks with respect to prices, order quantity, order value, and automated execution.

raghavendrarao.k

@thehindu.co.in

Related Topics
comment COMMENT NOW