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The new framework to curb instances of stock market spoofing kicked off on Monday, whereby serial offenders could face trading disablement of 15 minutes to two hours.
In spoofing, traders place a large number of buy or sell orders, with an intent to cancel before those orders can be executed.
Market experts say that excessive cancellations of large orders lead to manipulative increases or decrease in prices, which impacts retail investors.
Also read: SEBI moves to curb ‘pseudo’ orders
“SEBI and exchanges in a joint meeting have decided that, in order to further strengthen the order-level surveillance mechanism, there shall be an additional order-based surveillance measure to deter persistent noise creators, i.e. excessive order modifications/ cancellations with an intent to avoid execution,” BSE and NSE had said in circulars last month.
The new measure will be applicable on the daily trading activity at the client as well as the broker levels.
The exchanges have noted three activities — high order to trade ratio, high instances of order modifications and persistent deferred or lower order execution priority due to frequent modifications — that will be monitored to curb such practices.
If the surveillance system detects instances based on these three activities, it will be considered ‘one instant count’.
Based on the count of instances over a period of 20 trading days, exchanges will determine penal actions.
If the number of instances crosses 99 on a rolling 20 trading days basis, the trading account will be disabled for the first 15 minutes of the next trading day. Any additional instance will lead to a longer disablement of a trading account subject to a maximum of two hours.
The surveillance measure will be effective from April 5 and the first action on such persistent noise creators will be on May 5 based on 20 trading days window.
Also, trading behaviour of entities creating undesirable noise in the market will be monitored.
Even if these parameters are not fully met, if any entity is found to be repeatedly modifying and cancelling orders which do not result in execution and creates undesirable noise in the system, that entity will be held liable, the circulars noted.
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