Comments
The Securities and Exchange Board of India is contemplating introduction of a lock-in period for algo and high-frequency trading orders to help check manipulation by traders, said SEBI sources. However, according to market experts, the introduction of a lock-in period for algorithmic or high-frequency orders would not be a plausible solution.
Enhance surveillance“Introduction of lock-in is not the solution to this problem, enhancing surveillance capability is,” said a senior official of a clearing corporation, requesting anonymity.
Technology experts say that the optimal time period for which lock-in has to be introduced can be decided only after the system is implemented.
“Though it is possible to introduce a lock-in period for algo/HFT trades it remains to be seen how much lock-in is enough,” said an IIT professor.
Another technology expert said, “It is also possible to write algorithms to execute what they are presently doing after factoring in the lock-in period.”
RBI’s cautionThe RBI had observed in its financial stability report last week that volumes related to algo orders gave rise to concerns related to systemic risks.
The banking regulator observed that the share of algo orders in total orders and the share of cancelled algo orders in the total number of cancelled orders was around 90 per cent. Systemic risk is the risk of collapse of a financial system due to a contagion spread by the default by a few entities within the system, such as the global credit crisis of 2008.
RBI observed that volumes in algo trading and high-frequency trading increased substantially in the cash segment of the equity market to about 40 per cent of total trades in both the exchanges in March 2015.
Tightening controls in January this year, SEBI directed the NSE and the BSE to compute the Nifty and the Sensex after every trade in index stocks and check for breach of market-wide circuit breaker limits after every such computation of the index.
It directed the exchanges to stop matching of orders to bring about a trading halt and purge all unmatched orders in case of a breach of market-wide circuit breaker limit.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.