The market regulator wants to create a level-playing field in the equity and commodity market for all types of investors.
In order to provide a level-playing field to retail investors vis-a-vis the large players, the Securities and Exchange Board of India (Sebi) is planning to bring in a high-frequency trade (HFT)-like feature for retail investors.
The market regulator wants to create a level-playing field in the equity and commodity market for all types of investors.
A senior Sebi official, who attended a recent meeting to discuss these issues, told dna, "Sebi would like to reduce the undesirable impact of high-frequency trade on the overall market. It may like to provide an HFT-like feature to retail investors with proper safeguards in the trading setup of exchanges."
However, the official also questioned if the stock exchanges are ready and capable of handling data volumes for surveillance purposes when the number of HFT traders is likely to get doubled.
Sebi's technical advisory committee (TAC) has raised concerns over handling of HFTs by stock exchanges in its special input on stock exchange surveillance mechanism, a copy of which is available to dna.
In this report, the TAC clearly mentioned that exchanges have not separated alert mechanism for HFTs. The TAC advised that exchanges should have separate teams for monitoring algo or high-frequency trade.
As per the report, the exchanges should submit their holistic analysis to the regulator periodically. Exchanges will have to submit details including the study of the debt burden of companies and comparison of deliverable value and traded value in the cash market.
BSE, on the other hand, has a different view on the preparedness to handle bigger volumes in HFT.
A senior BSE official told dna, "Our information technology is intact and it can handle a large amount of data of HFT. And high-frequency trade mechanism for retail investors is a welcome step".
Brokers too welcomed high-frequency trade mechanism for retail investors, "It is a welcome step if Sebi is planning to come up with an HFT (system) for retail investors. But HFT is an expensive affair. So the question is how will retail investors pay hefty amounts for their HFT trades."
dna's questionnaire e-mailed to Sebi did not elicit any response.
An NSE spokesperson said the exchange cannot have a comment as it's entirely Sebi's decision to alter the guidelines, etc. if any. "As an exchange we will follow whatever the regulator will suggest as has been the case in the past," said the spokesperson.
The TAC has also advised that they should do a study on macro-level for HFTs. Sebi should work on order rest time, order to trade ratio and separate bid-ask spread for algo or non-algo scrips.
Zee Business on June 11, 2015, reported that the stock market regulator was planning to change norms for algo trading. With these measures, the regulator can be taken for curbing algo trades including the order to trade ratio, frequent batch auction and randomisation of trade.
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