Sebi conducts simulations of solution to strengthen high-frequency trading regulations

The Securities and Exchange Board of India is doing simulation studies before implementing a solution to strengthen the regulatory framework for algorithmic / high frequency trading (HFT).

HFT/Algo trading entails the use of complex algorithms to trade in financial markets with the help of servers located next of stock exchange servers (known as co-located servers) .These algorithms are capable of executing an extremely high number of orders in a second.

Responding to media queries, Ajay Tyagi, chairman Sebi, said, ''HFT is a complex issue and we have got some comments. Sebi is doing simulation studies so as to find out what would be the result if the options discussed in SEBI's discussion paper (of August 2016) are taken. We will come out with proper HFT draft only after thorough examination."

It has posted a discussion paper discussion paper seeking comments from stake holders (http://www.sebi.gov.in/reports/reports/aug-2016/discussion-paper-on-strengthening-of-the-regulatory-framework-for-algorithmic-trading-and-co-location-_32940.html)

Other Measures
Others measures taken by Sebi in its board meeting on Wednesday include permitting the introduction of commodity options on commexes; adding systemically important NBFCs under the category of institutional investors besides reducing the issue size requirement for the appointment of a mandatory monitoring agency to examine how IPO money is used from Rs500 crore issue size to Rs100 crore.

Sebi also decided to exempt banks / financial institutions from the requirement of not being allowed to participate in a preferential allotment of shares of a company in case the bank/ FI had sold those company's shares during the six-month period prior to the allotment. The waiver would enable banks to recover NPA better as banks may opt for CDR / SDR or bilateral restructuring for recovering their dues from a borrower which may be a listed company.

Finally, Sebi also mooted the integration of broking activities in equity markets and commodity derivatives markets under a single entity consequent to the merger of FMC with SEBI.