Sebi plans crackdown on high frequency trading, defunct companies

Capital market regulator Securities and Exchange Board of India (Sebi) plans to increase monitoring of brokers engaging in high-speed trading that flood exchanges with orders that don't result into actual transactions, and set up speed bumps as part of the steps aimed at strengthening oversight of online trading.

Sebi is considering minimum resting time for stock transactions to delay orders so that all participants see the market at the same speed, chairman U K Sinha said in Mumbai on Wednesday.

He said Sebi would issue draft proposals for high frequency trading, laying out an ambitious agenda for itself in the year ahead.

It will also seek a better arbitration mechanism for investors, take a closer look at cyber-security, and focus on the implementation of recent regulations such as disclosure rules for listed companies, Sinha said.

Sebi has made it a priority to enhance market supervision, crack down on trading violations and shore up the confidence of retail investors, a policy that will continue, Sinha said during an interaction with media at the Sebi headquarters in Mumbai.

Sinha said there would be "monitoring of compliance by intermediaries," including brokers and "oversight of gatekeepers" such as auditors to prevent companies from engaging in deceitful activity.

Sebi will also aim to reduce the number of listed companies, Sinha said, estimating India had several thousand companies in exchanges including regional ones, many of which hardly trade or have been suspended for years.

Sebi is planning to push for delisting of over 4,200 listed companies whose shares are not being traded, and promoters refusing to give exit opportunity to investors would face strict penal actions, Sinha said.

These include over 1,200 companies whose shares are listed on national bourses BSE and NSE but where trading has been suspended for various non-compliance issues for over seven years. Besides, there are over 3,000 companies listed on various regional stock exchanges that have become defunct, he said.

He also warned of strong action against the auditors who close their eyes to the lapses in the financial accounts of listed firms.

"So far, we have had a hands-off approach on auditors, but we will take action if something serious comes to our notice.

''Auditors cannot go scot-free if they have been certifying the books for years without pointing finger at the lapses," Sinha said.

The exercise for over 4,200 listed firms would be completed this year. Such exercises would be taken up going forward to clean up the market from what the Sebi chief described as "a source of nuisance".

"We are going to reduce the number of listed companies. We have already reduced the number of stock exchanges by successfully closing several defunct or non-functional regional exchanges. They were centres of risk and there were series of litigations but we have won all of them.

"Now our target is to reduce the number of listed companies where no or little trading is taking place," he said, adding that it was not something to be happy about to have maximum number of listed companies if there was no trading activity happening.

The regulator would also issue a discussion paper on high frequency trades in the next three to four months, Sinha added, with a focus on ensuring that retail or other investors who do not have access to algorithimic trading are not disadvantaged.