BSE head sees tighter algo trading rules as boon for markets

Proposals by the Securities and Exchange Board of India (Sebi) to tighten rules on algorithmic trading could help boost confidence in markets and won't hurt the country's second biggest bourse, the head of Indian exchange operator BSE told Reuters.

The main capital markets regulator last week unveiled a discussion paper on various limits on algo traders, including reduced speed limits at which trades are executed, due to concerns about fair access to markets. "Well-designed forward looking regulations create better trust," Ashishkumar Chauhan, chief executive of BSE, Asia's oldest exchange, said in an interview with Reuters late on Wednesday. "We are not worried about undue impact on our business," he said, adding that he expects the new rules could actually boost, rather than decrease trading volumes.

Algorithmic trading has become a major source of income for both the BSE and its larger rival the National Stock Exchange. The new rules could come into force as both exchanges look to go public.

The BSE is soon expected to file a listing application that bankers estimate could value the exchange at about $750 million to $1 billion.

About 90 per cent to 95 per cent of BSE's order flow is currently being generated by algo trading and some 40 per cent to 50 per cent of executed trades also being driven by such systems.

Algo traders have warned that Sebi proposals, which are not yet final, are too restrictive and could force trading into overseas markets.

Indian markets have rallied in recent months on expectations of a recovery in earnings as the government has made progress in advancing some reforms, including recently passing a landmark goods and services tax.