Sebi eases algorithmic trading rules for commodity derivatives segment

Easing algorithm trading norms for commodity derivatives segment, capital markets regulator Sebi on Thursday raised the limit for placing the number of orders per second to up to 120 by a user from the existing limit of 100.

The new limit will be effective from April 1, the Securities and Exchange Board of India (Sebi) said in a circular.

The decision was taken after receiving representations from exchanges along with the views of Sebi's sub-committee -- Commodity Derivatives Advisory Committee.

"It has been decided to permit stock exchanges to further relax the...limit up to 120 OPS (order per second) as against the present 100," Sebi said.

Prior to that, the limit on the number of OPS from a particular userID was 20 orders per second.

Now, the exchange can place a limit on the number of orders per second from a particular user-ID not exceeding 120 orders per second.

For the number of orders exceeding the limit set by a stock exchange, Sebi said that the bourse needs to prescribe economic disincentives and inform the same to the regulator.

Further, the exchange will have to ensure that the limits provided are subject to its ability to handle the load.

"The limit on OPS may be further relaxed by the stock exchanges based on the increased peak order load observed and corresponding upgrade of infrastructure capacity to ensure that the capacity of the trading system of the stock exchange remains at least four times the peak order load. The relaxation in limit shall be subject to the approval of Sebi," it said.

Algorithmic trading or 'Algo' in market parlance refers to orders generated at a super-fast speed by use of advanced mathematical models that involve automated execution of the trade, and it is mostly used by large institutional investors.