Sebi to issue discussion paper on algorithmic trading

Discussion paper will focus on impact of liquidity brought in by algorithmic trading programmes

The Securities and Exchange Board of India (Sebi) plans a discussion paper on additional measures for algorithmic trading. A note on the conversion of bank loans into equity was also likely, said Sebi Chairman UK Sinha.

Speaking at an Association of Mutual Funds in India meeting, he said Sebi had taken a number of steps on algo trading. “We are likely to take more. We are trying to evaluate what measures to take and what will be their impact. As and when we decide, and it won’t be too long in the future, we will take more measures,” he said.

The discussion paper will focus on the impact of liquidity brought by algo trading programmes, especially the possibility of it drying in case of mass exits from the market. It will also examine whether the use of such algorithms will be fair to all investors, some of whom don’t participate through this.

Earlier, the Reserve Bank of India had indicated talks were underway to see whether banks could convert bad loans taken by companies into an equity stake in such entities. On this, Sinha said, “It will take some more time. We are in dialogue with the Reserve Bank of India and the ministry. We will come out with a discussion paper on this before we implement it.”

He added after passing orders against illegal activities relating to the preferential allotment of shares and alleged money laundering worth about Rs 600 crore, the regulator was looking into a “number of other companies”. Sebi officials, he said, were meeting officials from the mutual fund sector, as well as advisors, on the issue of distributor commissions. There had been reports of violation of Sebi regulations, he said, adding they hadn’t found such instances.

Earlier in the day, at a CRISIL seminar on the corporate bond market, Sinha said Sebi was raising the issue of bond holder protection with the government. Such entities didn’t have the safeguards that banks and other lending institutions did, he said, adding he was hopeful the government would address this. “My sense is the FPI (foreign portfolio investor) limit in the corporate bond sector is going to be enhanced,” he said. In April 2013, the regulator had put a limit of $51 billion for foreign investment in corporate bonds.

The central bank was in talks for partial credit enhancement for such bonds, Sinha added. He said he was hopeful of some real estate investment trust issuances soon. Recently, Sebi had amended its regulations for such vehicles.