 "Overseas investors to oppose proposed algo curbs")
A group of foreign investors plans to oppose proposed curbs on algorithmic (algo) or high-frequency trading (HFT) suggested by the Securities and Exchange Board of India (Sebi).
They said the proposals could render the Indian market less competitive and that could lead to lower liquidity. “Algo trading has led to deeper, more liquid markets, with tighter spreads. Any major change may lead to lower liquidity and wider spreads,” said Kunal Nandwani, chief executive officer, uTrade Solutions.
Sebi last month issued a set of draft regulations over inequitable access to trading systems of exchanges. It had asked market participants to provide feedback by August 31. “Foreign investors that use HFT will make a presentation before the regulator this week,” said a person from a leading tax and audit consultancy firm who is assisting HFT players in the matter.
The proposed curbs were not in line with the regulator’s objective of providing institutional and retail traders a level playing field, the person added.
Foreign investors are concerned over a minimum resting time, random speed bumps, and expenses over changes in software. Sebi wants to restrict the frequency of changes in orders to eliminate fleeting orders that create an illusion of increased volume and thereby impact the stock price. Another issue is the proposed random speed bumps and separate queues for orders by co-located participants. Co-located participants will still be among the first to receive market data feeds due to their proximity to the trading platforms. This, coupled with the capability to make trading decisions in fractions of a second using trading algorithms would allow co-located participants to react quicker to market data, Sebi had said in the discussion paper.
“Sebi’s proposals are focused on discouraging latency-sensitive strategies. Care needs to be taken that these proposals do not dent liquidity in the Indian markets and widen bid-ask spreads. Any adverse change in the current market structure may influence migration of volumes to non-Indian exchanges,” said Suresh Swamy, partner, financial services, PwC.
Besides, foreign players need clarity on who will bear the cost of amending the software needed once the new norms are implemented. A little over 80 per cent of orders placed in most exchange-traded products are generated by algorithms and such orders contribute approximately 40 per cent of trades on exchanges.
The Securities and Exchange Commission in the US has approved a proposal that non-routable, immediate-or-cancel orders shall be subjected to a sub-millisecond delay before arriving at the system. It has also developed a system to detect “bad” algo behaviour.
