SEBI seeking to regulate Algo Trading

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Recently there is an effort to regulate algo trading by the Securities and Exchange Board of India (SEBI).

  • Algorithm trading or algo-trading is done through computer programs and buying and selling of shares is done through the computer itself.
  • Under this, pre-programmed computer strategies place trades based on set parameters, instructions or market patterns and conditions.
  • About 50 percent of the daily trading in the Indian stock markets is done through an advanced form of algo trading.

Need for regulation

  • Algorithm trading in India was started in the year 2008. But in the year 2015, it was revealed that the National Stock Exchange (NSE) had given primary access to only a few selected Algorithm traders.
  • Can be misused for systematic market manipulation and to lure retail investors by guaranteeing them high returns.

Concerns regarding regulation

The quantum of Algorithm trading is likely to decline once the proposed SEBI norms come into force, because the approval of pre-programmed trading strategies can be a complicated matter.

Source – The Hindu

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