Regulations
SEBI Tries To Fix the HFT Issue without Closing the NSE Probe
Six years after it allowed the National Stock Exchange (NSE) to introduce high frequency trading (HFT) and algorithmic (algo) trading without any debate, rules or regulations, the Securities and Exchange Board of India (SEBI), on 5th August, put out a discussion paper on “Strengthening of the regulatory framework for algorithmic trading & co-location”. The paper is interesting, for several reasons. It comes in the aftermath of a detailed investigation into three letters from a whistle-blower which pointed to serious irregularities in the HFT and algo trading at the NSE. Yet, there is no mention in the discussion paper about the series of events and investigations that were triggered by the publication of these allegations and have led to the attempt to fix HFT and algo problems. 
 
Instead, SEBI’s paper suggests that it is merely reacting to global concerns among regulators to the following: that HFT and algo trading give unfair access to powerful traders at the cost of long-term investors; rogue algorithms seem to trigger flash-crashes that can destabilise markets; and regulators’ own ability to supervise the sophistication of complex algos. 
 
Indeed, global regulators have gone beyond debating the issue of unfair access. In June 2016, Securities Exchange Commission (SEC) approved Brad Katsuyama’s ‘Investors Exchange’ which specifically aims to neutralise the ‘unfair advantage’ gained by high-frequency traders. There is also serious research in the US which challenges the claim by HFT proponents that their trades add volume and liquidity to markets. Clearly, SEBI, as a regulator, needs to stay in step with international developments. 
 
SEBI’s discussion paper puts out various options to allay the fear and concern of unfair and inequitable access and seeks market feedback on the efficacy of each of these. It is almost an attempt to crowd source the best possible mechanism for Indian markets. It is anybody’s guess which of these will finally be prescribed as new rules for HFT. Some of the issues put out for discussion include:
  • Review of the tick-by-tick (TBT) data feed and replacing it with ‘structured data’ that will provide a level playing field between high-frequency traders (who use TBT data for a fee) and other traders.  
  • Introducing a minimum resting time for orders to eliminate ‘fleeting’ orders that vanish in nano seconds in response to price data. If this is introduced, “orders received by the stock exchange would not be allowed to be amended or cancelled before a specified amount of time, viz., 500 milliseconds is elapsed.” If accepted, SEBI will be the first regulator to adopt this check. 
  • Introducing random speed bumps, through a randomised order processing delay of milliseconds to discourage ‘latency-sensitive strategies’. The paper lists global developments in introducing such random speed bumps.
  • Plans for randomisation of orders and the introduction of frequent batch auctions where sell and buy orders on the order book are bunched for a specific length of time (say, 100 milliseconds) and matched at the end of the time interval. This is expected to eliminate the ‘latency advantage’ enjoyed by co-located servers. The paper cautions that would need serious changes in market infrastructure. 
  • A maximum order-to-trade ratio requiring market participant to execute at least one trade for a set number of order messages sent to a trading venue. This is aimed at ensuring that a viewed quote is available for trade and reducing ‘hyper-active order book participation’.
  • There is also a discussion on a two separate queues and order validation mechanism for orders emanating from co-located servers and non-co-located systems. Orders from each queue will be taken up in the order-book in a round-robin fashion. Although the discussion paper says that “co-located participants would still be among the first to receive the market data feeds” due to their proximity to the exchange and use of sophisticated algorithms, this proposal is likely to see the strongest opposition by proxy from bourses. 
While SEBI has set a deadline of 31st August for submitting comments to its third discussion paper on HFT and algo trading, there is no timeframe set for implementing the new rules. But, even if SEBI does implement them quickly, there is a problem. Can SEBI simply brush under the carpet the saga that began on 19 June 2015 when Moneylife published a whistleblower’s letter (addressed to SEBI’s surveillance department and copied to me) alleging serious wrongdoing in the HFT or algo trading at the NSE? 
 
The NSE slapped a Rs100-crore defamation suit against us for publishing the letter and tried to gag us through a notice of motion, even while it refused to answer our queries about the letter, despite several reminders. The Bombay High Court, in an excoriating order, described the NSE’s attitude towards Moneylife as ‘egregious arrogance’ and imposed a penalty of Rs50 lakh. The NSE has appealed the order and obtained a stay against the payment. The case has been in limbo for a while and the Exchange is in no hurry to pursue its alleged defamation. 
 
Meanwhile, Moneylife received two more letters from the whistleblower which we brought to the attention of SEBI and the finance ministry. The last one (addressed only to me), made some serious charges about NSE’s violation of its own policy, in allowing a non-registered ISP (internet service provider) called Sampark Infotainment to lay a ‘dark fibre’ in its premises for various members.
 
SEBI referred these letters to the technical advisory committee. The committee’s findings, widely published by the media and accessed by us, reveal that an investigation by its sub-committee comprising experts from the Indian Institute of Technology, Mumbai, have confirmed most of the allegations of the whistleblower. The committee says it is clear that “NSE violated norms of fair access and allowed some brokers to benefit.” The committee wanted SEBI to initiate “immediate action for lapses on the part of NSE” and constitute a team of people with appropriate background to investigate the collusion aspect between NSE officials and OPG Securities.
 
Predictably, SEBI has not moved an inch in that direction. The NSE strongly refuted the charges of the SEBI committee too and the issue appears to be in limbo since then. Angry protests by some top institutional investors who felt short-changed also did not lead to a resolution. Instead, the regulator and the government seemed to believe that listing the Exchange (which has been under the control of the same two or three individuals for 25 long years), and tinkering with the composition of its board of directors, is the answer to increasing transparency. 
 
Media reports suggest that the NSE, despite its deep reluctance, may be heading towards listing around the same time as the Bombay Stock Exchange (BSE). We don’t know if that will happen. But how fair is it for a regulator to allow the largest stock exchange to seek public investment even as serious allegations against it remain unresolved? After all, the NSE is a first-line regulator and SEBI cannot take the attitude that mere disclosures about on-going investigation and pending litigation are enough, when it has adopted a far stricter attitude to clearing IPO documents of private companies. 

User

COMMENTS

Mahesh S Bhatt

4 months ago

There are technical ways at Network layer./application layers/web layers & security layers where compromises are not even detected.

Standard procedure of shoot the messenger is habit of CEO.

Lot needs to be done than marketing Make in India services Mahesh

Shrikant Dattatraya Sahasrabuddhe

4 months ago

Pl.alert successful investigators of previous scams and enlist their support as well.

M V Subba Rao

4 months ago

It might benefit the Exchanges and SEBI where they get more income (due to more automated volumes)but the common investor has to face highly volatile markets

4 months ago

I believe these recommendations are going to make markets much more complex and non-transparent. Suggestions like randomisation etc. will make things more opaque and in case of investigations, impossible to identify what went wrong. I think a lot of objectives can be achieved by just slowing down than introduce complex algo's with unknown downsides

Industry finds Ramdev's 'multinationals dangerous' campaign a 'gimmick'
Even as Prime Minister Narendra Modi is promoting 'Make in India' and actively seeking foreign investments, Yoga guru Baba Ramdev is openly attacking multinationals, calling their products "dangerous" in a concerted ad campaign.
 
MNCs are terming the campaign a marketing gimmick, but they can't entirely ignore it either, as Ramdev's consumer products empire is rapidly growing and challenging their bottomlines.
 
At stake is a piece of the $40 billion processed food industry, growing annually at 11 percent per year. Stakeholders hope the government will eventually crack down on the "misleading" advertisements of the Baba Ramdev-led Patanjali, whose top brass is considered close to the powers that be.
 
"We live in a democratic nation, where the consumer is king. The consumers decide what is good and what is bad for them," said Sagar Kurade, President, All India Food Processors' Association (AIFPA), reacting to the advertisements.
 
"This country has a policy in place where any multinational company is free to invest in the food processing sector and any domestic company is free to grow, considering the rules and regulations associated with the sector are adhered to," Kurade told IANS.
 
In a promotional by Patanjali on 104.0 Fever FM, Baba Ramdev is himself leading the charge.
 
"Hair oils have cancer-causing mineral oils, biscuits and noodles have refined flour, drinks have cold drink (aerated drinks) and liquor, food items are adulterated, cosmetics have chemicals. These products, and foreign companies, are dangerous for us and our country," he says.
 
"Since they take the country's wealth outside and don't do any charity work here, the alternative is Patanjali's pure and home-produced campaign, the main aim of which is charity and patriotism. Adopt Patanjali and give economic freedom to our country."
 
Such an advertising campaign comes close on the heels of India relaxing its foreign equity norms to allow 100 per cent investment in trading of food products that's manufactured or produced in India, including sales through e-commerce, to cut wastage, check price rise and help farmers.
 
"In a vibrant economy -- whether a domestic company is trying to become a multinational or a multinational is trying to capture domestic market -- they are free to compete against each other," Kurade said.
 
"Baba Ramdev is now a business professional like any other company. He's promoting his brands. If the outlook was that only Indian products will be sold, then there are a number of Indian companies -- Dabur and Emami are Indian companies," added Amit Dhanuka, CEO of Kejriwal Bee Care India.
 
"This is just a marketing gimmick and nothing else," added Dhanuka, a past President of AIFPA.
 
"There has already been a complaint against him (Baba Ramdev) the way he has been advertising and it is just a matter of time before the government will become harsh on him. This is something which is momentary and with time people will understand and all the image he has built will wane."
 
Patanjali spokesperson S.K. Tijarawala defended the campaign. "Modi is the head of the government and free to keep the government's view. I don't think there's any bar on trading and dealing with Indians," he said, alluding that allowing foreign equity does not bar the domestic industry.
 
Both Kurade and Dhanuka, as also other stakeholders IANS spoke to -- most of whom requested anonymity -- felt that a large market like India cannot be dented by a single company, more so as it is dominated by small-scale units and the unorganised sector.
 
"The fact of the matter is that almost 75 per cent of the food processing industry is small- and medium-sized enterprises-sector driven. Big companies are primarily competing for 25 per cent of the market share," said Kurade.
 
But the market for big players is also not small either. Patanjali, whose turnover was not officially known being a private, unlisted enterprise, recently said its income during 2015-16 was Rs 5,000 crore, with a target of Rs 10,000 crore this year.
 
In contrast, the operating income for the Indian arm of Nestle -- that has a presence in this country for over 100 years -- was a little over Rs 80,000 crore last calendar year, while for Britannia, which was set up around 125 years ago, it was around 8,500 crore in 2015-16.
 
Dhanuka also made a technical point on the Food Safety Standards Authority of India (FSSAI).
 
"He (Baba Ramdev) is showing his products are approved by FSSAI. The fact is it doesn't approve a product. It is a regulatory body. It comes out with different standards. As an Indian company, it (Patanjali) should follow them. Every company follows those regulations, not just Patanjali."
 
Without going into the specifics of any issue, Patanjali's Tijarawala said there was a need for an institution that trades in home-grown products and uses the profits for the development of the country.
 
"They (foreign companies) are taking the profits with them and that is of no use for India. Our country will strengthen only when we promote trade in the country by promoting and manufacturing of swadeshi (home-grown) goods. This will also generate employment," he said.
 
Asked if this did not go against the government's policies, Tijarawala said: "We don't have any differences with the government. Let them bring FDI. Let them push 'Make in India'. That's their job. Our job is to strengthen our people by providing opportunities. Where is the controversy?"
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

User

COMMENTS

Ramesh Poapt

4 months ago

I will be pleased to use Patanjali honey if it shows"Agmark"certification, which is not so far...

YOGESH GAUTAM

4 months ago

Baba products are of inferior quality.

nginx

4 months ago

I will never buy Patanjali products as long as this fraud sadhu baba ramdev is part of this brand.

Awadhesh Vaish

4 months ago

We are proud of Patanjali Brand.

BSNL to offer unlimited calls on Sundays from Aug 15
State-run telecom service provider BSNL will provide unlimited free calls from its landline to any network's mobile and landline on all Sundays across India from Monday.
 
This was stated on Saturday by Minister of State for Communications Manoj Sinha.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

User

COMMENTS

sekh sirajul

1 month ago

I submit online appeal case Please help me

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