SEBI unveils norms to check systemic risk of algo trading

“Based on recommendations of technical advisory committee (TAC) and secondary market advisory committee (SMAC), it has been decided to put in place broad guidelines for algorithmic trading in the securities market,” SEBI has said in a notification

New Delhi: Capital market regulator Securities and Exchange Board of India (SEBI) has put in place rules for the use of sophisticated automated software to prevent systemic risks caused by algorithmic trading used by brokers, reports PTI.

“Based on recommendations of technical advisory committee (TAC) and secondary market advisory committee (SMAC), it has been decided to put in place broad guidelines for algorithmic trading in the securities market,” SEBI has said in a notification.

It said the adoption of technology for trading in financial instruments has been on the rise over the past few years. Stock brokers as well as their clients are now making increased use of algo trading.

Algorithmic trading refers to orders on bourses that are generated using high-frequency, automated execution logic.

The capital market regulator said exchanges should ensure that all algorithmic orders, software driven automated order execution engines, are routed through broker servers located in India and have appropriate risk-control mechanism emanating from algorithmic orders and trades.

“The minimum order-level risk controls should include a price and quantity limit check. The price quoted by the order shall not violate the price bands defined by the exchange for the security,” SEBI said.

Further, in exigency, the stock exchange should be in a position to shut down the broker’s terminal, it said.

“Terminals of the stock broker that are disabled upon exhaustion of collaterals shall be enabled manually by the stock exchange in accordance with its risk management procedures,” it added.

The stock exchanges, SEBI said, may seek details of strategies used by algo traders for inquiry, surveillance, investigation and the like. The stock exchange shall also include a report on algorithmic trading on the stock exchange in the monthly development report.

“For securities that do not have price bands, dummy filters shall be brought into effective use to serve as an early warning system to detect sudden surge in prices,” it said.

SEBI further said that stock exchanges shall subject the systems of the stock broker to initial conformance tests to ensure that the checks mentioned below are in place and that the stock broker’s system facilitate orderly trading and integrity of the securities market.

“The quantity quoted in the order shall not violate the maximum permissible quantity per order as defined by the exchange for the security.

“The stock exchange shall suitably schedule such conformance tests and thereafter, convey the outcome of the test to the stock broker. For brokers already providing algo trading, the stock exchange should ensure the risk controls specified in this circular are implemented by the stock broker,” SEBI added.

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More gains seen: Weekly Market Report

Nifty to see upmove to the level of 5,365, and then up to 5,400

The spectre of the government taxing FII investments through P-Notes kept the market low for most of the week, while clarifications on the issue by the finance minister late Thursday and on Friday lifted sentiments. Although the market closed flat with a positive bias, the market logged its first weekly gain in five weeks.

Economic concerns and the rupee hitting a fresh two-month low led the market lower on Monday. Clarification on the government’s proposed GAAR norms led the market higher on Tuesday. However, intense selling pressure in the second half of trade and weak global cues led the market lower on Wednesday.

Weak global cues and concerns over the new taxes proposed by the finance minister in the Budget, which would come into effect shortly, led the market marginally down on Thursday. However, clarifications by the finance minister over the proposed tax on FIIs led to a rally on Friday.

The Sensex gained 42 points to close the week at 17,404 and the Nifty moved 17 points up to 5,296. If the Nifty manages making higher high and stays above 5,290, we may see an upmove to the level of 5,365, and then up to 5,400.

Among the sectoral indices, BSE Healthcare and BSE Fast Moving Consumer Goods were up 2% each while BSE Power declined 2% and BSE Consumer Durables settled 1% lower.

The Sensex toppers in the week were Ranbaxy Laboratories (up 13%), Dr Reddy’s Laboratories (up 6%), Tata Steel (up 5%), Wipro and Kotak Mahindra Bank (up 3% each). Reliance Communications, Cairn India (down 6% each), NTPC (down 5%), Reliance Power (down 4%) and BHEL (down 3%) were the losers on the index.

The top gainers on the Nifty were Ranbaxy (up 13%), Dr Reddy’s (up 6%), Tata Steel (up 5%), Kotak Mahindra Bank (up 4%) and Wipro (up 3%). The major laggards were Reliance Communications, Cairn India (down 6% each), NTPC (down 5%), Reliance Power and BHEL (down 4% each).

Showing signs of recovery, the eight core infrastructure industries grew by 6.8% in February on account of healthy coal and power output, up from a dismal performance of 0.5% a month ago. The eight industries—crude oil, petroleum refinery products, natural gas, fertilisers, coal, electricity, cement and finished steel—have a weight of 37.90% in the overall Index of Industrial Production (IIP). Economists said if this growth rate is maintained for a few more months, it would improve the overall industry output.

Setting at rest the uncertainty about overseas investments, finance minister Pranab Mukherjee on Friday said that persons investing in stock markets through participatory notes (P-Notes) will not have to pay taxes in India, an assurance that pushed up the markets.

P-Notes are instruments that allow FIIs, which are not registered with market regulator Securities and Exchange Board of India (SEBI), to invest in the Indian equity market.

On the international front, Eurozone finance ministers on Friday agreed to raise the combined lending ceiling for their two bailout funds to 700 billion euros from 500 billion. The 700 billion will come from 500 billion euros of the permanent bailout fund, the European Stability Mechanism (ESM), and the 200 billion euros committed under existing bailout programs for Greece, Ireland and Portugal by the temporary European Financial Stability Facility (EFSF) fund.

US Federal Reserve chief Ben Bernanke’s that he would keep stimulating the economy in order to boost jobs led the US markets higher in the week.

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Public Interest Exclusive
RTI Act in Maharashtra draw flak from activists

Along with non-appointment of information commissioners, activists see the move as a stealthy act to undermine RTI. This is a New Year surprise that RTI activists are discovering only now

The Maharashtra government has apparently amended the Right to Information (RTI) Act in January, and made several crucial changes. A circular dated 16th January is circulating via emails and internet RTI forums which show that now applications must be restricted to 150 words and a single topic.

The circular, signed by Nandkumar Jatre, secretary to the state government, says, “A request in writing for information under Section 6 of the Act shall relate to one subject matter and it shall not ordinarily exceed 150 words. If an applicant wishes to seek information on more than one subject matter, he shall make separate applications. Provided that, in case the request made relates to more than one subject matter, the PIO may respond to the request relating to the first subject matter only and may advice the applicant to make a separate application for each of the subject matters.” Moreover, if any citizen goes for inspection of files, he may carry only a pencil and has to deposit all other writing material with the PIO.

Activists have expressed their ire over key posts in the State Information Commission lying vacant, and the news of amendment has naturally not been a good surprise. They are already collecting signatures for a petition, which will be presented to the chief minister on 2nd April.

Krishnaraj Rao, a social activist, says, “We did not even learn this from any government source such as a public notice in the dailies. Nor was it told to any RTI activist—many of whom are in regular touch with the Mantralaya. There should have a public consultation of stakeholders before changing the rules.

Section 4(1)(c) of the RTI Act says, “Every public authority shall publish all relevant facts while formulating important policies or announcing the decisions which affect public.’”

The activists came to know of the amendment when veteran advocate and RTI Union member Vinod Sampat saw this notification in the March edition of a publication he purchased outside City Civil Court. Mr Sampat said, “This is a death knell to the RTI movement in Maharashtra, and bureaucrats will become more powerful. We have received a suggestion to ask the permission of the police commissioner and burn the RTI Act in Mantralaya as a form of protest.”

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COMMENTS

S H Subrahmanian

5 years ago

The damage has already been 'effectively, done in Karnataka, despite activists' efforts. Only a nationallevel effort by people like Ms Aruna Roy can yield results.
Here comes the need of help from, we activists, in help filing applications. MoneyLife can do precious little both in the Magazine and web. Also could we help forming more clinics in our Metro? They're less and far between!

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