Futures Industry Association (FIA), a leading global trade organisation for derivatives, has opposed most of the proposals in a Securities and Exchange Board of India (SEBI) discussion paper on regulating algorithmic trading.
In a letter to the capital markets regulator, the global body said that most of the recommendations like forced speed delays, increased resting time between orders and a cap on order-to-trade ratio could impact liquidity and increase trading costs for investors.
Unintended consequences“We are concerned that some of the proposals in the discussion paper may not necessarily achieve these regulatory objectives,” FIA wrote. “Instead the proposals may lead to unintended consequences for India’s markets including potentially detrimental impacts to market liquidity, increased risk and increased trading costs for investors which outweigh potential regulatory benefits.”
On August 5, SEBI released a discussion paper to “explore and address concerns relating to market quality, market integrity and fairness due to increased usage of algorithmic trading and co-location in Indian securities market.”
Algorithmic trading – popularly known as algos – refers to the usage of software programmes to execute trading strategies at a much faster pace. Co-location refers to placing the server close to the exchange so latency is reduced to the minimum.
SEBI has proposed a minimum resting time for orders. Resting time refers to the time between when an order is received by an exchange and when it is allowed to be amended or cancelled.
“We urge SEBI to reconsider any possible introduction of minimum resting times to minimise increased market risk,” FIA wrote in the letter, a copy of which is with The Hindu.
Market liquidity“Furthermore, in crisis periods when markets are most volatile, the negative effects of minimum resting times will be most pronounced.” The body, whose members include clearing firms, exchanges, trading firms and commodities specialists from almost 50 countries, also opposed the proposal to delay order processing saying it would impact market liquidity and increase execution costs.
On separate queues for co-location and non-co-location orders, FIA said that it would “introduce an unnecessarily high level of complexity to the trade matching process as well as exchange systems.”
