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Sebi chief shows displeasure on Algo trading

Algo trading is defined as the execution of trades by feeding an pre-defined set of instructions to a computer. Such trading uses historical information and data to execute trades.

September 30, 2022 / 09:23 PM IST
Madhabi Puri Buch

Madhabi Puri Buch

The Securities and Exchange Board of India (Sebi) is willing to consider revising regulations pertaining to algorithm trading provided the industry lives up to its claims.

Algo trading is defined as the execution of trades by feeding an pre-defined set of instructions to a computer. Such trading uses historical information and data to execute trades.

Sebi chief Madhabi Puri Buch said that the regulator’s attempts to garner proof on Algo trading returns from industry participants were disappointing.

“The attempt was already made by us because we issued a consultation paper and we expressed our willingness and openness to do that in it. There reached a point where they were unable to do so and therefore, we unhappily decided to break up our circular into two parts,” she said in a press meet after the board meeting on Friday.

“The first was to ensure on an ongoing basis, misselling that was happening in the market should stop and secondly as and when the industry was ready to come back and show us and demonstrate that their track record can be audited, simulated and proven, we will consider it. In fact, we worked very hard but the industry was not ready,” she added.

The regulator issued guidelines for Algo trading in August that barred stock brokers from claiming high returns, either past or future from such trading.

Buch said the regulator will consider allowing only if such claims are proven and brokers can satisfy the Sebi on the veracity of their claims.

Internationally, more than 70 percent of trade volumes are now generated by Algo trading. In India, however, the contribution is still less than half of trade volume.

While Algo trading is considered efficient and profitable, instances of claims of exorbitant returns from such trades have put the regulator on guard.

"For many months we tried to find a solution, but the industry was unable to demonstrate any simulation to justify their claimed returns. We could welcome them to do that, “ Buch said.
Aparna Iyer
first published: Sep 30, 2022 09:23 pm