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SEBI set to disable trading for 'spoofers': Know all about the new rules

The new rules come into force on April 5.

March 30, 2021 / 01:10 PM IST

To dissuade 'noise creators' in the markets, the market watchdog and the exchanges have come up with anti-spoofing rules to strengthen the order level surveillance. The new rules come into force on April 5.

If the daily trading activity at the client/proprietary account is violated the parameters laid down, the account will be disabled for a duration between 15 minutes to two hours, depending on the extent of the violation.

What is Spoofing?

Spoofing is the practice of placing bulk orders and then cancelling them before they are executed. It is algorithmic trading that is capable of manipulating prices by creating an illusion of demand or supply. As traders are prompted to react due to such changes, it can cause the prices to shift sharply.

Parameters to be considered for spoofing

The measures to be considered for a violation as per the NSE circular dated March 26 are:

  • High Order to Trade Ratio (OTR) in value terms (i.e. Value of all Orders Entered / Modified / Cancelled in a Security / Contract by a Client / Proprietary account vis-à-vis Value of all Trades in the Security / Contract by a Client / Proprietary account AND

  • High Number / Instances of Order modifications AND

  • High Percentage of Order modifications leading to a persistent deferred/ lower order execution priority

The instances identified based on the aforesaid three conditions shall be considered as “1 instance count”.

Surveillance Action

In case the parameters are violated on a count of instances over a period of rolling 20 trading days, the surveillance action will be as under:

1. Trading disablement of such a Client / Proprietary account for a time period of first 15 minutes of trading (in the normal continuous market) at PAN level across the Exchanges in the Equity and Equity Derivatives segments simultaneously provided a number of instances identified as above exceed 99 on a rolling 20 trading days basis. The disablement shall be carried out on the next trading day.

2. Any additional instance of repetitive violation on consecutive trading days by a Client / Proprietary account (say N times) on a rolling 20 trading days basis will lead to trading disablement for a period of ‘N’ instances X 15 mins, subject to a Maximum Disablement of 2 Hours (i.e. N < = 8
The order further said that the surveillance action are dynamic in nature and shall be reviewed periodically.

"This is a positive for retail traders. Spoofing & Quote stuffing- orders placed with no intent to execute will reduce significantly," Nithin Kamath Founder & CEO, Zerodha, said in a tweet.

Moreover, if any entity is found to be repeatedly modifying/cancelling order(s) which results in non-execution of trades and/or creates undesirable noise in the system, such an entity will be liable for action even if the parameters of the surveillance activities are not fully met, the circular added.

Smriti Chaudhary
first published: Mar 30, 2021 01:10 pm