July 12, 2015

Superfast algorithms to hit retail investors hard

The international advisory board of the Securities and Exchange Board of India has advised the regulator to ensure a level playing field for retail investors amidst a growth in high frequency trades (HFT) and algorithmic trades in the Indian markets.

“Retail investors are prone to be faced with unequal treatment in the market as a result of increasing algo trades and HFT by sophisticated traders. In this context, regulators like Sebi need to revisit the regulatory framework governing algo trades/HFT from time to time so as to provide a level playing field to retail investors vis-a-vis HFT and algo trading and also to protect them from potential flash crash events,” a note put on the regulator’s website said. Apart from providing institutional investors an upper hand in stock trading, the high frequency trades or computer-based trades have also been blamed for various freak trades on the domestic bourses.

“There should be a level playing field for retail investors as computer-based trades are definitely 100 times faster than manual traders, which gives certain set of investors an undue advantage over others,” said Kishore P. Ostwal, chairman and managing director, CNI Research.

According to industry sources, the regulator is currently holding discussions with market participants to effectively regulate algorithmic trade.

One of the measures being considered according to them is to slow down the pace of order by prescribing a minimum resting time before the execution of the order. “Another way to ensure a level playing field is to allow an official ‘dark pool’ within the exchange meant for algo trades so that computer-based trade do not mix with normal trade,” said Ambareesh Baliga, a senior research analyst.

Source: The Asian Age

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