The outgoing chief of the Securities and Exchange Board of India (Sebi), UK Sinha on Monday said that India is one of the very few countries which have some mechanism to control the misuse of algorithmic trading and the regulator will take each and every instance of misuse of such trading to its logical conclusion. Algorithmic trading refers to orders generated at a super-fast speed by use of advanced mathematical models that involve automated execution of trade, while co-location involves setting up servers on the exchange premises. Sebi has already floated a consultation paper on algo trade, wherein it has proposed various checks and balances to prevent any misuse. However, the trading community is divided on these proposals.
“Internationally no one has been able to come out with final regulations because it a difficult area. Sebi has been able to come out with some minimal regulation on Algo. We have also taken a number of measures to ensure such instances are not repeated. A very highly qualified expert technical team outside Sebi are looking at the trading data in India to find out what are the possible ways to solve the matter,” said Sinha. Earlier, a Sebi-appointed committee on algo trading, found instances of breach of fair access norms by NSE. It also noted that NSE provided preferential treatment to some brokers.
Without naming any entity, Sinha said that the capital market regulator had given certain direction in some instances of misuse of algo trading and while most of the directions have been implemented by the entity some are yet to be implemented. “Sebi is following up the matter with the concerned agencies and this matter will be taken to its logical conclusion,” said Sinha. Sinha whose six-year tenure as chairman of Sebi will end on March 1, also said that the main job of the regulator is to protect the interest of investors and it will continue to prioritise that over market development. Sinha said the regulator has worked hard on “cleansing of markets” and all potential instruments of manipulation have been closed down.
“I want to highlight that 19 regional stock exchanges have been given an exit. Institutions where no trading were taking place but they were potential instruments for manipulation in the market. We have also been able to delist 345 listed companies and more than 2,000 companies have been brought to the dissemination board. So the idea is that if we see that there is some entity which could be a potential threat to the integrity of the market, we have acted very hard on it…. Sebi has been very harsh in this period. I dont think we will feel shy about saying that. Wherever we have found there are aberrations, violations we have taken action. I am sure this has given comfort not only to domestic investors… but also Foreign Portfolio Investors,” said Sinha.
Sinha, the second longest serving Sebi chairman, will now pass on the baton to senior IAS officer, Ajay Tyagi who joins as the next chairman on March 1. On the use of social media to disseminate investment advice to small investors, Sinha said the capital market regulator feels that it “ should not allow misuse of social media for gullible investors”.
“If bulk SMS are being sent asking people to invest in particular scheme where there is a huge amount of assured return , then Sebi is not comfortable and it will act. We wanted to bring in new set of regulations but unfortunately a lobby of curtailment of freedom of speech was raised… We are re looking into the matter,” he said.
Sinha also said that having independent women directors on the board of companies is a destination for Sebi and in the future there should be equal representation of women in company boards. “There are countries where the percentage of women directors are much higher. I don’t buy the argument of firms that there are not enough trained or qualified women in the country . I have very strong reaction on it. Those companies which have not followed the guidelines have been penalised,” said Sinha.