Algorithmic trading: Sebi proposes new framework

Currently, more than 80 per cent of the orders placed on most of the exchange traded products are generated by algorithms and such orders contribute to approximately 40 per cent of the trades on the exchanges. It has proposed to introduce resting time for order, random delays and random speed bumps, separate queues for co-location and non-co-location orders for strengthening the regulatory framework for algo trading and co-location facility. The speed bump mechanism involves introduction of randomised order processing delay of few milliseconds to orders.

The regulator also plans to begin minimum resting time mechanism, wherein orders received by the stock exchange would not be allowed to be amended or cancelled before a specified amount of time — 500 milliseconds — is elapsed. Besides, it plans to eliminate “fleeting orders”. The regulator has proposed to introduce separate queues and order-validation mechanism for colocation orders and non-colocation orders.