Sebi to review high frequency trading risk management system

Mumbai, Nov 29: The capital markets regulator Sebi today ruled out banning high frequency trading or algo trading products even as it expressed concern over their faster growth and technical glitches they entail.

"We will consult all the stake-holders before taking a decision. Though Sebi is yet to come up with a risk management system for these products, we want all the players to have their own risk management systems in place," Sebi chairman UK Sinha told reporters on the sidelines of a CII meet on capital markets here.

Observing that Sebi is not looking at banning these products, Sinha said, "but, we are worried." Algorithmic trading or high frequency trading system uses highly advanced mathematical models to make transaction decisions.

This highly quantitative trading model employs computerised algorithms to analyse the incoming market data and implement proprietary trading strategies wherein large quantities of shares are purchased by dividing them into smaller lots and allowing the complex algorithms to decide when the smaller blocks are to be purchased.

Use of these products has been gone up significantly in domestic markets in the last three years. Joining Sinha, BSE managing director and chief executive Madhu Kannan said when he joined the premier exchange two-and-a-half-years ago, "only 5 percent trades on the BSE used to take place using algo products but this has now gone up to 25 percent".

PTI