Regulator Sebi discussing high frequency trading with global peers

Observing that the technology used in capital markets has come to a level where it is posing a challenge to participants as well as the regulator, Sinha said Sebi has put in place preliminary guidelines to tackle the problem but a global solution is being worked upon.

"Technology is come at a level where it is posing as a challenge for the companies and for participants in the market and the regulator. HFT trading and co-location is one such area... Sebi has come out with some preliminary guidelines on the same," Sinha said in his address at the Thomson Reuters Risk Summit here. "But not only Sebi but whole of global regulators are today struggling to find out what is the best way to handle it... because there is so much space for reducing the latency for few micro seconds that regulator all over the world are looking into taking some action which would be of global standard," Sinha said, adding Sebi is also participating on the discussions.

High frequency trading also called algorithmic trading or 'algo' in market parlance refers to orders generated at a super-fast speed by use of advanced mathematical models that involve automated execution of trade, and it is mostly used by large institutional investors. HFT exposes the market to possible systemic risks. The rise of High frequency trading (HFT), a type of algo trading, has raised concerns with regard to its impact on market quality, financial stability and regulatory framework. 

Further, while noting that Sebi's risk management framework is hailed as one of the best in the world and the regulator follows each alert sounded by the market, Sinha said the major challenge is being posed from with regard to challenges emerging in the global economy particularly India's neighbouring countries.