BENGALURU: The Securities and Exchange Board of India is considering tightening the screws on algorithmic trading, citing concerns about fair access to markets. SEBI said it was looking at various potential limits on so-called algo traders, which includes imposing "random speed bumps," which would delay execution of orders.

The regulator is also thinking about introducing randomization of orders, a procedure that would mean settling trades on a random basis and not on a first-come-first-serve one. In India, algorithmic trading, like everywhere else around the world, is fast becoming a part of daily trading, prompting regulators to question whether investors with no access to this speedy form of trading are being at a disadvantage.

Among other proposals under consideration, SEBI said it would be looking at ways to promote free and fair access, which includes: forcing exchanges to take orders from co-located servers and orders from other sources on an alternate basis, effectively giving equal weight to both.

According to SEBI, algorithmic orders account for around 40 percent of trades executed in exchanges in India. "SEBI is examining various options to assuage the fear and concern of unfair and inequitable access to the trading systems of the exchanges," the regulator said.

India's two biggest exchanges National Stock Exchange and BSE Ltd provide collocation services to algorithmic traders, allowing them to place servers next to an exchange and thus giving them an unfair advantage over other investors.

SEBI also said it could work on providing a gap between when an order is placed and when it is amended or cancelled, addressing an algo strategy that involves placing and then cancelling orders in quick succession. The regulator could also take a closer look at "frequent batch auctions" - in which exchanges would collect orders for a fixed period of time and then execute them as a group rather than matching them at the moment they receive them.

Broker associations have been calling for tighter regulations on algorithmic trading saying retail investors would be at loss by their rapid-fire trading strategies. But algorithmic traders said that SEBI's measures, if introduced, would be too harsh and restrictive and could potentially dent liquidity in India It could also prove to be a deterrent and drive trading to offshore exchanges.

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