Date : 17 Dec 2021
Algo TradingTags :
Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.
Algo Trading - Why in News?
Market regulator Securities and Exchange Board of India (Sebi) proposed that all orders emanating from the application programming interface (API) of stockbrokers should be treated as algorithmic trading, or algo, raising concern that such restrictions will hamper the growth of algo trading in India.
What is Algo Trading?
- Algorithmic trading refers to orders generated at superfast speed by the use of advanced mathematical models that involve the automated execution of the trade.
- Even a split-second faster access is considered capable of bringing huge gains to a trader.
- The algo runs on the broker’s systems and not on the investor’s system.
- Whenever the algo generates a signal, an order automatically gets fired on the investor’s account with no human involvement from either the broker or the investor.
- The Algo trading system automatically monitors the live stock prices and initiates an order when the given criteria are met.
- This frees the trader from having to monitor live stock prices and initiate manual order placement.
- For the algos deployed by retail investors using APIs, neither exchanges nor brokers can identify if the particular trade emanating from the API link is an algo or a non-algo trade.
- This kind of unregulated and unapproved algos poses a risk to the market and can be misused for systematic market manipulation as well as to lure the retail investors by guaranteeing them higher returns.
- The Securities and Exchange Board of India was established on April 12, 1992, in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.
- The basic functions of the Securities and Exchange Board of India as "...to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto"
- The headquarters of SEBI is situated in Mumbai.
Sources: The Indian Express