Finance Research Group

IGIDR Roundtable on Regulation of algorithmic trading

3rd September, 2015
Sofitel, BKC, Mumbai

The last few years have seen a notable increase in the share of algorithmic trading (AT) in exchange traded markets in India. The increase mirrors the trend observed globally. While there is a significant amount of evidence which indicates that AT (and high frequency trading, HFT) benefits the markets by improving their liquidity and efficiency, regulators worldwide fear the systemic risk these algorithms may pose. Additionally, there are concerns that algorithmic traders may engage in manipulative strategies at the cost of other market participants. As a result, several measures are being contemplated to regulate and monitor AT, and HFT.

The Indian securities market regulator, SEBI, has also been examining various measures to regulate AT. These measures include imposition of minimum order resting time, introduction of random message delays, introducing two separate queues for orders from co-location and non co-location.

Regulatory intervention is appropriate when there is a market failure that cannot be fixed by competitive markets, else there are chances of unintended consequences. Each of the measures listed above has its own pros and cons. Before implementing any new regulation, it is important to assess its likely impact on the two most important functions of the market: liquidity provisioning and price efficiency. This roundtable seeks to bring together the academicians, market participants, exchanges, as well regulators on a common platform to facilitate regulation-making by providing perspective on

  1. What has been the impact of AT on the Indian equity markets?
  2. The global thinking on regulating AT, and the issues involved.
  3. What are the market failures in the current market setting, how the previous intervention fared, and how SEBI should think of regulating AT?

Agenda

10:00 - 10:10 Introduction
Susan Thomas, IGIDR Finance Reasearch Group
10:15 - 10:45 A primer on algorithmic and high-frequency trading [presentation]
Gangadhar Darbha, Reserve Bank of India
10:50 - 11:15 Algorithmic trading in India: What do the data say? [presentation]
Nidhi Aggarwal, IGIDR Finance Research Group
11:20 - 11:50 Regulating AT: Global perspective [presentation]
Venkatesh Panchapagesan, IIM Bangalore
12:00 - 13:00 Panel and floor discussion: How should SEBI be thinking of regulating AT
Balasubramaniam Venkataramani, BSE
Kumar Goradia, Tower Research Capital India
Rajib Borah, iRage Capital
Ravi Varanasi, NSE
13:00 - 14:00 Lunch