SEBI Relaxes Commodity Exchange Algo Rules


India’s main financial regulator eased rules pertaining to electronic trading of commodities.

In a trading advisory send out last week, the Securities and Exchange Board of India (SEBI) said it has  increased the limit on the number of orders that can be processed per second by a user to 100, compared to the current threshold of 20 orders per second.

The move is seen as a way to help level the playing field between small/medium traders and larger ones.

SEBI has also requested that its member stock exchanges implement managed co-location services.

The decision has been taken after receiving public comments and in consultation with Sebi’s two panels — Technical Advisory Committee and Secondary Market Advisory Committee.

The regulator noted that small and medium sized trading members, find it difficult to avail co-location facility, due to various reasons, including high cost, lack of expertise in maintenance and troubleshooting.

According to other media reports, under the managed co-location facility, space/rack will be allotted to eligible vendors by the stock exchange along with provision for receiving market data for further dissemination of the same to their client members and the facility to place orders (algorithmic or non-algorithmic) by the client members from such facility.

The vendors will provide the technical knowhow, hardware, software and other associated expertise as services to trading members and will be responsible for upkeep and maintenance of all infrastructure in the racks provided to them.

Stock exchanges will supervise and monitor such facilities on a continuous basis. Besides, exchanges will be responsible and accountable for actions of vendors providing managed co-location services and ensuring integrity, security and privacy of data, being handled at the facility.

Further, in order to have fair competition, exchanges have been asked to ensure that multiple vendors are permitted for providing such services at their co-location facility.

In order to bring in greater transparency, exchanges will have to additionally publish minimum, maximum and mean latencies and latencies at 50th and 99th percentile.

Latency is measured by the exchange as the time taken to complete the round trip from the Core Router — the place where both co-location orders and non-colocation orders meet — to the matching engine and back.

Lastly, the regulator has requested that its exchanges provide tick-by-tick data feeds to all the members, free of cost.

The exchanges have also been asked been asked to allot a unique identifier for each algo. Presently, one specific code is attached to all algo orders to distinguish them from non-algo trades.

The Business Standard reported that to further streamline and strengthen the process of testing of software and algorithms, exchanges will have to provide a simulated market environment for testing of software, including algos.

Such a facility may be made available over and beyond the current framework of mock trading prescribed by the regulator.

The exchanges will have to ensure that the tagging of each order and each algorithm with its unique identifier is completed by September, while other provisions of the circular will be complied by June.

Besides, the algo orders placed within 0.75 per cent on either side of the last traded price will be exempted from the framework for imposing penalty for high OTR.

Further, the OTR framework wil be extended to orders placed in the equity cash segment and orders placed under liquidity enhancement scheme.


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