The Securities and Exchange Board of India (SEBI) has become the latest domestic regulatory body to launch an investigation into high-frequency trading following an incident of perceived manipulation last month.
According to local media reports, SEBI chairman U.K. Sinha said at a meeting of the Association of National Exchange Members of India that the regulator would review its risk management systems to better cope with high-frequency and algorithmic trading. The investigation may involve a review of the regulator’s systems used to calculate margin and an increase in the capacity of SEBI’s risk management systems to handle a greater volume of trades.
“We have an effective risk management system, but we would not compromise. That is why we are ready to review,” Sinha said.
Local news reports also suggested that India’s finance ministry is working on a proposal to reduce the securities transaction tax, which is levied on intraday trades on equities and derivatives traded in India.
According to a study from consultancy Celent released earlier this year, algorithmic trading in Indian cash equities is set to reach 20% by the end of 2012, from 10% in 2010.
The move by SEBI follows an annulment of all derivatives trades conducted on the Bombay Stock Exchange, one of India’s two main bourses, during the Muhurat trading session for Diwali on 26 October because of a large movement in Sensex futures.
The BSE said that it suspended the member concerned – believed to be a high-frequency trading firm – from trading in any proprietary positions on its market and has commenced a detailed investigation.
According to Thomson Reuters, the BSE handled 18.3% (US$8.73 billion) of Indian equity trades in October. The remaining 81.7% (US$39.02 billion) was traded by the National Stock Exchange.