SEBI Takes Feedback on the High Frequency Trading Slowdown
10/16/2015 16:21
The technology has really played well in Indian market. The High frequency trading was under a question now that whether the regulatory body in India will put some breaks in between the lightning speed technology. By doing this, India will be first country to put speed breakers on the way of the high frequency trading. The technology not only paved way for the betterment of the country’s market, but also have given undue advantages to many traders. The regulatory body SEBI is now taking feedbacks about the technology. Soon it can be expected to lay some rules to handle the scenario.
SEBI proposes for ‘randomization’ of orders
Though the HFT is something that deals with the big volume of orders, it is quite not good enough to neglect it. Thus the SEBI is looking forward for various different ideas to control its flow. The playing field between the HFT users and the non HFT users must be reduced, says many marketers who were familiar with the topic. One of the very important proposals by the regulator, which was considered good by many marketers, was the ‘randomization’ of the orders. This is nothing but avoiding the priorities that was given for the orders in HFT.
But on the technical side, the orders will actually get bunched up in the system of the exchange and these orders will be dealt with no priorities, i.e. in random manner. Here is a big disadvantage that rises. Now the first order that comes to a system is not the one that will be first in the queue. This makes the system some times to get into mal function, due to over load. Zerodha’s Chief Executive, Nithin Kamath has told that the randomization is something that would kill the HFT users as there is no point of advantage seen in it.
Batch auctions
The batch auction is also another way suggested by the SEBI. The idea was originally introduced by a bunch of US academics. This will be useful in avoiding the race in which the orders will be prioritized to be the first one. In this system, the exchange will be collecting all the orders and will be comparing the bids and then will be executing them. This is probably a right way that can be followed to avoid the various disadvantages in a HFT. The regulator is taking a look now at barring the exchanges from using the tick data.
It is absolutely impossible for the human eyes to detect the trends on the very initial pace. But the High Frequency Trading programmers can program the system in such a way that it can actually read the trends and will work accordingly. The HFT traders will be using the tick data that contains both buy and sell trades in a day. It goes up to 300 ticks in just a blink of eye, which is absolutely impossible for human to interpret with. Well on the whole, the SEBI may consider having a speed breaker in the HFT soon.