India and High Frequency Trading

India has the eighth largest economy in the world and its exchanges trade about $750 billion worth of stock per year.  Its markets have emerged to become a world-class trading ecosystem thanks in part to the increased participation of intermediaries who use high frequency trading tools.

However, the Securities and Exchange Board of India (SEBI) is in the midst of deciding if the progress of algorithmic trading innovations should be encouraged or suppressed. It recently sought comment letters on several proposals, most of which would impair the ability of these automated market makers to continuously provide the abundant and inexpensive liquidity to Indian investors that they contribute in other markets.

Unlike regulators in the U.S. and other markets, SEBI does not make comment letters public.  Below is a list of letters that MMI has been able to collect.  We will update this list as letters become available, and welcome copies of SEBI submissions from responsible parties.

August 29, 2016: Modern Markets Initiative
“MMI stands in broad support of global regulatory efforts to establish holistic, data-driven policies to best ensure the stability of trading platforms for all market participants.  However, in presenting an assorted menu of proposed mechanisms without analysis supporting their need or predicted effect, the SEBI proposal will likely create negative, unintended consequences.”

August 29, 2016: Estee Advisors
“SEBI has embarked on an important initiative to understand the impact of algorithmic and colocated trading on the Indian markets.  Algorithmic and colo-trading is a natural evolution of technology in the important field of securities markets.  Proper use of such technology reduces costs and improves efficiency.  However, increased speed does present some risks to the market.  Arbitrary speed bumps or other methods to thwart the advantage of technology will result in either no advantage or result in higher costs through increased bid ask spread or reduced liquidity.”

August 30, 2016: Association of National Exchanges Members of India
“We would request SEBI to base its decisions on data driven simulations and proven efficacy of the proposed steps in similar market microstructures.  It may be desirable to control any undesirable activity by market participants using surveillance improvements rather than changing the microstructure to prevent abuse of the markets, especially if there is a risk that the proposed changes could result in poorer liquidity/volumes.”

August 31, 2016: FIA
“We encourage SEBI to undertake further detailed analysis into any proposed market structure changes and potentially implement pilot programs for any proposed measures. If SEBI decides to introduce any pilot programs, we urge SEBI to provide market participants with adequate notice and the necessary technical information so that market participants are able to fully prepare for any proposed changes. We believe that SEBI can also work with trading venues and exchanges to enhance market supervision and identify abusive activity through improved surveillance, rather than changing market structure based on perceptions of inequality regarding market access.”