Vol.12 Issue 1 (2016)

Technology Innovations in Securities Trading: Can SEBI’s Bicycle Catch the High-Frequency Trading Ferrari

Armaan Patkar

Algorithmic high-frequency trading is a techinnovation of securities trading. It is enabled by high-tech trading algorithms and communication and computing infrastructure that allows traders to profit based on the speed and volume of their trading, rather than by trading based on conventional trading fundamentals. However, its strategies have become ubiquitous with market manipulation, regulatory arbitrage and clouding the ability of investors to accurately read the market. Understandably, regulators have been making efforts to protect the markets and stay abreast with the rapid evolution of highfrequency trading. In this endeavour, the U.K. Financial Services Authority remarked that regulators are riding bicycles to chase down the high-frequency trading Ferrari. Further, this Ferrari seems to constantly change its license-plate, routes and appearance. This has complicated efforts to prescribe preventive measures and seems to have resulted in a disproportionate reliance on postfacto remedial measures. In this light, this Article evaluates SEBI’s proposals in its recent discussion paper on algorithmic trading and proposes certain measures to strengthen SEBI’s regulatory framework.

Author

Associate at AZB & Partners, Mumbai. The author can be contacted at armaanpatkar@gmail.com.