Sebi to take stern action on algo trades misuse, says Chairman UK Sinha

In a stern warning, market regulator Sebi has said anyone trying to manipulate the markets with new-age trading technology tools would be slapped with strong penal measures and a new framework is being put in place to tackle cases like organised cyber attacks from abroad.

"On the other hand, the risk management systems in the marketplace have been upgraded to ensure that the damage from any genuine technical snags, including in the algorithmic and high-frequency trades, is minimised and the issues are addressed on an urgent basis", Sebi Chairman U K Sinha said.

"What I am saying is that a technology snag can happen anywhere in the world. But our system is designed for how to minimise the impact of the snag," Sinha told PTI in an interview in Mumbai.

"If, it is deliberate, then we have a system for how to penalise the person. We will take stern action against the person who is found to be deliberately doing it."

Asked about a recent technical 'glitch' causing nearly four-hour halt at the New York Stock Exchange (NYSE), Sinha said the problems can happen anywhere including in India.

"Technology is always a double-edged sword and problems can happen. Problems have happened in India also in the past.

On high-frequency trading, algo trades, co-location, we have already put in place some restrictions and have issued a circular about penalties etc," he said.

On the issue of cyber attacks, Sinha said the overall marketplace, the exchanges and the regulator itself need to be alert and Securities and Exchange Board of India (Sebi) is working on a detailed framework to deal with such cases.

"For matters like cyber attacks, we have to be alert. We are in the process of sensitising everybody about this. We are preparing the exchanges. We have some thoughts on this and we have told the exchanges to do certain things, but may be more needs to be done," he said, without disclosing any further details on this.

Talking in detail about the steps taken by Sebi to beef up the risk management systems to deal with technical snags as also with the deliberate manipulative attempts, Sinha said the regulator has taken a series of measures on order checks.

"You can not place an order for more than a certain limit. There are all kinds of checks, at client level, trader-level system-level, all those have been provided.

"If there is a genuine mistake in the algo system, we have got enough checks and safeguards. Then there is another situation, that is if trading is taking place and if an algo or a computer programme has gone bad, then how to minimise the damage? For that, we have systems and checks in place.

"These are the cases where there is a genuine mistake.

There is also a situation, when question arises should the trade be cancelled or not. For that, we have come out with an annulment policy," he said.

"If somebody is doing it deliberately, we have a surveillance mechanism to take action against them. Whether we have enough mechanism to stop them, I would not claim that much. But we can certainly catch them and penalise them," Sinha said.