SEBI needs to evolve and stay ahead of changes in technology to cope with future changes. In context of NSEL’s Co-location controversy, analyse. (200 Words)
Refer - Business Standard
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IAS Parliament 6 years
KEY POINTS
· Co-location (setting up trading terminals in the same physical space as the exchanges’ servers), along with the use of dark fibre (dedicated cable lines transmitting only exchange data), gives users a significant advantage in data-access.
· Securities and Exchange Board of India (Sebi) released a comprehensive set of orders on the National Stock Exchange (NSE) co-location controversy.
· The regulator said there was no evidence of fraud committed by the NSE, but the exchange did not exercise adequate due diligence while selecting its trading architecture, thereby creating an environment in which information dissemination was asymmetric.
· The exchange has also been indicted for “bad governance”, and criticised for its inconsistent “dark fibre” policy.
· The regulator has further directed the NSE to overhaul its algorithmic trading systems and co-location processes and to subject these to regular systemic audits.
· Indeed, the case was so complex and multi-dimensional that the regulator issued five separate sets of orders, covering different aspects of the case.
· It has determined that the tick-by-tick co-location system deployed by the NSE allowed discriminatory access to several brokers.
· It has also determined large conflicts of interest with advisers who were given access to confidential data, which allowed them to develop algorithmic trading software that could be used for personal gains. The regulator has directed the NSE to start legal proceedings against these advisers.
· AI-based algorithmic trading systems can exploit milli-seconds. While traders will pay more for such services, it also creates an asymmetric information environment.
· These orders demonstrate the regulator has developed a grasp of the technology and policy issues and it is willing to crack the whip to ensure an equitable environment.
· Regulators and exchanges have to work out a robust policy to oversee this and prevent abuse. There are increasing volumes of algorithmic trading on India’s financial exchanges.
Ramakrishnan 6 years
Please assess this answer
IAS Parliament 6 years
Try to include about Co-location, role of algorithmic trading, artificial intelligence in providing asymmetric information etc. Keep Writing.
