SEBI to double charges for Algorithmic (Algo) trading

Market regulator SEBI has announced that it will double the charges for orders based on Algorithms (algo) in stock exchanges from May 27, 2013.

What is Algo Trade?

  • Algorithmic (Algo) trading refers to orders generated by use of advanced mathematical models that involve automated execution of trade. It is mostly used by large institutional investors and has raised concerns that algo exposes small investors to possible systemic risks.
  • Charges on an algo trade vary among exchanges.

Why SEBI is increasing the charges on Algo trade?

  • Algo trading method is mostly used by large institutional investors and has raised concerns that algo exposes small investors to possible systemic risks.
  • The move to increase the algo trade charges is intended to disincentivise those having high order-to-trade ratio using algo. Brokers with repetitive instances of high daily order-to-trade ratio will face additional penalty in the form of suspension of their proprietary trading book.

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