SEBI Current Affairs

SEBI eases algorithm trade rules in commodity exchanges

The Securities Exchange Board of India (SEBI) has relaxed algorithm trading norms at commodity derivatives exchanges.  The market regulator has raised limit of trading using algorithm trading process up to 100 orders per second by user from the existing limit of 20 orders per second.

Key Facts

The decision was taken after receiving representations from exchanges along with views of SEBI’s subcommittee- Commodity Derivatives Advisory Committee. SEBI has asked exchanges to ensure that limit provided by it is subject to its ability to handle load. Besides, it also has decided to do away with requirement of empanelment of system auditors by the exchanges for system audit of algorithmic trading.

Algorithmic trading

Algorithmic trading in financial markets refers to transaction orders generated by using advanced mathematical models that involves automated execution of trade.  It uses mathematical models and software codes to make transaction decisions on exchanges and execute them at high speed.

This technology-driven trading enables traders to take advantage of any profit making opportunities arising in the market much before a human trader can even spot them. It was introduced in India in 2009. At present, on National Stock Exchange (NSE), algorithm trades accounts close to 16% of all trades. On the Bombay Stock Exchange (BSE), it was 8.56% in January 2017.

Difference between algo trading and high frequency trading (HFT)

Both are often used inter-changeably, but they are not really same. HFT refers to high-volume orders executed within split-seconds to make immediate gains from market opportunities. HFT trading are often backed by algo trading, which spot trading opportunity.

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SEBI to bring Initial Coin Offerings using crypto currencies under its lens

The capital market regulator Securities and Exchange Board of India (SEBI) is planning to bring Initial Coin Offerings (ICO) under its existing legal framework. In recent times, popularity of crypto currencies has increased rapidly and number of entities looking at raising funds through ICO.

Background

Crypto currencies like bitcoin, ethereum and such offerings have been under government radar for long time. Even discussions were held between various regulatory bodies, including SEBI and Reserve Bank of India (RBI) to regulate crypto currencies. The RBI is of the view that these instruments are securities and so SEBI should be the regulating body. But these crypto-currencies are neither ‘commodities derivatives’ nor ‘securities’ under Securities Contracts (Regulation) Act, 1956.

Initial Coin Offering (ICO)

ICO is an unregulated means of crowd funding for project via use of cryptocurrency such as Bitcoin, Ethereum, Monero, DASH, Litecoin, Z-cash etc. It is like an equity initial public offer (IPO) where right of ownership or royalties of project is offered to investors in form of digital coins in exchange for legal tender or other cryptocurrencies.

ICO is mostly used to raise funds by start-up firms dealing in block chain technology and virtual currencies. Unlike an IPO, which is governed by SEBI regulations, there is no regulator for this kind of crowd sourcing in India. China’s Central Bank recently had banned ICO as dubbed it as an illegal public finance mechanism used for issue of securities and money laundering.

Crypto Currencies

Crypto Currencies or Virtual Currencies are type of unregulated digital money. They are mainly peer-to-peer system, and transacted between users directly, without an intermediary. These transactions are verified by network nodes and recorded in public distributed ledger called blockchain.

They are neither issued by central bank/public authority, nor is necessarily attached to fiat currency, but is used and accepted among the members of a specific virtual community. They are being transferred, stored or traded electronically.

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