SEBI proposes new framework for algo trading, co-location, Good news for retail participants and importantly retail day traders

algo trading India, Automated trading India, Algo trading BSE NSE 

SEBI proposes new framework for algo trading, co-location =

To stop inequitable trading access to the exchanges, markets regulator Sebi today proposed a new framework for super-fast algorithmic trading and co-location facility, including by suggesting 'speed bumps' and separate queues for algo and non-algo trades.

To stop inequitable trading access to the exchanges, markets regulator SEBI today proposed a new framework for super-fast algorithmic trading and co-location facility, including by suggesting 'speed bumps' and separate queues for algo and non-algo trades. 

Algorithmic trading or 'algo' in market parlance refers to orders generated at a super-fast speed by use of advanced mathematical models that involve automated execution of trade, while co-location involves setting up servers on the exchange premises. 

The Securities and Exchange Board of India (SEBI) has proposed to introduce resting time for order, random delays and random speed bumps, separate queues for co-location and non-co-location orders for strengthening the regulatory framework for algo trading and Co-location facility. 

The regulators across the world are looking to find an effective solution for this. SEBI has sought public comments on the proposal till August 31 and final guidelines would be put in place after taking into account views of all the stakeholders. 

The speed bump mechanism involves introduction of randomised order processing delay of few milliseconds to orders. 

The move is expected "to discourage latency sensitive strategies as such delays would affect HFT (High Frequency Trade) but would not deter non-algo order flow for which delay in milliseconds is insignificant," SEBI said in a discussion paper. "The intent behind such mechanism is to nullify the latency advantage of co-located players to a large extent," it added. 

The regulator also plans to begin minimum resting time mechanism, wherein orders received by the stock exchange would not be allowed to be amended or cancelled before a specified amount of time -- 500 milliseconds is elapsed. 

Besides, it plans to eliminate 'fleeting orders' or orders that appear and then disappear within a short period of time. 

The regulator has proposed introduce separate queues and order-validation mechanism for co-lo orders and non-colo orders. "Orders from queues will be taken up in the order-book in round-robin fashion... the co-located participants would still be among the first to receive the market data feeds due to their proximity to the trading platforms of the exchange and this coupled with the capability to make trading decisions in fraction of seconds would still provide the co-located participants the ability to quickly react to such market data," SEBI noted.

NOW SEBI DECIDES TRADING CRITERIA OF ILLIQUID STOCK BASED ON PROFITABILITY, PLEDGED SHARES, MARKET CAPITALISATION, AND DIVIDEND

NOW SEBI DECIDES TRADING CRITERIA OF ILLIQUID STOCK BASED ON PROFITABILITY, PLEDGED SHARES, MARKET CAPITALISATION, AND DIVIDEND:

The Securities and Exchange Board of India has loosened the trading criteria on illiquid scrips, based on profitability and market capitalisation.

Call auctions will not apply to shares ‘where a company is profitable in at least two of the past three years, and not more than 20 per cent of promoters’ shareholding is pledged in the latest quarter and the book value is three times or more than the face value’.The new rules also exclude companies with a market capitalisation of at least Rs 10 crore or which have paid a dividend in at least two of the past three years.

The regulator had earlier decided to apply the periodic call auction rules to all stocks with average trading volume of less than 10,000 and quarterly average daily number of trades of less than 50. A stock can now exit the periodic call auction after a quarter, as opposed to two quarters earlier, so long as it is not classified illiquid.The number of trading sessions for such stocks has been left to the exchanges, so long as they have at least two sessions in a trading day, with one uniform closing session across exchanges.Sebi has also said orders need not be re-entered at the end of every session and unmatched orders can be carried forward to the next one.

OUR VIEW:
THIS CHANGE CAME IN, AS SAID BY THE AUTHORITIES, AFTER THE SMAC OR SECONDARY MARKET ADVISORY COMMITTEE OF SEBI HAD RECEIVED SEVERAL REPRESENTATIONS REGARDING THE DIFFICULTIES OF THE CALL AUCTION METHOD. THE FACT IS THAT THE CALL AUCTION METHOD IS COMPLEX, AND UNTIMELY. IT IS NOT IN ANYWAY DOING GOOD TO RETAIL INVESTORS. SEBI NEEDS TO UNDERSTAND THAT TO DO GOOD TO RETAIL INVESTORS, IT FIRST NEEDS TO HAVE THEM! WE HAVE TIME TO TIME REACTED TO SUCH STEPS OF THE MARKET REGULATOR BY SUGGESTING THEY SHOULD BE BROUGHT IN WHEN THE MARKETS ARE GOOD AND RETAIL PARTICIPATION IS ROBUST. THEN YOU TRY TO BRING SUCH MEASURES WHICH IMPEDES THE UNSCRUPLOUS OPERATORS AND MANIPULATORS FROM HARMING THE RETAIL INVESTORS. BUT THEY SELDOM DO THAT. NOW IS NOT THE TIME. NOW THE FOCUS AND THRUST OF SEBI SHOULD BE TO THINK OF IDEAS WHICH CAN INCREASE THE PARTICIPATION OF RETAIL INVESTORS. THERE ARE MANY WAYS THEY CAN DO SO TO ATTRACT THEM. 

Now Companies can list without IPO on Institutional Trading Platform of SME listing platforms of the Exchanges

Indian capital market regulator Sebi has issued detailed guidelines, including on eligibility criteria, for listing of start-ups and small and medium enterprises (SMEs) on stock exchanges without an initial public offer (IPO).

The guidelines follow notification of new norms by Sebi earlier this month for permitting listing of start-ups and SMEs on Institutional Trading Platform (ITP) of SME Exchanges.

Through this new route, the SMEs and start-up companies would not need to make a public offer of securities for getting listed in the stock market.

The move would help SMEs and start-ups raise capital from the securities market during their early stages of growth, as lack of exit opportunities in case of unlisted companies come as a major hindrance for small companies to get capital.

REQUIREMENT:

As per the new guidelines issued in October 2013, a company would be eligible for such listing if it has not completed a period of more than 10 years after incorporation and its revenues have not exceeded Rs 100 crore in any of the previous financial years, among others.

In addition, the company should have got an investment of at least Rs 50 lakh by an alternative investment fund, or a venture capital fund, or by a merchant banker, or an angel investor, or a specialised international multilateral agency, or a public financial institution, among other such investors.

As per rules regarding capital raising by SMEs, the norms said a company may raise funds through private placement or through a rights issue.

In case of a rights issue, there shall be no option for renunciation of rights and the company seeking to get listed on ITP shall agree to make necessary amendments to its articles of association to this effect.

The market regulator has asked the promoters of SMEs not to hold less than 20 per cent of the post listing capital of the company and the same shall be locked-in for a period of three years from date of listing.

According to the norms, an SME would be required to exit the ITP within 18 months if it has been listed on the platform for a period of 10 years or it has paid up capital of more than Rs 25 crore or company has revenue of more than Rs 300 crore in the last audited financial statement, among others.

(WE BELIEVE START UP WORD SHOULD NOT BE USED FOR SUCH COMPANIES WHICH ARE 10 YEARS OLD AND HAS 25 CRORE RS. CAPITAL AND REVENUE OF RS.300 CRORE. THIS IS NOT LOGICAL PROVISION OR USE OF WORDS BY SEBI)

The company can also take a voluntary exit if it has the approval from its majority shareholders.

Moreover, a company would be removed from the platform if it fails to file periodic filings with the recognised stock exchange for more than one year and does not not comply with corporate governance norms.

The regulator has asked the stock exchanges to "execute a listing agreement with companies seeking listing on ITP in line with the Model listing agreement" and implement the amendments.

SEBI to come out with stringent guideline on CORPORATE DISCLOSURE by listed companies

SEBI Chairman UK Sinha, addressing a capital market summit organized by FICCI said that there are 1100 companies which are not compliance with the requirement of clause 35 of shareholding pattern, which means the direction with regard to shareholding pattern has not complied with. Also, there are 900 companies which are not compliant with the corporate governance norms as per clause 49.

He signaled that the Securities and Exchange Board of India (Sebi) plans detailed guidelines on corporate disclosures, aiming to improve the quality of giving out information by companies. He indicated that to improve the quality of corporate disclosure, SEBI will, probably announce guidelines on Monday or next week.
He also said that they will have a relook at the delisting guidelines. About delisting, Sebi also had earlier indicated that SEBI will now become a party to the delisting agreement between the company and the exchange. It is notable that in a recent case in which the company’s advocated argued that SEBI has no say in matter of listing agreement as it is not a party to the agreement.
The Chairman also said that Sebi may look at the rules for preferential allotment of shares by companies.
Clause 35 of the Listing Agreement requires listed entities to submit to the stock exchanges on a quarterly basis, a statement of its shareholding pattern providing details of shares held by promoter/promoter group and public and details of shares held against Depository Receipts.

New Take Over Code and other Announcements by SEBI

Following is the excerpts of the new regulatory announcements by SEBI on Today 28^th July 2011:

• Open Offer: The open offer trigger of 15% has been increased to 25% while the mandatory requirement of open offer for remaining 26% has been set out instead of earlier 20%. It is notable that the take over committee formed under C Achuthan has proposed 100% open offer size. While the trigger level is in line with that of panel's proposal.
• The provision of non-compete fee has been completely scrapped. And all shareholders will be given exit opportunity at same price.
• The mutual fund companies can charge Rs.100 to existing investor on every new investment, while it can charge Rs.150 to a completely new mutual fund investor. This charge will be applicable for investment over Rs.10,000 only.
• According to changes in mutual fund advertising code, from now on mutual funds will not write CAGR return in advertisements, rather will write that how much a particular sum of rupees invested in so and so scheme turned out to be so and so rupees in so and so years.