Sebi strengthens algo trading rules; co-location services

The Securities and Exchange Board of India (Sebi) on Monday issued new measures to provide “fair and equitable access” to the colocation facilities offered by the bourses.

The market regulator directed all exchanges to provide “managed colocation services”, under which small brokers get access to colocation services without having to rent the entire space or rack. Currently, the service is largely out of bounds for small traders due to high cost and lack of technical know-how. Going ahead, small brokers get access to the technical knowledge, hardware, software, and other associated expertise from third-party vendors. To increase transparency, Sebi directed all stock exchanges to publish minimum, maximum and mean latencies and latencies at 50th and 99th percentile. Latency is the time taken to complete the round trip from the core router — the place where both colocation and non-colocation orders meet — to the matching engine and back.

Sebi has asked exchanges to provide free tick-by-tick (TBT) data feed. TBT data provides a detailed view of the entire order book, which includes details relating to addition, modification and cancellation of orders, and trades on a real-time basis. It has tightened the penalty on high order-to-trade ratios (OTR) to encourage algo traders to place orders closer to the last traded price. Under the new framework, orders placed with 0.75 per cent, lowered from 1 per cent, range of the last traded price would be exempted from penalty for high OTR.

Securities and Exchange Board of India ( SEBI )