New technology baffles regulators: Sebi

The Securities and Exchange Board of India (Sebi) on Thursday raised its concerns regarding the risks posed by newer technologies like the High Frequency Trade (HFT) to securities markets.

While stating that technology has been a major enabler in financial market development, Sebi chairman U.K. Sinha said that financial sector regulators across the globe are finding it difficult to handle newer technologies like HFT that uses complex algorithms to analyse multiple markets and execute orders based on market conditions.

“Technology has reached a level where it is posing a challenge for the companies, participants in the market and the regulator. HFT trading and colocation is one such area. But not only Sebi, but whole of global regulators are today struggling to find out what is the best way to handle it... because there is so much race for reducing the latency for few micro seconds that regulator all over the world are looking to take some action which would be of global standard. We are also participating on the discussions,” Mr Sinha said while inaugurating the South Asia Risk summit organised by Thomson Reuters.

However, he said that Sebi is also working separately to find a way to handle the challenges posed by such technologies.

“We will not wait till IOSCO issues its final guidelines. We may come out with our prescriptions before that,” Mr Sinha said, adding that cyber security is another area where regulators need to do more.

The worrying part, according to the Sebi chairman in addressing the cyber threat, is to figure out on which direction to work on as people committing cyber crimes are sophisticated and determined.

On the commodities futures trading that have been brought under Sebi’s jurisdiction, Mr Sinha said that the risk management mechanism overseeing commodities derivatives trading is not at par with the regulation in equity market.

The Sebi chairman said that the market regulator has taken a series of measures to strengthen the system and is in the process of further reviewing the processes.