SEBI is planning to enhance penalties on algorithmic and high-frequency traders for high orders against executed trades and refine computation methods of the order-to-trade ratio (OTR), as per sources.
The regulator monitors the ratio of total orders, including modifications and cancellations, to the number of trades executed by algorithmic trading members within a specific period. This is to prevent market manipulation with a large number of orders and few executed trades.
SEBI is looking to increase the penalties imposed on high OTRs, which were last revised in 2020. A consultation paper on this is expected soon. The penalty for a ratio of daily algo orders to trade between 50 to 250 may be increased to 10 paisa from the current fine of 2 paisa per order.
Furthermore, SEBI plans to refine the computation methods and exclusions of the OTR framework. The ratio could be computed based on orders beyond 0.75 per cent from the last traded price (LTP) instead of both the strike price and LTP. Adjustments may also be made for options contracts with an LTP below ₹6.50.
The move is part of SEBI’s efforts to reduce manipulation and risks in the futures and options (F&O) market, particularly by algo and high-frequency traders. The regulator aims to address the increased speculation and potential manipulation stemming from the rapid growth of the derivatives market.
Overall, these measures are geared towards ensuring a fair and transparent trading environment in the Indian markets.
