New Agency to Validate Algorithmic Trading Claims for Retail Investors

A performance validation agency is set to verify algorithmic trading claims targeting retail investors. BSE Ltd's CEO announced this during a capital markets session. Sebi aims to boost retail algo trading participation, ensuring market transparency and efficiency, while proposing reforms to the ownership of clearing corporations.

A new performance validation agency is poised to be established to verify the claims made by algorithmic trading systems that target retail investors, according to a stock exchange official speaking on Monday.

'There will be performance validation of claims by an agency—that is the idea,' said Sundararaman Ramamurthy, the Managing Director and CEO of BSE Ltd, at a session on capital markets conducted by the Merchants' Chamber of Commerce.

The Securities and Exchange Board of India (Sebi) has proposed facilitating increased retail participation in algorithmic trading, which has primarily benefited institutional investors. The regulatory body aims to enhance market efficiency and transparency through this move.

Sebi introduced algo trading via the Direct Market Access (DMA) facility, offering advantages such as faster order execution, reduced transaction costs, and better liquidity. The aim is to extend these benefits to retail investors while ensuring protective measures are in place.

During the session, Ramamurthy also commented on Sebi's consultation paper concerning the ownership structure of clearing corporations (CCs), which currently remain wholly owned by stock exchanges. He mentioned that regulations are evolving, with market participants playing a role in their development, but refrained from providing further details.

Sebi's paper suggests a diversification of CC ownership, with proposals including pro-rata share distribution to existing shareholders of the parent exchange and a gradual reduction of holdings or the complete transfer of shareholding to enable free trade of shares. The deadline for feedback on this proposal has been extended to December 31.

Ramamurthy emphasized BSE's focus on expanding within the evolving capital market ecosystem, stating, 'We now have the drive to grow the exchange and perform better.'

(With inputs from agencies.)