Securities and Exchange Board of India has likely finalised the framework to regulate algorithm-based trading platforms, according to people familiar with the matter. The regulator may allow qualified credit rating agencies to serve as performance validation agencies for these platforms. Additionally, one of the exchanges is expected to be responsible for maintaining a data center related to the validation process.
Previously, NDTV Profit had exclusively reported that the algo trading regulations are not out yet because of a lack of decision on whether NSE or CRAs should deal with the validation agencies, to oversee the algo platforms.
According to documents reviewed and people in the know, this debate is over and both, the CRAs and either of the exchanges, will undertake the responsibility.
Recently, SEBI had issued notices to over 120 stockbrokers for their association with Tradetron, an algorithmic trading platform. This is because of the regulator’s stance against the claims of future returns by platforms for the fear of investor manipulation.
A data centre for the performance validation agency will be created by either of the exchanges—National Stock Exchange or BSE—to receive and store data relevant to the validation process from market infrastructure institutions.
The role of the CRAs, which meet SEBI’s eligibility criteria, will be to validate the advice and recommendation data shared by investment advisors and research analysts.
These intermediaries will share their data either at the time of providing advice to clients or by the end of the trading day, depending on the nature of the recommendations. This data can be shared with the data centre via an API or through uploads.
A key part of the process will involve the validation agency coordinating with the data centre to create a validation system, which will include a business requirement document and a validation methodology.
Once developed, the data centre will process the data and deliver validated outputs to the PVA through an API in a defined format. The validation agency will ensure that these outputs are presented correctly, along with any necessary disclaimers and disclosures.
For the creation of this infrastructure of validation agencies and data centres, amendments to the existing CRA regulations will be required. Additionally, SEBI plans to issue circulars outlining data-sharing procedures and operational guidelines for the new framework.
This proposed structure aims to enhance transparency and integrity in the algo trading process, ensuring that all validation mechanisms comply with SEBI’s rigorous standards.
. Read more on Markets by NDTV Profit.The rating agencies will validate the advice and recommendation data, while one of the exchanges will set up a data centre for performance validation. Read MoreMarkets, Notifications
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