- REUTERS/Lucas Jackson/Files
The Mumbai-based National Exchange of India (NSE) is having its own “Flash Boys” moment.
With 40% of all stock trading volume on the exchange now coming from high frequency and algorithmic transactions, up from low single digits five years ago, rumors abound of collusion and high frequency traders gaining preferential access at the NSE.
The Securities & Exchange Board of India (SEBI) is looking into measures to slow down high frequency trading over the next three months, according to its chairman, as reported in the Economic Times of India.
“In a discussion paper to be issued in the next month or so, SEBI may propose a sub-second speed bump, a requirement that traders alternate electronic trades with manual ones, and a ban on cancelling algo orders before they are confirmed by the exchange,” broker ITG said in a note.
“The regulator is also considering rules randomizing orders rather than executing them according to time priority and also a requirement that order book information be made public. SEBI could implement final rules before the end of the year if it decides no further consultation is needed.”
This is a familiar story. In the US, the Investors Exchange (IEX) was founded by Brad Katsuyama three years ago in response to what it considered questionable trading practices, a saga memorialized in Michael Lewis’ book “Flash Boys.”
IEX set out to level the playing field for traders. Strategies include those proposed by SEBI, including the use of a so-called speed bump.
After a controversial battle that attracted both praise and criticism across Wall Street, the SEC approved IEX to run a US stock exchange.
It remains to be seen what happens in India, but no one can fault the SEBI for trying to run a fair exchange.