IAB for active involvement of regulatory authorities: Sebi

Market watchdog Sebi on Monday said its International Advisory Board has favoured active involvement of regulatory authorities to check flash crash-like situations and a separate regulator for collective investment schemes.

Besides, the IAB has also acknowledged the need for reviewing the capital adequacy norms for market entities to meet the "unknown and non-market risks" such as flash-crash, as per their trade volumes and number of clients.

In wide-ranging discussions during its second meeting over the weekend here, the IAB also suggested a separate code or set of guidelines for research analysts providing their services without any fee to safeguard the investors' interest.

Indian stock market witnessed a flash crash in benchmark index Nifty last month, after erroneous trade orders entered by a broker led to about 900-point plunge within seconds and the markets had to be halted for about 15 minutes.

Sebi said that the IAB discussed the recent flash crash episodes witnessed globally and in India, while deliberating over the pros and cons of HFT/Algo (High Frequency Trade/

Algorethmic) trading, efficiency of secondary markets and fairness to market participants.

The IAB acknowledged that nearly all financial markets across the globe have these issues and the International Organisation of Securities Commissions (IOSCO) has been actively discussing ways in which regulators and exchanges should modify market structures to tackle these challenges.

Sebi said the discussions were held on the effects of HFT on volatility and liquidity in markets, ability of HFT strategies to influence or manipulate markets, trade annulment policies and the need for pauses to respond to sudden movement in prices in order to reduce uncertainty.

"The most critical point that emerged was the need for regulator and exchanges to keep up with the developments and maintain the trust of participants by ensuring orderliness in markets," Sebi said, while adding that the heads of NSE, BSE, MCX-SX and USE also participated in this discussion.

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