"We’re Moving To Tackle Systemic Risk" - India Cracks Down On HFT Scourge

While the corrupt and criminal US regulators are unable to do anything to stifle the market domination of algos which have totally destroyed the US equity market, and sucked up enough liquidity where neither buy nor sellsiders can generate a profit, India is already well on its way to crushing the parasitic - and perfectly legal - frontrunners of virtually ever trade. It will do so by increasing penalties on high-speed trading firms that flood exchanges with orders that don’t result into actual transactions, as part of steps aimed at strengthening its oversight of computerized trading.

According to Bloomberg, India's regulator, the Securities & Exchange Board or SEBI, has also borrowed a page out of the IEX playbook and is considering checks on super fast strategies by using a fraction-of-a-second speed bump and minimum resting time to delay orders so that all participants see the market at the same speed, Chairman U. K. Sinha said in Mumbai on Wednesday.

In other words, what IEX wants to implement on its exchange, to unprecedented opposition from not only the HFT lobby but its muppet, the SEC, India will implement marketwide. 

Why is India doing the right thing by cracking down on HFTs? The proposals came amid a growing chorus calling for the market regulator to take action against high-frequency traders gaining preferential access at the country’s biggest exchange. A report by one of SEBI’s own advisory panels recently called for a full investigation into claims of collusion between the National Stock Exchange of India Ltd. and a high-frequency trading firm. The report was the only example among major global markets to identify probable collusion between an exchange and a high-speed firm. 

"We’re moving to tackle systemic risk as well as issues of unfair access in HFT trading,” Sinha said. “We’re also asking the exchanges to ensure that HFT traders don’t misuse the system.”

That's odd: such collusion between exchanges (BATS) and HFT firms (Citadel) in the US are not only perfectly known to everyone, but are collusive in broad daylight.

And yet nobody will touch them. Or at least not in the banana republic that is the US. Because India's market is about to become far more honest and trustworthy.

Among the proposals being considered include separation of co-location orders and adoption of auction system that blunts the edge of the fastest traders. Broadcast of order-book information is being looked into to ensure there’s no preferential treatment, Sinha said. The measures will be released in the next three to four months, he said.

“We need to see whether the changes ultimately bring a level-playing field or impede the market’s growth,” Manoj Nagpal, chief executive officer at Mumbai-based Outlook Asia Capital Pvt., an investment consulting and wealth management firm, said by phone. “Markets globally are grappling with ways to regulate HFT without disrupting the system.”

Actually, no. NOt in the US. Here every regulator is corrupt and purchased by the HFT lobby. Sorry.

Meanwhile, the US joke of a market continues: for every 27 orders placed on U.S. exchanges, about one is filled, data from the U.S. Securities and Exchange Commission show. In other words, approximately 96 percent of all orders sent to U.S. equity markets are canceled.

In India, quote stuffing is already penalized. India’s BSE Ltd. charges up to 0.1 rupee per order when a brokerage’s order-to-trade ratio falls between 250 and 500, according to the exchange’s website. “While SEBI is among the first regulators to have some kind of regulations in place on HFT, there is a need to make it more stronger,” he said.

India’s high-frequency and algorithmic transactions now account for 40 percent of total volumes, the highest proportion in the developing world and up from the low single digits five years ago, according to Danielle Tierney, senior analyst at Aite Group, a Boston-based consulting firm. SEBI, which issued broad guidelines on HFT in 2012 and 2013, said in December it’s considering new restrictions, but has so far taken no action.

It will soon, and when it does that 40% will promptly collapse to the single digits or 0, because once the quote stuffing and churning ecosystem of the algo parasites is interrupted, it disintergates.

Now if only the US regulator would pretend to do its job (even if that means permanently recusing Mary Jo White, one of Wall Street's staunchest defenders) and at least feign some interest in how India is winning a war with HFTs that the US lost long ago, we would be content. Alas, that will never happen.