SEBI Allows Sharing of Co-Location Services

SEBI has allowed traders to share co-location facilities to address concerns on high-frequency algorithmic trading.

India’s market watchdog Securities and Exchange Board of India (SEBI) has allowed traders to share co-location facilities as it tries to address concerns on high-frequency algorithmic trading.

SEBI has introduced shared co-location services to reduce cost for trading members wishing to operate from the co-location facility, it said in a media statement after its board meet. “This will reduce cost of brokers and address concerns of unfair access,” SEBI Chairman Ajay Tyagi said in a media conference.

Stock exchanges will also provide tick-by-tick data feed for free, he added.

Earlier this month, SEBI had proposed a review of algorithmic trading to disincentivise it amid concerns that high-frequency traders have unfair access to the exchange’s systems. The regulator had noted that algorithmic traders intentionally clogged the systems with a large number of orders.

SEBI’s decision comes 18 months after it had floated a discussion paper in the public domain on the issue. Algorithmic trading or ‘algo’ in market parlance refers to orders generated at a super-fast speed by use of mathematical models to execute trade automatically.

Tyagi said that stock exchanges will now allot a unique identifier to each algorithm for establishing an audit trail. “This will help surveillance by SEBI,” he added. Exchanges will also have to provide a simulated market environment for testing of software including algorithms.

The regulator also accepted most recommendations made by the Uday Kotak-led committee on corporate governance, including some with modifications. Eighteen recommendations have not been accepted.

Kotak Committee Recommendations

Here are the recommendations of the Kotak committee accepted without modifications:

• Reducing maximum number of directors on board of listed entities to 8 from 10 by 1 April, 2019 and to 7 by 1 April, 2020.
• Expands eligibility criteria for listed entities.
• Enhanced role of audit, nomination and remuneration, and risk management committees.
• Disclosure of utilisation of funds from QIP, preferential issue.
• Disclosure of auditor credentials, audit free, reasons for resignation of auditor.
• Disclosure of expertise and skills of directors.
• Enhanced disclose of related-party transaction and related parties be permitted to vote against each other.
• Mandatory disclosure of quarterly results from year ending March 2020.
• Enhance obligations on listed entities regarding subsidiaries.
• Secretarial audit to be mandatory for listed entities and their unlisted subsidiaries under SEBI rules.

Here are the recommendations accepted with modifications:

• Minimum of six directors in the top 1,000 listed entities by market cap by 1 April, 2019 and in the top 2,000 listed entities by 1 April, 2020
• At least one woman independent director in the top 500 listed entities by market cap by 1 April, 2019 and in the top 1,000 listed entities by 1 April, 2020
• Separation of CEO/MD and chairperson (to be initially made applicable to the top 500 entities by market cap with effect from 1 April, 2020)
• Quorum for board meetings (one-third the size of the board or three members, whichever is higher) in the top 1,000 listed entities by market cap by 1 April, 2019 and in the top 2,000 listed entities by 1 April, 2020
• Top 100 entities to hold AGMs within five months after the end of FY2018-19
• Webcast of AGMs will be compulsory for top 100 entities by market cap with effect from FY19
• Shareholder approval for royalty/brand payments to related party exceeding 2 percent of consolidated turnaround (instead of proposed 5 percent)

Revised Framework For Listing Norms

• To revise existing enforcement framework for non-compliance of listing regulations by companies
• This includes composition of board and its committees, submission of corporate governance compliance report, financial reports, voting results etc
• Non-compliance will lead to imposition of strict fines
• Empowers stock exchanges to freeze shareholding of the concerned promoter and promoter group in the non-compliant entity and their shareholding in other entities
• If non-compliance continues, it will lead to suspension.

Shared Co-location Services

• Allows the introduction of shared colocation services to "reduce cost for trading members."
• Stock exchanges to provide tick-by-tick data feed to all trading members, free of charge
• Trading members to create necessary infrastructure
• Stock exchanges to increase the depth of snapshot of five best bid and ask quotes

Takeover Regulations

• Amendments have been proposed to the existing set of takeover regulations
• Additional time for upward revision of open offer price has been proposed

Buyback Regulations, 2018

• It is proposed to re-frame an entirely new set of buyback regulations, 2018

Here are the other decisions taken at the SEBI board meet:

• Physical settlement to be done for all stock derivatives in a phased and calibrated manner.
• The board also approved a proposal to reduce the maximum additional expense allowed to be charged to a mutual fund scheme to 5 basis points from 20 basis points earlier.

(The article has been published in an arrangement with BloombergQuint)