SEBI Chief Calls for Enhanced Risk Controls as Algo and HFT Trading Surges

The Securities and Exchange Board of India (Sebi) chairperson has called for stronger risk controls in the wake of increasing activity in algorithmic (algo) and high-frequency trading (HFT) on Indian stock markets. Addressing recent developments, the SEBI chief Tuhin Kanta Pandey emphasised the need for robust regulatory frameworks to manage the complexities introduced by these modern trading strategies.

During a public statement, the SEBI chair noted the rapid growth of algo and HFT trading volumes and highlighted associated risks such as market volatility, systemic risks, and the potential for market manipulation. Tuhin Kanta Pandey stressed that these technological advances require updated oversight mechanisms to protect investor interests and ensure market stability.

SEBI’s move comes as algo and HFT contribute a significant portion of daily trading volumes on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). These trading methods use computer algorithms to execute orders at extremely high speeds, often capitalising on minute price differentials.

The regulator has already introduced several measures to monitor automated trading activities, including mandatory pre-trade risk checks, limits on order-to-trade ratios, and circuit breakers to curb excessive price movements. The chair reaffirmed SEBI’s commitment to enhancing these controls further in collaboration with market participants and technology experts.

There is growing emphasis on using advanced surveillance technologies and improving transparency in these fast-evolving trading systems. SEBI aims to prevent disorderly market conditions that can arise when high-speed trading algorithms malfunction or engage in predatory tactics.

Market participants have been urged to implement stringent risk-management practices at their end as well. In recent years, SEBI has also sought feedback from exchanges, brokers, and institutional investors to develop comprehensive guidelines tailored to the algo and HFT ecosystem.

The SEBI chair concluded by underscoring the importance of balancing innovation with investor protection, calling for coordinated efforts to strengthen risk controls amid the surge in algorithm-driven trading. The regulator continues to monitor the space closely to safeguard the integrity of India’s capital markets.