Algorithmic trading, where investors use automated strategies via computer programmes, has become popular in recent years on rising interest from retail investors due to the process’ faster execution and lower costs.
International Financial Services Centres Authority proposed that a market participant undertaking algorithmic trading may only be able to do so with the prior permission of an exchange.
Its other proposals included asking exchanges to audit the algorithms of any existing or prospective participant.
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It is "to ensure that the risk control checks… are in place and that the market participant’s algorithmic trading system facilitates orderly trading and market integrity,” IFSCA said.
The authority also proposed establishing ”dummy filters” on securities that do not have price bands but are attracting algorithmic trading interest.
The bourse shall have the flexibility to impose ”financial disincentives” such as penalties in cases where orders placed outnumber executed trades by a high margin.
That would "provide sufficient deterrence against order flooding or any other form of market manipulation," IFSCA added.
