New SEBI Rule On Spoofing Will Be Applicable From April 5
In addition to the numerous surveillance measures in place, SEBI and the Exchanges agreed in a joint meeting that, in order to improve the order level surveillance system, an additional order-based surveillance measure would be introduced.
With an aim to prevent persistent noisemakers, i.e. excessive order modifications, cancellations with the intent to avoid execution.
Spoofing is a form of algorithmic trading that manipulates prices by creating the appearance of demand or supply. Spoofers position a large number of buy or sell orders with the intention of cancelling them until they are fulfilled.
The said measure will be applied to regular trading operation in security or contract at the Client, Proprietary account level and will be based on the following parameters:
1) High Order to Trade Ratio (OTR) in value terms (i.e. Value of all Orders Entered / Modified / Cancelled in a Security / Contract by a Client / Proprietary account vis-à-vis Value of all Trades in the Security / Contract by a Client / Proprietary account.
2) High Number / Instances of Order modifications
3) High Percentage of Order modifications leading to a persistent deferred/ lower order execution priority.
Trading suspension of such a Customer Account in the Stock and Equity Derivatives segments for the first 15 minutes of trading at the PAN stage around the Exchanges.
| No of repetitive consecutive instances of violation (N) | Applicable trading disablement period |
|---|---|
| 1 | 15 mins |
| 2 | 30 mins |
| 4 | 60 mins |
| 6 | 90 mins |
| 8 | 120 mins/ 2 hours |
| 10 | 120 mins/2 hours |
On a rolling 20 trading day basis, any additional instance of repeated infringement by a Client Proprietary account (say N times) would result in trading disablement for a duration of 'N' instances X 15 minutes, subject to a Maximum Disablement of 2 Hours (i.e. N = 8).
The above-mentioned surveillance measure will take effect on April 5, 2021, with the first surveillance action on such Persistent Noise Creators taking place on May 5, 2021, based on a 20-day trading window.
Regardless of the above, any person found to be regularly changing, cancelling order(s) that results in non-execution of trades and/or causes unwanted noise in the system would be subject to enforcement, even if the surveillance action's conditions are not completely met, the announcement said.
This is good news for retail traders and the markets. A ratio of 50 orders to trades is very high and would cover the majority of genuine cases. It will primarily impact those who placed orders with the intent of manipulating markets.
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