What’s the News?
SEBI strengthens its oversight with a view to control spoofing and quote stuffing.
What does that mean?
Spoofing is placing large buy or sell orders at multiple price points in order to create an illusion of huge demand or supply. The spike in buy or sell orders prompts other traders to react. As the stock price moves such orders in the system are withdrawn.
"Quote Stuffing" is the practice of quickly entering and then withdrawing large orders. Such activity is done with an intention to gain an edge over competitors. The large orders disrupt other traders, who lose time in processing the orders.
SEBI has announced a set of measures to curb instances of Spoofing and Quote Stuffing. Stock exchanges will now put in place a new order-level surveillance mechanism to deter such practices.
Under the new guidelines, serial offenders could face trading disablement ranging between 15 minutes and 2 hours. It will be effective from 5th April 2021. The new measures put in place will be applicable on daily trading activity at the customer level as well as the broker level. Three parameters have been issued to flag off such practices. These include high order-to-trade ratio, high instances of order modifications and persistent deferred or lower-order execution priority due to frequent modifications.
How does that Impact?
The primary objective of SEBI is to protect the Investor’s interest and prevent malpractices in the financial markets. These measures aim to reduce the trade orders that manipulate the stock market.
We have seen SEBI make periodic interventions on multiple occasions in the interest of developing the markets and take it in the right direction.