Regulating Algos, Reviving Earnings, Five Good Reads & More

In this week’s edition

• 💡TLDR – where we quickly simplify the “too long” arduous stories that you “didn’t read”
• 1 latest article from the Capitalmind research desk
• 5 conversations from the slack community
• 5 interesting reads from across the internet 

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SEBI recommends a framework to regulate Algo Trading 🏛

On Dec 9th, 2021, SEBI released a consultation paper to receive comments & views on regulating Algo trading & unauthorized algo providers.

Aasan bhasha mein…

SEBI has a consultative paper on API based automated trading with brokers –
– All api based trading will be called "algo" trading
– Every such algo must be approved by exchange
– Algos to get unique ids so they will know who started each orderhttps://t.co/OBUOtGKuFi

— Deepak Shenoy (@deepakshenoy) December 9, 2021

 

SEBI recommendations can be classified into three buckets:

Know your Algo

• The stockbroker needs to take the approval for all algos from the stock exchange. Each algo strategy has to be certified by Information Systems Auditor (CISA)/ Diploma in Information System Audit (DISA) auditors.
• Once these algos are certified, they will be given a unique algo ID. Exchanges will only allow certified algos to execute.

Protect the retail investor

• There are many unregulated & unauthorized third-party algo providers. They are luring investors with high & guaranteed returns. They should be regulated.
• Their services should be bought under the nature of investment advisory services (SEBI RIA & RA).

Instructions for the brokers & exchanges

• All brokers should take permission from stock exchanges to provide algo trading.
• The stockbrokers should implement checks & balances like price range, quantity check, order value check, cumulative open order value, etc.
• The stock exchange shall identify the dysfunctional algos and advice brokers to shut them down.
• All orders emanating from an API should be treated as an algo order.

India’s largest stockbroker isn’t pleased. Nithin Kamath of Zerodha, in his blog post, said, “The broker will now have to get exchange approvals for any algo—an extremely tedious and complex process”. He also mentioned that implementing this will push all brokers to stop offering APIs, which isn’t a good step in this technology-driven world.

Currently, this is a consultation paper, and SEBI has invited views & comments. We expect things to evolve.

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Capitalmind Research 💡

• We looked at the Revenue and Profit growth of over 1,700 public companies in India over the last 12 quarters to understand: how the pandemic hit their top and bottom lines, which sectors and companies were hit the hardest, which were unaffected, and how they recovered. Read: Are Revenue and Earnings growth finally back?

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[Premium] School of Slack 😎

Putting together the best conversations from our slack community

• Do rock-bottom interest rates in the west offer arbitrage opportunity? [link]
• Thursday Uncle Theta trade update [Wednesday Trade] [Thursday Trade]
• Will the active funds be beating the passive funds in a volatile (sideways) market? [link]
• Deepak Shenoy shares his views on RBI policy meeting [link]
• How about getting the interest on your FD upfront? [link]

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Links we Like✨

In this section, we bring you curated articles from across the internet that we found interesting. Today’s links are curated exclusively from our slack community: 

• Why do people say not to invest your emergency fund? Was it something we didn’t do because everyone said not to? Read – Should You Invest Your Emergency Fund?
• “All through time, people have basically acted and reacted the same way in the market as a result of greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis”, said Jesse Livermore a hundred years ago. It still holds true but with a twist. Read – The new Fear and Greed
• Web3 is a vortex for talent, money, culture, and brain space. It’s attracting the best of the brains and talents from across the globe. The author tries to decode it using Fun X Money metrics. Read – The Pareto Funtier
• The two-hundred-year history of the New York Stock Exchange highlights the power struggle between a monopoly and its customers and the trade-offs between a monopoly and the system. How do these tensions play out to determine whether the monopoly survives? Read – The Quest for Monopoly

• The street is buzzing with talks of Inflation. So here’s a take on How to Invest Your Money When Inflation is High.

That’s all, folks. Have a great weekend!

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