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Regulating Algos, Reviving Earnings, Five Good Reads & More


In this week’s edition

  • šŸ’”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 internetĀ 

SEBI recommends a framework to regulate Algo TradingĀ šŸ›

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

Aasan bhasha mein…


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.

Indiaā€™s largest stockbroker isnā€™t pleased.Ā Nithin Kamath of Zerodha, in hisĀ blogĀ post, said, “The broker will now have to get exchange approvals for any algoā€”an extremely tedious and complex process”.Ā He also mentioned that implementing this will push all brokers to stop offering APIs, which isnā€™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.

Capitalmind ResearchĀ šŸ’”

  • 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?

[Premium] School of SlackĀ šŸ˜Ž

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]

Links we LikeāœØ

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:Ā 

  • Why do people say not to invest your emergency fund? Was it something we didnā€™t do because everyone said not to? Read – Should You Invest Your Emergency Fund?
  • ā€œAll 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

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

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