The Securities and Exchange Board of India (SEBI) is placing a strong emphasis on cyber security, recognizing its critical importance in conjunction with regulatory compliance, as stated by its chairperson, Tuhin Kanta Pandey.
Speaking at the Morningstar Investment Conference, Mr. Pandey highlighted the introduction of a new framework designed to enable safer participation for individual investors in algorithmic trading. He underscored that “Cyber security remains a foremost concern for all market participants.” This means financial firms must diligently protect sensitive client data and crucial infrastructure from increasingly sophisticated cyber threats. He also noted that the reliance on technology vendors and service providers has led to an increase in third-party and outsourcing risks, necessitating stronger oversight and due diligence.
The growth of algorithmic and high-frequency trading, while offering efficiency, also demands robust risk controls, real-time monitoring, and comprehensive compliance safeguards.
Understanding Algorithmic Trading
Algorithmic trading utilizes complex algorithms to automate trades, executing them based on predefined criteria. Traditionally employed by professional traders, large hedge funds, and foreign investment firms, this technology-driven trading method is now becoming increasingly common among retail investors.
Safeguarding Investors
Mr. Pandey further elaborated on measures for investor protection. He stated that while “Investor protection and market integrity are often used as regulatory slogans, but they must translate into real-world discourse.” For investors, this translates to receiving timely, accurate, and easily understandable information. Their assets must be held securely and segregated from others, and intermediaries must always act in the investor’s best interest, avoiding unfair practices or conflicts.
Crucially, in instances where issues arise, investors must have clear access to effective redress mechanisms. Similarly, market integrity ensures transparent, fair, and orderly transactions, free from hidden costs, preferential access, or any form of manipulation.