SEBI releases paper on co-location; proximity facility offered by bourses

India Infoline News Service | Mumbai |

The move is aimed to avoid any undue benefits to certain brokers due to physical proximity of their systems with that of the stock exchanges

Market regulator SEBI (Securities and Exchange Board of India) has proposed to bring in parity between the brokerages operating through systems placed within exchange premises and those at other locations.

The move is aimed to avoid any undue benefits to certain brokers due to physical proximity of their systems with that of the stock exchanges.

Commonly known as ‘co-location or co-hosting’ in the market parlance, this service offered by the stock exchanges to  stock brokers and data vendors allow them to locate their trading and other systems within the exchange premises.

Proximity hosting is a variant of the same. It is used to reduce the time taken for order execution by algorithmic trading programmes by reducing the distance that such orders would have to travel to the exchange system for execution, measured in milliseconds. Creating two separate order streams may work against this very purpose.

“It is expected that such architecture will provide orders generated from a non-collocated space a fair chance of execution and address concerns related to being crowded out by orders placed from co-location,” said the SEBI discussion paper on Friday.

“If an order is taken from the queue of orders emanating from co-location / proximity hosting facility, then the next order shall be from the other queue,” it said.
The regulator has asked that all stock brokers and data vendors located at co-location / proximity hosting experience similar latency between their systems and the stock exchange’s trading platform.

It has also asked that exchanges provide sufficient space to make sure that everyone who wishes to make use of a co-location facility can be accommodated. “Stock exchange shall also avoid situation of monopolising of rack space by certain stock brokers or data vendors,” it said. 
SEBI has invited feedback on the same till May 31.
 

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