Sebi chief Ajay Tyagi today emphasised the need to put in place sophisticated cyber security for capital markets even as he wondered about ways to supervise data maintained at bytes among hundreds of computers worldwide. Touching upon the increasing use of technology in the markets, he also said regulators might have to put in place checks and balances of investor protection in algorithms itself.
According to him, technology is of prime importance for smooth functioning of exchanges and market intermediaries and as data usage gets further deepened, concerns relating to “security” of data would become even more pronounced. Against the backdrop of instances of systems in different parts of the world coming under cyber attacks, the Sebi chairman also emphasised the need for having “sophisticated cyber-security and cyber-resilience measures”.
In recent times, there has been increased use of high frequency trading activities and the Securities and Exchange Board of India (Sebi) is also working on ways to make the existing system more robust.
While the functioning of exchanges and market intermediaries have been streamlined due to adoption of technology, Tyagi said machine-learning or artificial intelligence and block-chain would be the “two significant technological changes” that would fundamentally alter capital markets. “Machine-learning and artificial intelligence have made inroads in the area of high frequency and algorithmic trading and some bits of fund management as well,” he said.
Regulators “may have to develop the capacity to vet software codes and algorithms, test those algorithms for malfunction, if any, and consider encoding checks and balances of investor protection in those smart contracts and algorithms itself”, Tyagi said. He made the remarks at a speech today at the National Institute of Public Finance and Policy (NIPFP) & Harvard Law School India-US Symposium on ‘Building the Financial System of the 21st Century’ here. The speech copy has been put out by the regulator on its website. Tyagi also said block-chain technology might pose serious challenge to any centralised record-keeping institution such as exchanges, depositories and other entities related to payments and settlement.