Q12) The Financial Stability Report (FSR) June 2015, aired serious concerns on algorithm trading leading to stock price manipulation as well as alienate retail or small investor from stock markets.Consider the following statements regarding Algo Trading:

1) Algo Trading involves automated order matching using Software codes or algorithms

2) Its drawbacks include that it may lead to stock prices manipulation as well as alienate retail or small investor from stock markets

3) Algo Trading is not allowed in Indian stock exchanges

Which of the following statement(s) given above is/are correct?

1 and 2 only

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2 and 3 only

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1 and 3 only

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1, 2 and 3

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Solution

The correct option is A
1 and 2 only

Ans:12)(a)Expl: Software codes or algorithms are frequently used to automate and enhance order-matching processes. Algo trading was introduced in India in April 2008 with the advent of Direct Market Access (DMA). While huge institutional investors will be able to take advantage of arbitrage of micro and nano-seconds, by engaging in high frequency trades, the interest of retail investors could be jeopardised.

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