NSE Likely To Set Up Data Centre For Algo Trading Validation — Exclusive

The National Stock Exchange is likely to set up a dedicated data centre which will collect information from market institutions to help validate the algorithm, as per people in the know.

The responsibility will be undertaken by an NSE subsidiary called NSE- Administration and Supervision Ltd.

Initial preparations for the project are underway, and the allocation of funds to support the infrastructure development is likely, the people quoted above said. Once operational, the data centre will serve as a central repository to store and process data received from market infrastructure institutions, ensuring effective performance validation of trading algorithms.

The oversight mechanism will involve collaboration between NSE and qualified credit rating agencies meeting the markets regulator's eligibility criteria. These CRAs will validate the data shared by investment advisors and research analysts, ensuring compliance with Securities and Exchange Board of India regulations.

Advisors will be required to submit data either at the time of advising clients or by the end of the trading day, depending on the nature of their recommendations. This data will be transmitted to the data centre via APIs or uploads.

A key element of the project will involve the validation agency working with the data centre to create a robust validation system. This will include the development of a business requirement document and a validation methodology.

After processing the data, the centre will deliver validated outputs to the Performance Validation Agency, in a standardised format through an API. The PVA will ensure these outputs are presented with the necessary disclaimers and disclosures.

To facilitate the establishment of this framework, amendments to existing CRA regulations will be required. SEBI is also expected to issue detailed circulars outlining data-sharing procedures and operational guidelines for the new system.