On Feb. 4, IND SEBI issued circular on retail investors participation.
IND SEBI issued circular on safer participation of retail investors in algo trading.
Due to increasing demand from retail investors, IND SEBI aims to refine existing reg framework to ensure risk management, investor protection while maintaining integrity.
New regulatory environment defines roles, responsibilities of investors, brokers, algo providers, market infrastructure institutions to facilitate safer retail participation.
Follows IND SEBI Dec. 2021 consulted on algo trading by retail investors, #123746.
Regulatory Framework
Under the new framework, brokers will be the principal entities providing algo trading services, while algo providers will act as their agents using broker-approved APIs.
All algo orders must have unique identifier from stock exchanges for audit, traceability.
Retail investors developing own algos must register with exchanges through brokers if exceed specified order-per-second threshold, can only use them for family members.
Brokers must implement measures such as detecting, categorizing algo orders, restricting API access, ensuring authentication via OAuth, two-factor authentication.
Brokers are responsible for investor grievances and API monitoring; algo providers must be empaneled with stock exchanges, which will define compliance requirements.
Stock exchanges will oversee algorithmic trading, including setting up testing, monitoring algo orders, and having the ability to use a kill switch for specific algo IDs.
Algos will be categorized into white box (execution algos), black box algos, with extra scrutiny for black box algos; existing algo trading provisions remain in effect.
Exchanges are directed to do things including taking necessary steps and put in place necessary systems and procedures for implementation of provisions of the circular.
Plus, make necessary amendments to the relevant bye-laws, rules and regulations.
Effectiveness
Implementation standards shall be formulated by Broker’s Industry Standards Forum, under aegis of the stock exchanges and in consultation with IND SEBI by Apr. 1, 2025.
The provisions of this circular shall be applicable with effect from Aug. 1, 2025.
