Algorithmic trading, or algo trading, refers to executing trades through predefined computer programs, enabling orders to be placed at speeds far beyond human capabilities. While already popular among institutional and retail investors in India, regulatory gaps have raised concerns about fairness and security in the market.
Key Highlights of SEBI’s New Rules
- Stock exchanges must empanel algo trading providers to ensure only approved entities offer such services.
- Brokers can onboard only empaneled algo providers, and they must obtain exchange approval and monitor for compliance.
- Open APIs will no longer be permitted, ensuring access is granted only through a unique vendor-client system for traceability.
- Investors developing their own algorithms must register with exchanges through their brokers and comply with a specified order-per-second threshold.
- Self-developed algos can be shared only with immediate family members under strict guidelines.
- ‘Blackbox algos’ (undisclosed logic-based algorithms) must register as Research Analysts with SEBI before deployment.
Implementation Timeline
The Brokers’ Industry Standards Forum will draft algo trading standards by April 1, 2025, with implementation set for August 1, 2025.
Why These Changes Matter
SEBI’s move aims to reduce market manipulation risks, enhance investor protection, and increase oversight of high-frequency trading. By restricting unregulated access to algo trading tools, the regulator hopes to ensure a fair and transparent stock market.
With algo trading rapidly evolving, these new guidelines could reshape India’s financial markets, making them more structured and secure for investors.
