Mumbai, December 13, 2024 – The Securities and Exchange Board of India (SEBI) has proposed a new regulatory framework aimed at expanding algorithmic (algo) trading to retail investors. With an increasing number of retail traders using third-party applications to automate their trades via API access, SEBI is seeking to bring more regulation and control over algo trading. The proposed framework is designed to mitigate risks associated with unregulated algo strategies, which have the potential to cause market manipulation and financial harm to investors.
As part of the proposed framework, SEBI suggests that all trades initiated via APIs be classified as algo orders. These trades must be monitored and approved by stock brokers. Furthermore, any algo strategies—whether developed by brokers or third-party vendors—would require approval from stock exchanges. To enhance transparency, each strategy would be assigned a unique ID for tracking purposes. Additionally, stock brokers would be responsible for ensuring that the systems operate on their own servers and are equipped with safeguards to prevent unauthorized modifications.
SEBI’s proposal underscores the importance of safeguarding retail investors from potentially risky and unregulated algo services. These services have been gaining traction without adequate oversight, raising concerns about investor protection. The regulator has invited public comments on the proposal, with the deadline set for January 15, 2024.
