Algo Trading

The Securities and Exchange Board of India (SEBI) recently released a regulatory framework to ensure safer participation of retail investors in algorithmic trading through brokers.

  • About: Algo Trading involves orders generated using automated execution logic, offering timed and programmed order execution advantages.
  • About SEBI: Established as a statutory body in the year 1992 and the provisions of the SEBI Act, 1992 came into force on 1992.
  • SEBI framework includes: Use of Application Programming Interface (API) for algo trading.

o Responsibilities of stock brokers and exchanges.

o Brokers shall act as principals, while algo providers/fintech vendors will act as agents using the broker's API.

o Retail investors developing their own algos must register them with the stock exchange through their broker if they exceed a specified order per second threshold.

o Registered algos can be used only for the investor’s family, not for others.

oThe threshold for algo categorization will be set by the Broker’s Industry Standards Forum, under the guidance of stock exchanges and SEBI.