Indian market regulator, the Securities and Exchange Board of India (Sebi), on Tuesday (February 4) announced new rules for retail investors in algorithmic trading. The agency said the move, which goes into effect from August 1, would enhance investor protection, maintain market integrity, faster order execution and improve liquidity.
Notably, current regulations allow only institutional investors to engage in algo trading.
The new guidelines require stockbrokers, exchanges, and algorithmic trading providers to put in place stricter risk management measures.
Going forward, brokers will be responsible for providing algorithmic trading through an application programming interface or API. It essentially means that any fintech vendor or algo provider would act as the agent while using a broker’s API.
Sebi says the new rules will safeguard the interests of retail investors and help maintain the market’s integrity.
It will be the brokers’ responsibility to ensure that all algo trades are properly registered and monitored. They will also have to ensure that necessary due diligence is done to get only trustworthy vendors on board into their systems.
“In order to facilitate safer participation of retail investors in algo trading, with stock brokers and stock exchanges playing the required roles in risk management, it has been decided to review and refine the existing regulatory framework to ensure proper checks and balances, to safeguard investor interest as well as integrity of the market,” the Sebi said in a statement.
Sebi noted that the demand for algo trading has been on the rise from retail investors.
Although algo trading has been regulated since 2012, some unregistered algo marketplaces had emerged over a period of time. Such platforms had earlier come under the Sebi’s scrutiny, where past-performance metrics would be advertised by them to sell their strategies.
In October last year, the agency had even issued notices to 115 stock brokers for their continued association with the algo platform Tradetron.
(With inputs from agencies)
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Sebi issues new algo trading rules for Indian market, here’s why it’s significant
