SEBI Introduces New Guidelines for Algorithmic Trading by Retail Investors
India’s markets regulator, the Securities and Exchange Board of India (SEBI), has introduced new rules governing the approval and monitoring of algorithmic trading by retail investors to ensure their protection amid growing demand.
Algorithmic trading, which uses computer programs to execute trades, offers benefits such as faster order execution and lower transaction costs. Under the new guidelines, brokers can only offer algorithmic trading services to retail investors after obtaining approval from stock exchanges for each specific algorithm. Additionally, all algorithmic orders must be tagged with a unique identifier to maintain an audit trail, and providers must register with the stock exchanges.
SEBI has also mandated that algorithms developed by retail investors be registered if they exceed a specified order per second threshold. A SEBI study published in September revealed that in fiscal year 2024, algorithmic trading accounted for 97% of foreign investors and 96% of proprietary traders’ profits in futures and options.
These measures aim to enhance the transparency and accountability of algorithmic trading activities and provide greater safeguards for retail investors in the evolving market landscape.