Sebi tightens algo trading rules to plug gaps, boost investor protection

Under the new norms, open APIs will not be permitted. Access will be granted only through a unique vendor client to ensure identification and traceability

The Securities and Exchange Board of India (Sebi) has mandated the empanelment of algorithmic (algo) trading providers with stock exchanges and defined rules for using application programming interfaces (APIs). These new regulations aim to address regulatory gaps and enhance investor protection.

 

Algo trading is already prevalent in the Indian market among both institutional and retail investors. However, the existing regulations had several loopholes, posing risks to investors.

 

The Brokers’ Industry Standards Forum will formulate implementation standards before April 1, 2025, with the new norms becoming effective from August 1. Industry players said the new framework will make algos more accessible to a broader section of investors in a more transparent manner.

 

  

While algo providers will not be directly regulated by Sebi, the new guardrails will be implemented through exchanges, which will supervise algo trading and specify the criteria for empanelment.

 

Brokers will only be able to onboard algo trading providers that are empanelled with the exchanges. They will also need to obtain exchange approval and address grievances and monitor prohibited activities.