On Tuesday, India’s Securities and Exchange Board (SEBI) introduced new regulations aimed at overseeing algorithmic trading among retail investors.
The move comes as a response to the growing demand and usage of algorithmic trading, which involves the use of computer programs to execute trades, offering benefits such as quicker order execution and lower transaction costs.
Under the new rules, brokers are required to secure permissions from stock exchanges for each trading algorithm before offering them to retail clients. SEBI’s latest circular mandates that all algorithmic orders must be marked with a unique identifier to create a clear audit trail. Additionally, trading service providers are now obligated to register with stock exchanges.
The regulations also stipulate that retail investors who develop their own algorithms must register them once they exceed a certain rate of orders per second. SEBI’s actions are designed to enhance the monitoring of algo trading activities and safeguard retail participants in the market.
A SEBI study released in September detailed the prevalence of algorithmic trading in the fiscal year 2024, revealing that it constituted 97% of foreign investors and 96% of proprietary traders’ profits in the futures and options segment. This significant finding underscores the importance of regulatory measures to manage the risks associated with such trading practices.
