The Securities and Exchange Board of India (SEBI) on Friday proposed to review the existing regulatory framework on algorithmic trading (algo trading) to facilitate the participation of retail investors.
Algo trading refers to orders generated using automated execution logic. Such trading offers significant advantages of timed and programmed order execution.
“The demand for algo trading by retail investors has increased. It has been decided to review and revise the existing regulatory framework to facilitate the participation of retail investors in algo trading, ensure proper checks and balances, protect investor interests and market integrity,” Sebi said in a consultation paper. .
Currently, algo trading is limited to institutional investors, who have direct market access (DMA) facilities. DMA is used to describe a client/investor directly accessing the market using the trading member’s Computer to Computer Link (CTCL) software and routing orders through the trading member’s infrastructure.
The regulator has proposed to facilitate the participation of retail investors in algorithmic trading through stock brokers who have obtained the necessary approval of the stock exchange for each algo.
“All algo orders shall be tagged with a unique identifier provided by the stock exchange to establish an audit trail and the broker shall seek approval from the exchange for any modification or change in the systems used for approved algos or algos,” the draft paper said. said
SEBI suggested that for the purpose of provision of algo trading through Application Programming Interface (API), brokers shall be principals while any algo provider or fintech/vendor shall act as its agent when using the API provided by the broker.
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