Brokers in limbo over delay in release of operational details of retail algo-trading norms

The new algo framework will be rolled out on August 1, as decided earlier.

Brokers are in a bind, with the Securities and Exchange Board of India (SEBI) issuing a circular that the release of the implementation standards for retail algo norms will now be delayed by a month till May 1. They were to be released on April 1.

Brokers have been waiting for further clarity on the operational details on the much-awaited retail algo norms and industry sources told Moneycontrol that they are caught in limbo due to this delay.

SEBI's circular said that it received representation from the stock exchanges requesting an extension of timeline to finalise the standards.

The circular said, "in order to ensure smooth implementation of the framework, without any disruption to the market players and investors" it has been decided to extend the deadline for release of the standards by a month. The framework itself will become applicable from August 1, as decided earlier.

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SEBI had released the new regulatory framework to govern algo trading among retail investors on February 4. At the time the regulator had said that it had become necessary considering the increasing demand from retail investors. The regulator said, "In order to facilitate safer participation of retail investors in algo trading, with Stock Brokers (hereinafter referred to as “Brokers”) and Stock Exchanges (hereinafter referred to as “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." Under this framework, the implementation standards were to be formulated by the brokers' industry standards forum (ISF) and released on April 1, which has now been extended to May 1.

An industry insider said, "We need to know who will clear the algos, what the process will be and what the charges to clear the algos will be".

Another source said that brokers are still absorbing the disruption caused by the index derivatives norms released in October 2024 and the true-to-label norms (which took away a big chunk of their revenue earned from paybacks from exchanges). Therefore, any clarity on the algo norms front should come sooner rather than later.

Amidst the confusion over the new norms, some brokers are even asking their technology vendors to be empaneled, even though they are not algo providers. As a vendor said, a few of them only design user experience for the brokers, and it isn't clear if they too need to be empaneled.

Meanwhile, Moneycontrol has learnt that brokers are preparing as best as they can by consulting with algo vendors to understand the technical specifications that may be needed and the compliance processes that the vendors and their brokers have been following so far.

Under the new framework, if the broker is providing algo services through a third-party vendor, then that vendor will need to be first empaneled with the exchanges. For this, exchanges will specify the criteria the vendors will need to meet and brokers will also do a check of the vendors at their end.

Brokers will also need to get the exchange's clearance for each and every algo it provides to retail investors.