Green signal for settlement scheme for brokers associated with unregulated algo platforms

On December 18, the regulator had noted that its Board had given approval for merchant bankers, debenture trustees and custodians to carry out other regulated activities as a separate legal entity.

SEBI will soon notify the settlement scheme for brokers who were associated with unregulated algo platforms, who were promising assured returns. One source said, "The SEBI board was apprised of the plan for this settlement scheme and soon notification will be issued. SEBI will limit the settlement amount to Rs 1 lakh only".

Though it was not part of the SEBI Board meeting agenda it was placed as an information memorandum. The scheme will be open for 3 months and brokers who were issued notice will have to apply to SEBI to settle the matter.

Last year, SEBI issued show-cause notices to more than 110 stock brokers, including major players like Zerodha, 5Paisa Capital, and Motilal Oswal Financial Services, after observing that unregulated platforms were offering algo-based trading strategies marketed with claims of assured returns. Platforms like Tradetron facilitated these trades by linking their algorithms to broker systems, despite SEBI’s explicit directives against such associations.

To safeguard investors, SEBI stated in June 2022 and followed up with a circular in September, warning brokers against associating with unregulated platforms offering algorithmic trading strategies. The circular, titled “Performance/Return Claimed by Unregulated Platforms Offering Algorithmic Trading Strategies,” explicitly barred brokers from referencing past or expected returns of such strategies or collaborating with platforms making such claims. It also mandated brokers to sever ties with these platforms within seven days. However, SEBI found that brokers had not dis-associated themselves from such platforms.

SEBI is coming up with a new settlement scheme because the adjudication proceedings are lengthy and take long time and resources. The matters related to Illiquid Options and NSEL are still not settled and draining out SEBI resources.

Moneycontrol had previously reported that SEBI will be coming up with such a scheme.