NSE issues compliance norms for safer participation of retail investors in algo trading

The exchange has also set a threshold of 10 orders per second for algos though the norms allow the bourse to tweak the limit, if needed

The National Stock Exchange (NSE) has issued implementation standards for safer participation of retail investors in algorithmic trading to comply with recent norms put in place by the Securities and Exchange Board of India (SEBI).

In a circular issued on Monday, the exchange stated the norms for all categories of algos – those provided by stockbrokers or algo providers and even those generated by clients.

“Stockbrokers may provide their clients with API access to their trading systems. To gain access, clients must mandatorily provide the stockbroker with a static IP address (es) which will be mapped to the API keys from which they will connect to the brokers’ trading platform via API,” stated the circular.

Further, it said that all API sessions will have to be compulsorily logged out every day before the start of the next trading day.

The exchange has also set a threshold of 10 orders per second for algos though the norms allow the bourse to tweak the limit, if needed.

“The Threshold Order Per Second is initially set at not exceeding 10 orders per second per exchange/segment and may be adjusted by the stock exchanges as needed after due notice to the market. The broker may set its own threshold order per second limit at client level which may vary from client to client not exceeding the current prescribed Threshold Order Per Second,” stated the NSE circular.

Further, clients will have to register the algo with the exchange in case he wants to exceed the threshold limit.

“If a client wishes to place orders at a speed exceeding the Threshold Order Per Second (OPS) i.e. 10 OPS, they must register their algorithm with each Exchange where the algorithm is intended to be used. The Exchanges will formulate a simplified registration and compliance framework for orders up to a certain threshold,” said the circular.

For algo providers, the exchange has said that all such entities must be empanelled and registered with the bourse. For brokers entering into commercial, or technical arrangement with an exchange empanelled algo provider, the former will have to carry out adequate due diligence in relation to the algo provider and ensure that the algo provider is not involved in any misconduct or violation of securities laws.