Sebi comes out with guidelines for stock brokers providing algorithmic trading services

Capital markets regulator Sebi on Friday came out with guidelines for stock brokers, who provide services relating to markets to investors, to prevent instances of mis-selling.

The guidelines came after the Securities and Exchange Board of India (Sebi) observed that certain stock brokers provide algorithmic trading facilities to investors through unregulated platforms.

The unregulated platforms are offering algorithmic trading services or strategies to investors for automated execution of trades. Such services and strategies are being marketed with "claims" of high returns on investment, Sebi said in a circular. Further, "ratings" have been assigned to the strategies, which could lead to investors being lured by such claims. This may amount to mis-selling of such services and strategies to investors, it added.

Accordingly, Sebi has given certain responsibilities to stock brokers that provide algorithmic trading facilities to investors through such platforms. Such stock brokers have been restricted from making any reference to the past or expected future return of the algorithm as well as associating with any platform that provides any reference to the past or expected future return of the algorithm, Sebi said.