SEBI sets track and trace rules for retail investors' algo trading

SEBI sets track and trace rules for retail investors' algo trading

Market regulator Securities and Exchange Board of India (SEBI) on February 4 introduced rules for the approval and tracking of the use of algorithmic trading by retail investors to protect them amid rising demand.

Algo trades use computer programs to execute trades and have advantages such as faster order execution and reduced transaction costs.

Brokers shall be principal whole any algo provider shall act as its agent, while using API provided by broker, said SEBI in its circular on safer participation of retail investors in algo trading.

Brokers can provide algo trading facility to retail investors only after obtaining requisite permission from stock exchanges for each algorithm, SEBI said in a circular.

Algo orders will also be tagged with a unique identifier to establish an audit trail and providers should empanel with stock exchanges, it said.

Algos developed by retail investors will also need to be registered if they cross the specified order per second threshold, the SEBI said.

A study published by the regulator in September showed that during fiscal year 2024, algorithmic trading accounted for 97% of foreign investors' and 96% of proprietary traders' profits in futures and options.