The capital market regulator Securities and Exchange Board of India (Sebi) has extended the deadline for the implementation of new rules to govern retail investors' entry into algorithmic (algo) trading. The new framework, initially set to take effect on April 1, 2025, will now be enforced from August 1, 2025 onward.
The Broker’s Industry Standards Forum (ISF), under the aegis of stock exchanges and in consultation with Sebi, will issue the implementation standards. The regulator's decision came after stock exchanges requested an extension of the timeline to finalise the implementation standards.
Eventually, Sebi directed exchanges to put in place necessary systems and processes and make necessary amendments to the relevant rules and regulations.
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New Algo Trading Framework
The regulator initially introduced these regulations on February 4, 2025, to regulate retail investors' access to algo trading. Algo trading is the use of computers to automate buying and selling of stocks or other assets. The computer follows a set of pre-defined rules and strategies to make trading decisions without needing a person to do it manually.
Under the new rules, algorithmic trading will involve three main players:
Brokers will act as the main authority
Algo providers will act as their partners
Stock exchanges will be responsible for assigning a unique ID to all algo-based trades to track and manage them
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Regulations For Retail Investors
For retail investors who create their own trading algorithms, there’s a new requirement—if they place a high number of orders, they will be required to register their algorithms. However, these algorithms can only be used by the investor and their immediate family members.
The stock exchanges will register algo providers, and these providers can work with brokers, who will also be accountable for handling any complaints related to algo trading.
Further, to improve security, brokers will need to implement two-factor authentication and stricter API controls for algo providers.
