SEBI'S PROPOSAL TO DEMOCRATIZE ALGO TRADING FOR ALL

Sebi's push for algo trading will empower retail investors, and ensure overall market integrity

- Simarjeet Singh

The Securities and Exchange Board of India (Sebi) has introduced a landmark proposal to bring retail investors into the realm of algorithmic (algo) trading—a domain traditionally dominated by institutional players. With advantages such as faster trade execution, enhanced risk management, and cost efficiency, algo trading has the potential to transform retail participation in India's capital markets. Open for public feedback until 3 January 2025, the proposal emphasizes inclusivity while reinforcing market integrity through stringent safeguards.

Decoding the proposal: Sebi's draft framework outlines measures to make algo trading accessible and accountable. Retail investors can participate through brokers, who must obtain exchange approvals for each algorithm before deployment. Each algorithm will have a unique identifier for monitoring and auditing. Brokers must implement robust APIs with two-factor authentication to ensure security and prevent unauthorized access. Tech-savvy retail investors can register self-developed algorithms via brokers for personal or family trading. Sebi classifies algorithms as "white box" (transparent logic) and "black box" (undisclosed logic), with stricter norms for the latter, including mandatory registration of algo providers as research analysts and detailed strategy reporting.