Sebi proposes guardrails for retail algorithmic trades

The Securities and Exchange Board of India (Sebi) has proposed measures to regulate algorithmic (algo) trading by retail investors, introducing new checks and balances for stock brokers and exchanges.

- KHUSHBOO TIWARI

Currently, algo trading is dominated by institutional investors, who have "direct market access", potentially giving them an edge over smaller investors.

While retail traders also have been using algo tools, the market regulator's proposals are aimed at introducing more guardrails and filling the gaps in the regulations.

Under the new proposals, stock brokers will only permit algo providers or platforms that are empaneled with stock exchanges. Exchanges will set eligibility criteria for empanelment.

Algorithms developed by retail investors will need to be registered with exchanges through their brokers. Once registered, the algo can be used by the investor or their immediate family members.

Algo trading involves executing trades based on pre-programmed instructions linked to variables like price movement, volumes, and more. These tools use logic to automatically buy or sell securities based on their programming.