Sebi's nod to retail algo trading levels the playing field with institutions

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Subscribe to enjoy similar stories. 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. Sebi’s draft framework outlines key measures to make algo trading accessible yet accountable. Retail investors will be able to participate through brokers, who must obtain exchange approvals for each algorithm before deployment.

Each algorithm will be assigned a unique identifier for effective monitoring and auditing. To enhance security, brokers are required to implement robust application programming interfaces (APIs) with two-factor authentication, ensuring system integrity and preventing unauthorized access. Additionally, tech-savvy retail investors can register self-developed algorithms via brokers for personal or family trading.

Sebi has also classified algorithms into two types: “white box" (transparent logic) and “black box" (undisclosed logic). Black box algorithms face stricter norms, including mandatory registration of algo providers as research analysts and detailed reporting of strategies. The framework represents a major step in democratizing India’s capital markets by equipping retail investors with tools previously exclusive to institutions.