Safer participation of retail investors in Algorithmic trading
Safer participation of retail investors in Algorithmic trading
- SEBI,vide circular no. CIR/MRD/DP/09/2012 dated March 30, 2012, provided broad guidelines on Algorithmic Trading (“Algo” -orders generated using automated execution logic). Thereafter, SEBI has introduced measures to strengthen controls around Algorithmic Trading.
- Algo trading provides significant advantages of timed and programmed order execution. At present, there are mechanisms such as Direct Market Access Facility, which enable institutional investors to trade through Algorithms.
- There has been an increasing demand for algo trading by retail investors. In order to facilitate safer participation of retail investors in algo trading, with Stock Brokers (hereinafter referred to as “Brokers”) and Stock Exchanges (hereinafter referred to as “Exchanges”) playing the required roles in risk management, it has been decided to review and refine the existing regulatory framework to ensure proper checks and balances, to safeguard investor interest as well as integrity of the market.
- The regulatory environment envisaged is aimed at spelling out the rights and responsibilities of the main stakeholders of the trading ecosystem i.e. investors brokers, algo providers/vendors and Market Infrastructure Institutions (MIIs), so that the retail investors are enabled to avail algo facilities with requisite safeguards.
- SEBI had issued a discussion paper dated December 09, 2021 on “Algorithmic Trading by Retail Investors”, on the use of API access and automation of trades using the same. Further, SEBI had extensive discussions with the Exchanges, Brokers and Algo Providers. The proposal was also discussed in the meeting of the Intermediary Advisory Committee and with the Broker’s Industry Standards Forum (ISF), which comprises of industry representatives. Accordingly, after extensive deliberations, the following regulatory framework is being proposed to facilitate safer participation of retail investors in Algorithmic trading through brokers-
Go To SEBI
Read More on SEBI
