Market regulators, securities and exchange boards of India, came out with railing on Tuesday how retail investors could use Algo Trading.
Provisions include a triangular type of relationship between stock exchanges, brokers and elgo providers. First, the brokers will act as the principal and the elgo provider will be like their agents. Meanwhile, the stock exchange will provide a unique identifier for all orders generated through these algos.
If a retail investor is working on his own algo and eventually using it, they have to register it and also if they are more than the order specified. However, they will only be able to use that algo to their family members.
In a system that will not be regulated directly by SEBI, stock exchanges will have registered algo provider with them. Post it, only registered providers will be placed on the ship by brokers, and they will have the responsibility of overseeing any complaint related to ALGOS.
Brokerage will have to come with two-factor authentication and API control access to providers.
SEBI has classified Elgos into two types: white-box (execution algos, where logic is transparent) and black-box (where logic is hidden from users). Black-box ALGO providers should register as research analysts and maintain detailed research reports.
The new structure will be implemented in stages, with the final implementation of industry standards by April 1, 2025, and full implementation starting from August 1, 2025. Stock exchanges should ensure compliance by amending their rules and informing brokers.