SEBI extends deadline for retail algo trading norms

Capital markets regulator SEBI has extended the timeline for the implementation of standards related to the circular on “Safer participation of retail investors in algorithmic trading” to August 1, 2025, from April 1, 2025. The implementation standards of the circular will come into effect from May 01, 2025, SEBI said.

The implementation standards were to be issued by the Broker’s Industry Standards Forum (ISF), under the aegis of the Stock Exchanges and in consultation with SEBI by April 01, 2025.

The decision to extend the timeline was taken after SEBI received a representation from the stock exchanges, requesting an extension to finalise the implementation standards, as certain issues require further deliberation with the Brokers’ ISF. Accordingly, the regulator decided to extend the timeline.

It will allow more time for deliberation between stock exchanges and the Brokers’ ISF in order to ensure smooth implementation.

The regulator had on February 04, 2025, proposed a regulatory framework by easing rules for the participation of retail investors in algorithmic trading. The framework said brokers providing the facility of algo trading to investors will continue to abide by the extant provisions related to algo trading. The facility of algo trading will be provided by the stockbroker only after obtaining the requisite permission of the exchange for each algo.

All algo orders will be tagged with a unique identifier provided by the stock exchange to establish an audit trail and the broker will seek approval from the exchange for any modification or change to the approved algos or systems used for algos.

On the use of API for algo trading, the regulator said brokers will be the principal, while any algo provider or fintech or vendor will act as its agent while using the API provided by the broker.

"All orders, above the specified order per second threshold, originating or flowing through API extended by brokers to their clients/service providers, will be treated as algo orders and will be tagged with a unique identifier provided by the stock exchange. This is in addition to orders already tagged as algo orders."

As per SEBI, algos developed by tech-savvy retail investors themselves, using programming knowledge, will also be registered with the exchange through their broker. Further, the same registered algorithm will be permitted to be used by such retail investors for their families.

It said stock exchanges will be responsible for supervising algorithmic trading while ensuring the post-trade monitoring of algorithmic orders and trades, including putting in place a standard operating procedure (SOP) for testing of algos. They will continue to have the ability to use the kill switch for orders emanating from a particular algo ID.

SEBI's framework on algo trading is aimed at spelling out the rights and responsibilities of the main stakeholders of the trading ecosystem -- investors, stock brokers, algo providers/vendors and market infrastructure institutions (MIIs).