Context:
In response to rising retail participation and the increasing use of automated trading systems, the National Stock Exchange (NSE) has issued detailed guidelines for retail algorithmic trading, effective August 1, 2025. The move follows SEBI’s February circular aimed at regulating grey areas in retail algo trades.
Key Highlights of the New Norms:
- Mandatory Registration of Algo Strategies:
- All retail algo strategies must be registered through the broker and will be issued a Unique Algo ID by the exchange.
- Strategies generating over 10 orders per second must mandatorily register.
- API Access and Broker Responsibility:
- Brokers may offer direct API access to retail clients.
- They must ensure only eligible clients use these APIs.
- PAN and unique client codes must be disclosed for tech-savvy clients using their own algos.
- Broker Accountability:
- Brokers are held responsible for all orders routed through their systems, whether developed in-house or by third parties.
- The algo provider acts as an agent of the broker.
- Empanelment and Turnaround Time:
- All third-party algo providers must be empanelled with the exchange.
- In-house algos from brokers are exempt from this empanelment.
- Timeline:
- Empanelment: T+30 working days
- Algo registration: T+10 working days
- Risk Checks Imposed:
- Price, quantity, order value, and position limits will be strictly monitored.
- Aim: Reduce systemic risks and potential manipulative practices.
Classification of Algos:
- Low-frequency algos (less than 10 orders/second) are not classified as high-frequency trading (HFT), reducing the compliance burden for small retail users.
Background and Rationale:
- Rise in Algo Trading:
- In FY25, algo trades accounted for 70% of notional turnover in equity derivatives, as per the NSE Market Pulse Report.
- SEBI’s Role:
- The current framework aligns with SEBI’s February 2025 circular to regulate grey areas in retail algo trading and strengthen investor protection.
What is Algo Trading?
Algorithmic trading (or algo trading) is the use of pre-programmed software to execute trades based on predetermined parameters such as price, volume, or technical indicators.
