Context:
The Securities and Exchange Board of India (SEBI) has proposed to revise stock brokers’ regulations by including definitions for algorithmic trading and proprietary trading, which are currently not defined under existing rules.
Proposals
Algorithmic Trading:
Proposed Definition: Defined as any order generated or placed using automated execution logic.
What is Algorithmic Trading?
A process where trades are executed automatically using computer programs based on predefined rules like price, time, or volume thresholds far faster than a human could.
Proprietary Trading:
Proposed Definition: To be formally incorporated in the broker regulations, aligning with current market practices.
What is Proprietary Trading?
Proprietary trading refers to the practice where a brokerage firm, investment bank, or financial institution trades stocks, bonds, derivatives, currencies, or other financial instruments using its own capital rather than client funds. The goal is to earn direct profits from market opportunities instead of earning only commissions from client trades.
Other Proposals:
- Execution Only Platform: Proposed to mean any digital/online platform facilitating transactions such as subscription, redemption, and switch transactions in direct mutual fund plans.
- Access to NDS-OM Platform: Stock brokers may be allowed access to the Negotiated Dealing System-Order Matching (NDS-OM) platform, currently used by banks and primary dealers for government securities trading.
- Regulatory Alignment: Transactions by stock brokers on other platforms will remain under the purview of the respective regulators or authorities.
