Indian retail traders are now formally able to access algorithmic (algo) trading under the Securities and Exchange Board of India's (SEBI) new framework. This move marks a significant shift from previously unregulated activity to supervised trading. While algo trading was previously dominated by institutional investors, the new SEBI regulations aim to bring more transparency, responsibility, and investor security to the market.

Key aspects of the new framework:

• Democratization of Algo Trading: The new framework allows tech-savvy retail investors to participate in algo trading, which was previously limited to institutional investors.
• Regulatory Oversight: SEBI's circular introduced a regulatory framework for "Safer Participation of Retail Investors in Algorithmic Trading". This framework aims to address concerns around market safety, misuse, and lack of transparency that arose with the increase in retail algo trading.
• Mandatory Exchange Approval: All algorithmic strategies must be approved by the stock exchange before deployment. This ensures that only tested and certified strategies are used in the market, reducing the chances of incorrect orders or manipulation.
• Unique Algo ID Tagging: Each algorithm order is mapped with a unique identifier (Algo ID), connecting it to the specific approved strategy. This allows exchanges to track algorithms, monitor performance, and identify any irregularities.
• Broker Responsibility: Brokers will be the principal entities offering algo trading via Application Programming Interfaces (APIs), while algo providers will act as their agents. Brokers are responsible and liable for all orders placed through their APIs, including verifying client eligibility, handling investor grievances, and monitoring API usage.
• Restricted APIs: Open APIs that allowed direct connection to a broker's trading platform are banned. Access is only allowed through unique setups, ensuring proper identification of algorithmic trades. Only algorithms hosted and deployed through broker-owned infrastructure will be permitted.
• Kill Switch: Brokers will be empowered to use 'kill switches' to halt malfunctioning or suspicious algorithms.

Implementation and Timeline:

SEBI initially planned to implement the new regulatory framework on August 1, 2025. However, following requests from brokers and the Industry Standards Forum (ISF) for more time to ensure a smooth transition, the deadline was extended to October 1, 2025. The Broker's Industry Standards Forum is finalizing the detailed implementation guidelines in consultation with SEBI and exchanges.

Tech-Savvy Retail Investors:

SEBI has introduced a "Tech-Savvy Retail Investors" category, referring to individuals with programming skills to develop their algo strategies and execute them via broker APIs. These investors need not register their Algo strategies if their orders are within a 10 Order Placement Slice (OPS) limit. However, such strategies will still be treated as Algos and must be executed through a pre-defined API key.

Impact and Considerations:

The new framework is expected to democratize access to technology-driven trading, increase transparency, and offer better protection to retail participants. However, retail algos, subject to strict checks and slower execution, differ significantly from the sophisticated, faster systems used by institutions. The implementation of two-factor authentication (2FA) for all API-based order placements is also a significant shift for some brokers.