The National Stock Exchange (NSE) has established a framework to monitor retail algorithmic trading (algo trading) and empanel providers, prioritizing investor safety and market integrity. This move follows a directive from the Securities and Exchange Board of India (SEBI) and aims to bring structure and accountability to the growing segment of retail algo trading. The framework is designed to make algo trading safer and more accessible for retail investors while ensuring a monitored environment for all stakeholders.

Key Highlights of the New Framework

• Empanelment of Algo Vendors: Only empanelled third-party vendors can provide algo tools to clients. These algo providers offering API-based retail trading must be empanelled with exchanges. They must also have a minimum of two years of market experience. Providers of black box algos need to be registered with SEBI as research analysts.
• Algo Registration and Unique Identifiers: All algorithms must be pre-approved by exchanges before being offered to retail clients. Each algo needs to be registered and tagged with a unique ID, regardless of orders per second. Each order routed via an algo must carry a unique identifier, helping exchanges maintain an audit trail and detect anomalies in real time. Any change or breach in the algorithm logic will necessitate re-registration.
• API Access Control: Stricter control over API (application programming interface) access is a key aspect of the new framework. Clients are now mandated to provide a static IP address to gain API access, which will be mapped to the API keys used for connecting to the broker's platform. A single static IP can be mapped to only one client at a time, although sharing between family members is permitted. Clients will have the ability to update their mapped static IP addresses on a weekly basis.
• Order Rate Limits: A ceiling of 10 orders per second per client is imposed. Breaching this limit without approval may trigger penalties or account restrictions.
• Broker Responsibility and Oversight: Brokers must ensure all algorithms are registered, and any modifications or new algos go through the same approval process. Brokers are liable for all algo orders and must audit API access, ensuring secure authentication. They are required to audit and monitor all API access and usage while ensuring that only secure, authenticated APIs with static IP addresses and two-factor authentication (2FA) are used. Brokers must not allow open APIs and must trace the identity of the end-user. Brokers are also expected to be accountable for investor grievances and monitor for any prohibited activities.
• Categorization of Participants: A 5-level categorization has been introduced, classifying participants into roles such as Frontend, Developer, User, Logical Grouping, and Strategy.
• Mandatory Logging and Audits: All API sessions must be logged out daily. Brokers are mandated to conduct periodic audits of algo systems and submit compliance logs.
• Simulation Exercises: All retail algo users are required to participate in monthly simulation exercises or mock trading sessions.

Impact on Retail Traders

The new framework aims to provide enhanced safety and transparency for retail investors. Retail investors can now trade algorithmically without worrying about "black box" strategies or untested code. Every algo is verified and monitored, reducing risks from faulty or malicious programs. The framework also seeks to create a level playing field and bring institutional-grade benefits to retail participants.

Implementation

Initially slated for April 1, 2025, the implementation of these guidelines was postponed to August 1, 2025, to allow stock exchanges and brokers ample time to adapt to the new standards.