Algorithmic Trading:
The Securities and Exchange Board of India (SEBI) has mandated stock exchanges to empanel algorithmic trading providers and has also defined rules for using application programming interfaces (APIs).
- Algorithmic Trading is a method of executing trading orders by providing a predefined set of rules to a computer program.
- This helps in placing share orders at a speed and frequency not possible for human traders.
- Algo trading is already prevalent in India among both institutional as well as retail investors.
- New Algo Trading Framework by SEBI is aimed at spelling out the rights and responsibilities of the main stakeholders of the trading ecosystem such as investors, brokers, algo providers/vendors and Market Infrastructure Institutions (MIIs) so that the retail investors can avail algo facilities with requisite safeguards.
- Under the framework, retail investors will get access to the approved algos only from the registered brokers.
- The facility of algo trading would be provided by the stock broker only after obtaining requisite permission from the stock exchange for each algo.
- All algo orders shall be tagged with a unique identifier provided by the exchange in order to establish audit trail and the broker shall seek approval from the exchange for any modification or change to the approved algos,”
- Brokers will be solely responsible for handling investor grievances related to algo trading and the monitoring of APIs for prohibited activities.
- Algos will be categorised into two categories:
- White box algos, where logic is disclosed and replicable i.e. execution algos.
- Black box algos, where the logic is not known to the user and is not replicable.
