Mumbai, April 1
The Securities and Exchange Board of India (SEBI) on Tuesday said that it has extended the deadline for implementing new regulations governing retail investors' entry into algorithmic (algo) trading.
The new rules, which were initially set to take effect on April 1, will now come into force on August 1.
This extension follows requests from stock exchanges, who asked for more time to fully implement the new standards in consultation with the Brokers’ Industry Standards Forum (ISF).
The SEBI had first introduced these guidelines on February 4, aiming to regulate how retail investors can access and use algo trading.
Under the new rules, there will be a three-party relationship involving stock exchanges, brokers, and algo providers.
Brokers will act as the principal, while algo providers will function as their agents. Stock exchanges will assign a unique identifier to all orders placed through these algos to track and manage them.
For retail investors using their own algos, the new regulations will require them to register their algorithms if they exceed a certain number of orders. However, they will only be permitted to let immediate family members use the algo.
The stock exchanges, which will not be directly regulated by the SEBI in this system, will be responsible for registering the algo providers.
Once registered, these providers can be onboarded by brokers, who will also be accountable for handling any complaints related to algo trading.
Additionally, brokers must implement two-factor authentication and API controls for the algo providers.
SEBI has classified algos into two categories: white-box and black-box. White-box algos, which are transparent in their logic, will be easier to regulate.
On the other hand, black-box algos, where the logic is hidden, will require providers to register as research analysts and keep detailed research reports.
Meanwhile, last week, the market regulator extended the deadline for mutual funds and portfolio managers to submit their off-site inspection data.
This move is expected to provide more flexibility to fund houses and portfolio managers while ensuring regulatory compliance.