SEBI vide its Circular dated 02nd September, 2022 came out with certain restrictions for Stock Brokers who provide services relating to algorithmic trading. These restrictions have been made by SEBI in order to prevent acts and instances of mis-selling and to protect the interest of investors in the securities market.
4. SEBI in the circular said that, stock Brokers who provide services relating to algorithmic trading shall not:
- directly or indirectly make any reference to the past or expected future return/performance of the algorithm; and/or
- directly or indirectly associate with any platform providing any reference to the past or expected future return/performance of the algorithm.
- Stock brokers who are directly/indirectly referring to any past or expected future return/performance of an algorithm or are associated with any platform providing such reference, shall remove the same from their website and/or disassociate themselves from the platforms providing such references, as the case may be, within seven days from the date of this circular.
SEBI, came out with this decision after it has come to the notice of the SEBI that some unregulated platforms are offering algorithmic trading services/strategies to investors for automated execution of trades. Such services and strategies are being marketed with “claims” of high returns on investment. Further, “ratings” have been assigned to the strategies, which could lead to investors being lured by such claims. This may amount to mis-selling of such services and strategies to investors.
Further, Stock exchanges are directed to :
- take necessary steps and put in place necessary systems and procedures for implementation of the above provisions;
- make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above provisions;
- bring the provisions of this circular to the notice of stock brokers and disseminate the same on their website;
- monitor compliance of this circular by taking confirmation from stock brokers that they are compliant with clause 4.1 and 4.2 of this circular along with the proof of the same; and shall submit a compliance report to SEBI in this regard within 60 days from the date of this Circular.
The provisions of this circular shall be applicable with immediate effect and to all Recognized Stock exchanges and Stock Brokers through Recognized Stock exchanges.
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