Securities and Exchange Board of India (SEBI) issued a circular aimed at enabling safer participation of retail investors in Algorithmic Trading (Algo trading).
The regulatory framework aims to create a balance between opportunity and risk. While Algo trading offers retail investors new avenues to participate more effectively in the market, it also comes with certain risks, such as the possibility of automated trading strategies making erratic moves in volatile market conditions. By introducing a regulated environment and ensuring active monitoring of trades, SEBI’s measures aim to provide a safer space for retail investors.
This framework is part of SEBI’s larger vision to enhance the market infrastructure, increase investor participation, and foster trust in the Indian capital markets. By establishing clear roles for brokers, Algo providers, and exchanges, the framework will help ensure that algorithmic tools are used responsibly, benefiting the broader ecosystem without compromising market fairness.
Categorization of Algos
Algos shall be categorized into two categories:
i. Algos where logic is disclosed and replicable i.e. Execution Algos or White box Algos;
ii. Algos where the logic is not known to the user and is not replicable, i.e. Black box Algos
The provisions of this circular shall be applicable with effect from August 01, 2025.
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