New Delhi [India], December 13 : Markets regulator SEBI put out a draft circular on Friday, inviting comments from the public on its proposal to allow retail investors to participate in algorithmic (algo) trading.
Algo trading provides significant advantages of timed and programmed order execution.
According to the Securities and Exchange Board of India, these provisions are expected to fill in the void for retail investors who want to trade using algos with adequate safeguards.
To enhance market efficiency and transparency, SEBI introduced algo trading through Direct Market Access (DMA) Facility, which provided significant advantages such as faster order execution. However, access to these facilities was limited to institutional investors.
With its benefits, algo trading also requires intermediaries and Market Infrastructure Institutions (MIIs) to have better market surveillance, risk management, and investor protection. SEBI said it has been proactively regulating this domain since 2012.
The evolving nature of algo trading, particularly with the increasing demand for algo trading by retail investors, has necessitated a further review and refinement of the regulatory framework so that retail investors are able to participate in algo trading with proper checks and balances.
Accordingly, SEBI has undertaken extensive consultations with relevant stakeholders, to extend the existing regulatory framework, with additional safeguards, to facilitate participation of retail investors.
Algos typically can be categorized into two categories: Algos where logic is disclosed and replicable; Algos where the logic is not known to the user and is not replicable.
The comments or suggestions should be submitted latest by January 03, 2025, by the public.
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