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Algo Trading Expected to be Further Regulated by SEBI

March 4, 2024
Reading Time: 2 minutes

In recent developments, the Securities and Exchange Board of India (SEBI) is reportedly taking significant steps to tighten the regulatory framework around algorithmic trading and the use of Application Programming Interfaces (APIs) in the stock market. These measures aim to enhance transparency, security, and accountability in algo trading practices, which have seen a surge in popularity among retail and institutional investors alike. 

SEBI’s Regulatory Overhaul on Algo Trading

Algo trading, which involves the use of automated, pre-programmed trading instructions to execute orders, has been under the regulatory scanner due to concerns over market fairness and integrity. It is reported that SEBI may soon require algo platforms and strategy providers to register in a manner similar to investment advisers or research analysts. This move could mandate algo strategy providers to pass an exam and have their returns claims validated by a Performance Validation Agency (PVA).

Furthermore, SEBI is contemplating making it mandatory for brokers to obtain approvals for algo strategies used by their clients. This step is aimed at ensuring that the algo strategies deployed in the market are scrutinized and approved, thereby minimizing the risks of market manipulation or unfair trading practices.

Two Models for API-based Algo Trading Regulation

SEBI is considering two distinct models to regulate API-based algo trading. The first model requires stock brokers to secure approval for their algo platforms, akin to other trading platforms, and take full responsibility for their algos, including cybersecurity and data security aspects. The second model proposes that algo platforms be regulated, allowing strategy providers to either share their exact strategies executed via APIs or their past performance, provided it has been verified by a PVA.

These proposed models underscore SEBI’s intent to clamp down on the unregulated use of open APIs, which have been a grey area in terms of regulatory oversight. By ensuring that brokers are fully aware of where and how their APIs are being used, SEBI aims to curb unauthorized or potentially harmful trading activities.

Implications for Market Participants

The regulatory changes under consideration by SEBI could have far-reaching implications for all market participants involved in algo trading. For algo platforms and strategy providers, the requirement to register and comply with new regulations could introduce additional compliances. However, these measures are also likely to enhance the credibility and reliability of algo trading services, benefiting both providers and their clients. This shall also reduce misselling of algo performances by various algo providers.

Retail traders, who have increasingly adopted algo trading for its efficiency and effectiveness, may find these changes reassuring. By ensuring that the algo strategies they use are vetted and approved, traders can have greater confidence in the integrity of their trading activities.

Summing Up

SEBI’s proposed tightening of rules around algo trading and API usage represents a significant step towards ensuring a more secure, transparent, and fair trading environment. While these changes may pose challenges for some market participants, they are ultimately aimed at protecting investor interests and maintaining market integrity.

As the SEBI moves forward with these regulatory changes, the market awaits the final circular expected in March, which will provide further clarity on the implementation of these new rules. 

With the right balance between innovation and regulation, uTrade Algos aspires to provide a dynamic and secure algo trading platform for retail investors and traders.

Frequently Asked Questions

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uTrade Algo’s proprietary features—advanced strategy form, one of the fastest algorithmic trading backtesting engines, and pre-made strategies—help you level up your derivatives trading experience

The dashboard is a summarised view of how well your portfolios are doing, with fields such as Total P&L, Margin Available, Actively Traded Underlyings, Portfolio Name, and Respective Underlyings, etc. Use it to quickly gauge your algo trading strategy performance.

You can sign up with uTrade Algos and start using our algo trading software instantly. Please make sure to connect your Share India trading account with us as it’s essential for you to be able to trade in the live markets. Watch our explainer series to get started with your account.

While algo trading has been in use for decades now for a variety of purposes, its presence has been mainly limited to big institutions. With uTrade Algos you get institutional grade features at a marginal cost so that everyone can experience the power of algos and trade like a pro.

On uTrade Algos, beginners can start by subscribing to pre-built algos by industry experts, called uTrade Originals. The more advanced traders can create their own algo-enabled portfolios, with our no-code and easy-to-use order form, equipped with tons of features such as robust risk management, pre-made algorithmic trading strategy templates, payoff graphs, options chain, and a lot more.

From single-leg strategies to complex portfolios, with upto five strategies, each strategy having up to six legs, uTrade Algos gives one enough freedom to create almost any auto trading strategy one likes. What’s more, is that there are pre-built algos by industry experts for complete beginners and pre-made strategy templates for those who want to try their hand at strategy creation.

An interesting feature that uTrade Algos is bringing to the table is a set of pre-built algorithms curated by top-ranking industry experts who have seen the financial markets inside out. These algorithms, called uTrade Originals, will be available for subscribers on the platform.

Algos have the capability to fire orders to the exchange in milliseconds, a speed which is impossible in manual trading. That is why traders leverage the power of algo trading to make their efforts more streamlined and efficient. You can try uTrade Algos for free for 7 days!

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Knowledge Centre & Stories of Success

We're thrilled to announce a significant milestone at uTrade Algos – the launch of our cutting-edge mobile application, now available for both Android and iOS users! Our mission has always been to empower retail intraday traders with advanced, user-friendly trading tools, and with this new development, we're taking a giant leap forward.

In the fast-paced world of financial trading, effective risk management is crucial for success. One powerful tool that traders rely on to mitigate risk is an integrated margin calculator. By seamlessly incorporating margin calculations into trading platforms, such as algo trading on platforms like uTrade Algos, these tools offer significant advantages for risk management. Let's explore three key ways in which an integrated margin calculator enhances risk management.

In the world of finance and trading, be it automated trading, or otherwise, margin calculations play a crucial role. They determine the amount of funds required to open and maintain positions in financial markets. With the advent of technology, integrated margin calculators have become indispensable tools for traders. These calculators help traders assess risks and make informed decisions about their trades. However, even with these sophisticated tools at hand, traders often make mistakes that can lead to significant losses, including those algo trading in India. In this blog, we'll explore seven common mistakes to avoid when using an integrated margin calculator.

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