Synopsis
The SEBI has announced a new deadline of August 1 for implementing regulations on retail investors' algo trading, extending the previous deadline due to requests from stock exchanges for more time to comply with the new standards.Key Takeaways
- SEBI extends algo trading regulations deadline.
- New rules effective from August 1.
- Three-party relationship: stock exchanges, brokers, algo providers.
- Registration required for retail investors' algorithms.
- Two types of algorithms: white-box and black-box.
Mumbai, April 1 (NationPress) The Securities and Exchange Board of India (SEBI) announced on Tuesday that it has postponed the deadline for the implementation of new regulations concerning retail investors' participation in algorithmic (algo) trading.
The revised rules, originally scheduled to take effect on April 1, will now be enforced on August 1.
This extension was granted following requests from stock exchanges, which sought additional time to comprehensively implement the new guidelines in collaboration with the Brokers’ Industry Standards Forum (ISF).
These guidelines were initially introduced on February 4 to regulate the accessibility and usage of algo trading for retail investors.
According to the new regulations, a three-party arrangement will be established involving stock exchanges, brokers, and algo providers.
Brokers will serve as the principal entity, whereas algo providers will operate as their agents. Stock exchanges will allocate a unique identifier to every order executed through these algorithms for tracking and management purposes.
Retail investors utilizing their own algorithms will be mandated to register those algorithms if they surpass a specified number of orders. However, they will only be allowed to permit immediate family members to use the algorithm.
Stock exchanges, which will not be regulated directly by SEBI in this framework, will hold the responsibility for registering algo providers.
Once registered, these providers can be integrated by brokers, who will also bear the responsibility for addressing any complaints related to algo trading.
Furthermore, brokers are required to implement two-factor authentication and API controls for algo providers.
SEBI has categorized algorithms into two types: white-box and black-box. White-box algorithms, characterized by their transparent logic, will be simpler to regulate.
Conversely, black-box algorithms, which conceal their logic, will necessitate that providers register as research analysts and maintain comprehensive research reports.
In addition, last week, the market regulator also extended the deadline for mutual funds and portfolio managers to submit their off-site inspection data.
This decision is anticipated to offer greater flexibility to fund houses and portfolio managers while ensuring adherence to regulatory standards.
