New Delhi: Markets regulator Sebi plans to come out with a regulatory framework for algorithmic trading, or algo trading, by retail investors, with a veiw to make such trading safe and free of manipulations.
Any order generated using automated execution logic is generally considered as algo trading.
The algo trading system automatically monitors the live stock prices and initiates an order when the given criteria are met. This frees the trader from having to monitor live stock prices and initiate manual order placement.
The Securities and Exchange Board of India, in a consultation paper on Thursday, proposed framework for retail algo trading, including via application programming interface (API) access and automation of trades.
Currently, exchanges are providing approval for the algo submitted by the broker.
However, for the algos deployed by retail investors using APIs, neither exchanges nor brokers are able to identify if the particular trade emanating from an API link is an algo or a non-algo trade.
"This kind of unregulated/unapproved algos pose a risk to the market and can be misused for systematic market manipulation as well as to lure the retail investors by guaranteeing them higher returns. The potential loss in case of failed algo strategy is huge for retail investor," the Sebi said.
The Sebi suggested that all orders emanating from an API should be treated as an algo order and be subject to control by stock broker and the APIs to carry out algo trading should be tagged with the unique algo ID provided by the stock exchange granting approval for the algo.
A broker needs to take approval of all algos from the exchange. Each algo strategy has to be approved by exchange, it said....