Key Proposals:Algorithm Approval: Each trading algorithm must receive approval from stock exchanges. Retail investors developing their own algorithms are required to register them with the exchanges.
Order Tagging: Orders executed via algo trading will be tagged with unique identifiers, facilitating traceability and auditability.
Algorithm Classification: Algorithms will be categorized as “white box” (transparent) or “black box” (opaque), with specific rules governing each type.
Risk Mitigation: Exchanges will implement a “kill switch” mechanism to promptly deactivate rogue algorithms, preventing potential market manipulation.
Market Impact:SEBI’s proposal is seen as a move to level the playing field between retail and institutional investors. By granting retail investors access to algo trading, SEBI aims to enhance market participation and liquidity. However, concerns have been raised about the potential risks, especially given the significant losses incurred by retail traders in derivatives trading in recent years.
Industry Reactions:Nithin Kamath, CEO of Zerodha, noted that while the proposal allows retail participation, it mandates brokers to register and monitor algorithms, with exchanges granting approval for their use.
Public Consultation:SEBI has invited public comments on the proposed framework until January 3, 2025, before finalizing the implementation date.
For a more in-depth discussion on SEBI’s proposal, you might find the follow
