SEBI Introduces Framework Allowing Retail Investors Access to Algo Trading from August 1, 2025.
Banking & Finance
In February 2025, the Securities and Exchange Board of India (SEBI) introduced a comprehensive framework to regulate algorithmic (algo) trading for retail investors. Under this new framework, retail investors will gain access to SEBI's Direct Market Access (DMA) facility through registered brokers, a privilege previously limited to institutional players.
- The Brokers' Industry Standards Forum has been assigned the responsibility of formulating detailed implementation standards by April 1, 2025, with the new regulations scheduled to take effect from August 1, 2025.
- Brokers must obtain stock exchange approval for each algorithm offered to retail investors. Any modifications to approved algorithms also require prior consent from the exchange.
- All algo orders must carry a unique identifier assigned by the exchange to ensure a clear audit trail and enhance transparency in trading activities.
Main Point :- (i) Tech-savvy retail investors who develop their own trading algorithms must register them with exchanges through their brokers if their trading activity surpasses a specified order-per-second threshold. These algorithms can only be used for personal accounts, including those of immediate family members.
(ii) Stock exchanges must establish SOPs for testing, monitoring, and simulating algo trading. A "kill switch" mechanism must be implemented to disable specific algos in case of irregularities. Brokers must ensure a clear distinction between algo and non-algo orders.
(iii) To prevent excessive risk-taking and market manipulation, exchanges will impose limits on order frequency and leverage, require backtesting environments to validate algo strategies, enforce stricter oversight on brokers offering algo platforms, and implement technical compliance measures such as audit trails, real-time monitoring, and circuit breakers.
About SEBI
Chairperson : Madhabi Puri Buch
Headquarters : Mumbai
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