Safer participation of retail investors in Algorithmic trading
Summary
This circular establishes a regulatory framework to facilitate safer participation of retail investors in algorithmic trading through stock brokers. It defines the roles and responsibilities of brokers, exchanges, and algo providers while mandating specific technical safeguards like API tagging and authentication. The provisions outline empanelment criteria for algo providers, categorization of algos, and an implementation schedule effective from August 1, 2025.
Text
In order to facilitate safer participation of retail investors in algo trading... it has been decided to review and refine the existing regulatory framework to ensure proper checks and balances, to safeguard investor interest as well as integrity of the market.
For the purpose of provision of algo trading through APIs, brokers shall be the principal while any algo provider or fintech/vendor (hereinafter referred to as “Algo Provider”) shall act as its agent, while using the API provided by the broker.
All algo orders originating/flowing through Application Programming Interface (API) extended by brokers to algo providers, shall be tagged with a unique identifier provided by Stock Exchange.
Algos developed by tech-savvy retail investors themselves... shall also be registered with the Exchange, through their broker, only if they cross the specified order per second threshold... permitted to be used by such retail investors for their family (but not for other investors).
Brokers shall: ensure that they have systems and procedures in place to detect/identify and categorize all orders above the specified threshold as algo orders;
not permit open APIs and allow access only through a unique vendor client specific API key and static IP whitelisted by the broker to ensure identification and traceability of the algo provider and the end user (i.e. investor);
have OAuth (Open Authentication) based authentication only and all other authentication mechanisms shall be discontinued;
authenticate access to API through two factor authentication;
deal with empaneled algo providers only and handle all related complaints, as such algo providers are agents of such broker.
The facility of algo trading shall be provided by the broker only after obtaining requisite permission of the stock exchange for each algo.
the broker shall seek approval from the Exchange for any modification or change to the approved algos.
Brokers shall be solely responsible for handling investor grievances related to algo trading and the monitoring of APIs for prohibited activities.
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Source: SecMarx — Safer participation of retail investors in Algorithmic trading. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.