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SEBI/HO/MIRSD/MIRSD -PoD/P/CIR/2025/0000013

rules · 1992 · State unknown

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Parent: THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 (7c4c1f5343adab106c3a94cafc08a5ecf5957ae7)

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CIRCULAR SEBI/HO/MIRSD/MIRSD -PoD/P/CIR/2025/0000013 To, All Recognized Stock Exchanges Stock Brokers through Recognized Stock Exchanges Dear Sir/Madam, Subject: Safer participation of retail investors in Algorithmic trading SEBI , vide circular no. CIR/MRD/DP/09/2012 dated March 30, 2012, provided broad guidelines on Algorithmic Trading ( " Algo" orders generated using automated execution logic). Thereafter, SEBI has introduced measures to strengthen controls around Algorithmic Trading. Algo trading provides significant advantages of timed and programmed order execution. At present, there are mechanisms such as Direct Market Access Facility , which enable institutional investors to trade through Algorithms. There has been an increasing demand for algo trading by retail investors. In order to facilitate safer participation of retail investors in algo trading, with Stock Brokers (hereinafter referred to as "Brokers") and Stock Exchanges (hereinafter referred to as "Exchanges") playing the required roles in risk management, 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. The regulatory environment envisaged is aimed at spelling out the rights and responsibilities of the main stakeholders of the trading ecosystem i.e. investors, February 4 , 2025 brokers, algo providers/vendors and Market Infrastructure Institutions (MIIs), so that the retail investors are enabled to avail algo facilities with requisite safeguards. SEBI had issued a discussion paper dated December 09, 2021 on " Algorithmic Trading by Retail Investors", on the use of API access and automation of trades using the same. Further, SEBI had extensive discussions with the Exchanges,

Rule TOC

1 · An API (Application Programming Interface) is a set of rules and protocols that allows different software applications to communicate and exchange data with each other.
2 · Specified threshold for categorization as an Algo shall be evolved by the Broker's Industry Standards Forum, under the aegis of the stock exchanges and in consultation with SEBI.
3 · A secure authorization framework that allows third -party applications to access user data without requiring users to share their login credentials or other sensitive information.
4 · The kill switch is an emergency function and the last level of defence against any Algorithm malfunction. It is expected to automatically trigger a halt on trading activity based on pre-defined conditions.
5 · Execution Algos or White Box Algos are automated trading strategies/systems that execute orders based on fully transparent Algorithms, where the logic, decision making processes and underlying rules are accessible and understandable to users.
6 · Black box Algos are Algos where the user cannot see the internal workings and rationale of the Algo or an Algo where the logic is not known to the user and is not replicable.
7 · Schedule of Implementation:
10 · This circular is available on SEBI website at www.sebi.gov.in under the category: 'Legal → Circulars'.