SEBI Postpones Operational Standards Release by a Month
The Securities and Exchange Board of India (SEBI) has postponed the release of implementation standards for retail algorithmic (algo) trading by a month, leaving brokers uncertain about the way forward. Initially scheduled for release on April 1, these operational details will now be made public on May 1, according to a circular issued by SEBI.
The delay has caused unease among brokers who were anticipating clarity on the regulatory framework. The lack of implementation standards has left them in limbo, as they are unable to move forward with compliance preparations. Industry insiders say that without these details, brokers are struggling to plan their operations effectively.
SEBI has delayed the release of implementation standards for retail algo trading to May 1.
Brokers remain in limbo due to uncertainty over regulatory compliance.
The delay is causing disruptions in planning and execution for brokerage firms.
Stock Exchanges Requested More Time for Implementation
SEBI’s circular stated that stock exchanges had sought an extension to finalize the standards, citing the need for a smooth rollout without market disruption. The regulator emphasized that the additional time was essential to ensure all market participants, including brokers and investors, could transition seamlessly into the new framework.
Despite the delay in operational details, SEBI confirmed that the overall framework for retail algo trading remains set to take effect from August 1, 2025, as originally planned. Brokers, however, argue that the postponement of implementation standards will compress the timeline for compliance, making it more challenging to adjust to the new regulations.
Stock exchanges requested an extension to finalize the implementation framework.
SEBI aims to ensure a smooth rollout without disruptions to investors and brokers.
The main framework for retail algo trading remains scheduled for August 1 implementation.
SEBI’s Regulatory Push for Retail Algo Trading
SEBI first introduced the regulatory framework for retail algo trading on February 4, following a surge in demand from retail investors engaging in algorithmic trading. The regulator highlighted the need for stricter oversight to ensure market integrity and investor protection, requiring brokers and exchanges to take on a larger role in risk management.
Under the framework, brokers must adhere to standardized checks and balances to prevent excessive risk-taking in retail algo trading. The implementation standards, which are now delayed, were to be formulated by the brokers’ Industry Standards Forum (ISF). These standards are expected to provide clarity on aspects such as risk assessment, algo approvals, and compliance monitoring.
SEBI introduced the retail algo trading framework on February 4 to enhance investor protection.
Brokers and stock exchanges are required to implement risk management protocols.
The delayed standards will clarify compliance requirements and approval processes.
Brokers Struggle with Lack of Clarity on Compliance Measures
Brokers have raised concerns about the specifics of the framework, particularly regarding how algorithms will be reviewed, approved, and monitored. A senior industry insider expressed frustration over the delay, stating that brokers need to understand the approval mechanism, including who will authorize the algorithms and what the associated costs will be.
Market participants are also worried about additional regulatory burdens at a time when they are still adjusting to previous compliance changes. Some brokers are still managing the impact of SEBI’s new index derivatives norms, implemented in October 2024, and the “true-to-label” regulations, which significantly reduced revenues earned through exchange paybacks. The added uncertainty surrounding algo-trading norms has further complicated their operational planning.
Brokers seek clarity on who will approve algorithms and the costs involved.
The industry is still adjusting to previous regulatory changes, adding to their concerns.
Regulatory uncertainty is making it difficult for brokers to plan compliance strategies.
Confusion Over Vendor Empanelment and Compliance
Adding to the confusion, some brokers are considering whether their technology vendors should seek empanelment with stock exchanges, even if they are not directly providing algo services. Certain vendors specialize in designing user experiences for brokers but do not develop algorithms themselves. With the absence of clear guidelines, these vendors remain unsure about whether they fall under the new regulatory framework.
Meanwhile, some brokers are taking proactive steps by consulting with algo vendors to understand potential compliance requirements. They are examining technical specifications and evaluating whether their existing compliance procedures align with SEBI’s upcoming standards. However, without formal implementation guidelines, they are operating in a state of uncertainty.
Brokers are unsure whether all technology vendors need empanelment with exchanges.
Some vendors only provide user experience design but may still fall under regulations.
Brokers are consulting with algo vendors to anticipate compliance requirements.
New Framework Requires Broker and Exchange Approval for Algos
Under SEBI’s framework, if a broker provides algo services through a third-party vendor, the vendor must first be empaneled with the stock exchanges. The exchanges will establish specific criteria for empanelment, and brokers will be responsible for conducting their own due diligence on vendors.
In addition, brokers must secure exchange approval for every algorithm they offer to retail investors. This requirement is intended to enhance risk oversight and prevent the misuse of algorithmic trading strategies that could disrupt market stability. However, brokers worry that this additional layer of approval will slow down their ability to offer algo-based trading products efficiently.
Third-party algo vendors must be empaneled with stock exchanges.
Brokers are responsible for vetting vendors before partnering with them.
Each retail algo must receive separate approval from the stock exchange.
