SEBI tightens algorithm trading rules to protect retail investors, requiring registration and supervision of providers by stock exchanges.

As the regulator tightens rules, experts say it will increase compliance burden and operational costs for algo traders

Under the new guidelines, Sebi facilitated the participation of retail investors in algorithmic trading (algo trading). At present, only institutional investors are allowed to put in algo trading, which provides significant advantages of timed and programmed order execution.

The Securities and Exchange Board of India (SEBI) has paved the way for retail investors to participate in algorithmic trading (algo trading), offering faster order execution and enhanced market liquidity.

Brokers can provide algo trading facility to retail investors only after obtaining requisite permission from stock exchanges for each algorithm, SEBI said in a circular

A 2-factor authentication of API has been made mandatory for all brokers. Retail investor can now work only with vendors empanelled by the exchange.

Algo trading refers to orders generated using automated execution logic. Such trading provides significant advantages of timed and programmed order execution.

The regulations also stipulate that retail investors who develop their own algorithms must register them once they exceed a certain rate of orders per second. SEBI's actions are designed to enhance the monitoring of algo trading activities and safeguard retail participants in the market.