Algo trading should be segregated in a separate account with only risk capital deployed.
Capital markets regulator Sebi on Tuesday granted additional time to stock brokers for the full rollout of the retail algo trading framework by April next year, allowing a phased implementation to ensure a smooth transition to the new system.
Many enter this arena without a detailed understanding of how their algo works.' 'Diligently review information on the strategy, risk profile, potential losses, and expected gains before investing.'
Brokers will be required to reveal statistics such as trade-to-order ratio of the algo during a period as well as details of any changes made to the core programme.
Markets regulator Sebi's proposal of treating all orders emanating from application programming interface (API) as algorithmic or algo order can restrict the growth of such trading in India, brokerage houses said on Monday. In market parlance, algo trading refers to any order that is generated using automated execution logic. The algo trading system automatically monitors the live stock prices and initiates an order when the given criteria are met.
The rise of algorithmic and high-frequency trading brings efficiency but also demands robust risk controls, real-time monitoring and compliance safeguards, Securities and Exchange Board of India Chairman Tuhin Kanta Pandey told the Morningstar Investment Conference India 2025.
'Begin with a small investment, observe performance, then scale up gradually.'
Amid heated debate on algorithm based trades, ace investor Rakesh Jhunjhunwala today backed this form of trading, and questioned the need to regulate it.
Market regulator is trying to build a large team of software experts for efficient monitoring and surveillance
'There has been a spurt of algo platforms, and algo developers, which are neither empaneled nor regulated, but are still active in the ecosystem.'
Sebi chairperson Madhabi Puri Buch on Wednesday said any business on the 'black box' model that cannot be audited or validated will not be permitted. She also said since data is a public infrastructure, any attempt by any private party to own them cannot be tolerated. "We are not for or against algo trading as long as there is sufficient transparency and disclosures.
Capital markets regulator Sebi on Thursday imposed penalties totalling Rs 11 crore on 8 entities, including National Stock Exchange (NSE) and its former chiefs Chitra Ramkrishna and Ravi Narain, in a case pertaining to software related to algorithmic trading. The regulator has levied a fine of Rs 1 crore each on NSE, Ramkrishna and Narain. Also, a fine of Rs 1 crore has been imposed on Suprabhat Lal, who was a NSE official at the time of violation.
The exchanges have also revised the instances which will be considered a technical glitch excluding instances where the broker is not at fault.
A little over 80 per cent of the orders placed on domestic stock markets are generated by algorithms. Samie Modak reports on the whats and whys of algos.
Because they have become too big and pervasive and the time to regulate is long gone, points out Debashis Basu.
Stocks of brokerages and market infrastructure institutions (MIIs) witnessed selling pressure after the Securities and Exchange Board of India's (Sebi's) crackdown on proprietary trading firm Jane Street. The weakness was attributed to concerns that debarment of the US firm - a prominent player in the futures and options (F&O) segment - will lead to a further decline in volumes, which are already down over 30 per cent from the peak.
Co-location may well have a majority share of futures and options (F&O) trading in 2023-24 once again. It accounted for 50.53 per cent of the National Stock Exchange (NSE) derivatives trading turnover in February, higher than the 50.1 per cent share seen in 2022-23 (FY23). The share on the BSE was higher though February numbers showed a dip relative to the previous year.
'Sebi's measures are necessary to align the derivatives market with its underlying cash market, as the current disconnect is unsustainable.'
Leading stock exchange BSE has decided to discontinue Stop Loss Market (SL-M) orders from October 9 to prevent erroneous order placement arising out of manual or algo trades. This came after a recent freak trade incident caused a lot of angst among the trading community earlier this month due to an SL-M order. SL-M is a type of order that automatically sells or buys a security at the market price when the trigger price is reached.
Share of volumes through computer-generated algorithmic orders rising fast, but smaller players still trying to catch up in technology stakes.
Before framing regulations to curb 'misleading' messages and stock recommendations by finfluencers (a portmanteau of the phrase 'financial influencers'), the market regulator plans to put in place some 'building blocks' to ensure smooth enforcement. Madhabi Puri Buch, chairperson of Securities and Exchange Board of India (Sebi), is of the view that the 'traditional approach may not work' to rein in finfluencers. "There are many interlinked pieces in our regulations - investment advisor regulations, research analyst regulations, the fact that we don't have algorithmic (algo)-related regulations, what brokers are permitted to do, and what is incidental advice.
'This is also a time when you realise that short-term trading and dabbling in derivatives may result in financial losses.'
An analysis by the Securities and Exchange Board of India (Sebi) has revealed that retail traders remain at the wrong end of the stick when it comes to equity derivatives trading. About 93 per cent of them incurred an average loss of Rs 2 lakh (per trader) during the last three financial years. The new report highlights an increase in the loss-making individual investors in futures and options (F&O) to 91.1 per cent in FY24 compared to 89 per cent in FY22.
BSE (formerly Bombay Stock Exchange) has seen its market share go past the critical 20 per cent mark in the derivatives segment, intensifying its battle with bigger rival - the National Stock Exchange (NSE) - which, less than a year ago, had a monopoly in this space. In April, the average daily trading volume (ADTV) for BSE stood at Rs 89 trillion, accounting for 20.6 per cent of the overall ADTV of Rs 432 trillion (based on notional volumes for options).
BSE's fresh shot at cracking the derivatives market is off to a promising start. However, Asia's oldest bourse is facing resistance from brokerages with nearly 10 large brokers yet to offer the relaunched Sensex and Bankex derivatives on their platforms. Many brokers maintain that they are working on the back end to enable BSE derivatives on their apps and websites. Some said while volumes are picking up, they are still miniscule compared to bigger rival NSE, which is the most-preferred venue for derivatives trading. Only a few brokers responded to formal queries sent by Business Standard on the issue of allowing BSE derivatives on their platform.
'Subject to any worldwide economic collapse.'
Lack of closure to the algo controversy could weigh on sentiment, say experts
The volume of shares traded in the stock market had fallen 28 per cent in April. Turnover, or the value of securities changing hands, fell 12.6 per cent. This trend of falling volumes seems to have stabilised in May.
New inventions allow Tencent Holdings' WeChat users to book taxis, top up phone credit, while Clone Algo's YAY App users are able to talk and chat free besides being able to apply for online for micro loans and use Clone Algo trading algorithms.
In the high profile co-location case, markets regulator Sebi on Wednesday imposed a penalty of Rs 1 crore on the NSE for failing to provide a level-playing field for trading members subscribing to its tick-by-tick (TBT) data feed system. In addition, the regulator levied a fine of Rs 25 lakh each on NSE's former managing directors and chief executive officers Chitra Ramakrishna and Ravi Narain. Alleged lapses in high-frequency trading offered through NSE's co-location facility came under the scanner of the watchdog after a complaint was filed in 2015.
As a multi-agency probe into the NSE case gathers pace, the grant of preferential server and data access to select brokers and their suspected misuse are being investigated threadbare to unveil all quid pro quo arrangements in a highly-sophisticated scheme that worked like a cricket betting scandal, officials said on Monday. While the bourse has said it has taken several steps over the years to strengthen its technology infrastructure, including as per regulatory orders, the officials said certain fresh disclosures call for a detailed probe into whether a select group of individuals in high positions had banded together to make illicit gains by facilitating the preferential trading slots, beginning over a decade ago. Even a split-second faster access is said to result in huge gains for a trader.
A sharp fall in the price of Bitcoin and other cryptocurrencies is another hard blow to the already sinking cryptocurrency market in India. Global and domestic prices have been on a downward trail since November last year when Bitcoin prices hit a peak of close to $68,000 in international markets. The recent past has seen a much sharper fall in the price of the leading cryptocurrency, Bitcoin.
The Securities and Exchange Board of India (Sebi) is working on a new payment system for the secondary market, which could prevent brokers from accessing their client funds. It will be on the lines of the Application Supported by Blocked Amount (ASBA) process used for subscribing to initial public offerings (IPOs), where funds move out of an investor's bank account only after the trade is confirmed. Sebi chairperson Madhabi Puri Buch on Wednesday said that despite the challenges, the new system would be ready in a few months.
The National Stock Exchange (NSE) on Monday asked investors not to put their money in guaranteed returns investment schemes offered by three individuals. The advisory came after the exchange found that the three individuals -- Veena (associated with Algo Master), Ankita Mishra and Vishal -- were offering such schemes. In a statement, the bourse said that these persons are not registered either as members or authorised persons with any registered member of the NSE.
COVID-19 forced people to work from home turned into the fuel for new demat accounts, observes Debashis Basu.
To become an algorithmic trader, you need three things: Knowledge of financial markets, quantitative skills, and coding skills, suggests Nitesh Khandelwal.
The National Stock Exchange (NSE) has withdrawn its decision to change the expiry day for Bank Nifty derivatives contracts from Thursday to Friday. The move follows a "request" from the BSE, which settles its Sensex and Bankex derivatives contracts on Friday. The proposed change in Bank Nifty settlement was scheduled to be effective from July 6 with the first weekly expiry on July 14.
U K Sinha's six-year tenure as chairman of Securities and Exchange Board of India ends later this week. Sinha held his last press conference in Mumbai on Monday, where he spoke on wide-ranging issues and his biggest regret.
'The stockbroker should have a good balance sheet to support its scale of operations. It should also have proper risk management in terms of margins so that it doesn't go bankrupt during extreme market movements.' 'The broker must have a track record of navigating several market cycles in an ethical and transparent manner.'
The BSE and the NSE have also been asked to provide inputs.
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