Two methods are put out by SEBI to control API-based algo trading

Two methods are put out by SEBI to control API-based algo trading

Sebi

Speakers from stock brokers, algo providers, and Market Infrastructure Institutions (MIIs) gathered in a meeting chaired by SEBI Chairman Madhabi Puri Buch to talk about a range of algorithmic trading-related topics.

Sources claim that SEBI intends to move quickly on this and release a circular before the end of March.

To control API-based algorithmic trading, the Securities and Exchange Board of India (SEBI) has put up two models with a variety of rules. Prominent algorithm trader and strategy supplier Dharmik Thakkar informed Moneycontrol that he was among those who met with SEBI's top management to talk about these guidelines.

The conference, which was presided over by SEBI Chairman Madhabi Puri Buch, included officials from stock brokers, algo providers, and market infrastructure institutions (MIIs). The discussion covered a range of topics related to algorithmic trading.

Thakkar claims that SEBI intends to move quickly on this and release a circular by the end of March.

Also read this What is Algo Trading and the rationale for SEBI's need to control retail investor activity in this area are explained.

Stock brokers will need to get clearance for their algo platform under the first model, just as for other platforms. Additionally, brokers are solely accountable for their algorithms, which includes, but is not limited to, data security and cyber security.

The second model calls for regulation of algo platforms and allows strategy suppliers to provide only historical performance that has been validated by the Performance Verification Agency (PVA) or the precise strategy that will be implemented via the API. Are.

All open APIs where the broker is unaware of the client's use would be blocked as soon as SEBI implements rules on algorithm trading.being completed, will be closed right away. The broker will always need to be aware of the order's origins under the proposed regulations.

If the client is fully aware of the strategy, the execution algorithm will be permitted. Customers must understand exactly what is happening with the algorithms. All customers should be able to grasp this information more easily if it is provided in plain English.

The National Stock Exchange has also been instructed by SEBI to build a special team to serve as a PVA, and the NSE has also established a committee to assist the securities regulator on standards and methods for assessing an algorithm's performance. Will provide a proposal. Provider of Strategies.

Additionally, unless PVA verifies the technique, SEBI has instructed all vendors of algo strategies to cease displaying test results or historical performance. Since SEBI has not yet made a judgment on the matter, this PVA team may be from the exchange or it may be a third party.

In the meanwhile, algo strategy providers will also be provided with examples, and passing this test will be required for individuals who want to offer algo services to customers. Before the end of June, it is anticipated that a circular on this subject will be released, together with information on the PVA, test syllabus, and verification procedure.

Since many ordinary investors engage in algo trading, it is anticipated that an algo strategy provider's minimum ticket size would be Rs 5 lakh rather than Rs 50 lakh in PMS.