Retail traders using broker APIs for automated trades now have new regulations to consider. The market regulator SEBI has rolled out a framework to regulate retail participation in algorithmic trading.
Zerodha co-founder Nithin Kamath took to X, formerly Twitter to break down the key points of the new regulations for traders relying on broker APIs to automate their trades.
In his post, Kamath highlighted some of the core aspects of SEBI’s announcement in his tweet.
“If you’re a retail trader using broker APIs to automate trades, you can do so as long as your order frequency is below an exchange-prescribed threshold. This limit is yet to be decided,” said Kamath in his post.
According to him, individual traders can continue using automation, but their trade volume must remain within a limit yet to be specified by the exchanges.
Furthermore, he added that anyone looking to monetise their trading algorithms must now undergo regulatory scrutiny, ensuring that retail investors are not misled by unverified or misleading strategies.
“If you’re selling algos or strategies to other traders, you’ll need to partner with a broker and get yourself registered with the exchanges to do so,” he added.
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The new rules also extend to marketplaces that facilitate the sharing of trading strategies for a fee. He added, “Marketplaces where people share algos for a fee can’t publish strategies without exchange registration as well as an RA license.”
SEBI has set April 1 as the deadline for exchanges to release operational details.
What is algo trading?
Algorithmic trading, or algo trading, allows traders to program computers to execute trades automatically based on pre-set conditions. This method, often used by institutions, has now become more accessible to retail traders, prompting the market capital regulator SEBI to introduce new regulations to ensure fair practices.
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