Algo Trade Regulations May Include Retail Investors in India
SEBI broadly defines algorithmic trade as a system where the machine tracks prices and initiates trades.
(Bloomberg) -- India’s capital markets regulator proposed to extend oversight of algorithmic trading to retail investors, a move that may impact dozens of low-cost fintech-based brokerages that are adding millions of new clients.
The Securities and Exchange Board of India broadly defines algorithmic trade as a system where the machine tracks prices and initiates trades. Under the proposals, brokerages need stock exchange approval for each of their algos and any derived trade must be tagged with a unique ID provided by the bourse.
The brokerages’ servers will have to host the algo, and primary responsibility for redressal would rest with the broker, Sebi proposed in a consultation paper Thursday. It invited public comments through Jan. 15.
The impact of the move could be two-fold: First, it may increase compliance costs for Robinhood-type brokerages that are seeing an influx of new clients because they offer cheap trading based on machine-generated strategies. Second, it will allow traditional brokerages to offer algorithmic services to their retail clients, as opposed to only hedge funds and other institutions that are covered by regulations so far, according to Deven Choksey, chief executive officer at brokerage K.R. Choksey.
“While Sebi’s intention is right, its decision to consider all API-based trades as algos can be bad for the entire ecosystem” and stifle innovation, said Nikhil Kamath, co-founder of India’s largest retail brokerage Zerodha. Instead, the regulator should impose oversight on unregulated algo writing platform by classifying them as investment advisers, he added.
About 0.5% of Zerodha’s overall business uses API, Kamath said.
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