Securities and Exchange Board of India (SEBI) has confirmed that it will be extending the deadline for its new rules on retail investors’ participation in algorithmic trading. Originally slated to take effect on April 1, 2025, these new regulations will now kick in on August 1, 2025.

The reason for this change comes after stock exchanges requested additional time to properly implement the changes in coordination with the Brokers’ Industry Standards Forum (ISF). SEBI had first introduced these guidelines on February 4, 2025, aiming to regulate how retail investors access and use algo trading.

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Key Provisions of the New Rules:

• Three-Party Structure: Algo trading will now involve a clear relationship between existing stock exchanges, stock brokers, and algo service providers. In this system, brokers will take the lead, with algo providers acting as their agents in the space.
• Unique Order IDs: All orders placed through an algo will receive a unique identifier from stock exchanges. This is intended to help with tracking and oversight.
• Registration for DIY Algos: If retail investors create their own algos and place a high volume of orders, they must register them. Plus, these self-made algos can only be used by immediate family members.
• Algo Provider Registration: Stock exchanges will handle the registration of algo providers. Once approved, brokers can onboard them and will be responsible for managing any complaints .
• Security Requirements: Brokers must enforce two-factor authentication and API controls to keep algo trading safe and secure.
• Algo Categories: SEBI has divided algos into two types: White-Box Algos are fully transparent, easy to regulate, and Black-Box Algos where their internal logic is hidden, so providers must register as research analysts and maintain detailed research records.
   

This new extension in the date aims to give brokers and exchanges more time to get adjusted to the fresh new set of rules, ensuring the transition to these new rules is smooth and well-implemented.

In December 2024, SEBI had earlier proposed allowing retail investors to engage in algo trading, however, they emphasized the need for strict safeguards to protect investors and maintain market stability.

By postponing this deadline, SEBI hopes to strike a balance between fostering innovation in the stock market for retail market participants and ensuring that investor protection remains a priority.