What Zerodha's Nithin Kamath has to say about Sebi's push for retail algo trading
Sebi has proposed allowing retail investors to participate in algorithmic trading. This would require brokers to register and monitor algos, says Zerodha's Nithin Kamath, adding that exchanges would also need to grant approval for their use.
By Akash Podishetti, ETMarkets.com |
ETMarkets.com
India's markets regulator Sebi recently proposed a framework to allow retail investors to participate in algorithmic trading through stock brokers.
Zerodha's Nithin Kamath said that it should be okay for savvy traders using APIs for individual trading with some reasonable order limits. However, the APIs have to be accessed through only static IPs.
"But platforms that offer algos or readymade strategies will need to get them approved through the broker. The broker, in turn, has to register all algos and strategies with the exchanges," he said.
"The broker also has to ensure that customers are following the same strategies that were registered. That means brokers will have to build and offer the infrastructure for people to run their algos and ensure compliance," Kamath noted.
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In 2008, Sebi had introduced algorithmic trading which provided facilities like faster order execution, reduced transaction costs and greater transparency. However, algo trading was permitted only for institutional investors.
Sebi said that there has been an increasing demand for algo trading by retail investors, and thus the need to review the framework to safeguard investor interest and maintain integrity of the market.
The regulator has proposed that stock exchanges will need to grant approval for each algo that will be used by retail investors. Moreover, all such orders will need to be tagged with a unique identifier for transparency in audit processes.
Further, algos developed by "tech-savvy" retail investors will need to be registered with exchanges. Exchanges will be responsible for supervising algorithmic trading for retail investors, including defining the roles and responsibilities of brokers.
Zerodha's Nithin Kamath said that it should be okay for savvy traders using APIs for individual trading with some reasonable order limits. However, the APIs have to be accessed through only static IPs.
"But platforms that offer algos or readymade strategies will need to get them approved through the broker. The broker, in turn, has to register all algos and strategies with the exchanges," he said.
"The broker also has to ensure that customers are following the same strategies that were registered. That means brokers will have to build and offer the infrastructure for people to run their algos and ensure compliance," Kamath noted.
Year-ender 2024: Looking back at defining moments in SME IPO market & the way forward for 2025
In 2008, Sebi had introduced algorithmic trading which provided facilities like faster order execution, reduced transaction costs and greater transparency. However, algo trading was permitted only for institutional investors.
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A study published by the regulator earlier this September showed that during fiscal year 2024, algorithmic trading accounted for 97% of foreign investors' and 96% of proprietary traders' profits in futures and options.Sebi said that there has been an increasing demand for algo trading by retail investors, and thus the need to review the framework to safeguard investor interest and maintain integrity of the market.
The regulator has proposed that stock exchanges will need to grant approval for each algo that will be used by retail investors. Moreover, all such orders will need to be tagged with a unique identifier for transparency in audit processes.
Further, algos developed by "tech-savvy" retail investors will need to be registered with exchanges. Exchanges will be responsible for supervising algorithmic trading for retail investors, including defining the roles and responsibilities of brokers.
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The regulator has sought comments from the public before it finalises a date of implementation of its proposals.Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
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