NSE issues compliance standards to regulate algo trading from August

Standards align with Sebi's February norms mandating API rules and registration to close regulatory gaps and protect retail investors in algorithmic trading

The National Stock Exchange (NSE) on Monday released implementation standards for algorithmic (algo) trading, aligning with recent norms framed by the Securities and Exchange Board of India (Sebi) to ensure safer participation for retail traders.

 

The new norms, effective from August 1, were initially set for implementation on April 1 but were postponed to May 1 to allow stock exchanges time to finalise standards.

 

In February, Sebi mandated that algo-trading providers register with stock exchanges and outlined rules for using application programming interfaces (APIs). These regulations aim to close regulatory gaps and strengthen investor protection.

 

Algo trading involves executing trades using pre-programmed instructions based on variables like price movements and volumes, enabling automated buying or selling of securities.

 

The NSE standards allow stock brokers to provide clients with API access to their trading systems. Clients must provide a static IP address, which will be linked to the broker’s systems. Brokers can issue multiple API keys to a single client for different segments or algo strategies.

 

For unregistered APIs, the threshold order per second is set at 10 orders per second. If a client’s algo orders via API fall below this threshold (measured by the broker’s server clock), registration for algo trading is not required.

 

Investors developing their own algos must register with the exchange through their broker if they exceed the 10 orders per second threshold. They may also permit immediate family members to use their algos.

 

Traders exceeding the 10 orders per second threshold must register their algorithms with each exchange where the algo is used. Exchanges will establish a simplified registration and compliance framework to facilitate this process.