Sebi plans to introduce rules to streamline algo-trading for amateurs

By Ashutosh Joshi 

Indian retail investors may soon be able to use algorithm-driven strategies for stock trading more safely, as the market regulator plans to introduce rules that will improve transparency.  

Under the proposal, stock brokers can offer such a facility to retail investors only after getting each program approved by the stock exchanges, the Securities and Exchange Board of India said in a consultation paper on Friday. The regulator has sought comments from the public by Jan. 3.

 

Algo trading involves the use of automated rules to generate trading signals that trigger buy or sell orders. The move comes barely three months after Sebi introduced a slew of steps to limit equity derivatives trading, particularly in weekly options that had turned out to be a big hit with amateur traders.

 

The latest proposal would ensure that investors have access only to approved algo trading programs, which will safeguard their interests, said  Ajay Garg, chief executive of Mumbai-listed brokerage SMC Global Securities Ltd.

 

Algorithms helped foreign funds and proprietary traders pocket almost $7 billion in gross trading profits in Indian equity derivatives during the fiscal year that ended in March, a Sebi study showed earlier this year. The bulk of the gains came at the expense of individual traders and others, who lost a combined 610 billion rupees dabbling in stock futures and options.

 

The gigantic growth of India’s equity derivative trading and its huge appeal among mom-and-pop investors has been a headache for the country’s government as well as regulators, who have repeatedly cautioned about its ills and sought to curb it.