Sebi scrutinises brokers linked to algo trading with guaranteed returns

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The Securities and Exchange Board of India (Sebi) has turned its focus on several brokers whose clients utilised plugins from an algorithmic trading platform promising guaranteed returns.

Trading applications provided by several brokers allow their clients to use application programming interface (API) — a software that allows two applications to communicate with each other. Once installed, APIs get the authorisation to perform a host of functions in the trading account, such as placing buy and sell orders or cancelling orders.

A circular issued by Sebi in 2022 prohibited stockbrokers from any association with platforms offering assured returns.

While brokers claim no control over user-selected APIs, Sebi is investigating potential deliberate business ties between brokers and algorithmic programmers, according to sources.

According to a news report, over 100 brokers have received Sebi warnings for allowing APIs of algo provider TradeTron, which allegedly provided assured returns.

A few leading brokers have refuted receiving notices from Sebi, suggesting the regulatory crackdown is primarily targeted at marketplaces offering unauthorised algorithmic trading products. These brokers emphasised that Sebi's focus is on ensuring they have no direct associations with such platforms.