NSE issues retail algo trading rulebook, mandates strategy registration

With new norms kicking in for retail algorithmic (algo) trades from August 1, the National Stock Exchange (NSE) has issued the rulebook aimed at fostering a safer and more transparent environment for traders firing algo orders.

 

The guidelines issued on Tuesday mandate registering all algo strategies, which will be given unique identification (ID).

 

Brokers will now be able to offer direct API (Application Programming Interface) to their retail clients, though registrations have been mandated. Further, it will be the brokers’ responsibility to ensure that only eligible clients are using API or the facility.

 

For tech-savvy retail traders using their own algos, brokers will have to disclose the Permanent Account Number (PAN) and unique client code of such clients.

 

 

The application and registration of algo strategy will be done through a broker while an algo ID will be given by the exchange.

 

If there are more than 10 orders per second, then the broker will have to register the algos developed by the clients.

 

Under the guidelines, the brokers will be responsible for all orders sent to the exchange through their terminals, and the algo provider will act as their agent.

 

Further, several checks such as on price, quantity, order value, and position limits have also been prescribed. 

 

The operational framework follows an earlier circular issued by market regulator Securities and Exchange Board of India (Sebi) in February, addressing the grey areas in the usage of algos and to ensure safeguards for traders.

 

Market players had called the guidelines necessary amid rising retail participation and an increase in the share of algo trades. Algo usage is prevalent in both among institutional traders and retail players.

 

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

 

In 2024-25 (FY25), the share of algo trading surged to 70 per cent in equity derivatives (notional turnover), according to the NSE Market Pulse report.

 

Nilesh Sharma, executive director & president, SAMCO Securities, noted: “These regulations bring much-needed clarity by clearly defining what qualifies as an algo strategy. Notably, low-frequency strategies — those generating fewer than 10 orders per second — are not classified as high-frequency algos. This distinction significantly reduces compliance burden for retail users who deploy simpler, rule-based systems, encouraging wider adoption of technology-driven trading in a responsible manner.”

 

While all algo providers will have to be empanelled with the exchange, those which are in-house provided by the broker need not do so. 

 

The turnaround time for empanelment will be T+30 working days while the registration of algos will be done in T+10 working days. Registration of execution algos — where the logic is disclosed — will be done on a fast-track basis in T+7 working days.

 

Additionally, while registering for “blackbox” or “whitebox” algos, disclosures on the basic risk management system and auditor certificate will be required. For blackbox algos — where logic is not disclosed — Sebi has mandated registration of the algo provider as a research analyst.

 

A re-registration will be required if there is a change in logic governing the algos.

 

“Trading members providing API/algo provider facility for routing client orders shall not be allowed to cross trades of their clients with each other. All orders must be offered to the market for matching,” noted the guidelines by NSE.