SEBI mulls facilitating algo trading for investors
Capital markets regulator SEBI on Friday proposed facilitating the participation of retail investors in algorithmic trading (algo trading), which provides advantages of faster order execution and improved liquidity.
The proposal, if implemented, is expected to fill the void for retail investors who want to trade using algos with adequate safeguards.
In an effort to enhance market efficiency and transparency, SEBI introduced algo trading through the Direct Market Access (DMA) facility, which provided significant advantages like faster order execution, reduced transaction costs, greater transparency, better audit trails and improved liquidity. However, access to these facilities has been limited to institutional investors.
In its consultation paper on Friday, SEBI proposed extending the existing regulatory framework, with additional safeguards, to facilitate the participation of retail investors in algo trading.
“The evolving nature of algo trading, particularly with the increasing demand for algo trading by retail investors, has necessitated a further review and refinement of the regulatory framework so that retail investors are also able to participate in algo trading with proper checks and balances,” Sebi said.
Further, the regulator proposed spelling out the rights and responsibilities of the main stakeholders of the trading ecosystem — investors, stock brokers, algo providers/ vendors and Market Infrastructure Institutions (MIIs)— so that the retail investors can avail algo facilities with requisite safeguards. Ajay Garg, Director and CEO, SMC Global Securities, said allowing algorithmic trading for retail investors is indeed the need of the hour.
Under the new framework, retail investors will get access to the approved algos only from the registered brokers, which will safeguard the interests of these investors. This presents great opportunities for stockbrokers to expand their customer base in a regulated environment.
