NSE Issues New Compliance Norms for Retail Algo Trading

The National Stock Exchange (NSE) has rolled out detailed compliance norms for retail participation in algorithmic trading, following SEBI's directive to enhance safety in this growing segment. Prompted by rising retail interest, the new framework strengthens regulatory oversight and applies to algos offered by brokers, third-party providers, and client-developed systems.

Implementing Safer Access Protocols

A key aspect of the new framework involves stricter control over API (application programming interface) access, which stockbrokers may offer to retail investors for connecting to their trading systems. To gain this access, clients are now mandated to provide a static IP address. This static IP will be mapped to the API keys used for connecting to the broker’s platform. Notably, a single static IP can be mapped to only one client at a time, although sharing between family members is permitted. Clients will have the ability to update their mapped static IP addresses on a weekly basis.

Clients may be issued multiple API keys, for instance, to connect to different market segments or run various algos. Under the new rules, if clients hold multiple API keys, brokers must ensure that non-registered algos are exclusively run through one designated predefined API key, while other keys are reserved solely for registered algos. All API sessions must be logged out daily. The use of API connectivity is strictly limited to implementing automated trading systems, computer algorithms, or software solutions for automating security transactions in secondary markets. Brokers are also required to equip this API connectivity with the necessary Risk Management System (RMS) checks.

Read More : SEBI Proposes New Rules for Retail Investors in Algo Trading: Key Highlights

Thresholds and Registration Requirements

A crucial regulatory lever introduced is the Threshold Order Per Second (TOPS). Initially set at a maximum of 10 orders per second per exchange or segment, this limit may be adjusted by exchanges following due market notice. If the flow of algo orders from a client via API remains below this defined threshold, the client is not required to register their algorithmic trading system with the broker. Such orders will be tagged as 'algo' and assigned a generic algo ID by the exchange.

However, if a client intends to place orders exceeding the TOPS limit, registration becomes mandatory for their algorithm with each exchange where it will be used. The exchanges are tasked with formulating a simplified registration and compliance process for orders up to a specified threshold. The registration process requires the client to provide necessary details to their broker, who then forwards this information to the relevant exchanges. Upon registration, exchanges will issue a registration ID, communicated back to the client via the broker, and orders will be tagged with this exchange-provided ID. Client-generated algos developed by tech-savvy retail investors also require registration through their brokers if they surpass the TOPS threshold. API access is compulsory for both client-generated and broker-generated algorithmic trades.

Also Read : How to Start Algorithmic Trading? Complete Guide

Broker and Algo Provider Accountability

Brokers who create and offer their own algorithms to clients must also register each of these algos with the exchange to obtain a unique ID. Furthermore, all algo providers must be empanelled and registered with the respective exchanges where their algorithms are intended to trade. While brokers may enter commercial arrangements with algo providers, potentially including fee sharing, they bear significant responsibility. Brokers must conduct adequate due diligence on algo providers, ensuring they are not involved in misconduct or violations of securities laws. 

Under the new norms, brokers bear full responsibility for resolving client grievances related to algorithmic trading and must monitor TOPS limits for unregistered algos. Building on the 2022 ban on broker tie-ups with unauthorised algo platforms, the NSE retains the authority to disable rogue algos disrupting the market. Brokers may also levy additional charges for API services to retail investors.

India's new compliance norms for algorithmic trading mark a key move toward boosting safety and transparency for retail investors. The latest regulatory circular is seen as a transformative step for retail algo trading, aiming to enhance oversight, introduce stronger security measures, and bring institutional-grade benefits such as timed execution and increased liquidity into the hands of retail participants, while addressing related risks.

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