Sebi's Ambitious Algo Trading Plan Faces Implementation Hurdles
India's stock market regulator, the Securities and Exchange Board of India (Sebi), is pushing forward with a landmark initiative to bring algorithmic trading to retail investors, but brokerages are facing significant challenges in meeting the phased deadlines. The original implementation date of 1 August 2025 has already been pushed multiple times, with the current timeline requiring brokers to register at least one algorithmic product by 31 October and any additional ones by 30 November.
Technical Overhaul and Vendor Dependencies Cause Delays
The primary reason for these extensions lies in the massive technical re-engineering required. Ashish Nanda, Chief Digital Business Officer at Kotak Securities, explained that hosting algorithms—building and integrating ready-to-use trading programs on broker platforms—is a time-consuming process. Since each client may require different strategies or parameters, brokers must develop comprehensive algorithm libraries.
Dhiraj Relli, MD and CEO of HDFC Securities, highlighted another critical factor: "Most brokers were not ready with the technology development by 1 October owing to dependency on vendors." He noted that vendors need more time because the changes affect how they route orders to exchanges, creating a bottleneck in the implementation process.
New Regulatory Framework Demands Complete Overhaul
Sebi's circular dated 4 February 2025 introduced sweeping changes that fundamentally alter how algorithmic trading will operate for retail investors. The new rules effectively ban open application programming interfaces (APIs), which previously allowed traders and third-party apps direct access to brokers' trading systems. Instead, all trading algorithms must now be hosted and deployed directly on the broker's own infrastructure.
This crucial change gives brokers end-to-end control and accountability, requiring them to:
- Maintain complete transaction logs
- Conduct pre-trade risk checks in real-time
- Keep detailed audit trails accessible to Sebi and exchanges
- Enforce a 'limit-order only' rule for automated trades
Kkunal V Parar, Vice-President of Technical Research and Algo at Choice Broking, emphasized the operational challenges: "Brokers now have to build systems that can watch every algo trade in real time, keep perfect records, and have an emergency 'kill switch' to stop a client's algos if they place too many orders too quickly."
Industry Response and Future Timeline
Despite the challenges, most brokers appear to be adapting to the new requirements. Nikhil Aralimatti, Business Analyst at Zerodha, confirmed that almost all brokers submitted at least one algorithm to exchanges by the October deadline. Exchanges must approve or reject these proposals by end-November, after which a mock trial and testing phase will run until 1 April 2026.
A spokesperson for QuantMan welcomed the extension, stating: "The extension was essential to ensure quality and compliance over speed. Retail algorithmic trading is entering a new phase of maturity, one where transparency, auditability and security take precedence over raw automation."
Brokers that miss the deadlines face significant consequences. Those failing to comply will be barred from onboarding new retail clients for API-based algo trading from 5 January 2026. The full algorithmic trading framework, as envisioned in the February circular, will apply to all stock brokers from 1 April 2026.
Market participants believe these regulatory changes, while challenging to implement, will ultimately create a more robust and secure environment for retail investors. As the QuantMan spokesperson noted, "This transformation will make India's algo-trading ecosystem one of the safest globally for retail participation."
