Zerodha co-founder and CEO Nithin Kamath, in a post, broke down Sebi’s groundbreaking new regulations on algorithmic trading for retail investors. With algo trading no longer limited to institutional players, Kamath’s explanation is timely guide to navigate this game-changing shift in market participation rules.
“The Sebi circular on API usage and algo trading is out. What you need to know: If you’re a retail trader using broker APIs to automate trades, you can do so as long as your order frequency is below an exchange-prescribed threshold,” Kamath wrote, adding that the specific threshold is yet to be finalized.
Kamath further elaborated on new requirements for retail traders who sell trading strategies or algorithms. Such individuals must now collaborate with a broker and register with exchanges.
Moreover, platforms facilitating the sharing of algos for a fee must secure exchange registration and obtain a research analyst (RA) license. Sebi has tasked exchanges with providing further operational guidelines by April 1, 2025.
The revised framework, unveiled on Tuesday, extends algo trading privileges to retail participants, a domain previously dominated by institutional players. Sebi’s decision responds to growing demand from retail investors, aiming to strike a balance between accessibility and risk control.
Under the new rules, brokers are required to secure exchange approval for every algorithm they offer. Additionally, all automated orders must feature a unique identifier for audit purposes. Retail investors developing their own algorithms will only need to register them if their order frequency surpasses the yet-to-be-decided threshold.
Sebi has also introduced two categories for algorithms: “white box” algos, where the logic is disclosed and replicable, and “black box” algos, which operate without transparency. Those offering black box algos must acquire an RA license and maintain comprehensive research documentation.
The updated regulations will take effect on August 1, 2025. As Kamath noted, these changes are poised to reshape India’s algo trading ecosystem, making automation more accessible to retail traders while ensuring stricter compliance to protect market integrity.