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algotradingalphabots · 10 months ago

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SEBI's Evolving Regulatory Framework for Algorithmic Trading with Timeline.

Initial Guidelines and Framework (2008-2012)

March 2008:

SEBI first introduced guidelines for algorithmic trading to regulate the use of automated trading systems. These guidelines mandated that algorithmic traders must have adequate risk control mechanisms, infrastructure, and qualified personnel in place. The objective was to ensure that trading practices were not only efficient but also secure and fair.

September 2012:

SEBI introduced co-location norms to enhance transparency in high-frequency trading by ensuring that all market participants have equitable access to trading infrastructure.

Enhancing Risk Management (2014-2016)

March 2014:

SEBI specified detailed risk management norms related to order-to-trade ratios, randomization of order entry times, and other controls to prevent market manipulation.

2016:

Regulations were established to govern direct market access, ensuring that brokers had appropriate controls in place for clients using DMA.

Strengthening the Regulatory Framework (2020-2022)

March 2020:

SEBI issued a circular that significantly enhanced the regulatory framework by mandating:

- Testing and certification of algorithms by SEBI-registered agencies.

- Maintenance of detailed audit trails and logs of algorithmic trading activities.

- Real-time monitoring of algorithmic trades to ensure compliance with risk management protocols.

November 2022:

SEBI introduced regulations for platforms that facilitate trading without human intermediaries, requiring registration and compliance with specific guidelines.

Cybersecurity Framework for Market Infrastructure Institutions (MIIs) (October 2023)

SEBI introduced a cybersecurity framework mandating enhanced security measures for trading systems to protect against cyber threats and ensure the integrity of algorithmic trading platforms.

Proposed Regulations for Retail Algo Trading (2024)

February 2024:

SEBI announced plans to tighten regulations around algo trading for retail investors, including:

- Mandatory approvals for algo strategies used by clients.

- Registration requirements for algo platforms and strategy providers, similar to investment advisers.

- Implementation of unique algo IDs for API orders to enhance traceability and accountability.

Tightened Ownership Norms for Foreign Portfolio Investors (FPIs) (February 2024)

SEBI enforced stringent ultimate beneficial ownership norms for overseas investors, requiring high-risk foreign funds to provide detailed information on all entities holding any ultimate beneficial ownership. Funds holding more than 50% of their Indian equity AUM in a single corporate group or those with over Rs 25,000 crore of equity AUM in Indian markets must adhere to these norms.

Restrictions on Advertising for Trading Services (April 2024)

SEBI updated its guidelines regarding advertising for trading services, requiring all advertisements related to trading to be reviewed and approved by SEBI before publication.

Amendments to Insider Trading Regulations (June 2024)

- SEBI reduced the waiting period for insiders to commence trading from 6 months to 120 calendar days after the public disclosure of the trading plan.

- The requirement to maintain a minimum 12-month trading period has been eliminated.

- Clear price limits for trades have been set, specifying an upper price limit for buy trades and a lower price limit for sell trades.

- Deviations from trading plans are now allowed only in exceptional cases, such as permanent incapacity, bankruptcy, or operation of law.

Revision of Orders Per Second (OPS) Limit (July 2024)

SEBI announced a revision in the Orders Per Second (OPS) limit for algorithmic trading in the Commodity Derivatives Segment to enhance market efficiency and manage risks associated with high-frequency trading.

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