Mumbai: The Securities and Exchange Board of India (Sebi) on Tuesday allowed retail investors to participate in algorithmic trading. In 2012, Sebi had introduced algo trading, which provided institutions advantages of timed and programmed order execution. At present, only institutional investors are allowed to trade through algorithms."There has been an increasing demand for algo trading by retail investors. In order to facilitate safer participation of retail investors in algo trading, with stockbrokers and stock exchanges playing the required roles in risk management, it has been decided to review and refine the existing regulatory framework to ensure proper checks and balances, to safeguard investor interest as well as integrity of the market," Sebi said in a circular. Under the framework, the facility of algo trading would be provided by the stockbroker to retail investors only after obtaining permission of the stock exchange for each algo. All algo orders would have to be tagged with a unique identifier provided by the stock exchange to establish audit trail and the broker should seek approval from the exchange for any modification or change to the approved algos, Sebi said. 117930743Further, brokers would be solely responsible for handling investor grievances related to algo trading and the monitoring of APIs (application programming interface) for prohibited activities.The regulator said algos developed by tech-savvy retail investors themselves, using programming knowledge, would also have to be registered with the exchange through their broker only if they cross the specified order per second threshold. For the purpose of provision of algo trading through APIs, brokers would be the principal, while any algo provider or fintech would act as its agent while using the API provided by the broker. Sebi said exchanges would be responsible for inspecting that brokers have the ability to distinguish between algo and non-algo orders.It alsosaid algos would be categorised into two—-white box and black box. Algos where logic is disclosed and replicable would be white box algo, while where the logic is not known to the user and is not replicable would be black box algo. For black box algo, the algo provider would have to register as research analyst and maintain a detailed research report for each such algo and confirm to the stock exchanges that such a report has been maintained. The new rules would come into effect from August 1, 2025. “Brokers face significant operational and compliance challenges under SEBI’s new framework.They must register, approve, and monitor all algo orders, implement strict API security measures, and ensure traceability through unique identifiers. Additionally, brokers bear sole responsibility for addressing investor complaints, increasing legal liabilities and customer service costs,” said Sonam Srivastava, founder, Wright Research PMS. “Algo providers, while not directly regulated by SEBI, must now be registered with exchanges and subject to broker oversight. This could slow down innovation, especially for smaller fintech firms, as unclear approval processes may delay market entry…These factors could make retail algo trading less accessible, particularly for new entrants.” Srivastava said.