Description

BSE issues detailed operational modalities for empanelment of Algo Providers and registration of retail algorithms following SEBI's algorithmic trading framework.

Summary

BSE has issued detailed operational modalities implementing SEBI’s circular on safer participation of retail investors in algorithmic trading. The circular establishes comprehensive guidelines for empanelment of Algo Providers, registration of retail algorithms, and operational procedures following SEBI circular SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/0000013 dated February 4, 2025.

Key Points

  • Algo orders are defined as orders generated using automated execution logic
  • All Algo Providers facilitating algo orders through broker APIs must be empanelled with exchanges
  • BSE will establish empanelment criteria and comprehensive Standard Operating Procedures (SOPs) for algo testing
  • Revised framework for identification using location ID with specific validations for different trading modes
  • Clear definition of roles and responsibilities for brokers in API-based trading
  • Registration process established for algorithms with specific circumstances requiring re-registration

Regulatory Changes

  • Mandatory empanelment requirement for all Algo Providers offering API-based trading facilities
  • Revised location ID framework incorporating 14th digit validations for different trading modes (ETI, IBT, STWT)
  • Enhanced identification system for algorithmic orders from client Direct API
  • Comprehensive testing procedures required for all retail algorithms before deployment

Compliance Requirements

  • Algo Providers must complete empanelment process with BSE before offering services
  • Brokers must implement enhanced risk management systems for API orders
  • All retail algorithms require registration and approval before deployment
  • Compliance with confidentiality measures including non-disclosure agreements and encrypted submissions
  • Adherence to SEBI’s outsourcing guidelines while maintaining broker responsibility
  • Implementation of specified turnaround times for different types of algorithm registrations

Important Dates

  • SEBI circular reference: February 4, 2025
  • BSE implementation notice: May 6, 2025
  • Current circular date: August 29, 2025
  • Fast track registration TAT to be specified in exchange SOP

Impact Assessment

  • High impact on retail algorithmic trading ecosystem requiring significant operational changes
  • Brokers need to upgrade risk management systems and API infrastructure
  • Algo Providers must undergo empanelment process, potentially affecting service availability
  • Enhanced regulatory oversight may improve market integrity but could increase compliance costs
  • Data flow requirements between algo providers, brokers, and exchanges need systematic implementation
  • Confidentiality measures may require technology upgrades for encrypted communications

Impact Justification

Introduces comprehensive framework for retail algorithmic trading with significant operational changes for brokers and algo providers