Description

BSE releases frequently asked questions clarifying operational requirements for algo providers, empanelment criteria, hosting requirements, and research analyst obligations for retail algorithmic trading.

Summary

BSE has published Version 1.0 of FAQs addressing queries related to safer participation of retail investors in algorithmic trading. The document clarifies empanelment criteria for algo providers, cyber incident declaration requirements, IP address requirements for retail clients, research analyst registration obligations for black box algos, and mandatory hosting requirements on broker servers.

Key Points

  • Empanelment criteria for Algo Providers detailed in BSE notice 20250922-19 dated September 22, 2025
  • Algo Providers must provide self-declaration of cyber/adverse technical incidents for previous 3 years on their letterhead (no auditor certification required)
  • Static IP required only for tech-savvy investors using API for order placement, not for all retail customers via algo vendors
  • Research Analysts wishing to deploy black box algos must first register as Algo Providers and maintain detailed research reports
  • Algo Providers cannot host black box algos of multiple third-party RAs
  • All algorithmic trading strategies must be hosted on broker’s servers with order messages originating from broker’s server

Regulatory Changes

No new regulatory changes introduced. This FAQ document provides clarifications on existing requirements from:

  • BSE notice 20250922-19 dated September 22, 2025
  • BSE notice 20250829-12 dated August 29, 2025
  • SEBI circular SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/0000013 dated February 04, 2025

Compliance Requirements

For Algo Providers:

  • Meet empanelment criteria specified in BSE notice 20250922-19
  • Provide self-declaration of cyber/adverse technical incidents for previous 3 years
  • For black box algos: Register as Research Analyst and maintain detailed research report for each algo
  • Host all strategies on trading member’s servers

For Trading Members/Brokers:

  • Ensure all algo strategies run on their servers
  • Ensure order messages originate from their servers
  • Maintain control over risk management and data confidentiality

For Research Analysts:

  • Must become Algo Provider before deploying any black box algo
  • Maintain detailed research reports for each black box algo
  • Confirm to exchanges that research reports are maintained

For Tech-Savvy Retail Investors:

  • Static IP required when using API for placing orders

Important Dates

No new dates specified. Document references existing circulars from:

  • September 22, 2025
  • August 29, 2025
  • February 04, 2025

Impact Assessment

Market Participants Affected:

  • Algo Providers seeking empanelment
  • Research Analysts providing black box algos
  • Trading Members/Brokers offering algo trading services
  • Tech-savvy retail investors using APIs

Operational Impact:

  • Clarifies that cyber incident declarations are self-declarations, reducing documentation burden
  • Confirms static IP not universally required for all retail algo users, only for API-based tech-savvy investors
  • Restricts Algo Providers from hosting multiple third-party RA black box algos, requiring each RA to become an Algo Provider
  • Reinforces broker-centric hosting model ensuring risk management control

Compliance Impact: Medium - Provides operational clarity that helps market participants implement existing regulations more effectively, reducing ambiguity in compliance procedures

Impact Justification

Clarifies implementation details for retail algo trading framework affecting algo providers, research analysts, and trading members, but does not introduce new regulations