Description

BSE releases frequently asked questions clarifying empanelment criteria for algo providers, hosting requirements, and operational modalities 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, requirements for Research Analysts offering black box algos, hosting requirements for algo strategies, and technical specifications including static IP requirements for different investor categories.

Key Points

  • Empanelment criteria for Algo Providers detailed in BSE notice 20250922-19 dated September 22, 2025
  • Algo Providers must provide self-declaration on letterhead regarding cyber/adverse technical incidents for previous 3 years (no auditor certification required)
  • Static IP required only for tech-savvy investors using API for placing orders, 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
  • All algo strategies must be hosted on broker’s servers with order messages originating from broker’s server
  • Algo Providers cannot host black box algos of multiple third-party Research Analysts

Regulatory Changes

No new regulatory changes introduced. This FAQ document clarifies existing requirements from:

  • BSE notice 20250922-19 dated September 22, 2025 on operational modalities
  • BSE notice 20250829-12 dated August 29, 2025 on hosting requirements
  • SEBI circular SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/0000013 dated February 04, 2025 on black box algos

Compliance Requirements

For Algo Providers:

  • Must meet empanelment criteria specified in BSE notice 20250922-19
  • Provide self-declaration of cyber/adverse technical incidents for previous 3 years on letterhead
  • Research Analysts offering black box algos must register as Algo Provider and maintain detailed research report for each algo
  • Cannot host black box algos of multiple third-party Research Analysts

For Trading Members/Brokers:

  • Must host all algo strategies on their own servers
  • All order messages must originate from broker’s server
  • Maintain control over risk management and data confidentiality

For Tech Savvy Investors:

  • Static IP required when using API for placing orders

Important Dates

No specific dates or deadlines mentioned in this FAQ document. This is clarificatory guidance on existing framework.

Impact Assessment

Market Impact: Medium - Clarifies operational framework for retail algo trading ecosystem, affecting brokers, algo providers, and research analysts

Operational Impact:

  • Algo Providers gain clarity on empanelment documentation requirements
  • Research Analysts offering black box algos must now register as Algo Providers, adding regulatory compliance burden
  • Brokers retain control through mandatory server hosting requirement
  • Limited impact on regular retail investors; static IP requirement applies only to tech-savvy API users

Industry Segments Affected:

  • Stock brokers and trading members
  • Algo service providers
  • Research Analysts offering algorithmic strategies
  • Tech-savvy retail investors using API-based trading

Impact Justification

Clarificatory FAQ document providing guidance on algo trading framework for retail investors; important for brokers, algo providers and research analysts but does not introduce new requirements