Understanding SEBI's New Algo Rules for Retail Investors

06 Aug. 2025

Understanding SEBI's New Algo Rules for Retail Investors

Algorithmic trading, also known as algo trading, has completely changed how financial markets operate in the modern world. Traders can now execute sophisticated strategies at lightning speed using complex algorithms and API-based systems. With this increase in automation, the need for regulation has grown rapidly to ensure investors are protected from any adverse effects of algorithmic trading. SEBI (Securities and Exchange Board of India) recognised the need for increased regulation and announced it would issue a start-up regulation framework for algo trading that will regulate algorithmic trading to make algo trading safer and transparent for retail investors and the market on February 4, 2025.

In this post, we break down SEBI's new rules and what they mean for a variety of stakeholders and the future of algo trading in India.

Why Did SEBI Announce a New Regulation for Algo Trading?

Considering the uptick in the reliance on APIs and automation by retail traders, it became imperative for SEBI to intervene. The rationale for the new regulations is as follows:

Increase of Retail Participation – Retail traders are utilising automated tools.
Market Risk – Rapid algo orders conflicting with market flow without checks and balances.
Transparency – Making sure all market participants abide by fair rules and rules that are well-defined.

Simply put, SEBI's aim is to facilitate innovation without losing the integrity of the market.

Key Changes in SEBI’s Algo Trading Regulations

Enhanced Automating Control API-Based Algo Control

Brokers have now become principals, with algo vendors serving as agents. All API-based algos now must be unique identifiers assigned by an exchange. Retail traders no longer need to register their algos unless they exceed a certain order execution frequency.

Security protocols now include:
Vendor specific API keys
Static IP whitelisting
OAuth and 2-Factor Authentication

This adds a substantial layer of safety for traders, along with potentially greater control of the automating process.

AI BOT Features:

AI BOT-Algo Trading and Copy Trading is a web-based platform
AI BOT supports multiple broker
AI BOT allows cross-broker copy-trading
AI BOT supports algo trading from various trading platforms eg. Trading View, MT4/5, Python, Excel, Amibroker, Ninja Trader, etc.
AI BOT supports direct trading in multiple accounts in one click
AI BOT has basket order and one-click trade features
AI BOT can place a trade in thousands of accounts in one click with mili-seconds latency.
AI BOT your trades can copied even when you are not suitable for part-time traders as well.

ECHO Trade features:

ECHO Trade copy trading and algo trading are web-based platforms.
ECHO Trade supports multiple brokers.
ECHO Trade allows cross-broker copy-trading
ECHO Trade supports direct trading in multiple accounts in one click
ECHO Trade has basket order and one-click trade features
ECHO Trade can place trade in thousands of accounts in one click with low latency.
ECHO Trades supports net position and holding the trades.
ECHO Trades helps with time management.

Higher Compliance for Stock Brokers

Stock brokers will now have a higher obligation to monitor the usage of algos. They must:

Only allow algos that have registered with the exchange.
Ensure all algos being used have unique trade identifier.
Keep audit trails.
Investigate customer complaints associated with API use.

This means more work but also helps establish trust and reinforce the quality of algo trading.

Algo Providers Get Official Recognition

Algo vendors must now register with the appropriate stock exchanges and pass due diligence checks by stock broker firms. They must clearly represent their pricing disclosures, and follow all regular compliance rules. This gives the vendors greater credentials, and provides some accepted standard of safe algo deployment.

Stock exchanges will now monitor

Stock exchanges will now:

Monitor all algo operations in real time.
Use a kill switch for malfunctioning algos.
Expedite Registration of Simpler Algorithms
Introduce Greater Controls for Complex Systems

Algos to Be Categorised: White Box vs Black Box

The SEBI will differentiate algorithms now:

White box algorithm – Execution-only algorithm with full transparency in the underlying structure.
Black box algorithm - Hidden logic; These must be registered under the Research Analyst regulations and have substantiated research documentation.

This distinction eliminates the risk of traders using high-risk strategies that are not fully understood.

Impact on Market Participants

Retail users will benefit from greater devices for their security, less burdensome registration of algo offerings (unless high-frequency), and better transparency for the algorithms being utilised (demo to follow).
Stockbrokers will have to assume more oversight but can represent valuable offerings in the market for secure algorithms as a service.
Algo providers will achieve a form of registration and need to maintain a higher standard, helping distinguish good from bad developers for market acceptance.
Stock exchanges will enjoy better monitoring and controls of the use of automation in the marketplace.

Implementation Timeline

April 1, 2025 - Brokers and exchanges can begin to prepare infrastructure to accommodate registration and requirements of new rules.
August 1, 2025 - New rules become effective across all markets on and after.

The timeline is sufficient enough to allow support to change and transition through the new changes.

How Combiz Services Pvt Ltd Supports the New Algo Trading Rule

Combiz Services Pvt Ltd is fully with SEBI's new vision. Our platform includes:

API Bridges with 2FA, static IP and OAuth login
Custom algo solutions being compliant with SEBI, white box solutions
Real-time trade execution for retail and institutional clients
Broking integration with Zerodha, Angel One, Alice Blue, etc.
White Label copy trading systems

Combiz can make sure your journey of automation is safe and future-ready, whether you are a retail trader or a broking looking to offer SEBI-compliant alternative solutions.

Conclusion

SEBI’s new regulation is not just regulation; it is a framework for sustainable and transparent automation. Now, retail traders can trade smarter, brokers can offer a more competitive product, and algo providers can perform in a more trusted and regulatory environment than before.

SEBI-compliant solutions are the way forward, and the solutions from Combiz Services Pvt Ltd ensure that the Indian market is fit for genius, security, and regulation around algorithmic trading.

Trade Smart. Trade Safe. Trade with Combiz.