Angel One, other broking stocks in focus as NSE issues stricter guidelines for retail algo trading

Shares of broking firms, including Angel One, are in focus on Wednesday after the National Stock Exchange (NSE) issued a detailed operational framework for retail algorithmic trading.

The new norms aim to enhance safety, transparency, and accountability in API-based retail algo trading and follow the market regulator Sebi’s directive issued earlier this year.

According to the NSE’s newly released guidelines, brokers will be held liable for all algo orders. They are required to audit and monitor all API access and usage while ensuring that only secure, authenticated APIs with static IP addresses and two-factor authentication (2FA) are used.

Brokers must not allow open APIs and must trace the identity of the end-user. They are also mandated to conduct periodic audits of algo systems and submit compliance logs.

Any change or breach in the algorithm logic will necessitate re-registration, and all retail algo users are required to participate in monthly simulation exercises or mock trading sessions.

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Brokers are also expected to be accountable for investor grievances and monitor for any prohibited activities. The NSE will publish a list of empanelled algo providers and expected turnaround times for approvals.The guidelines further require all algo providers offering API-based retail trading to be empanelled with exchanges. Each strategy must be registered and assigned a unique Algo ID, and all API orders must be tagged accordingly.A 5-level categorisation has been introduced, classifying participants into roles such as Frontend, Developer, User, Logical Grouping, and Strategy.

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Additionally, algo providers must have a minimum of two years of market experience. Providers of blackbox algos are required to be SEBI-registered research analysts. The NNF (Non-Networked Front-end) structure has also been updated to aid in the identification and validation of algo orders.

Direct API-based client orders must carry specific tagging (13th digit of order ID to be 0, 2, or 4). Execution algos will receive fast-track approval within T+7 working days, while other strategies are to be approved within T+10 days, with empanelment to be completed within T+30 days.

White-box algorithms, such as TWAP and VWAP, and black-box algorithms, including alpha-seeking and scalping strategies, have been defined within the framework. The guidelines also emphasise mandatory RMS (Risk Management System) checks, which include validations for price, quantity, trade value, margin, position, and exposure.

Clients who submit more than 10 orders per second must register their strategy with the exchange. Furthermore, both brokers and algo providers must sign confidentiality and non-disclosure agreements. It is also mandatory that all client orders routed via APIs originate from servers located in India.

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