In a circular dated 4 February, the Securities and Exchange Board of India (Sebi) said all brokerages must provide algorithmic trading facilities to retail traders—a landmark move that’s set to reshape the country’s retail trading landscape.
The rollout of algorithmic trading, originally set for 1 August, will allow retail traders to use automated systems that execute buy and sell orders based on pre-set logic, bringing tech-driven precision and automation to everyday trading.
Recognizing the challenges in implementing these changes, Sebi first extended the deadline to 1 October, and then set it in phases—31 October for registering at least one algorithmic product, and 30 November for any additional ones. Brokerages must conduct mock testing by 3 January 2026, Sebi said. Those that miss these deadlines will be barred from onboarding new retail clients for API-based algo trading from 5 January 2026.
The regulator clarified that the full algorithmic trading framework, as visioned in the 4 February circular along with operational standards and modalities, would apply to all stock brokers from 1 April 2026.
Sebi’s new regulatory and technological changes are aimed at making algorithmic trading safer and more transparent, and market participants believe these phased deadlines will help the industry grasp the urgency and adapt to the new framework more smoothly.
Open APIs banned
The new rules effectively ban the use of open application programming interfaces (APIs), which previously allowed traders and third-party apps to connect directly to brokers’ trading systems. Now, access will be restricted to secure, broker-controlled setups that ensure every algorithmic trade is clearly identified and monitored. An API is a set of rules or protocols that allows software applications to communicate with each other to exchange data, features and functionality. Open APIs are those that are published on the internet and are free to access by consumers.
Under the new regime, all trading algorithms must be hosted and deployed directly on the broker’s own infrastructure. This crucial change is designed to give brokers end-to-end control and accountability, and requires them to maintain complete logs, conduct pre-trade risk checks, and keep detailed audit trails accessible to Sebi and the stock exchanges.
Teething problems
However, there have been some teething problems in the transition to this new framework, as the deadline extensions show. The primary reason for the delay is the immense technical and compliance-related re-engineering required, executives said.
According to Ashish Nanda, chief digital business officer at Kotak Securities, the deadline has been pushed back because hosting algorithms takes time. Hosting, in this case, means building and integrating ready-to-use trading programs on a broker’s platform so investors can pick and run them easily. Since each client may want a different set of strategies or parameters, brokers must offer a comprehensive library of such algorithms, he added. To make it easier for retail investors to adopt algorithmic trading, Kotak Securities’ application Kotak Neo, has announced zero brokerage and zero API charges across all digital plans starting 1 November, he said.
Dhiraj Relli, managing director and chief executive officer of HDFC Securities, which is also gearing up to roll out algorithmic trading, said, “Most brokers were not ready with the technology development by 1 October owing to dependency on vendors.” He said vendors need more time as the changes affect the way they route orders to the exchanges.
Relli added that broader access to algorithms for retail customers was the need of the hour, as it “narrows the gap between tools available to institutional and retail investors” and “eliminates any regulatory ambiguity that previously prevailed in the market”.
Brokers must also integrate complex order-tagging systems, implement real-time pre-trade risk checks, and enforce a ‘limit-order only’ rule for automated trades to comply with Sebi’s rules.
“Brokers now have to build systems that can watch every algo trade in real time, keep perfect records, and have an emergency ‘kill switch’ to stop a client’s algos if they place too many orders too quickly,” said Kkunal V Parar, vice-president of technical research and algo at Choice Broking. He also highlighted operational hurdles such as the lengthy approval process. “Every single trading algorithm and every tiny change to it must be tested and registered with the exchange,” he said.
‘Most brokers on track’
All brokers were required to submit at least one algorithm to the exchanges by the end of October, and almost all did so, said Nikhil Aralimatti, business analyst at Zerodha. Exchanges must approve or reject these proposals by the end of November, after which a mock trial and testing phase will run until 1 April, he added. Aralimatti said the new framework would offer more flexibility to retail traders since algorithms allow users to automate their trades and not have to constantly monitor them. He added that Zerodha was on track to implement Sebi’s circular.
A spokesperson for QuantMan, which provides no-code algorithmic trading software, welcomes the extension, saying, “The extension was essential to ensure quality and compliance over speed. Retail algorithmic trading is entering a new phase of maturity, one where transparency, auditability and security take precedence over raw automation.”
Another key part of the transition is managing investors’ expectations. “Many retail investors see algo trading as a magic money-making machine, which is a risky misunderstanding,” warned Parar, highlighting the industry’s responsibility to educate clients. However, there has also been a lingering concern: if Sebi wants to protect retail investors from speculation, could wider access to algos end up fueling the very behaviour it hopes to rein in?
Nanda of Kotak Securities said Sebi’s decision to allow retail investors to use algorithmic trading didn’t contradict its stance on curbing speculation. On the contrary, he said, it helps “bring method to the madness” by reducing impulsive, emotion-driven decisions and introducing more structure and discipline to retail trading. He added that even with algorithms, investors need a basic understanding of trading before setting parameters and placing orders.
Asked about the significance of Sebi’s move for investors and brokerages, Relli of HDFC Securities said, “It [represents] value addition for traders, but is not an extraordinary revenue opportunity for brokers.” Ultimately, the new regulations, while challenging to implement, could create a robust and secure environment for retail investors. The QuantMan spokesperson said, “This transformation will make India’s algo-trading ecosystem one of the safest globally for retail participation”.
