The brokerage firm objected to SEBI's new proposal regarding Algo Trading

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MUMBAI: Brokerage firms and fintech companies have objected to market regulator SEBI's discussion paper considering all stock trading orders issued through Application Programming Interface (API) as separate trading, saying it could adversely affect the growth of such trading from India.

Algo trading is considered to be an automatic buying-selling system based on algorithms. SEBI has recently said in a discussion paper that it would create a framework for regulating Algo trading by retail investors.

A senior official of a brokerage firm said that monitoring of Algo trading is a need of the hour, but such an attempt could hamper the growth of Sebi Algo trading. He added that if the suggestions made in the SEBI discussion paper were implemented, it would be difficult for brokers to make the API available.

About 70% of the daily trading volume in Indian stock markets is transacted through advanced forms of algo trading. Algo Trading came to India in the year 2006, but then only serious traders used it.

Retail traders have started using Advanced Algo for trading mainly in the last five years. The main purpose of Algo Trading is speed of order execution. The fact that traders use APIs today is a very small part of trading (0.04 per cent of the brokerage business), not approving it would mean that our capital markets would be two steps behind the world in terms of technology.

Brokers say shutting down the API will not solve the problem of unregulated algo trading platforms. They will only shift to third party automation tools using brokers' APIs that are not under the control of brokers. The only way to solve the problem is to regulate these algo platforms and bring them under the Registered Investment Advisor (RIA) framework.

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