But that friction is about to disappear. A powerful new framework from Securities and Exchange Board of India (Sebi) is set to make retail equity investing nearly as effortless as mutual funds.
With Sebi’s February 2025 circular (SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/0000013) and the NSE’s implementation guidelines from May (NSE/INVG/67858), algorithmic trading is finally being opened to the everyday investor in India. This could be a game-changer for retail participation in equity markets.
Algorithmic trading, or algo trading, is the use of computer programs to automatically place and manage trades based on pre-set rules or strategies.
Also read: Mint Explainer: Understanding Sebi’s new rules for retail investors in algo trading
Manual trading friction
Traditionally, retail investors have struggled with stock selection, execution delays, and a lack of time or expertise. Even when research platforms provided recommendations, executing those trades was a manual process prone to missed opportunities and inefficiencies.
While some fintech platforms integrated with broker application programming interface (API), the investor still had to authorise each trade. Structural hurdles like Demat Debit and Pledge Instruction (DDPI) approvals required for selling, or delays in fund availability, further complicated the process.
Algorithmic execution unleashed
Sebi’s new framework removes these bottlenecks by enabling direct execution of algorithm-generated trades in investor accounts—without manual approval, barring the initial login. Static IP whitelisting, API tagging, and security protocols ensure all trades are secure, traceable, and fully compliant.
This automation removes emotional decision-making, enforces trading discipline, and allows even small investors to tap into sophisticated strategies. More importantly, it offers a seamless pipeline from strategy discovery to trade execution.
The move will also have industry-wide ripple effects. For the first time, Sebi has created a regulated ecosystem where brokers can offer algorithms developed in-house or via empaneled fintech providers to retail investors.
Fintech firms and algo creators can now register, build, and distribute strategies to the retail segment—turning algo investing from a niche service into a mainstream product. This can lead to better returns, faster execution, lower slippage, and broader market participation.
India is a nation of savers with traditionally low equity penetration. This framework could change that by making equity investing convenient and trustworthy. With professional-grade tools now accessible and execution friction gone, more households may shift their wealth from fixed deposits and real estate to the stock market.
Highlights from the new framework
The Sebi and NSE circulars outline a robust framework aimed at ensuring safety, transparency, and accountability in retail algo trading. Here are some of the key highlights:
Order speed thresholds
Retail traders operating below 10 orders per second per exchange can use algo trading without formal registration, provided they meet risk management system (RMS) norms. Those exceeding the threshold must register their algos with exchanges, ensuring control and oversight.
Broker-led accountability
Brokers act as principals in all algo relationships. They must monitor compliance, resolve grievances, and conduct due diligence on algo providers. Only Sebi-registered and exchange-vetted providers can be onboarded. Brokers can also launch their own algorithms, fostering innovation and competitive pricing.
Algorithm classification system
The framework distinguishes between:
White Box algorithms: Fully transparent, replicable logic available to investors.
Black Box algorithms: Proprietary logic, but providers must register as Research Analysts and maintain detailed research documentation.
This helps investors choose based on their comfort with transparency and risk.
Also read: Sebi’s nod to retail algo trading levels the playing field with institutions
Security infrastructure
All trades must pass through static IPs and API-tagged environments. Two-factor and OAuth-based login protocols are mandatory. Every algorithm gets a unique ID to enable traceability. The exchange also holds a “kill switch” to shut down any rogue or malfunctioning algorithm instantly.
Strategic gaps remain
While the regulatory foundation is sound, several nuanced issues merit reflection:
Broker lock-in risk
The regulations don’t clarify whether a registered algorithm is locked to the broker that filed it, or if it can be ported across platforms. If not broker-agnostic, investors may lose flexibility and be forced to stay with suboptimal broker services.
This restriction could stifle healthy competition among brokers and potentially lead to complacency in service delivery.
Truly portable algorithms would empower investors and promote a more dynamic marketplace.
Incentive conflicts
Brokers and algo providers can share revenues, which could incentivize excessive trading, harming investor interests. Despite mandatory disclosure, most retail investors may not fully understand the implications of fee structures and may unknowingly face higher transaction costs.
Overtight login controls
Currently, users must log in and out daily—a strict safeguard. But over time, Sebi may consider modernising access with risk-based authentication (similar to banking), which balances safety with convenience.
Need for virtual broker accounts
Retail investors can only have one demat account per broker per PAN. This means they risk deploying all capital under one algorithm, even if they want to diversify. Virtual sub-accounts could allow easier fund allocation across strategies and protect user privacy from full broker API access.
Final word
Sebi’s latest move isn’t just a regulatory tweak—it’s a paradigm shift.
By combining robust security with algorithmic flexibility, it finally makes DIY equity investing practical for millions. For fintech innovators, it opens new frontiers of product design and monetization. For markets, it promises deeper liquidity, higher participation, and wider financial inclusion.
This could well be India’s leapfrog moment—where the retail investor transforms from a passive saver to an algorithm-powered equity participant.
Also read: Sebi plans regulatory breather for FPIs investing in sovereign bonds
Gopesh Mittal, Harvard MBA and ex McKinsey Kishan M. Nair, founder at Flameback Capital Private Limited and CFA charterholder.
