ALGORITHMIC TRADING NEW RULES BY SEBI & NSE: RETAIL PARTICIPATION WITH SAFETY AND STRUCTURE

Following SEBI’s February 2025 directive to regulate retail participation in algorithmic trading (algo trading), the National Stock Exchange (NSE) has now published detailed implementation standards aimed at making algo trading both accessible and secure for individual investors. These developments mark a major stride in democratising automated trading, while embedding a robust framework of safety, accountability, and transparency.

This initiative follows closely on SEBI's earlier announcement discussed in our previous feature: SEBI’s Algo Trading Rules – A Gamechanger for Retail Investors

Let’s explore the key reasons, impact, and implications of these newly released standards.

Why This Move?

• To Protect Retail Investors: As retail algo usage grew, concerns around misuse, systemic risk, and lack of transparency surged. Static IPs, registration norms, and order speed thresholds now create a controlled ecosystem.
• To Level the Playing Field: Institutional investors have long used sophisticated tools; this initiative aims to offer retail participants access to similar efficiencies—safely.
• To Enhance Surveillance and Compliance: With audit trails, tagging mechanisms, and defined risk management standards, exchanges and brokers can better monitor activities.

Key Highlights of the New NSE Standards: Explained for Retail Traders

1. API Access Control via Static IPs

When you connect to the stock exchange through an API, your broker needs to make sure that the connection is secure and trustworthy. In the past, there were concerns about unauthorised access or malicious trading. To prevent this, the new guidelines require traders to connect through a static IP address—essentially a fixed, identifiable address used to access the internet.

This means, if you want to use algo trading (where you automate buying and selling based on pre-set rules), you must provide your broker with a static IP address. This address is unique to you, ensuring that only your connection request or frontend can access the system. If you want to change the IP, you can only do so once a week (unless there's an urgent reason). This makes sure there’s no unauthorised access to your trading system. There is a provision of defining secondary IPs also & IPs at API key level too.

2. Threshold Orders Per Second (TOPS)

The Threshold Order Per Second (TOPS) is initially set to not exceed 10 orders per second and may be adjusted by the stock exchanges as needed after due notice to the market.

If you are placing fewer than 10 orders per second via the API, you don’t need to formally register your algorithm with the exchange. This makes it easier for basic traders, who don’t use very high-speed trading systems, to implement automated strategies without jumping through too many regulatory hoops. If you exceed this limit, you will need to register your algorithm with the exchange and get an official algorithm ID.

3. Role of Brokers and Algo Providers

Brokers can create different algorithms for their clients, and each one is documented with a specific ID for the exchange. The broker is able to present these algorithms to clients, supplying the pertinent information regarding the algorithm to those utilizing it. All client orders carried out using these algorithms must incorporate the correct exchange algorithm ID. If any changes are made to a broker's algorithm, the broker will inform the exchange and update the necessary approvals.

While, all algorithm providers must register with exchanges in accordance with the guidelines set by each exchange. Each algo must be registered with the exchange, which will assign a unique ID to each one. Brokers can make commercial agreements with algo providers, including sharing fees, and can also set up technical arrangements through the algo provider's technology services.

4. Enhanced Risk Management & Security Protocols

The new standards place a strong emphasis on security and risk management. Every time you use your trading algorithm, the system must be secure. Your trades will be logged (recorded), and every order you place must be verified with two-factor authentication (2FA). This ensures that only authorised users can trade and that your trades are properly recorded for future review.

5. Tagging and Audit Trails

Each order you place through an algorithm will have a unique tag or ID attached to it, provided by the exchange. This is like a serial number for every order, making it easy to track back and verify who made the trade, when it was made, and how it was executed.

Conclusion

The NSE's implementation of SEBI's vision is a landmark moment in Indian capital markets. It bridges the gap between tech-savvy retail investors and professional-level automation, without compromising on market integrity. As algo trading becomes more inclusive and regulated, retail investors stand to gain both in performance and protection.

References

1. NSE Circular – Safer Participation of Retail Investors in Algorithmic Trading
Issued by the National Stock Exchange of India Limited (Ref. No: NSE/INVG/67858, dated May 5, 2025).
This circular outlines the detailed “Implementation Standards for Safer Participation of Retail Investors in Algorithmic Trading” including API standards, order thresholds, registration, tagging, and security protocols.
Source: NSE India Circular Portal

2. SEBI Circular – Regulatory Framework for Algo Trading
SEBI/HO/MIRSD/MIRSD-PoD/P/2025/0000013, dated February 4, 2025.
This forms the regulatory foundation for NSE’s implementation standards, targeting fair and secure retail algo access.
Source: SEBI Circulars

3. ICICIdirect Article – SEBI Algo Trading Rules: A Gamechanger for Retail Investors
Published by ICICIdirect, this article offers background on SEBI’s intent to bring structured access and accountability to retail algo trading.
Link: https://www.icicidirect.com/futures-and-options/articles/sebi-algo-trading-new-rules-fno-a-game-changer-for-retail-investors