Algo Trading and SEBI Regulations

Algo trading is algorithmic trading. Generally, small investors decide to buy and sell stocks based on their own studies or on the advice of brokers and experts. But, making that decision is not so easy; Also, it is not possible to constantly monitor the screen. In Algo Trading this is exactly the difficult task assigned to the computer. An algorithm is a program that tells a computer when to buy and sell.
For example, buy when the 50 day moving average crosses the 200 day moving average and sell when the 50 day moving average starts moving below the 200 day moving average. According to this algorithm, the computer constantly decides to buy and sell by taking the average while the stock market is running. This is called algo trading.

Algo trading makes the trader’s job much easier. Making computer buying and selling decisions does not stress the mind and does not require constant sitting in front of the screen.
In addition, the computer spends a lot of time buying and selling orders and gets the benefit of Fastest Finger First.

Algo Trading is also known as Automated Trading, Programmed Trading or Black Box Trading and has been in existence since 2008 mainly for institutional big traders. Even small investors have been trading algo for the past five years. Algo Trading accounts for 50% of total turnover on BSE and NSE.

Algo trading can be used to artificially inflate market demand and supply. This is technically called spoofing. It can also be used to lure small investors into a guaranteed, lucrative return. Such schemes work well when running well. However, small investors can suffer immense losses if there is a shortfall in Algo if the market collapses.

Many application programming interfaces (APIs) are currently on the market, which are of an unofficial nature. APIs are buying and selling decision-making software programs that connect the computers of traders and brokers. In fact, each algo has to be authorized by the stock exchange and given a code.
SEBI is preparing to apply the same rule to APIs in the market and for this, everyone’s opinion has been invited. It is unknown at this time what he will do after leaving the post.

Market turnover may decrease.

Many brokers are making money through profit sharing as brokerage rates are currently very low. Authorizing each API from a stock exchange is time consuming and costly.
Stockbrokers are opposed to SEBI’s essays as declining turnover will affect their income. Moreover, some feel that this will hamper the research and development of technology in this field.

SEBI believes that if API makers register themselves with SEBI as a Registered Investment Adviser, they will automatically come under SEBI’s control and curb malpractices.