Published on: July 24, 2025
New era of Algo trading in India begins.. !!
I have been in the markets for over two decades now and have always been a strong proponent of objective strategies and rule-based setups. Algorithmic (Algo) trading has long been an area of great interest to me. However, until recently, it operated in a regulatory grey area.
Most Algo trading was facilitated by third-party platforms using open APIs provided by stock brokers. Traders with coding expertise developed their strategies in Python or other programming languages and executed orders via these APIs.
These third-party Algo providers were typically not SEBI-registered entities, and until now, the APIs and Algo trading ecosystem lacked regulatory oversight from SEBI.
That changed on February 4, 2025.
SEBI released a circular (Ref. No. SEBI/HO/MIRSD/MIRSD-PoD/P/2025/0000013) introducing a regulatory framework titled:
“Safer Participation of Retail Investors in Algorithmic Trading”
(Effective from October 1, 2025)
This circular marked a pivotal shift in India’s Algo trading landscape.
The exchanges subsequently shared the operational details:
- May 5, 2025 – Circular NSE/INVG/67858: Initial implementation standards.
- July 22, 2025 – Circular NSE/INVG/69255: Detailed operational modalities.
- July 23, 2025 – BSE Notice number 20250723-41: Detailed operational modalities.
These circulars provide comprehensive guidelines for stock brokers, Algo-providing fintech companies, API users, and retail investors. This marks a significant shift in how APIs and Algo trading will be used and regulated in India.
From October 1, 2025, Algo trading for retail investors in India will finally be regulated.
This is great news—a futuristic step that will:
- Democratize access to technology-driven trading,
- Increase transparency,
- Offer better protection to retail participants.
Below are some key highlights from the NSE circular:
Understanding the SEBI Guidelines
As per the SEBI circular, “Algo Orders” are defined as: Orders generated using automated execution logic.
Who Can Offer Algo Trading Facilities?
There are two key entities allowed to provide Algo trading services:
- Trading Members (Stock Brokers)
- Algo Providers (Fintech Platforms or Developers)
Algo Providers
While trading members are already SEBI-registered entities, fintech companies and platforms offering Algo trading must now be empanelled with the stock exchanges as Algo Providers.
Algo Providers will offer the facility to place algorithmic orders through the APIs of stock brokers. However, they can only do so after completing the empanelment process with the stock exchanges, as outlined in the SEBI circular.
Once empanelled:
- Algo Providers can offer their trading strategies via stock brokers.
- All strategies must run on the broker’s servers, and all order messages must be generated and routed from the broker’s infrastructure.
- In this framework, the broker is the principal, and the Algo Provider acts as the agent.
- Brokers are responsible for conducting due diligence before onboarding any Algo Provider and must also handle all investor complaints related to Algo usage.
- Algo Providers will enter into independent commercial agreements with brokers.
- Revenue sharing between brokers and Algo Providers—such as subscription fees or brokerage charges—is permitted.
Types of Algos:
SEBI classifies algorithmic strategies into two categories: White Box and Black Box Algos.
- White Box Algos
These are strategies where: The logic is disclosed to the user and the strategy can be replicated independently.
- Black Box Algos
These are strategies where: The logic is not disclosed to the user. The strategy is non-replicable by the end user.
White Box algos are further categorized as Execution, TWAP, and VWAP strategies. Most of these are execution-focused algorithms.
Black Box algos are categorized as Arbitrage, Alpha-seeking, High-Frequency, Scalping, and others. The majority of these will fall under alpha-seeking strategies.
Black Box algo strategy providers are required to be SEBI-registered Research Analysts (RA). Moreover, they must maintain a detailed research report for each strategy offered under this category.
Each registered strategy — regardless of type — will be assigned a unique Algo ID. This ID helps ensure traceability and compliance. The same strategy can be registered by multiple trading members, provided the earlier Algo ID is mentioned during registration.
For any change in the running logic of the strategy:
- White Box Algos will require re-registration
- Black Box Algos will require fresh registration
Strategies capable of generating more than 10 orders per second (OPS) must be registered with the exchanges.
Faster Turnaround time (TAT)
The exchanges have specified faster turnaround times (TATs) for the empanelment of Algo Providers and the registration of strategies.
- For empanelment of an Algo Provider, the proposed TAT is T + 30 working days from the date of application.
- For registration of Algo trading strategies, the TAT is T + 10 working days.
- For White Box execution-only Algos, a shorter TAT of T + 7 working days has been proposed.
API
Brokers who currently expose APIs to their clients—or intend to do so—will now be required to register with the exchange. A detailed process has been laid out for audit trails and security compliance.
Two-factor authentication (2FA) will now be mandatory for all API-based order placements. All other forms of authentication will be discontinued, making this a significant shift for some brokers in how they manage their API infrastructure.
From here on, brokers will be fully responsible and liable for all orders placed through their APIs. This includes:
- Verifying client eligibility
- Handling investor grievances and complaints related to algo trading
- Monitoring API usage and compliance
To gain access to APIs, clients must submit a static IP address to the broker. They are allowed to provide a maximum of two static IPs, which will be mapped to their assigned API keys.
The Tech-Savvy Retail Investor Category
SEBI has introduced a “Tech-Savvy Retail Investors” category. This refers to individuals who have the programming skills to develop their own algo strategies and execute them via broker APIs.
Tech-savvy investors need not register their Algo strategies if their orders are within 10 OPS limit. However, such strategies will still be treated as Algos and must be executed through a pre-defined API key. Brokers must report the PAN and UCC (Unique Client Code) of these investors to the exchange.
The investor may use the same strategy across family accounts as well.
The full responsibility for the logic and functioning of the strategy lies with the investor. There must be a detailed agreement between the broker and the client outlining roles, responsibilities, and liabilities.
Even retail investors who use third-party developers to build their strategies can fall under this category—as long as they use the broker’s APIs directly and meet the prescribed norms.
In all such cases, fulfilling the static IP requirement is mandatory to ensure a secure and traceable trading environment.
Static IP
A static IP (Internet Protocol) address is a fixed, unchanging address assigned to a device on a network.
- SEBI has made Static IP addresses mandatory for accessing APIs in the case of user-generated algorithmic strategies. For user-developed Algos, the static IP must belong to the client.
- For Algos provided via empanelled Algo Providers, the static IP can either be of the vendor or the client.
- For broker-developed Algos, the static IP may be that of the broker or the client.
Clients are not allowed to change their static IPs more than once a week, unless there are unusual circumstances. Static IPs can, however, be shared across family accounts.
While this requirement enhances security and traceability, it also brings additional costs and technical effort for retail participants.
Most internet connections provided to individuals use dynamic IP addresses, which can change periodically based on the internet service provider (ISP) and network conditions. IP address changes if you change the internet connection. Since regulatory compliance for algo trading may require a static IP address—to ensure traceability and fixed identification—traders will likely need to deploy their strategies on cloud servers or VPS providers that offer static IPs. This requirement adds to the overall infrastructure cost and operational complexity for retail or independent traders.
Trading Members (Stock Brokers)
The Algo trading facility will be made available only after the trading member (stock broker) obtains approval from the stock exchange for each strategy – whether it is a White Box or Black Box Algo. Such strategies must be registered under the “Client Direct API” category.
Stock Brokers must ensure:
- All client algo orders route through their servers
- SEBI-mandated risk controls, order tagging, and API monitoring are in place
- Compliance with system audits, cybersecurity, and VAPT norms
These requirements apply to retail algos as well and may involve additional operational costs.
The diagram below outlines the broad framework.
*Above applies to strategies within the 10 OPS threshold. Strategies exceeding the threshold must be registered with the exchanges.
Retail Investors: A New Opportunity?
As an investor, this is great news. With proper use, Algo trading can help solve several challenges related to trading and investing by leveraging the power of technology.
But first, a reality check — Algo trading is not a holy grail. It is not a magical formula that guarantees profits.
Trading and investing consist of two key parts: Strategy (the method) and Execution.
In today’s age of social media and AI, there’s no shortage of trading strategies. New methods keep emerging all the time. Yet, many traders still struggle. Why? Because conviction and discipline are hard to build. It is difficult to stick to one strategy over time, especially when faced with losses or doubts.
Execution brings its own challenges — mainly because of emotions like fear, greed, and impatience. These fall under what we call trading psychology, which I have explained in detail in my book You, Me, and Trading.
Even if you have a well-researched strategy, poor execution can derail results. This is where Algo trading can truly help.
By automating execution based on pre-defined rules, Algo trading removes the emotional interference in decision-making. It also saves time — you don’t need to sit in front of screens all day. The system handles it.
That said, it’s not without risks. Technology can fail. You need to monitor execution and be prepared for occasional issues.
In a nutshell, Algo trading can improve your execution.
Next, let’s talk about the strategy part.
I strongly believe that India today has a growing base of informed and eager retail investors who are willing to learn and take control of their trading decisions. Many of them use tools & platforms to create and test their own strategies — something I have personally witnessed across our Definedge platforms like Opstra, RZone, and TradePoint.
There is also a fast-rising segment of tech-savvy investors who can program their own trading logic.
Strategies can also be offered by experts.
Black Box
When you use a Black Box strategy, you are essentially investing in a product. You rely on the expertise of the provider and the past performance of the strategy — just like any financial product. While the intent of the provider is good, no strategy on earth is immune to drawdowns.
And that’s where the real challenge lies — not in the strategy, but in your conviction. Most people abandon strategies during difficult phases, missing out on the potential long-term benefits. To stay the course, you must understand the nature of the strategy and be mentally prepared for its ups and downs.
White Box
White Box strategies, on the other hand, give you access to the full logic. You can study them, understand their behavior, and develop conviction before investing.
This is especially powerful for knowledgeable traders and investors. When you invest time in tweaking, designing, or backtesting a strategy, your belief in it strengthens — and so does your commitment to following it with discipline. It becomes your own strategy.
That personal connection — the element of YOU — makes all the difference.
Algo trading can solve execution-related issues, but the final control is still in your hands. If you stop the strategy during tough phases, you defeat the purpose.
Whether it’s Algo or otherwise — trading or investing — success lies in consistency over time, not in switching strategies based on short-term results.
The Static IP requirement could pose challenges for retail investors. For instance, if the registered IP is at the investor’s home and he is travelling, he may not be able to intervene in a running algo strategy due to the change in IP address. Such situations are likely to arise, and I believe the regulations will evolve over time to address these practical limitations.
That said, this is just the beginning. The Algo industry is entering a structured and regulated phase after years of operating in a grey zone. From October 1, current practices will no longer be valid.
It will take time to adapt. Registrations alone may take a month. But beyond that, we will step into a new era of Algo trading in India — one that holds exciting possibilities for serious, self-driven investors and traders.
At Definedge, we are proud to be a fintech company that evolved into a stock broker — a move aligned with our long-term vision. Our algo strategies product has been in the works, and we were awaiting formal regulation. We may provide Black Box Algos but we will primarily focus on White Box Algos and are soon launching a comprehensive Algo platform that will allow users to build their own strategies — whether technical, fundamental, options-based, or a combination of all three.
Please note, the views shared above are based on my interpretation of the SEBI circular and my experience in this space.
By Prashant Shah
Co-founder, Definedge Securities.
