Sebi warned investors on Friday not to deal with unregulated platforms that provide algorithmic trading tools used to automate trades. In a statement, the Securities and Exchange Board of India warned investors not to share any sensitive personal information with such platforms.
Algorithmic trading platforms provide services such as super-fast order generation through the use of powerful mathematical models that incorporate automated trade execution. However, because these platforms are unregulated, there is no investor grievance redressal procedure covering their operations, according to Sebi.
According to Sebi, strategies are being promoted with “claims” of significant returns on investment and “ratings” ascribed to the strategies and assertions that comparable returns will be generated in the future.
Experts feel that algo trading to regular investors is a source of concern, and the regulator has organised a committee to address the issue.
According to industry reports, Ashish Rathi, full-time director at HDFC Securities, indicated that there is a rising concern among retail investors about Algo trading, and that the level of knowledge is an issue. Sebi produced a discussion paper on algo trading, on which work is still being done.
Last December, the regulator issued a consultation paper on algo trading, proposing that all orders generated by an API (application programming interface) be classified as algo orders and subject to stock broker oversight. It was also advised that APIs used for algo trading be tagged with the unique algo ID issued by the exchange that approved the algo. The stock broker must also obtain exchange approval for all algos.
According to analysts, unregulated algos pose a risk to the market because they can be used for systematic market manipulation and can cause volatility because a significant number of people utilises such apps.