SEBI moves to define algorithmic and proprietary trading in broker regulations

News:

MAS Team | 14 August 2025

India’s market regulator is proposing a targeted overhaul of stock broker regulations to reflect evolving market practices and the current supervisory environment. The Securities and Exchange Board of India (SEBI) plans to formally define “algorithmic trading” and “proprietary trading” within the broker rulebook—terms that have not been explicitly codified so far—while introducing enabling provisions aligned to today’s trading infrastructure and market structure.

Proposed changes to broker regulations

New definitions in rulebook: SEBI proposes to insert clear definitions for “algorithmic trading” and “proprietary trading” within stock broker regulations, addressing a long-standing gap in the current framework that leaves such trades undefined.
Regulatory revamp: The broader refresh aims to incorporate requirements necessitated by shifts in trading behavior, technology adoption, and the supervisory landscape, aligning regulations with contemporary market realities.
Access to government securities platform: Stock brokers would be allowed access to the negotiated dealing system–order matching (NDS-OM) platform to participate in trading of government securities.
GIFT-IFSC enabling clause: For entities operating in GIFT-IFSC, SEBI proposes an enabling provision allowing stock brokers to undertake additional activities as may be specified by the regulator.
Transactions under appropriate oversight: The framework reiterates that a stock broker’s transactions should be executed under the guidelines of the relevant regulator or competent authority.

Enforcement context

SEBI’s push to clarify and modernize the broker framework follows heightened scrutiny of complex trading activity. Recently, the regulator temporarily barred US-based Jane Street from accessing the Indian securities market over alleged manipulation of stock indices, underscoring the need for unambiguous definitions and enforceable standards around advanced trading strategies.

Implications for market participants

Clarity and compliance: Codifying algorithmic and proprietary trading should reduce interpretive ambiguity, helping brokers calibrate controls, disclosures, and surveillance in line with explicit definitions.
Market integrity and oversight: Clear terminology can improve SEBI’s supervisory consistency across firms and strategies, potentially strengthening audit trails and enforcement outcomes.
Broader market access: Broker participation on NDS-OM could deepen liquidity and facilitate more seamless engagement with government securities within a regulated venue.
IFSC optionality: The enabling provision at GIFT-IFSC may support product and activity expansion under SEBI’s specification, offering flexibility while keeping activities within a defined regulatory perimeter.

What to watch

Final definitions and scope: The precise phrasing of “algorithmic” and “proprietary” trading—and any thresholds, exemptions, or control requirements—will determine operational impacts.
Implementation pathway: Transition timelines, compliance checkpoints, and any phased access to NDS-OM will be critical for brokers’ readiness plans.
IFSC specifications: The specific activities permitted under the GIFT-IFSC enabling clause will shape cross-border business models and risk management protocols.

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