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The Securities and Exchange Board of India (Sebi) zeroed in on several brokers whose clients used plugins of an algorithmic trading platform promising guaranteed returns.
Trading applications provided by many brokers allow their clients to use an application programming interface (API) — software that allows two applications to communicate with each other. Once installed, APIs gain permission to perform a multitude of functions in the trading account, such as placing buy and sell orders or canceling orders.
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A circular issued by Sebi in 2022 prohibited brokers from any association with platforms offering assured returns.
While brokers claim to have no control over user-selected APIs, Sebi is investigating possible deliberate commercial links between brokers and algorithmic programmers, sources said.
According to a report, over 100 brokers have received Sebi warnings for allowing APIs from algorithm provider TradeTron, which allegedly provided assured returns.
A few prominent brokers have denied receiving notices from Sebi, suggesting that the regulatory crackdown is primarily aimed at markets offering unauthorized algorithmic trading products. These brokers emphasized that Sebi’s aim is to ensure that they do not have any direct association with such platforms.
First publication: October 9, 2024 | 9:21 p.m. STI