Public Comments received in response to the Consultation Paper on Guidelines for Algorithmic Trading on the Stock Exchanges

Comments received on Consultation Paper on Guidelines for Algorithmic Trading on the Stock Exchanges Sr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications 1 2 - Include "Copy Trading" & App Marketplaces: Retail Protection: Many users treat copy-trading like a game, Explicitly classify "Copy Trading" apps and broker unaware that it is automated execution. Regulating this "Strategy Marketplaces" as Algorithmic Trading. prevents mass losses where thousands of retail users Clarify that the platform/provider holds unintentionally mimic a bad strategy.

accountability, not the retail user who clicks "Copy." 2 2(a) - “Algorithmic Trading” means trading in securities The suggested changes are meant to make sure the definition listed on a stock exchange, where a computer actually covers how algorithmic trading works in practice. By algorithm, based on predefined instructions, rules, clearly covering cases where an algorithm generates orders or models, automatically: on its own, the definition avoids leaving out automated i. generates orders; and/or trading activity that can occur during early or transitional ii. determines one or more of the following trading phases. This helps ensure there are no gaps in parameters of an order, namely - regulatory coverage for systems that are capable of placing placement of the order; trades independently.

timing of the order; Adding the words “based on pre-defined instructions, rules, price of the order; or models” along with a clearer explanation of what “limited quantity of the order; or human intervention” means, helps draw a clear line between any subsequent modification of any of the above true algorithmic trading and basic electronic or assisted parameters, trading systems. The intent here is to make it clear that the with limited or no real-time human intervention focus is on systems that operate automatically once switched once the on, where humans are involved in setting things up, not in algorithm is activated. making real-time decisions for each trade.

Explanation I: Finally, the revised exclusion section tightens the carve-outs For the purposes of this clause, “limited human for routing, intervention” shall mean human involvement processing, and post-trade systems. It makes clear that these systems are excluded only when they are purely technical and do not independently decide or change trading parameters. This avoids accidentally pulling simple back- office or transmission systems into regulation, while still ensuring that systems which actually drive trading decisions remain squarely within scope.

1 | Pa geSr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications 3 2(b) - “Algorithmic Trading System” means the entirety In practice, algorithmic trading works through a combination of hardware, software, procedures, processes, risk of systems and processes, including built-in checks and controls, and monitoring mechanisms used monitoring tools that identify errors and control unusual execution, supervision of Algorithmic Trading and trading behaviour. This reduces the risk of errors or system designed to prevent disorderly trading. failures rapidly turning into broader market disruption and helps maintain stable and orderly markets.

4 7 The stock exchange shall ensure that a Adopt a 3-Tier "Risk-Based" Approval:1. Low Risk: Innovation: A "one-size-fits-all" rule hurts startups. A tiered market participant shall provide the facility Simple execution tools (Fast track).2. Medium Risk: approach ensures high-risk strategies get strict scrutiny of or itself undertake Algorithmic Trading, Market Makers without blocking low-risk innovation.

only with the prior permission of the stock (Standard).3. High Risk: AI/ML & HFT (Strict This proportional approach preserves market integrity while exchange. testing). encouraging participation, innovation, and liquidity provision, particularly from smaller technology-driven traders.

5 8(b) - There should be a mandatory disclosure of If firms are required to share proprietary logic or source code, algorithms used in Trading by traders. they will simply bypass GIFT City in favor of jurisdictions like Singapore or Dubai, where ‘conformance testing’ focuses on outcomes 􀃿stability􀃿 rather than internal code disclosure.

6 11(e) - “The stock exchange, if necessary, may refuse Without clear procedures and timelines, participants may be permission to left uncertain about what went wrong, whether the issue is any Trading Algorithm or class of trading strategies technical or procedural, and how quickly they need to act.

or seek modifications in any Trading Algorithm for This can lead to confusion, and a perception of unfairness. the purpose of Providing clear reasons, fixed timelines, and an opportunity orderly trading and market integrity. In such cases, to respond or fix the issue reflects basic principles of natural the stock exchange shall communicate the reasons justice, such as the right to be informed and the right to be for such rejection or modification to the concerned heard. These principles help ensure that decisions are not market participant and inform IFSCA with a arbitrary and that similar cases are treated consistently.

detailed rationale. The market participant shall be

provided a reasonable opportunity to respond or rectify the identified issues within a specified timeframe. The stock exchange may also lay down appropriate timelines and a review or appeal mechanism for such decisions.” 7 12 - Replace "Dummy Filters" with "Smart Velocity Flash Crash Prevention: "Dummy filters" are too passive. We Checks": need active "speed bumps" that mechanically stop a runaway Mandate "Velocity Breakers": If a price moves too algo before it crashes an illiquid stock.

2 | Pa geSr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications fast in too little time (e.g., 5% in 2 seconds) without volume support, the system must auto- freeze trading in that scrip immediately.

8 14 - Mandatory "Safe Mode" for Bad Internet: If data Infrastructure Reality: In Tier-2/3 cities, the internet feed latency spikes or the internet drops, the Algo fluctuates. This prevents "blind firing" where an algo keeps must automatically stop placing new orders and placing orders during a disconnect, leading to disaster when cancel open ones. the connection is restored.

9 15 - Ban "Guaranteed Profit" Marketing: Strictly Culture Check: "Fin-influencers" often mis-sell algos to retail prohibit terms like "Risk-Free," "Guaranteed investors as magic money machines. We must regulate the Returns," or "Money Printing." Any backtest shown marketing as strictly as the code.

to clients must carry a standardised, plain language warning.

10 20 - The "Panic Button" (Kill Switch): Mandate a "Kill All Emergency Control: If a user's laptop freezes or crashes, they Algos" button on the broker's mobile app and risk need a way to instantly cut the algo from their phone to desk. This must prevent massive losses.

stop the strategy at the server level, not just the user's terminal.

11 25 & - Pragmatic Auditor Rules:1. Reduce experience Feasibility: There is a severe shortage of auditors with 10 26 requirement from 10 years to 5 years or allow years of algorithm experience in India. Rotating the Partner Firm-level experience. 2. (instead of the Firm) preserves institutional knowledge while Rotate the Lead Partner every 3 years, not the ensuring independence.

entire Audit Firm.

12 18 - Waiver for Tech Glitches: Automatically waive Fairness: Brokers should not be punished for "flooding" "High Order-to-Trade Ratio" (OTR) penalties if the orders if the root cause is the Exchange's own system being issue is caused by an slow or unresponsive.

Exchange outage, system lag, or market-wide technical glitch.

13 New - 2FA for Algo Activation: Require Two-Factor Anti-Mule Measure: This prevents banned entities from Claus Authentication (OTP/Biometric) every morning to "renting" retail accounts 􀃿"mule accounts"􀃿. It forces the e activate an algo strategy. registered human owner to be physically present to authorise (Secu Link this activation to the audit trail (User + the algorithm daily.

rity) Strategy Version.) 3 | Pa geSr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications 14 New - Standardised "Plain English" Error Codes: Mandate Crisis Management: During volatility, cryptic errors cause Claus clear rejection messages (e.g., "Blocked by Risk panic and overwhelm support teams. Clear messages help e Limit," "Velocity Pause") instead of cryptic numeric traders understand why their algo stopped so they can react (Tran error codes. safely.

spare ncy) 15 - We propose to add additional para under The Stock Exchange shall have the operational This is to ensure the guidelines are more prescriptive in “General Responsibilities of the Stock flexibility to put in place the necessary measures, nature and provide flexibility to Stock Exchanges for Exchange”. procedures and guidelines for approval of managing the algorithmic trading of the market participants Algorithmic Trading systems developed by market participants, including the Terms of Reference for system audit to be submitted by market participants at the time of new system or for any modification 16 8 The stock exchange shall, either on its own We suggest modifying this clause as per below: Market Participants are required to perform system audit and or through an independent system auditor/ The stock exchange shall ensure that the market conformance test for their own algorithmic trading systems.

third-party, subject the systems of the participants subject their own algorithmic trading Stock Exchanges should provide the Terms of Reference for market participant to initial conformance systems to initial conformance tests by the system audit to the market participants, and such system tests to ensure that the risk control checks independent system auditor/third party to ensure audit report should be referred to at the time of approval by mentioned below are in place and that the that the risk control checks mentioned below are the Stock Exchange.

market participant’s Algorithmic Trading in place and that the market participant’s System facilitates orderly trading and Algorithmic Trading System facilitates orderly market integrity. trading and market integrity.

17 9 For market participants already providing For market participants already providing Market Participants are required to perform system audit and Algorithmic Trading, the stock exchange Algorithmic Trading, the stock exchange shall conformance test for their own algorithmic trading systems.

shall, either on its own or through an ensure that the market participants subject their Stock Exchanges should provide the Terms of Reference for independent system auditor/ third-party, own Algorithmic Trading Systems which are not yet the system audit to the market participants, and such system subject the Algorithmic Trading Systems of approved by the Stock Exchange to initial audit report should be referred to at the time of approval by such market participants to initial conformance tests by independent system auditor the Stock Exchange conformance tests within three months of within three months of the date of issuance of this NSEIX already has the framework for approving the the date of issuance of this circular circular. algorithmic trading systems of market participants. This clause should be applicable for such algos for which market participants have not yet obtained the approval from Stock Exchange.

4 | Pa geSr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications 18 10 The stock exchange, if required, shall seek The stock exchange, if required, shall seek Stock Exchanges should ensure conformance by independent conformance of modified Algorithmic conformance of modified Algorithmic Trading system auditor appointed by market participant for any Trading Systems to the requirements Systems from market participants by the modification.

specified in these Guidelines. independent system auditor to the requirements specified in these Guidelines.

19 11 The stock exchange shall periodically test The stock exchange shall ensure that the market Stock Exchanges should ensure that a mock test is arranged the Trading Algorithms (in isolation and as participants periodically test the Trading at least once a month and market participants should test together) in simulated market Algorithms (in isolation and as together) in their algorithmic trading systems at least once in six months environments, to ascertain: simulated market environments, to ascertain: mandatorily.

i ii the behaviour of Trading Algorithms in the behaviour of Trading Algorithms in conditions conditions of market stress, of market stress, i ii the dependence of Trading Algorithms on the dependence of Trading Algorithms on market market data feeds and behaviour in case of data feeds and behaviour in case of disruptions/ disruptions/ failure of timely market data failure of timely market data feeds, feeds, ii i the kill switch/ triggers for liquidity withdrawal for the kill switch/ triggers for liquidity Trading Algorithms, or withdrawal for Trading Algorithms, or ii i any other behaviour of the Trading Algorithms or any other behaviour of the Trading Algorithmic Trading Systems relevant for orderly Algorithms or Algorithmic Trading Systems trading and market integrity, relevant for orderly trading and market and accordingly update its mechanisms for grant of integrity, permission for Algorithmic Trading, initial and accordingly update its mechanisms for conformance tests, mechanisms of surveillance, grant of permission for Algorithmic Trading, etc.

initial conformance tests, mechanisms of surveillance, etc.

20 33(d) For market participants that are currently For market participants that are currently Market Participants are required to perform system audit and executing orders through Algorithmic executing orders through Algorithmic Trading, a conformance test for their own algorithmic trading systems.

Trading, a period of three months is period of three months is provided to the stock Stock Exchanges should provide the Terms of Reference for

provided to the stock exchanges within exchanges within which the approval process shall the system audit to the market participants, and such system which the approval process shall be be required to be completed for such algorithmic audit report should be referred to at the time of approval by 5 | Pa geSr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications required to be completed, and minimum trading systems for which market participants have the Stock Exchange risk controls shall be established. not yet obtained the approval from Stock NSEIX already has the framework for approving the Exchanges, and minimum risk controls shall be algorithmic trading systems of market participants.

established. This clause should be applicable for such algos for which market participants have not yet obtained the approval from Stock Exchange.

21 24-30 System Audit related provisions A. It is suggested that for RTPs registered with IFSC In order to make IFSC ecosystem more attractive for RTP Exchanges, there should be no additional initiative and reducing additional system audit requirement.

requirement of System Audit. Further we understand that in global market, such as Dubai, Alternatively, it is proposed that the requirement Singapore, Abu-Dhabi, the remote trading members are of annual system audit should be made mandatory required to produce system audit reports as and when asked

as follows: by their respective stock exchanges.

1.

If the RTP is incorporated in jurisdiction specified under clause 3(i) IFSCA Circular “IFSCA/CMD- MIIT/RTP/2024-25/001” dated February 11, 2025:

Such RTPs shall submit system audit report, as may be specified by its home jurisdiction, to the IFSC Exchange, in case the RTP is not a member of any of the stock exchange under Clause 3(ii)(a) of the above mentioned Circular OR

2.

Where the RTP entity is a member of any of the stock exchange specified under Clause 3(ii)(a) of IFSCA circular as mentioned in clause 1 above: For such entities submission of system audit report should be made mandatory as specified by that stock exchange of which they are member, and same should be submitted to IFSC exchanges.

We further suggest that the System Audit should be carried out by an Independent Systems Auditor who is not related to the Audited Entity in any manner whatsoever.

6 | Pa geSr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications The same is to ensure avoidance of conflict of interest.

22 18-19 Framework of Economic Disincentives We suggest that provisions related to Economic NA Disincentives for developing faulty algos are required to be uniform across the exchanges. Thus, the provisions related to Economic Disincentives may be provided by the regulator.

23 2(a) “Algorithmic Trading” means trading in Comment: Whether simple, user-defined To ensure market consistency, investor protection and securities listed on a stock exchange, where automated tools—such as basic stop-loss or adherence to rules set by regulatory bodies, which require a computer algorithm automatically trailing stop-loss features no human intervention approval, unique IDs, and proper audit trails for algorithmic determines individual parameters of orders at execution of order—constitute "algorithmic strategies.

such as: trading" requiring pre-approval, given that these i. placement of order, are risk management tools rather than complex, ii. timing, high-frequency strategies? iii. price or Regulators should establish distinct definitions for iv. quantity of the order or algorithmic trading to exclude simple automated v. any subsequent modification in these risk management tools.

parameters, with limited or no human intervention 24 11(iii) the kill switch/ triggers for liquidity Suggestion: Propose that while kill switches are Rigid, universal rules often halt trading during high-volatility, withdrawal for Trading Algorithms, mandatory, brokers should have the flexibility to legitimate market movements, causing unnecessary losses define specific parameters for circuit breakers to and liquidity shortages.

avoid unnecessary trade halts during high- A "principles-based" approach forces brokers to build robust, volatility, yet legitimate, market movements. We tailor-made risk oversight that evolves with technology, advocate for "principles-based" rather than "rules- rather than merely checking a box on generic rules.

based" risk controls, allowing brokers to customize kill switches based on their specific strategies.

25 16 The stock exchange shall ensure that all Suggestion: Request that the mandated Same unique tagging can be use across all exchanges, to Algorithmic Trading Orders are tagged with algorithmic order tagging is standardized across all enhances market transparency and efficiency, aligning with unique identifiers so as to ensure a exchanges in the IFSC to avoid fragmented international standards for high-speed trading compliance.

comprehensive, clear and verifiable audit reporting systems for brokers operating on trail of orders arriving at its system, up to multiple platforms. the level of individual market participant.

7 | Pa geSr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications 26 18 The stock exchange shall have the Suggestion: Propose a fair, tiered penalty structure The tiered approach ensures that penalties increase operational flexibility to implement a for "excessive" order-to-trade ratios that accounts proportionally to the disruption caused, rather than applying framework of financial disincentives with for volatility, rather than fixed, high penalties. a blanket high cost that could reduce liquidity.

regard to high daily Order-to-Trade Ratio

(OTR) of orders placed through Algorithmic Trading Systems. These disincentives may be penalties in the form of ‘Charges to be levied per Algorithmic Trading Order’ at various levels of daily OTR. The penalty rates specified shall provide sufficient deterrence against order flooding or any other form of market manipulation or disruption.

27 24 The market participants that provide the Comment: Brokers may face increased costs and Adopting RegTech compliance automation platforms directly facility of Algorithmic Trading shall subject operational burdens to comply with system audits, addresses the high costs and operational burdens of manual their Algorithmic Trading Systems to a periodic monitoring, and reporting requirements. monitoring and auditing by automating data collection, system audit annually to ensure that the transaction screening, and regulatory reporting in real time.

requirements prescribed by IFSCA/ stock Suggestions: Adopt a RegTech compliance exchange with regards to Algorithmic automation platform to handle monitoring, audit These solutions shift compliance from a reactive, labor- Trading are effectively implemented. evidence collection, and reporting in real time, intensive process to a proactive, streamlined operation, reducing manual effort. reducing human error and freeing up staff for strategic tasks.

28 33(a) The stock exchanges are directed to: Suggestions: Request a phased implementation, A staged approach allows for the necessary, thorough particularly for complex requirements like tagging auditing of legacy systems, adequate time for upgrading IT Take necessary steps and put in place of existing algorithms, system audits, etc. to avoid infrastructure, and the development of proper controls.

requisite systems for implementation of operational disruption. these Guidelines within a period of three Furthermore, this timeline enables adequate training for months from the date of issuance of this Recommend a staged deployment strategy for the teams and proper validation of compliance, minimizing the

circular. new guidelines, allowing at least 12–15 months for risk of audit failures and ensuring that new procedures are upgrading IT infrastructure and complying with fully integrated without halting day-to-day business new system audit requirements. operations.

29 33 (d) For market participants that are currently Comment: An expedited, automated approval An expedited, automated approval process for minor, low- executing orders through Algorithmic process for minor changes to existing, already- risk algorithmic changes—such as parameter adjustments— Trading, a period of three months is approved algorithms to foster efficiency. will significantly enhance operational efficiency by reducing

provided to the stock exchanges within administrative bottlenecks, allowing financial institutions to 8 | Pa geSr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications

which the approval process shall be Suggestions: An "approval-by-exception" or fast- stay competitive through rapid, agile deployment. required to be completed, and minimum track process for low-risk algorithms, proposing a risk controls shall be established. self-certification framework with simulation testing By shifting from time-consuming pre-approvals to a self- and post-trade audits instead of pre-approval for certification framework backed by rigorous simulation testing minor changes. and post-trade audits, firms can ensure high-quality, safe deployment without sacrificing speed.

30 - Transparency: Comments: Exchanges to ensure strict Algos are trade secrets; leaking them destroys competitive confidentiality of the proprietary trading advantage.

The traders must mandatorily disclose their algorithms submitted to exchanges for approval. trading algorithms to the stock exchanges and get approval for deploying them.

31 11 The stock exchange shall periodically test Broker-dealers should have their trading Monitoring trading algorithms defined by broker-dealers, is the Trading Algorithms (in isolation and as algorithms tested and approved by DISA/CISA indeed a complex task for exchanges due to the diverse together) in simulated market auditors, who can be empanelled with the classifications and criteria involved. Since these algorithms environments, to ascertain: regulators. The auditors' certification can cover all are typically the intellectual property (IPR) of the broker- i given points, and the exchange can then approve dealers, the onus of these trading algorithms should lie with the behaviour of Trading Algorithms in the strategies based on these certifications. broker dealers.

conditions of market stress, ii. the dependence of Trading Algorithms on market data feeds and behaviour in case of disruptions/ failure of timely market data feeds, iii. the kill switch/ triggers for liquidity withdrawal for Trading Algorithms, or iv. any other behaviour of the Trading Algorithms or Algorithmic Trading Systems relevant for orderly trading and market integrity, and accordingly update its mechanisms for grant of permission for Algorithmic Trading, initial conformance tests, mechanisms of surveillance, etc.

32 18 The stock exchange shall have the Suggestion: The Order to Trade Ratio (OTR) penalty was introduced by operational flexibility to implement a Provisions of order trade ratio penalty may be SEBI in 2013 to discourage excessive unexecuted orders in framework of financial disincentives with evaluated after few years in this jurisdiction once the market, to prevent excessive order placements without 9 | Pa geSr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications regard to high daily Order-to-Trade Ratio liquidity picks up. Presently, such impositions of actual trades, reducing unnecessary load on exchange

(OTR) of orders placed through Algorithmic penalty for OTR may deter participants from systems.

Trading Systems. These disincentives may providing quotes in the market. At the time introduction of order trade penalty in India, be penalties in the form of ‘Charges to be Indian markets were fully liquid with active participation of all levied per Algorithmic Trading Order’ at kindly of participants.

various levels of daily OTR. The penalty However, GIFT City is emerging jurisdiction, retail rates specified shall provide sufficient participation is almost negligible, this jurisdiction needs more deterrence against order flooding or any players who can provide two-way quotes for a strong order other form of market manipulation or book so that investors can get an exit all the time.

disruption.

To deter persistent Order-to-Trade Ratio

(OTR) violations, the stock exchange, if deemed necessary, may suspend a market participant’s proprietary trading privileges for the opening hour of the following session. This escalation shall apply if a participant incurs OTR related penalties on more than ten occasions within a rolling thirty-day window.

33 21 The terminals of the market participants Comment from the better clarification point of Trade limit of broker dealers is required to be set by clearing

that were disabled due to exhaustion of view: members based on the available collaterals. collaterals shall be re-enabled through manual intervention in accordance with the Trade limit of broker dealers is required to be set risk management procedures of the stock by clearing members based on the available exchange. collaterals.

The terminal of broker dealer will get disabled in case of exhaustion of collaterals limit set by the clearing member. Further, the terminal can be enabled on the Exchange’s platform by adding the required collaterals with clearing member.

34 30 The stock exchange may also consider Revised Paragraph: Considering the GIFT IFSC as an emerging jurisdiction, for the imposing suitable penalties in case of failure The stock exchange may also take suitable actions better participation of the market participant it is proposed of the market participant to initiate in case of failure of the market participant to that the market participant may be advised by the Stock 10 | Pa geSr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications satisfactory corrective action to its initiate satisfactory corrective action to its Exchange for the initial failure to take satisfactory corrective Algorithmic Trading System within such a Algorithmic Trading System within such a time action to its Algorithmic Trading System within the time- time period as may be specified by the stock period as may be specified by the stock exchange. period specified by the stock exchange and in case of exchange. repetitive instances, the market participant may be penalised by the Stock Exchange for such non-compliance.

35 8, 9, The stock exchange shall, either on its own It is suggested that the approval and conformance Applying uniform approval and testing requirements to all 10 or through an independent system auditor/ testing framework for Algorithmic Trading Systems Trading Algorithms, irrespective of their complexity, speed or third-party, subject the systems of the be designed on a risk-based, tiered approach, market impact, may inadvertently discourage participation by market participant to initial conformance classifying Trading Algorithms into low-risk, smaller firms and fintech entities using simple execution tests to ensure that the risk control checks medium-risk and high-risk categories, with algorithms. A tiered framework would enable proportionate mentioned below are in place and that the differentiated approval, testing and ongoing regulation, promote innovation and competition, while market participant’s Algorithmic Trading review requirements. ensuring that complex, high-frequency or machine-learning System facilitates orderly trading and based strategies are subject to enhanced scrutiny. Such an market integrity. approach is aligned with global best practices and preserves For market participants already providing overall market integrity.

Algorithmic Trading, the stock exchange shall, either on its own or through an independent system auditor/ third-party, subject the Algorithmic Trading Systems of such market participants to initial conformance tests within three months of the date of issuance of this circular.

36 11 Periodic testing of Trading Algorithms in It is suggested that, in addition to periodic Regulatory sandbox frameworks are globally adopted to simulated market environments simulated testing, a Regulatory Sandbox / Pilot balance innovation with prudent risk management.

Regime may be introduced for innovative or new Introducing a structured pilot regime would encourage algorithmic trading strategies, allowing responsible innovation, facilitate testing of new algorithmic deployment under controlled parameters such as strategies in a controlled environment, and position GIFT IFSC restricted order size, volume limits, or monitored as an innovation-friendly jurisdiction. Such a framework participation thresholds. would help attract global algorithmic and fintech firms while ensuring that appropriate safeguards remain in place to protect market integrity.

37 8, 15 Mandatory disclosure of trading algorithms It is suggested that the disclosure of trading Trading algorithms constitute core intellectual property of and undertakings by market participants algorithms by market participants be clearly market participants. Explicit safeguards around the scope of limited to high-level strategy description, disclosure are essential to attract proprietary trading firms, 11 | Pa geSr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications applicable risk parameters and control logic, and fintech entities and global participants to the IFSC ecosystem.

should not extend to disclosure of proprietary Such clarification would ensure adequate regulatory source code, mathematical models or other oversight while protecting commercially sensitive information intellectual property. and preventing unintended exposure of proprietary technologies.

38 18 The stock exchange shall have the 1. The IFSC markets are still in an evolving phase, and operational flexibility to implement a It is suggested that the Order-to-Trade Ratio (OTR) comparatively higher OTRs may, in certain segments, be framework of financial disincentives with thresholds and associated disincentives be indicative of legitimate market-making and liquidity-providing regard to high daily Order-to-Trade Ratio calibrated based on factors such as liquidity profile, activities rather than manipulative intent. A calibrated and

(OTR) of orders placed through Algorithmic instrument type and stage of market maturity, and phased approach would help avoid over-penalization, Trading Systems. These disincentives may implemented through a glide-path approach. preserve liquidity and market depth, and ensure that be penalties in the form of ‘Charges to be 2. disincentives effectively target abusive practices without levied per Algorithmic Trading Order’ at Designated Market Makers (DMMs) or participants discouraging genuine trading activity.

various levels of daily OTR. The penalty formally appointed for liquidity provision rates specified shall provide sufficient obligations be excluded from the applicability of The SEBI Circular dated 4th February, 2026 relating to OTR deterrence against order flooding or any OTR-based financial disincentives, subject to recognizes the need for calibrated and proportionate other form of market manipulation or compliance with prescribed market-making norms. application of OTR thresholds, particularly considering the disruption. 3. role of liquidity providers. A similar aligned approach in IFSC The framework may align with the principles laid would ensure regulatory consistency while safeguarding To deter persistent Order-to-Trade Ratio down in the SEBI Circular dated 4th February, 2026 market development objectives.

(OTR) violations, the stock exchange, if relating to OTR, particularly with respect to deemed necessary, may suspend a market proportional calibration and treatment of liquidity Excluding Designated Market Makers from OTR penalties, participant’s proprietary trading privileges providers. subject to strict adherence to market-making obligations, for the opening hour of the following would preserve liquidity, prevent over-penalization, and session. This escalation shall apply if a ensure that enforcement measures are targeted at abusive participant incurs OTR related penalties on practices rather than bona fide trading activity.

more than ten occasions within a rolling It is suggested that the framework provide for A proportionate and graduated enforcement approach thirty-day window. graduated enforcement measures prior to encourages timely corrective compliance by market suspension of trading privileges, including issuance participants while avoiding abrupt disruption to legitimate of warnings, supervisory communications and trading activity. Such a framework would enhance regulatory requirement of corrective action plans, except in effectiveness, support orderly markets and ensure that cases of serious or systemic risk. suspensions are applied as a measure of last resort where warranted in the interest of market integrity.

12 | Pa geSr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications 39 14, Risk controls to be implemented by market It is suggested that the guidelines clearly In many cases, broker-dealers primarily provide connectivity, 15 participants distinguish the responsibilities of broker-dealers infrastructure and risk control mechanisms, while the trading providing Algorithmic Trading infrastructure or strategies and algorithmic logic are developed and controlled access from those of clients deploying proprietary by clients. Clear allocation of responsibilities would reduce Trading Algorithms, particularly with respect to legal and regulatory ambiguity, ensure proportionate design, logic, and trading behaviour of such compliance obligations, and appropriately align algorithms. accountability with actual control over algorithmic trading activities.

40 24-29 Annual system audit requirements and It is suggested that a risk-based approach may be A risk-based and flexible audit framework would reduce auditor eligibility adopted for system audit requirements, including compliance burden without compromising regulatory permitting biennial audits for low-risk or low- oversight. This would be particularly beneficial for small and volume algorithmic trading activities, and allowing medium market participants operating in the IFSC, while still group-level system audits for global firms, where ensuring that high-risk or high-volume algorithmic trading appropriate, subject to exchange and IFSCA systems remain subject to stringent and frequent audits.

oversight.

41 33(d) For market participants that are currently It is suggested that the implementation timeline Conformance testing, system audits, internal approvals and executing orders through Algorithmic for market participants currently executing orders exchange-level permissions are resource-intensive and may Trading, a period of three months is through Algorithmic Trading be extended to six require coordinated efforts across multiple stakeholders. An

provided to the stock exchanges within months, with phased compliance milestones for extended and phased implementation timeline would which the approval process shall be completion of approvals and establishment of facilitate orderly and effective compliance by existing required to be completed, and minimum minimum risk controls. participants, while minimizing operational disruption and risk controls shall be established. ensuring adherence to the objectives of market integrity and stability.

42 31 The stock exchange may seek details of It is suggested that the provision may clarify that Such an approach would prevent over-regulation and trading strategies used by the market requests for details of trading strategies be event- safeguard proprietary and commercially sensitive trading participants through Algorithmic Trading driven, such as in cases of surveillance alerts, strategies of market participants, while fully retaining the Systems for such purposes viz. inquiry, inquiries, investigations or market stress events, supervisory and investigative powers of the stock exchange surveillance, investigation, etc. and not sought on a routine or periodic basis. whenever warranted to ensure market integrity.

43 32 The stock exchange shall include a report on It is suggested that the requirement for inclusion Quarterly reporting would be more proportionate and Algorithmic Trading on the stock exchange of Algorithmic Trading related information in the operationally efficient, while continuing to enable effective in the Monthly Development Report (MDR) Monthly Development Report (MDR) be modified regulatory oversight. Most parameters relating to algorithmic submitted to IFSCA from a monthly to a quarterly reporting trading—such as turnover trends, percentage of algorithmic requirement. trading, number of participants, surveillance actions and system testing outcomes—do not typically undergo material 13 | Pa geSr. Para Text of the Guidelines Comments/Suggestions/ Detailed Rationale No. No. Suggested modifications changes on a monthly basis. Further, the stock exchange would necessarily be required to seek periodic data and confirmations from broker-dealers and other market participants for compilation of such reports, which may result in avoidable compliance burden and operational overhead. A quarterly framework would therefore ensure meaningful consolidated reporting while reducing administrative burden across the ecosystem without compromising transparency or market integrity.

14 | Pa ge