Read the heading carefully - "algo platforms and strategy providers"

    You are mixing up things. There are individual traders using the api to trade. And then there are these so called algo trading platforms and algo trading strategy providers who provide services like copy trading.

    Many of the indore based tips providers are trying to move into this space where they have a system by which they trade in your account after connecting your account to their system.

    Now the API is supposed to be used by Individual traders for their own use, using their own code. When someone signs up for an algo platform and a strategy is run on the algo platform this is a violation of multiple rules. Some of which are
    1. Sharing of account credentials with a third party.
    2. Many of these algo providers are technically doing the work of investment advisors without being registered as one.
    3. There is a possibility of these algo providers using multiple; maybe hundreds; of accounts to make trades in one instrument which amounts to market manipulation.
    4. If there are losses in the algo trading platform, who takes liability. How are disputes handled? No frameworks exist around such issues.

    Therefore SEBI understandably wants to regulate these so called algo platforms and algo trading strategy providers. I don't think they will do anything to stop retail traders from API based trading. Though one cannot be sure.
  • naveen278
    So if you have a platform and you want to provide services to run Algos in individual machines which will be run by individual users is it a problem?
  • MAG
    MAG edited February 17
    @naveen278 I am not part of SEBI or even Zerodhas team. But I have spent quite some time reading and researching this topic. My learning and common sense tells me that if you want to provide a service where you provide the algo but it runs on individual machines owned by individual traders you are functioning as a investment advisor where you not only recommend which stock to buy but also help in the order execution directly in the clients account. This would definitely fall foul of SEBI's directives.

    Also if multiple customers are using the algo and it has all of them invest in the same instrument at the same time, this will trigger SEBI's market manipulation rules. People have had their PAN's flagged and banned from trading in the markets for such things before.

    I am a techie and when I started with Zerodha's API years ago I had thought of a startup doing something similar. Talking to a number of folks in the industry I realised that it would violate multiple rules made by SEBI and RBI. Though these were; and still are; grey areas we could initially fly under the radar for some time. But a crackdown would happen eventually.

    And thus I dropped the idea and decided to concentrate on trading my own account. Now I can legally gain a POA and algo trade in the manner you suggested in a couple of accounts that belong to close family (blood relatives). But anything more than that and you would end up on the wrong side as far as SEBI is concerned.

    There are quite a few startups like algofox etc operating in this domain surfing the grey zone as existing legislation does not cover their business model. But I expect the hammer to drop hard. The only question is when.
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