SEBI Offers Settlement Scheme for Brokers Under Scrutiny in Algo Trading Probe

The Securities and Exchange Board of India on June 9 said that it will introduce a settlement scheme for the stock brokers that are associated with certain algo trading platforms. Algorithmic trading automates the buying and selling of securities based on a predefined set of rules. These rules are programmed into software that connects directly with stock exchange systems, allowing trades to be executed with minimum human input.

According to reports, over 100 brokers, including major players like Zerodha, 5Paisa Capital and Motilal Oswal Financial, are under regulatory scrutiny for their involvement with algo platforms that allegedly promised guaranteed returns. The issue revolves around these brokers allowing clients to use application programming interfaces from algo provider TradeTron, which claimed assured profits.

Following these findings, the capital markets regulator has strengthened rules for retail algorithmic trading. The updated regulations now require algo platforms to be empanelled, and they clearly assign monitoring and oversight duties to brokers and stock exchanges.

To address this, the market regulator has introduced a settlement scheme that allows these brokers to resolve the ongoing proceedings. The window to apply for this scheme will be open from June 16 to September 16. "By availing the benefit of the scheme, the stock brokers may settle such proceedings and seek expeditious conclusion of the said proceedings," the SEBI said in a notice.

According to SEBI’s public notice, the initiative offers a one-time settlement opportunity for brokers facing action from various forums, including the adjudicating officer, Securities Appellate Tribunal, or courts. However, brokers who choose to opt out of this scheme will continue to face the regulatory process, the regulator said.

Although the SEBI is yet to reveal the settlement amount, reports suggested that it may be fixed at ₹1 lakh per broker. An FAQ is expected to be released on June 16 to help brokers through the application process.