SEBI introduces settlement scheme for brokers in India

India's market regulator, SEBI, is preparing a settlement scheme for stock brokers linked to unregulated algorithmic trading platforms. This decision follows the issuance of show-cause notices to over 110 brokers, including well-known firms like Zerodha and Motilal Oswal. The scheme will be presented to SEBI’s board on March 24. It aims to resolve the issue quickly and avoid lengthy legal disputes, similar to past cases involving the National Spot Exchange Limited (NSEL). The settlement amount is expected to be low, ranging from ₹1-2 lakh. Brokers interested in the scheme will have three months to apply, with a possibility of an extension. SEBI issued the show-cause notices after discovering that some brokers were still connected to platforms offering algorithmic trading strategies with promises of guaranteed returns. These platforms used services like Tradetron to link their algorithms to brokers, against SEBI's clear guidelines. In 2022, SEBI had already warned brokers about associating with such platforms. A circular issued in September strictly prohibited brokers from discussing returns from these strategies and mandated them to cut ties with unregulated sources within seven days. Despite the existing regulations, SEBI detected ongoing relationships between brokers and these platforms, prompting further investigations. Alongside the new settlement scheme, SEBI is also developing a standardized process to handle these cases more effectively. As interest in algorithmic trading grows among retail investors, SEBI set new rules in February. These rules require brokers to take responsibility for trading done through application programming interfaces (APIs) and only work with approved algo providers.