After Jane Street Ban, SEBI Moves to Lock Algo & Prop Trading into Core Market Rulebook

The Securities and Exchange Board of India (SEBI) has proposed significant changes to its regulatory framework, aiming to formally integrate modern market practices such as algorithmic trading and proprietary trading into its master regulations, according to an exclusive report by Reuters. 

Currently, these activities are governed by individual circulars and guidelines issued as needed. While such directives are legally binding, the markets regulator now intends to place them within a permanent, structured regulatory framework, ensuring greater consistency and oversight.

The move comes just weeks after SEBI temporarily barred US-based trading firm Jane Street for alleged manipulation of key indices — a case that highlighted the growing influence and complexity of algorithm-driven trades. Stakeholders have been invited to submit feedback on the proposed changes by September 3.

Also Read: SEBI to Jane Street: Resume Trading but ‘Cease All Unfair Practices’ Amid Escrow Clearance | Republic World

Proprietary trading firms, which trade using their own capital to profit from market movements, along with foreign investors, collectively made gross profits of Rs 330 billion and Rs 280 billion respectively in the three years to March 2024. A substantial portion of these gains was generated through sophisticated trading algorithms that execute large volumes of orders at high speed.

Under the proposals, any future changes to such norms would require SEBI board approval, which includes representatives from the government. Another suggested amendment would require at least one board director in every stockbroking firm to have resided in India for over 182 days in a financial year — a step aimed at improving compliance oversight.

SEBI also plans to scrap its existing definition of “small investors,” currently pegged at those making cash transactions of Rs 50,000 or less. The regulator noted that the metric has lost relevance, especially as retail participation in derivatives trading grows. Furthermore, Data from 2024 shows nearly 91% of retail traders, mostly small investors, suffered losses amounting to Rs 524 billion in the derivatives market.