SEBI aims to curb market manipulation by proprietary trading houses with the new proposals
India’s markets regulator, the Securities and Exchange Board of India (SEBI), has proposed formalizing new market practices such as algorithmic and proprietary trading within its master regulations.
Currently, these activities are governed by a series of guidelines and circulars that are legally binding but issued on an as-needed basis. The move aims to establish a more structured and permanent regulatory framework.
If implemented, any future amendments to these norms will require SEBI board approval, which includes government representatives.
SEBI has invited public feedback on the draft framework until September 3.
What are the proposals?
According to a consultation paper, the regulator has also proposed that stockbroking firms’ boards must include at least one director who has resided in India for over 182 days in a financial year, ensuring effective oversight and compliance.
Another key change is the removal of the definition of “small investors” based on trade size, previously capped at cash transactions of ₹50,000 or less. SEBI data revealed that 91% of retail traders, primarily small investors, suffered combined losses of ₹524 billion in the derivatives segment in 2024. Given its limited relevance, SEBI plans to drop this classification.
Additionally, the proposals seek to better align the rules with other capital market intermediary regulations.
Why Now?
The proposals come a month after SEBI temporarily barred U.S.-based trading firm Jane Street over alleged manipulation of key indices.
Proprietary trading houses, which use their own funds to profit from market movements, and foreign investors earned gross profits of ₹3.3 trillion and ₹2.8 trillion, respectively, from the Indian market over the three years to March 2024.
A large portion of these gains came from algorithmic trading strategies that execute orders automatically using preset logic.
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