India’s market regulator, the Securities and Exchange Board of India (SEBI), is set to bring algorithmic and proprietary trading under its master regulations, a shift that could reshape compliance and strategy for prop firms operating in one of the world’s fastest-growing markets.
Currently governed by a patchwork of guidelines, these activities will now be subject to a more formal and permanent framework, with any future changes requiring SEBI board approval. The move follows SEBI’s temporary ban of US trading firm Jane Street over alleged index manipulation, signaling heightened scrutiny of high-tech trading strategies.
Key proposals include:
- Requiring broker boards to appoint at least one India-based director for stronger local oversight.
- Removing the outdated “small investor” classification, after data showed 91% of retail traders lost money in the 2024 derivatives market.
- Aligning proprietary trading oversight with other capital market regulations.
SEBI data reveals that proprietary trading houses and foreign investors earned ₹6.1 trillion in gross profits over the past three years, largely through advanced algo strategies, while retail traders collectively lost ₹524 billion in 2024.
For prop firms and algorithmic traders, the reforms could mean tighter controls, greater transparency requirements, and potential shifts in market liquidity. Beyond India, the move reflects a global regulatory trend toward stronger governance of tech-driven trading, one that other emerging markets may soon follow.
