Securities and Exchange Board of India (Sebi) on Friday came out with guidelines for stock brokers, who offer services relating to algorithmic trading to investors, to avert instances of mis-selling.
The rule came after the the market regulator observed that certain stock brokers provide algorithmic trading facilities to investors through unregulated platforms. The unregulated platforms are offering algorithmic trading services or strategies to investors for automated execution of trades.
Such services and strategies are being marketed with "claims" of high returns on investment, Sebi said in a circular. Further, "ratings" have been assigned to the strategies, which could lead to investors being lured by such claims. This may amount to mis-selling of such services and strategies to investors, it added.
Therefore, the regulator has given certain responsibilities to stock brokers that provide algorithmic trading facilities to investors through such platforms. Such stock brokers have been restricted from making any reference to the past or expected future return of the algorithm as well as associating with any platform that provides any reference to the past or expected future return of the algorithm, Sebi said.
"Stockbrokers who are directly or indirectly referring to any past or expected future return or performance of an algorithm or are associated with any platform providing such reference, shall remove the same from their website and, or disassociate themselves from the platforms providing such references, as the case may be, within one week," it said.
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