SEBI Opens Settlement Window for Stock Brokers in Algo Trading Violation Cases

The Securities and Exchange Board of India (SEBI) has announced a three-month settlement scheme for stock brokers facing regulatory proceedings for associating with unregulated algorithmic trading (algo) platforms. Open from June 16 to September 16, 2025, the scheme allows brokers to resolve ongoing cases and avoid further litigation. This move follows SEBI’s findings that several brokers collaborated with third-party algo platforms offering assured returns, a practice violating market conduct norms.

Why in News?

On June 10, 2025, SEBI launched a settlement scheme aimed at stock brokers under investigation for violations related to unregulated algo trading platforms. Over 100 brokers, including leading names like Zerodha, 5Paisa, and Motilal Oswal, were issued show-cause notices. The scheme provides a path to close proceedings before courts, SAT (Securities Appellate Tribunal), or SEBI’s Adjudicating Officer.

Scope of the Settlement Scheme

• Application Window: June 16 – September 16, 2025.
• Eligibility: Brokers against whom proceedings are pending before SEBI, SAT, or courts for associating with unauthorized algo platforms.
• Settlement Amount: Estimated around ₹1 lakh per broker.
• Support: SEBI to issue an FAQ on June 16 to guide brokers through the settlement process.

Background of the Action

• SEBI’s investigation revealed brokers facilitated trading through algo platforms like TradeTron, using Application Programming Interfaces (APIs).
• These platforms offered pre-programmed trading strategies with assured returns, breaching SEBI’s mandate against guaranteed profits.
• Such strategies attracted retail investors into risky trades, violating the code of conduct and disclosure norms.

SEBI’s Regulatory Tightening

In response, SEBI has introduced stricter rules to regulate algo trading,

• Empanelment of algo providers.
• Defined accountability for brokers and stock exchanges in overseeing such platforms.
• Clear separation between brokers and platforms making unrealistic profit claims.

Objectives and Significance

• Investor Protection: Prevent misuse of algo trading by unregulated entities.
• Market Integrity: Ensure transparency and discipline in automated trading practices.
• Compliance Opportunity: Give brokers a one-time chance to regularize past violations with minimal penalties.