Mechanism library · English
The SEBI algo framework, in plain words
What counts as algorithmic trading, who the principal and the agent are, and why registration exists at all.
What counts as algorithmic trading
An order is algorithmic when software decides its price, quantity, or timing without a human confirming each one. If you tap a button and the system computes the order, splits it, and sends it, that is an algorithm. The rules do not care whether the logic is clever or trivial — a simple moving-average rule is as algorithmic as a complex model.
The test is the source of the decision, not the sophistication of the decision. A human who types every order themselves is not algorithmic. Software that drafts every order, even with a human glancing at the screen, is.
Who the exchange sees, and who builds the logic.
| Role | What they do | What they cannot do |
|---|---|---|
| Principal (your broker) | Sends the order; is legally responsible for it | Disown an algo order that went through them |
| Agent (the algorithm provider) | Builds and runs the strategy | Reach the exchange except through a registered broker |
Principal and agent — who is responsible for what
Under the framework, your broker is the principal and the algorithm provider is the agent. The principal is legally responsible for every algorithmic order that flows through it, because the exchange sees the broker, not the algorithm. The agent builds and runs the strategy, but it cannot reach the exchange directly — everything passes through a registered broker's compliant API.
Why registration exists
Algorithmic trading can send orders far faster than any human, so the framework exists to make every automated decision traceable. Each algorithm is registered with an exchange through its broker, and every order it generates carries the identifier of that registration. When something goes wrong, the question is not "who was at the keyboard" — there was no keyboard — but "which registered algorithm did this, and what was it supposed to do."
The registration also freezes the strategy's logic. A material change to what the algorithm does is legally a new strategy, requiring a new registration — parameter tweaks within pre-registered ranges are not.