India’s tightening of algorithmic trading rules is triggering a fresh battle among brokers to build, own and scale in-house strategies to win clients and assets.
The Securities and Exchange Board of India (Sebi), through a circular in February 2025, operationalized a framework for retail participation in algorithmic trading by allowing brokers to act as “principals” and host different algorithms on their platforms.
The new norms, which become fully applicable on 1 April, allow stockbrokers to host third-party algorithms while also offering their own in-house algos to clients. Retail investors can also develop their own software for application programming interface (API)-based trading.
For a segment that had grown rapidly through third-party platforms and loosely governed APIs, the rules mark a structural reset—and have triggered a race among brokers to offer proprietary, in-house-built algos to strengthen customer stickiness.
Algorithmic trading refers to the use of computer programs to execute trades automatically based on predefined rules such as price, timing or volume, with minimal human intervention.
Shift from price to product
“We are seeing a clear shift towards brokers offering in-house algorithmic strategies,” said Sandeep Chordia, chief operating officer, Kotak Securities. Kotak Securities is working on an in-house algorithm that is expected to launch soon.
“This can materially expand participation, especially among investors who are not tech-savvy and prefer to rely on a trusted broker rather than third-party providers,” Chordia added.
Competition among brokers intensified after discount brokers such as Groww, Zerodha and Angel One cornered significant market share over the past decade, riding on low-cost pricing and a surge in derivatives trading.
Groww has over 12.74 million active clients and a market share of 28.4%, followed by Zerodha at 6.9 million clients and 15.4%, and Angel One at 6.8 million and 15.1% as of February, according to data from the National Stock Exchange.
The gap with the rest of the industry is stark. ICICI Securities, the fourth-largest broker, has just over 2.1 million active clients, similar to Upstox—highlighting how the top three players have pulled away significant clientele.
This dominance was built on a derivatives boom, where flat fees and high-frequency trading volumes generated enough revenue to subsidize zero-cost investing in cash equities.
Exchanges also incentivized brokers for higher trading volumes, further accelerating growth. Sebi discontinued such incentives in 2024 to ensure fair access, removing a key tailwind.
With derivatives growth stabilizing and pricing power weakening, firms are now looking beyond brokerage fees for differentiation. Algorithmic trading—particularly proprietary strategies—offers a new lever.
“Proprietary algorithms will certainly intensify competition but also deepen the market,” said Ankit Mandholia, head of equity and derivatives and wealth management at Motilal Oswal Financial Services. Motilal Oswal offers its own algorithms and plans to expand participation.
He added that as adoption of algorithmic trading increases, competition will shift from pricing to quality of strategies, execution and risk management frameworks.
Guardrails and accountability
Sebi has introduced tight guardrails to bring accountability and traceability to retail algorithmic trading. Brokers are now responsible for approvals, monitoring and investor grievances.
Every algorithm must be registered with the exchange and all orders tagged with unique identifiers to create a clear audit trail. Open APIs are effectively barred, with access restricted through broker-issued keys, whitelisted IPs, open authentication and mandatory two-factor verification.
Even retail investors building their own algos must register them if they cross defined order thresholds.
The rules also require brokers to empanel vendors, monitor misuse and ensure risk controls are in place. Adherence to phased implementation timelines is mandatory, and failure could result in restrictions such as being barred from onboarding new clients for algo trading.
“While algorithmic trading itself was always under a regulatory framework, there was no specific regime governing Trade APIs and fintech participants. With the evolving framework now bringing greater clarity, the ecosystem should become more structured and conducive to responsible innovation,” said Chordia.
The next competitive frontier
Motilal Oswal Financial Services sees the shift as a move towards deeper product differentiation rather than just wider access. The firm is focusing on building institutional-grade, research-backed models that can scale to a broader investor base.
“Differentiation will increasingly come from a combination of client understanding, strategy design, data-backed backtesting, and risk management discipline,” said Mandholia, adding that long-term success will depend on how well these strategies are designed, explained and aligned with investor needs, with the focus shifting towards trust, transparency and consistency of outcomes.
Another broker looking to enter the segment is HDFC Securities, which is among the country’s top 10 brokers.
“We are launching multiple algos, some in partnership with others and one by ourselves,” said Dhiraj Relli, managing director and chief executive officer at HDFC Securities.
However, he cautioned that it remains uncertain how client participation and trading volumes will evolve as more brokers introduce similar products. “It is hard to predict volumes’ trajectory with the introduction of algos by multiple brokers,” he said.