What is a settlement scheme, SEBI is going to bring this facility!
The Securities and Exchange Board of india (SEBI) has prepared a settlement scheme for stock brokers. This scheme has been introduced as a solution to the notice issued to more than 110 brokers. These brokers are accused of being associated with algo trading platforms. This list includes many big brokers like Zerodha, 5Paisa, Motilal Oswal.
This is the matter
SEBI had received information that many unregulated platforms like Tradetron are offering algo-based trading strategies by connecting to the broker system, claiming fixed market returns. This is against SEBI rules. In june 2022, SEBI had warned for this and issued a circular this year, directing brokers to break ties with such platforms. Even after this, many brokers were promoting algo trading by joining such platforms. 110 such brokers have been identified and show cause notices have been issued to them.
SEBI's Settlement Scheme
SEBI's board meeting is going to be held on march 24. The settlement scheme will be discussed in it. To avoid a long legal battle, SEBI is preparing to bring this scheme, in which brokers can settle by paying a fine of Rs 1-2 lakh. Brokers taking advantage of the scheme will have to apply to SEBI.
What is algo trading?
Let us tell you that algo trading works as an investor in the stock market, whose job is to give maximum profit to the investors. The word algo comes from algorithm. In algo trading, the software takes the decisions related to trading instead of the investor and places buy or sell orders. You can understand this as an example - if you want to buy shares in a company when its price is the lowest than the average of the last 100 days. For this, you can create a computer program which will keep an eye on the price of the stock and as soon as the price comes in the range as per your condition, it will place the order. Similarly, when the price reaches the range, a sell rating is given. SEBI has a problem with algo trading because many times algo developers lure people with high returns, which is a clear violation of SEBI rules.
