Unveiling draft guidelines for algorithmic trading on IFSC stock exchanges in Gift city, the International Financial Services Centres Authority (IFSCA) has proposed measures like mandatory tagging of all algorithmic orders, “dummy filters” for securities without price bands, and financial penalties for excessive order-to-trade ratios to prevent runaway trades, ensure transparency, and safeguard market integrity.
In extreme cases, trading terminals of non-compliant participants may be suspended, states a “Consultation Paper on guidelines for Algorithmic trading on stock exchanges” made public by IFSCA on Friday. Algorithmic trading, also known as black-box trading, uses computer programs to execute trades at lightning speed. While it can boost efficiency, it carries risks such as market volatility, manipulation, and operational failures. To address these, the draft guidelines focus on three safeguards including robust risk controls on price, quantity, and order value; real-time monitoring and shutdown of dysfunctional algorithms; and penalties or trading suspensions for repeated OTR violations.
“Algorithmic trading poses potential risks to market stability and integrity… unchecked algorithms can cause systemic risks, such as flash crashes, affecting overall financial stability,” the paper notes. The draft guidelines that are now open for public and market participant consultation require stock exchanges to approve trading algorithms before deployment, conduct initial conformance tests, and continuously monitor trading activity.
Market participants must disclose their algorithms and exchanges can intervene in case of disorderly trading. These measures aim to combine transparency, accountability, and systemic risk mitigation, providing a globally aligned framework for high-speed trading in India’s IFSCs.
The paper also suggests that exchanges may impose charges per order for high OTR, discouraging order flooding. Persistent violations — occurring more than ten times in a rolling 30-day window — may result in suspension of proprietary trading privileges for the opening hour of the following session.
Both market participants and exchanges must conduct regular system audits while exchanges are required to periodically review surveillance arrangements to detect market manipulation or disruptions and implement improvements where needed.
Published on January 21, 2026
