The International Financial Services Centres Authority (IFSCA) has issued a comprehensive regulatory framework for algorithmic trading on the stock exchanges operating in GIFT IFSC. Circular No. IFSCA/CMD-DMIIT/ALGO/2026-27/01, dated 16 October 2026, lays down detailed guidelines covering exchange approvals, risk controls, kill switches, audit trails, economic disincentives for order flooding, surveillance, and mandatory annual system audits — and it supersedes all earlier SEBI circulars on algorithmic trading that applied in the IFSC. The circular comes into force with immediate effect.
What the circular covers
The 14-page circular, signed by Praveen Kamat, Chief General Manager (Division of Market Infrastructure Institutions and Technology, Capital Markets Department), is addressed to all stock exchanges in the IFSC, all broker-dealers, and all Remote Trading Participants (RTPs). Issued under Sections 12 and 13 of the IFSCA Act, 2019 read with Regulation 72 of the IFSCA (Market Infrastructure Institutions) Regulations, 2021 and Regulation 45 of the IFSCA (Capital Market Intermediaries) Regulations, 2025, it builds the framework around five pillars:
1. A precise legal definition of algorithmic trading
"Algorithmic Trading" means trading where a computer algorithm or automated system determines — with limited or no human intervention — one or more order parameters: initiation or cancellation, timing, price, quantity, type, or any modification after submission. Crucially, the definition excludes systems that only perform non-discretionary mechanical functions such as order processing, order confirmation, or post-trade processing. If your system doesn't independently decide trading parameters, it isn't algo trading under this circular.
The circular also defines key terms that power the rest of the framework: "Dysfunctional Trading Algorithm" (one that malfunctions, loops, runs away, or generates repetitive/erroneous orders), "Market Participants" (all registered broker-dealers plus RTPs onboarded by IFSC exchanges), and the "Algorithmic Trading System" (the full hardware-software-procedure suite).
2. Stock exchange responsibilities — approval is now mandatory
The centrepiece: no market participant may deploy, offer, or facilitate algorithmic trading without the prior express approval of the stock exchange. Exchanges must build the machinery to evaluate, approve, monitor, suspend, or withdraw approval of any algo trading system. Other exchange-level duties include:
- Clock synchronisation: exchange clocks must sync with the atomic clock before market open, maintaining precision of at least one microsecond and accuracy of ±1 millisecond.
- Conformance testing: every participant's algo system faces initial conformance testing of its risk controls. Firms already running algos get three months from 16 October 2026 to complete testing if not already done. Modified systems face re-conformance testing.
- Stress simulations: exchanges must run periodic tests of trading algorithms — in isolation and collectively — under extreme volatility, disrupted data feeds, and kill-switch scenarios, and feed the learnings back into approval and surveillance logic.
- Veto power: exchanges may deny, suspend, or revoke authorisation for any trading algorithm or strategy class, and mandate immediate modifications — but must inform IFSCA with detailed rationale.
3. Participant-level risk controls — including the kill switch
At the exchange level, real-time order controls must include price checks (conformity with price bands; dynamic price constraints and soft-limit filters where no bands exist) and quantity limits (maximum order quantity per security, blocked at entry).
Market participants must implement at least seven controls before a single algo order goes out:
Participants must also furnish a six-point undertaking to the exchange — covering adequate systems, protection against unauthorised access to trading logic, real-time anomaly monitoring with instantaneous reporting, complete audit logs, prior intimation of any structural modification to an approved system, and designation of a qualified compliance/risk officer as the point of contact.
4. Economic disincentives for order flooding
Exchanges get explicit flexibility to levy financial disincentives on excessively high daily Order-to-Trade Ratios (OTR) — charges per algo order calibrated across graded OTR slabs, set stringently enough to deter order flooding and manipulation. The teeth: if a participant incurs OTR penalties on more than ten occasions in any rolling 30-day period, the exchange may suspend its proprietary trading privileges for the opening hour of the next trading session. Real-time throttling mechanisms against order flooding are mandatory.
5. Mandatory annual system audits — with auditor eligibility rules
Every participant running algos must subject its system to an annual system audit. The circular is unusually specific about who may audit:
- CISA (ISACA), DISA (ICAI), CISM (ISACA), or CISSP [(ISC)²] holders; or
- Auditors with ≥10 years' experience auditing algo trading systems (exempt from the certification requirement).
An auditor may conduct a maximum of three successive audits for the same participant, followed by a two-year cooling-off period before re-appointment. Deficiencies must be reported to the exchange within one month of audit completion; corrective action and a closure-cum-compliance report follow within two months. Serious unresolved deficiencies mean the algorithm stays grounded — and the exchange may impose penalties for failure to act.
Old vs new: what changes on the ground
Who is affected and what to do now
Affected: India INX and NSE IFSC (the GIFT City exchanges), all IFSC-registered broker-dealers, remote trading participants, DMA/sponsored-access clients, and third-party algo vendors serving them.
Immediate actions:
- Exchanges have three months (till ~16 January 2027) to build the systems, amend bye-laws, notify participants, and report implementation status to IFSCA through the Monthly Development Report.
- Existing algo users must complete initial conformance testing within three months if not already done — engage your exchange now.
- Broker-dealers offering APIs/DMA must bring these guidelines to clients' notice, get client algos exchange-approved before deployment, and ensure annual independent audits of client systems.
- Compliance teams should map the seven participant-level risk controls and the six-point undertaking against current setups, with special attention to kill-switch testing records and AI explainability documentation.
Frequently asked questions
Does this circular apply to algo trading on NSE/BSE in India?
No. It applies only to stock exchanges in the IFSC (GIFT City). SEBI's framework continues to govern algorithmic trading on domestic exchanges; this circular expressly supersedes SEBI's algo circulars only insofar as they applied in the IFSC.
Is prior exchange approval really mandatory for every algo?
Yes. Paragraph 9 is unambiguous: no market participant may deploy, offer, or facilitate algorithmic trading without the prior express approval of the stock exchange, under conditions the exchange specifies — including for DMA/sponsored-access clients and any subsequent changes to an approved system.
What happens if my firm's OTR stays high?
Expect graded per-order charges calibrated to OTR slabs. Cross the line on more than ten occasions in a rolling 30 days and the exchange may suspend your proprietary trading for the opening hour of the next session — alongside real-time throttling of your order flow.
Who can conduct the annual system audit?
A CISA, DISA, CISM, or CISSP holder — or someone with at least ten years' experience auditing algo trading systems. One auditor can do at most three successive audits for the same participant, then must observe a two-year cooling-off period.
When do exchanges have to implement all this?
Within three months of 16 October 2026 — so by around 16 January 2027 — including bye-law amendments, participant notification, and implementation reporting to IFSCA via the Monthly Development Report. The circular itself is effective immediately.
Sources
Verified against the official IFSCA circular dated 16 October 2026. This article is a preparation aid and summary — refer to the official circular for the complete text. Last verified: 16 October 2026.
