Sebi on Friday cautioned investors against dealing with unregulated platforms offering algorithmic trading facilities used to automate trades. The Securities and Exchange Board of India in a statement also cautioned investors against sharing any sensitive personal details with such platforms.

Algorithmic trading platforms offer services like generating of orders at a super-fast speed by use of advanced mathematical models that involve automated execution of trade. However, these platforms are unregulated and thus there is no investor grievance redressal mechanism covering their activities, Sebi said on Friday.

Strategies are being marketed with “claims” of huge return on investment along with “ratings” assigned to the strategies and claims that similar returns would be earned in the future,” Sebi said.

Experts believe that algo trading to retail investors has been a matter of concern and a committee is formed by the regulator on the same. “There has been a growing concern on algo trading to retail investors wherein the understanding level is a concern. Sebi had come up with a discussion paper on algo trading on which work is still going on,” Ashish Rathi, whole time director, HDFC Securities, told FE.

Last December, the regulator had issued a consultation paper on algo trading and proposed that all orders emanating from an API (application programming interface) should be treated as an algo order and be subject to control by the stock broker. It also suggested that APIs to carry out algo trading should be tagged with the unique algo ID provided by the exchange granting approval for the algo. The stock broker also needs to take approval of all algos from the exchange.

According to experts, unregulated algos pose a risk to the market and can be misused for systematic market manipulation and can bring volatility as a large number of users trade through such apps.