MUMBAI
:
India’s capital markets regulator has issued show-cause notices to more than 120 stockbrokers for their association with Tradetron as a part of its larger probe into algo-trading platforms. Mint explains:
Why has the regulator issued the notices?
The notices came after the Securities and Exchange Board of India (Sebi) found Tradetron to be displaying algo trading strategies promising assured returns on its website. And a Sebi 2022 circular prohibits stockbrokers from any association with platforms offering assured returns.
“Stockbrokers who are directly/indirectly referring to any past or expected future return/performance of an algorithm, or are associated with any platform providing such reference, shall remove the same from their website and/or disassociate themselves from the platform providing such references within seven days from the date of this circular,” the circular had said.
Sebi discovered that 119 stock brokers continued to have their application programming interfaces (APIs) integrated with Tradetron despite giving an undertaking that they had discontinued their association with the platform.
Moreover, Tradetron’s website showed referral links encouraging users to open accounts with brokers and promising trading strategies at a discounted price.
How did Tradetron earn money via stock brokers?
While examining Tradetron, the regulator found that algorithm developers sold algo strategies through Tradetron’s platform by charging subscribers a fixed monthly fee, a profit-sharing fee or a combination of both. As a software-as-a-service (SaaS) platform, Tradetron charged users a subscription fee for accessing its algo-trading services. The software allowed users to run automated algorithmic trading bots without any coding. Tradetron’s revenue came from bot usage for placing trades and through strategy-building services with brokers via their APIs.
The regulator observed that Tradetron charged 86 stockbrokers a one-time fee of ₹1.21 crore for integrating their trade APIs from 2020 to 2023.
Which stockbrokers have received the notices?
The regulator sent notices to a total of 122 brokers to show cause why no action should be taken against them.
According to media reports some of them are Aditya Birla Money, Arihant Capital Markets, Anand Rathi Share & Stock Brokers, Angel One, Ashika Stock Broking, Bonanza Portfolio, Choice Equity Broking, Geojit Financial Services, HDFC Securities, Hem Securities, ICICI Securities, IIFL Securities, JM Financial Services, Kedia Capital Services, Kotak Securities, Master Capital Services, Paytm Money, Phillip Capital (India), Profitmart Securities, Prabhudas Lilladher, Samco Securities, SMC Global Securities, Sharekhan, Swastika Investmart, and Tradejini Financial Services.
Mint has seen one of the show cause notices that granted the stock broker 14 days to respond.
What do they have to say?
To be sure, a proprietary broking official said on the condition of anonymity that a few brokers, including his firm, stopped integrating with Tradetron six months before the Sebi circular was issued but the platform had failed to remove the broking house’s name.
The official said even an email from Tradetron said the firm could no longer use the trading platform’s services for non-payment of fees.
