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International Financial Services Centres Authority (IFSCA) | Ministry of Finance
The International Financial Services Centres Authority (IFSCA) has released a consultation paper on January 21, 2026 to establish a comprehensive regulatory framework for algorithmic trading on stock exchanges within the IFSC. This initiative seeks to balance the benefits of high-speed, multi-asset trading strategies with the necessity of safeguarding the capital market against systemic risks and market disruptions. The proposed guidelines prioritize transparency and accountability by mandating that all traders disclose and obtain prior approval for their algorithms from the stock exchange before deployment.
Risk Mitigation and Operational Stability Protocols
To ensure market stability, the draft guidelines introduce rigorous risk control mechanisms that must be implemented at both the exchange and participant levels.
Order-Level Checks: Mandatory checks include Price Bands, Quantity Limits, and Order Value filters to prevent runaway trading or sudden surges in prices.
System Synchronization: Stock exchanges are directed to synchronize their system clocks with the atomic clock to achieve a precision of one microsecond, ensuring accurate order matching and audit trails.
Economic Disincentives: To deter “order flooding” or manipulative tactics like spoofing, exchanges are empowered to levy financial penalties based on a high daily Order-to-Trade Ratio (OTR).
Surveillance, Audit, and Governance Standards
The framework establishes a continuous oversight model to identify and neutralize Dysfunctional Trading Algorithms—those that malfunction or operate in an unintended way.
Annual System Audits: Market participants must subject their trading systems to an annual audit by certified professionals (CISA, DISA, or CISSP) to ensure effective implementation of IFSCA requirements.
Tagging for Accountability: Every algorithmic order must be tagged with unique identifiers to provide a clear, verifiable audit trail from the exchange down to the individual client level.
Simulated Testing: Exchanges are required to periodically test algorithms in simulated market environments to assess their behavior under stress or during data feed disruptions.
What is a “Dysfunctional Trading Algorithm” under the IFSCA guidelines? A Dysfunctional Trading Algorithm is defined as any trading algorithm that malfunctions and operates in an unintended way, particularly those leading to a loop or runaway situation. The BPS is empowered to monitor these in real-time and can direct a market participant to immediately shut down the algorithm or even disable their trading terminal in case of exigencies to prevent a flash crash or systemic disruption.
Policy Relevance
This framework is critical for positioning the IFSC as a globally competitive hub by institutionalizing “trust-by-design” in high-frequency trading.
Global Alignment: The transition to a mandatory, audit-backed compliance model aligns Indian offshore markets with IOSCO standards, reducing information asymmetry and attracting sophisticated global investors.
Market Integrity: By imposing strict penalties for Order-to-Trade Ratio (OTR) violations, the policy ensures that speed does not come at the cost of market stability or fairness.
Investor Protection: The mandatory disclosure and approval of algorithms provide a “regulator-grade” safety net, ensuring that only vetted, stable strategies interact with the IFSC ecosystem.
Follow the full paper here: Consultation Paper On Guidelines for Algorithmic Trading on the Stock Exchanges