The International Financial Services Centres Authority (IFSCA), the financial services regulator for India's Gujarat International Finance Tech (GIFT) City, has unveiled comprehensive proposals to regulate algorithmic trading on local exchanges. The measures, detailed in a consultation paper published on Tuesday, January 20, aim to establish robust safeguards around automated trading strategies that have gained significant traction among retail investors.

Algorithmic trading, which enables investors to execute automated strategies through computer programmes, has experienced substantial growth in recent years. The popularity stems from its ability to offer faster execution speeds and reduced costs compared to traditional trading methods, making it particularly attractive to retail investors seeking efficient market participation.

Mandatory Exchange Permissions and Algorithm Audits

The proposed regulatory framework introduces several key requirements for market participants. Under the new rules, any market participant seeking to undertake algorithmic trading would need prior permission from the relevant exchange before commencing operations.

IFSCA has also proposed that exchanges conduct comprehensive audits of algorithms used by both existing and prospective participants. According to the authority, this measure is designed "to ensure that the risk control checks… are in place and that the market participant's algorithmic trading system facilitates orderly trading and market integrity."

Risk Management and Market Integrity Measures

The consultation paper outlines additional safeguards to prevent market manipulation and maintain trading stability. IFSCA proposes establishing "dummy filters" specifically for securities that lack price bands but attract significant algorithmic trading interest. This mechanism would provide an additional layer of protection for volatile securities.

The proposed framework grants exchanges flexibility to impose financial disincentives, including penalties, in cases where market participants place orders that significantly outnumber executed trades. IFSCA stated this approach would "provide sufficient deterrence against order flooding or any other form of market manipulation."

Regulatory Response to Market Evolution

These proposals represent IFSCA's proactive approach to managing the evolving landscape of algorithmic trading within GIFT City's financial ecosystem. The measures balance the need to accommodate technological advancement in trading while ensuring robust risk management and market integrity standards.

The consultation paper reflects the regulator's commitment to creating a well-supervised environment that supports innovation while protecting market participants from potential risks associated with automated trading systems. The proposed rules aim to establish clear guidelines for algorithmic trading operations while maintaining the flexibility necessary for market development.

NBFC-MFI Arohan Financial Services has outlined ambitious plans to enter the capital markets with a ₹1,500 crore initial public offering during the second quarter of the next financial year. Managing Director Manoj Kumar Nambiar announced that the company has already appointed merchant bankers and aims to file the draft red herring prospectus with SEBI within the next two months.

IPO Structure and Timeline

The public offering will follow a balanced approach between growth capital and investor exit opportunities:

The offer for sale component will enable existing investors including Tano Capital and Michael and Susan Dell Foundation to partially exit their investments, while promoters will not participate in any stake sale.

Operational Performance and Market Position

Arohan Financial Services demonstrates strong operational metrics in the current market environment. The company maintains a collection efficiency ratio of 99.70%, reflecting robust recovery mechanisms and borrower quality. Nambiar highlighted that the MFI sector has experienced positive momentum over the past three to four months, driven by improved harvest conditions and GST rate rationalization.

The company has integrated artificial intelligence tools into its collections and recovery processes, enhancing operational efficiency. This technological adoption positions Arohan competitively within the evolving microfinance landscape.

Growth Trajectory and Business Expansion

Arohan has established clear growth targets for the coming years:

The company plans to diversify its product portfolio beyond traditional microfinance offerings. Strategic expansion will include secured lending products such as:

• Gold loans
• Loans against property
• Other secured lending products

Sector Outlook and Strategic Rationale

Nambiar emphasized that the IPO will strengthen Arohan's capital base while establishing foundations for efficient management and credible board governance. The capital infusion will support the company's expansion plans and product diversification strategy.

The managing director noted expectations for government introduction of a credit guarantee scheme, which could enhance bank comfort levels for MFI sector lending. He also identified areas requiring sector-wide improvement, particularly the need for credit bureaus to update borrower data at quicker intervals to facilitate better lending decisions.

Despite acknowledging recent industry challenges including decreased total outstanding amounts and borrower numbers, Nambiar expressed confidence that these trends will reverse in coming quarters, supported by improving market conditions and policy initiatives.