Can You Launch a High-Alpha, Options-Only Product in India? Seeking Advice from Senior Experts on Proper Channels and Compliance!

Hey there, fellow traders!

I’m new to this forum but certainly not new to the market. In the past year, I’ve been diligently working on turning my alternative investment strategies into a product. Okay, okay, they’re just automated algorithms that trade based on preset rules and conditions, but they’re pretty awesome! However, the more I delve into it, the more I realize that launching a hybrid “options only” product in India that can generate high alpha seems nearly impossible.

Let me share a bit of backstory to give you some context.

I’ve been engrossed in quantitative investing theories that consistently generate market-leading returns, regardless of market conditions. In fact, some of the most impressive returns were achieved during market downturns. After perfecting these models, the question that naturally arose was: How can I make these strategies accessible to a larger group of individuals?

Here are the options I considered:

Starting a Hedge Fund: I evaluated this option, but it didn’t work out for a couple of reasons. Firstly, my product utilizes higher leverage (around 4-5x) than what is permitted for hedge funds (only 2x). Additionally, hedge funds primarily cater to the top 0.01% of Indians due to the high entry barriers imposed by SEBI. I wanted to create something more accessible to the masses.

Becoming a PMS Provider: While this option bypassed the entry barrier issue, I encountered similar problems with leverage. PMS regulations are even more stringent, making it an impractical choice.

Becoming an RIA: This appeared to be the most viable option. As an RIA, I could provide advice on these trades. However, two major hurdles emerged:

Fee Structure: RIAs can only charge fees based on the norms set by SEBI. The problem is, I want to create a performance-based product where clients only pay when they make returns. Charging them when they don’t make gains wouldn’t sit well with me (for the record, I’m firmly against fixed AUM-based fees).

Trade Execution: Since most of the trades are time-sensitive and require precision, relying on manual execution by clients seems challenging. Even I wouldn’t be able to execute them accurately without relying on computers to punch the orders automatically.

Interestingly, I’ve come across platforms like “AlgoBulls” and “Tradetron” that execute trades on behalf of clients. They position themselves as tech platforms, which technically aren’t regulated. I’m curious to know how they manage to meet compliance.

Now, I’m seeking advice from senior members of this community on how to launch my product through proper channels, avoiding any gray areas. I want to make it appealing to a wider audience. So, please share your insights and expertise!