My name is Prasen Lonikar, i run a small startup called STOQ Club. We provide algo trading services to clients. After your article i have been researching about Algo trading and what registration i fall under but getting confused. Please help me. I genuinely want to grow this business legally and want some clarifications regarding that.
But some context first -
I am a SEBI registered sub broker with IIFL. I also provide algo trading software services. Now i don’t provide any recommendations on stocks or index but the algo automatically selects which strike price to trade and trades automatically in clients account. The client has subscribed to the algo and given the consent. This is a self trade platform where the user himself selects the strategy and uses the platform to execute the trade. (In short we provide ready made strategies). Clients subscribe to the alogs and opt to run the algos by activating them through their broker accounts every morning. Clients choose whether or not they want to run the strategy on any given day, the amount of funds to be deployed in the strategy, etc;
The broad contours of the underlying strategy (e.g. Selling Nifty options, Buying Nifty options, etc) is disclosed to the client at the time of the subscription. However, the finer details (e.g. additional filters for entering the trade, stop loss parameters, etc) of the strategy are confidential and not disclosed;
The service provider only provides technical and execution support for the algo and charges only a fixed fee per month;
Which regulations does this fall under ? (RA/RIA) am i exempted from RA RIA by being sub broker ?
Do i have to take an RA or RIA license ?
Can i give personalized advice using robo advisory?
Can we trade the market as well ? (with disclosure given) if yes any restriction on instruments ? (Such as only index and commodities and not stocks )
a) If we charge software fees does that come under advisory fees ?
b) are advisory fees and software fees separate ?
c) Can we charge both ?
d) Do i have to keep advisory and software fees separate ? (In case of RA/RIA license on personal name and Algo software in firms name,
e) Do i have to keep my firm and personal entity separate? (If i take an RA/RIA license for my firm and charge software fees in it ?, Can this be done ?
Can we give an advisory to clients for investment into ETF or any long term growth options ?
P.S. i am consulting a lawyer but your answers matter to me.
There is no more concept of a sub-broker right? I am guessing you are an AP.
This according to me is as good as being an RA or RIA. That is instead of you personally providing buy/sell signals, your algo provides the same. Since client selects on their own, this would come under the RA framework according to me.
RA and no you don’t get any exemption being an AP.
Robo advisory also requires a license. Putting yourself behind an algo doesn’t change the fact that it is an advise.
If you are an RA, I think there are restrictions.
a. You are providing an algo which tells when to buy or sell, it is an advise so need to charge advisory fees.
b. Software or platform fees can be charged separate I think.
c. I am guessing you can
d. Not sure
e. Not sure