SEBI Investment Advisor license requirement for Algorithmic portfolio generation

If I sell (or rent out) a software platform that generates portfolio algorithmically for its end users, then would I need to get a SEBI Investment Advisor license? @nithin

Yes, for any kind of advice one should have license. One can’t trade on behalf of others without PMS license.

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Yes, for any kind of advice one should have license.

Even when the portfolio is generated programmatically?

One can’t trade on behalf of others without PMS license.

Users will trade on their own.

Even that is advice.

Even that is advice.

That would mean people publishing strategies or posting algos on Twitter can also be considered as advice. No?

I see some developers build algo for pure intraday trading. And onboard clients with some fixed fees.
Algo woulld execute trades into clients account.

Should the algo owner have permission from SEBI to do this?

They will put some kind of disclaimer, anyhow this is the correct way, it is up to you.

This is a grey area. If you are charging money for advice, then it is best to do it by getting a license. If you are offering just generic advice on twitter, etc, it is okay.

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How about selling software that lets users run predefined strategies (on their self selected universe of instruments) or lets them define their own strategies?

Today since the rules around are still not defined, you can get around by doing some of what you are saying. But I don’t think you can build a business until you are on the right side of the regulation. Currently SEBI fears that retail investors can be taken for a ride or compromised if there were companies claiming that their software will automatically make them money. Which is a real concern. Hence today they ask anyone advising directly or indirectly to be atleast registered as an RIA and don’t allow algo trading for retail (essentially clients being able to subscribe to discretionary algos. of some third party).

@nithin

Currently RIA or advisory license doesn’t cover for this. But it is only a matter of time before SEBI brings this in the fray. If you look at it in pure SEBI compliance point of view - charging money for an engine that automatically advises and trades on behalf of a customer, it is dark grey in color.

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Thanks for the detailed response, @nithin :pray:

From what I understand, apart from direct trading calls, selling (or licensing) software or even investment strategies are kind of in a grey territory.

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Hi @nithin

Some brokers has started giving fully automated trading for their clients.
See this https://www.youtube.com/watch?time_continue=401&v=bEsGfWUOljw

This is backed by some broker called AliaceBlue

If there are no clear rules by SEBI how such broker can start fully automated trading. wondering why such things not noticed by SEBI?

If someone complain to them then they may act otherwise there is no way for sebi to find these things on their own.

Out of interest cause I have read a lot here and it’s a all very doubtfull still and I am sure even if it text on the twitter it’s better to get the license anyway but how do we get something like that ? How much it will costs just to let know for future possible needs ? Where to look ?

You can just google and can find various results but you can start from [here.]
(https://www.sebi.gov.in/sebi_data/attachdocs/1369826090264.pdf)
Can also check this.