**SEBI MARKET BRIEF | FEBRUARY 5, 2026** **Algorithmic Trading Framework Update** Effective **April 6, 2026**, the Securities and Exchange Board of India (SEBI) will enforce a refined **Order-to-Trade Ratio (OTR)** framework. The regulator has introduced critical exemptions to the penalty structure for high OTR, addressing long-standing concerns regarding liquidity and execution costs. **Key Exemptions & Thresholds** * **Equity Options:** Algorithmic orders placed within **±40%** of the Last Traded Price (LTP) or **±₹20** (whichever is higher) will be exempt from high-OTR penalties. * **General Orders:** Orders falling within **±0.75%** of the LTP in other segments remain exempted. * **Market Makers:** Algo orders placed by Designated Market Makers specifically for market-making activities are now **fully excluded** from OTR computation. These modifications, detailed in the circular dated **February 4, 2026**, aim to lower compliance burdens for liquidity providers while maintaining economic disincentives for excessive order flooding. **Regulatory Overhaul: 'Fit and Proper' Criteria** In a separate move to modernize compliance norms, SEBI has released a consultation paper proposing a comprehensive overhaul of the **'Fit and Proper Person'** rules for market intermediaries. The proposal seeks to reduce regulatory uncertainty and ensure procedural fairness. **Proposed Changes** * **Right to Hearing:** The regulator plans to codify the "right to a hearing" before declaring an entity or individual 'not fit and proper'. * **Disqualification Triggers:** Mere initiation of winding-up proceedings will no longer trigger automatic disqualification; only a **final winding-up order** will count. * **Ownership Rights:** Instead of mandatory divestment, persons in control declared 'not fit' may face restrictions on **voting rights** while retaining economic ownership to prevent irreversible financial loss during appeals. * **Application Freeze:** The cooling-off period for new registration applications following a Show Cause Notice (SCN) is proposed to be reduced from **1 year** to **6 months**. Public comments on these proposals are open until **February 25, 2026**. **Market Context** These regulatory adjustments arrive against a backdrop of heightened transaction costs. The Union Budget 2026 recently announced an increase in the Securities Transaction Tax (STT) on F&O trades—**0.05%** for futures and **0.15%** for options—effective **April 1, 2026**. Market participants view the OTR relaxations as a necessary counterbalance to these rising costs, ensuring that the structural framework for liquidity remains robust despite the higher tax regime.