retail traders are allowed for automated trading the only pre requsite is that you have to be at the brokers office and you cannot be on the internet as a medium of connectivity for automated trading

yes, you need to disclose the basic strategy to NSE before trading but not the parameters for eg. incase your strategy is based on moving averages you need to disclose the rules of entry and exit but not which moving average you are using.

no you are not missing any legal loop but there is a grey area...... which is being used by all brokers. Though NSE wants you to tell them your strategy but they are more concerned on the risk parameters being set in such softwares. In short they want to be sure that no algo plays a havoc. So all brokers providing such interfaces have taken in principle approval of the process with a few sample strategies are running the show till the time NSE comes up with some new rule