SEBI Plans AI Rules For Stock Market With Data Controls

The Securities and Exchange Board of India (SEBI) is preparing guidelines for the responsible use of artificial intelligence (AI) and machine learning in the securities market. The framework is expected to include a “kill switch”, human oversight and controls around data. SEBI Chairman Tuhin Kanta Pandey said the aim is to balance the use of AI with investor protection.

The proposed rules will apply to AI and machine learning tools used by SEBI-regulated entities. These entities will remain responsible for the tools they use, whether the systems are developed internally or obtained from third parties. Their accountability will also extend to investor data and the outputs generated by these systems.

Why Is SEBI Focusing On AI Oversight?

AI is already being used across parts of the securities market, including surveillance, risk assessment, fraud detection and investor servicing. As its use expands, SEBI is looking at controls that can allow human intervention when automated systems create risks or produce inappropriate outcomes.

The proposed framework will follow a tiered approach, with governance and accountability controls based on the use of AI. The kill switch would allow a system to be stopped when required, while human-in-the-loop controls would keep people involved in the oversight of AI-driven processes.

How Is SEBI Already Using AI?

SEBI has already deployed AI-based systems in its regulatory work. Project SUDARSAN and R(AI)DAR are being used to identify suspicious financial promotions and potentially misleading advertisements. The regulator has also set up the Cyber Suraksha Portal to strengthen information sharing and cyber resilience across the market ecosystem.

The push for AI controls comes as India's capital markets continue to expand. Mr Pandey said the country had around 149 million unique investors, while market capitalisation was around 132% of GDP. Equity issuances crossed ₹4.5 lakh crore in FY26, including about ₹1.9 lakh crore raised through 366 IPOs. The pace has continued into FY27, with ₹26,000 crore raised through 79 IPOs by the end of July.

SEBI is expected to issue the new guidelines after finalising the framework. The rules will focus on how regulated entities deploy AI while maintaining human accountability, data controls and mechanisms to intervene when required. The proposed approach is intended to allow wider use of AI without leaving responsibility entirely with automated systems.

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