SEBI Explores Domestic AI Model for India’s Securities Market

Sebi Balances Market Growth With a Broader Push for Trust

The regulator’s agenda spans domestic AI governance, foreign investor rules and tighter oversight of growing market segments.

A home-grown AI framework would address governance as well as technology

Sebi Chairman Tuhin Kanta Pandey said the regulator is exploring a securities-market-specific AI model that could be developed and governed domestically. He cited concerns around the confidentiality and availability of frontier AI models. The proposal is being considered as a form of Digital Public Infrastructure, rather than presented as a finished product or a decision to deploy a particular system.

The distinction matters for a market where sensitive information and operational reliability are central to supervision. A domestic model could, if pursued, give regulators greater control over governance and access. But its value would depend on how risks are managed in practice, including the safeguards and accountability built into its use. Sebi is also working to implement the International Organization of Securities Commissions’ supervisory toolkit for AI, intended to support risk management and a more agile governance framework.

FPI rule changes seek to ease friction without weakening safeguards

Sebi plans to issue a consultation paper on aligning some Indian compliance requirements for foreign portfolio investors with global standards. Pandey said the regulator has already streamlined access, eased digital onboarding and simplified procedures, but some requirements remain more onerous than those in other major jurisdictions.

The proposed review reflects a balancing act: reducing unnecessary compliance burdens may make participation more straightforward, while investor protection and market integrity remain explicit constraints. The consultation will give market participants a chance to comment; the final effect will depend on which requirements are changed and how safeguards are retained. No specific amendments have yet been set out in the announcement.

SME oversight and use-of-proceeds monitoring are under review

Sebi is reviewing the SME framework, including proposals to determine issuer eligibility using post-issue market capitalisation and to require larger issuers to follow Indian Accounting Standards. The stated aim is to ensure that market growth is supported by stronger governance, credible disclosures and sound risk management.

Separately, proposed changes to the Listing Obligations and Disclosure Requirements regulations would strengthen monitoring and disclosure of how companies use funds raised through issues. One proposal would require monitoring agencies to send reports directly to stock exchanges within a prescribed timeline. For investors, more timely and accessible reporting could help scrutiny of issue proceeds, although these measures remain proposals and their practical impact will depend on implementation.

Market expansion raises the stakes for resilience and participation

The scale behind Sebi’s agenda is reflected in the figures cited by Pandey: market capitalisation as a share of gross domestic product rose from 69% in FY16 to about 130% in FY27. Outstanding corporate bonds reached nearly ₹61 trillion, close to 55% of bank credit to industry and services. The regulator’s remarks point to a broader ambition to deepen equity, corporate bond, REIT and InvIT markets through a wider issuer base, stronger secondary-market liquidity and greater institutional participation.

That expansion also makes operational safeguards more consequential. Sebi has proposed extending the information technology and cybersecurity framework for market infrastructure institutions to their subsidiaries. It is also planning training with the National Institute of Securities Markets and Rashtriya Raksha University to help security operations centre engineers use AI to analyse alerts and develop automated responses. These measures connect technology adoption with the capacity to detect and respond to risks.

Key Highlights

• Sebi is exploring a domestically developed and governed AI model for securities-market use.
• The regulator is working to implement IOSCO’s AI supervisory toolkit for risk management and governance.
• A consultation paper will seek views on aligning some FPI compliance requirements with global standards.
• Proposals under review cover SME eligibility, accounting standards for larger issuers and monitoring of issue proceeds.
• Cybersecurity rules may extend to market infrastructure subsidiaries, alongside planned AI training for security teams.

Investor Note: These are initiatives at different stages, including proposals and planned consultations, not completed rule changes. Investors should watch the consultation details and final regulations for their practical effect on compliance, disclosure quality and market resilience.