SEBI to Roll Out AI and ML Guidelines; New Derivative Rules Soon
SEBI Chairman Tuhin Kanta Pandey announces upcoming guidelines for AI, machine learning, and derivative expiry-day settlement rules.
The Securities and Exchange Board of India (SEBI) is set to introduce a comprehensive regulatory framework for the use of artificial intelligence (AI) and machine learning (ML) in the capital markets. According to SEBI Chairman Tuhin Kanta Pandey, these guidelines will be issued shortly to ensure that technological advancements do not compromise market integrity or accountability.
Speaking at the second Capital Market Confluence 2026, organized by the Bombay Stock Exchange Brokers' Forum, Pandey highlighted that while technology is reshaping market operations, it must be governed by strict rules to protect investors and maintain stability.
A Tiered Approach to AI Governance
The upcoming AI framework is designed to be agile yet robust. Pandey explained that the regulator will adopt a tiered approach to manage the complexities of automated technologies. Key components of this framework will include:
- Clear Accountability: Regulated entities will remain solely responsible for the outcomes produced by their AI models.
- Data Controls and Quality: Strict measures to ensure the integrity of the data feeding these algorithms.
- Kill Switches: Mechanisms to immediately halt automated processes if they malfunction or cause market volatility.
- Human Oversight: Ensuring that human intervention remains a core part of the decision-making process.
- Cyber Resilience: Strengthening defenses against technology-driven threats.
Pandey emphasized that "technology cannot dilute accountability," noting that the framework will align with the International Organization of Securities Commissions' (IOSCO) supervisory toolkit to ensure global standards are met.
New Rules for Derivative Expiry Days
In addition to AI regulations, SEBI is moving quickly to address concerns regarding the settlement price of derivatives on expiry days. Following a review of the Closing Auction Session and feedback from a consultation paper, the regulator expects to release specific guidelines on this matter within approximately one week.
This move aims to provide greater clarity and stability during the high-volatility periods typically seen on derivatives expiry dates.
Streamlining Market Operations and Interoperability
The regulator is also working on several structural changes to improve efficiency and reduce costs for market participants:
Interoperability Framework
SEBI aims to bring tender offers, buybacks, and offers for sale under a unified interoperability framework by the end of November 2026. Currently, these transactions require parallel clearing arrangements, which increase both compliance burdens and operational costs. The new system is expected to boost capital efficiency while maintaining settlement safety.
Digital Onboarding for Overseas Investors
To make the Indian markets more accessible to global capital, SEBI is simplifying the onboarding process for Persons Resident Outside India (PROI). After receiving over 400 comments on a proposal to allow digital onboarding without requiring physical presence, a formal circular is expected to be issued soon.
Strengthening the Foundation of Indian Markets
Pandey provided a snapshot of the massive scale of India's financial ecosystem, noting that market capitalization stands at approximately Rs 472 lakh crore, supported by over 15 crore unique investors. Furthermore, mutual fund assets have reached Rs 87 lakh crore, and outstanding corporate bonds are around Rs 61 lakh crore.
However, the Chairman stressed that the next phase of growth must move beyond mere scale. The focus must shift toward trust, resilience, and efficiency. To achieve this, SEBI is actively strengthening business continuity, disaster recovery, and cybersecurity safeguards across all market infrastructure institutions.
"India's ambition should be to build capital markets that not only attract global investment but also set standards for other markets," Pandey concluded, asserting that innovation must always be matched by accountability and investor protection.