19 August,2026 02:31 PM IST | Mumbai | mid-day online correspondent
Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey. File picture
Market regulator Securities and Exchange Board of India (SEBI) is soon planning to issue guidelines for the responsible use of artificial intelligence and machine learning in India's capital markets, Chairman Tuhin Kanta Pandey said on Wednesday adding that regulated entities would remain responsible for the tools they use.
"We will shortly be issuing guidelines for responsible use of AI/ML in our markets... The framework will require "kill-switch and humans-in-the-loop controls along with data controls," the SEBI chief said.
Besides, the SEBI is also looking at the possibility of introducing an IT resilience index for market infrastructure institutions to provide an objective framework for assessing the resilience of critical systems.
Pandey observed that the country's next phase of growth would require intelligent use of technology to widen investment opportunities, deepen financing channels and make regulation more future-ready.
He added that the market regulator's approach involves proportionate and forward-looking regulation that enables market growth without compromising on integrity and investor protection.
"The question is not whether markets will use AI, the question is how we use it responsibly while preserving trust," he said, adding "With AI and technology, every SEBI-regulated entity remains fully responsible for any AI or machine learning tool it uses, whether developed in-house or procured from a third party."
The SEBI Chairman cautioned that while AI could strengthen market surveillance, risk assessment, fraud detection and investor servicing, it also creates risks around opacity, bias, cybersecurity, data protection and accountability.
On the new Closing Auction Session (CAS) that caused the benchmark indices to diverge soon after implementation, Pandey who had earlier said there is no evidence of manipulation in the new system, stated the market regulator can easily detect if someone is trying to rig the system.
"We can catch hold of manipulation in CAS relatively easily. CAS is for transparency. And if anybody feels that they will manipulate CAS for defaming the new system, they are in danger," Pandey said.
CAS was implemented on August 3 to make the price discovery mechanism more robust and transparent. The closing auction mechanism for shares having futures and options contracts consists of a dedicated 20-minute session during which buy and sell orders are collected to determine an equilibrium closing price for a stock.
The final price is discovered at the level where the maximum executable volume is matched. The new framework swaps the earlier methodology of using the weighted average of trades executed during the final 30 minutes of the regular trading session to calculate the closing prices.
The regulator had said CAS will help to achieve cross-market consistency and enhance the robustness of India's price discovery mechanism, making it fairer and more transparent.
Pandey also said a growing economy would create new investment frontiers and added India's financialisation needs to become deeper and broader as there is significant scope to expand participation in capital markets.
"India's capital markets have transformed and are no longer merely a barometer of economic activity. They are an important driver of it," Pandey said. "The central question: How do we build markets that are deeper and more innovative, yet fairer, safer, and more trusted?" he added.
(With inputs from agencies)
