SEBI plans rules for AI-based trading
What's the story
The Securities and Exchange Board of India (SEBI) is working on a framework to regulate artificial intelligence (AI)-driven trading. SEBI Chairman, Tuhin Kanta Pandey, made the announcement at an event hosted by the Association of Mutual Funds in India in Odisha. He emphasized that while AI offers opportunities for automation, it also brings increased cyber risks to the financial ecosystem.
Regulatory measures
Guidelines for AI-driven trading
Pandey said, "For AI-driven trading, we are actually going for guidelines on that. On how AIs will, in future, do that. Now AI has an opportunity as well as a risk." He noted that while financial entities are using AI to automate processes and reach investors in multiple languages, their growing reliance on technology has also increased vulnerabilities that could potentially threaten market integrity.
Cybersecurity guidance
Vulnerabilities could lead to cyberattacks
Pandey warned that if vulnerabilities are detected in software, it could lead to cyberattacks. "That is bringing risk to the market integrity," he said. The SEBI Chairman also spoke about an AI-enabled investor awareness initiative called "Project Jagrook," which aims to enhance investor engagement through a multi-agency and multimedia campaign.
Security measures
Patch management and verification systems
Pandey stressed the importance of aggressive patch management and stronger verification systems to secure software, including those deployed through third-party vendors. He also addressed foreign portfolio investor (FPI) outflows, calling them a normal part of the global investment cycle. Pandey said overseas investors constantly evaluate returns and macroeconomic conditions across markets while making their decisions.
Regulatory action
Addressing unauthorized deposit schemes
Pandey also addressed the issue of unauthorized deposit schemes, saying state governments have the authority to act against illegal collections through laws like the Chit Fund Act and the Banning of Unauthorized Deposits Act. He urged asset management companies and local administrations to guide investors toward regulated financial products such as mutual funds, Portfolio Management Services (PMS), and Alternative Investment Funds (AIFs).