SEBI Mulls Home‑Grown AI Model and Regulatory Tweaks to Boost India’s Securities Market

Overview

The Securities and Exchange Board of India (SEBI) announced a suite of initiatives aimed at modernising market infrastructure and regulatory frameworks during the closing day of the Business Standard BFSI Insight Summit on 8 October 2023. Chairman Tuhin Kanta Pandey outlined plans to develop a domestically governed artificial‑intelligence (AI) model for the securities market, align foreign‑portfolio‑investor (FPI) compliance with global norms, and tighten governance rules for small‑ and medium‑enterprise (SME) issuers and listed companies.

SEBI’s Domestic AI Model

Pandey said SEBI is “exploring the possibility of developing a securities‑market‑specific AI model that could be built and governed domestically as a form of Digital Public Infrastructure.” The move is driven by concerns over the confidentiality and availability of frontier AI systems owned by foreign providers. In parallel, SEBI is working to adopt the International Organization of Securities Commissions’ (IOSCO) supervisory toolkit for AI, which is intended to help regulators manage AI‑related risks and create an “agile AI governance framework.”

Aligning FPI Compliance with Global Standards

SEBI plans to issue a consultation paper to solicit market feedback on revising certain FPI compliance requirements. While the regulator has already streamlined digital onboarding and simplified procedures for FPIs, Pandey noted that some Indian rules remain “more onerous than those in other major jurisdictions.” The proposed changes aim to preserve investor‑protection safeguards while bringing Indian standards closer to those used internationally.

Review of the SME Framework

The regulator is also revisiting its SME listing framework. Proposed adjustments include:

• Determining issuer eligibility based on post‑issue market capitalisation rather than pre‑issue metrics.
• Requiring larger SME issuers to adopt Indian Accounting Standards (Ind AS).

These steps are intended to ensure that growth in the SME segment is underpinned by robust governance, credible disclosures and sound risk management.

Governance Enhancements for Listed Companies

SEBI has drafted amendments to the Listing Obligations and Disclosure Requirements (LODR) that would:

• Strengthen monitoring and disclosure of how issue proceeds are used.
• Mandate that monitoring agencies submit reports directly to stock exchanges within a prescribed timeline.
• Extend the existing information‑technology and cybersecurity framework—currently applicable to market‑infrastructure institutions—to their subsidiaries.

A joint training programme with the National Institute of Securities Markets (NISM) and Rashtriya Raksha University is being prepared to equip security‑operations‑centre engineers with AI tools for alert analysis and automated response development.

Market‑Growth Context

Pandey highlighted that market capitalisation as a share of GDP has risen from 69 % in FY 2016 to roughly 130 % in FY 2027. Outstanding corporate bonds now total about ₹61 trillion, representing close to 55 % of bank credit to industry and services. He argued that the “next phase” requires deeper equity, corporate‑bond, REIT and InvIT markets, a broader issuer base, stronger secondary‑market liquidity and greater institutional participation.

Practical Implications for Market Participants

• Issuers and SMEs should anticipate stricter eligibility criteria and possible mandatory adoption of Ind AS, which may affect preparation timelines and audit costs.
• FPIs can expect a consultation paper in the coming months; firms should monitor the draft to assess any operational changes needed for compliance.
• Listed companies will need to enhance reporting on the use of issue proceeds and may have to integrate new IT‑security protocols across subsidiaries.
• Technology providers may find opportunities to supply AI‑driven monitoring and cybersecurity solutions that align with SEBI’s envisioned digital public infrastructure.

What Remains Uncertain

• The timeline for developing and deploying the domestic AI model has not been disclosed.
• Specific details of the forthcoming FPI consultation paper, including which requirements will be altered, are pending.
• The exact thresholds for post‑issue market‑capitalisation eligibility for SME issuers have not been published.
• Implementation dates for the LODR amendments and the extended cybersecurity framework are yet to be announced.

How Readers Can Verify the Information

All statements in this article are drawn from SEBI Chairman Tuhin Kanta Pandey’s remarks at the Business Standard BFSI Insight Summit, as reported by Business Standard. The original coverage can be accessed at: [https://www.business-standard.com/specials/bs-events/bfsi-insight-summit-sebi-explores-domestic-ai-model-for-securities-market-126102801985_1.html](https://www.business-standard.com/specials/bs-events/bfsi-insight-summit-sebi-explores-domestic-ai-model-for-securities-market-126102801985_1.html) Readers are encouraged to consult the source for the full transcript of Pandey’s speech and any subsequent official releases from SEBI.

--- This article was prepared using publicly available information and does not contain original reporting or interviews.