The Securities and Exchange Commission of India (SEBI) has raised a joint discussion paper seeking the views of stakeholders to ensure the responsible use of artificial intelligence (AI) and machine learning (ML) in the securities market.
In the consultation paper, Sebi proposes guidelines for the responsible use of AI and ML. “These guiding principles aim to optimize and minimize the potential risks associated with the integration of AI/ML-based applications in the securities market to protect investors, market integrity and financial stability,” the paper states.
Also Read: Which shares acquired in 2025 but credited in 2026 are counted for acquisitions? Sebi clears the air with unofficial guidance.
The guidelines proposed in the cooperative discussion paper are model governance, investor protection secrets, testing frameworks, fairness and bias, data privacy, and cybersecurity measures.
Model Governance
Under proposed model governance, market participants using AI/ML models require skilled teams to monitor performance and oversee algorithm control, testing, effectiveness and security. Appropriate risk management measures and governance frameworks are needed, especially during market stress.
They must appoint designated senior management positions with appropriate technical knowledge and experience responsible for the development, verification, continuous testing, deployment, monitoring and management of AI/ML-based models. It is also stipulated that SEBI regularly monitors the accuracy of AI/ML models and SEBI regularly shares it.
Investor Protection and Disclosure
You need to use AI/ML models for business operations that can impact your customers and disclose it to your customers to promote trust, transparency and accountability.
Participants should disclose parameters regarding how trading algorithms are selected, how they are used for asset management/portfolio management, use of advisory and support services, and more. Market regulators provide an exhaustive list that needs to be disclosed when AI/ML is used.
Test Framework
The SEBI paper suggests that market participants should properly test and monitor AI/ML-based models and validate their results regularly. Testing should be done in an environment isolated from the live environment prior to deployment to ensure that the AI/ML model works as expected in stress-free and stress-free market conditions.
Participants must maintain appropriate documentation for all models and store input and output data for at least 5 years. A suitable document explaining the logic of the AI/ML model is also necessary to ensure that the generated results are explained, traceable and reproducible. Continuous testing of AI/ML models has also been proposed.
Fairness and bias
The consultation paper stated that AI/ML-based models should be fair. Specifically, you should not support or discriminate against one group of clients over another group. Market participants should ensure that the data used is sufficiently quality and broad enough. This can be done by checking the quality of the source used and the data relevance and integrity regarding the purpose of the model. The paper stated that appropriate processes and controls are required to identify and remove biases from the dataset.
Data Privacy and Cyber Security
The SEBI paper proposes that as AI/ML systems rely on data collection and processing, market participants should have clear policies for data security, cybersecurity and data privacy regarding the use of AI/ML-based models.
The collection, use, and processing of investors' personal data, and security measures must be governed by applicable law. Information regarding technical defects and data breaches shall be communicated to SEBI and other relevant authorities in accordance with existing regulatory and legal frameworks.
This paper proposed a regulatory light framework for using AI/ML in the securities market for purposes other than business operations that could directly affect customers. Regulators are seeking public comment on the discussion paper by July 11, 2025.
Also Read: Tuhin Kanta Pandey brings a light touch to Sebi compared to his predecessor
