Informist, Friday, Jun. 20, 2025

--SEBI issues consultation paper on norms for responsible AI usage in mkts

--SEBI seeks public views by Jul 11 on paper on responsible AI usage in mkts

--SEBI mulls guiding principles on responsible usage of AI, machine learning

NEW DELHI – The Securities and Exchange Board of India Friday issued a consultation paper on guidelines for the responsible usage of artificial intelligence and machine learning in the domestic securities markets. The markets regulator has proposed core guiding principles for AI and machine learning usage by market intermediaries, listed companies, and market institutions.

In its consultation paper, SEBI said it wants potential risks associated with the integration of AI and machine learning based applications in securities markets to be minimised. The markets regulator has invited public comments on the proposals by Jul. 11.

SEBI has proposed five core guiding principles for the use of AI and machine learning in the domestic securities markets -- model governance, investor protection through disclosures, testing framework, fairness and bias, and data privacy and cybersecurity measures. The regulator has detailed potential risks from the use of AI and machine learning models and possible control measures.

One of the risks highlighted by SEBI is malicious use of AI and machine learns that leads to market manipulation or misinformation. "Generative AI has the capability to create fraudulent financial statements, misleading news articles, or deep fake content, which can result in price manipulation or market instability," SEBI said. SEBI has suggested watermarking and provenance tracking, suspicious activity reporting, and public awareness campaigns as possible control measures to prevent misuse.

Another risk, according to SEBI, could be from herding and collusive behaviour. "Widespread use of common models and datasets may have potential impacts on financial markets, in particular if these models and datasets are used in similar ways by systemically important institutions or by large cohorts of market participants," SEBI said. To counter this risk, SEBI has proposed the promotion of the usage of varied AI architectures and proprietary datasets by market participants, regular audits to detect collusive patterns, and circuit breakers to respond to AI-driven amplified market volatility.

SEBI also highlighted the risk of flaws in generative AI systems spreading across markets, potentially leading to financial instability. To counter this, SEBI has proposed simulation of extreme scenarios to do stress testing of AI models in use, circuit breakers and kill switches, and human accountability for AI-driven decisions. End

Reported by Rajesh Gajra

Edited by Saji George Titus

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