SEBI introduces AI concept through amendment in Securities Contracts Regulations

On February 6, 2025, the Securities and Exchange Board of India (SEBI) announced the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) (Amendment) Regulations, 2025, to make changes to the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018. These amendments officially took effect on February 10, 2025.

One of the key highlights of these amendments is the introduction of a new Regulation 18-DA, specifically addressing the “Responsibility for the use of Artificial Intelligence.” If any recognized stock exchange or clearing corporation decides to utilize AI or machine learning tools and techniques, they will bear sole responsibility for ensuring the privacy, security, and integrity of investors’ and stakeholders’ data, including data held in a fiduciary capacity during all related processes. Additionally, they will be accountable for the outcomes generated by the use of such tools and techniques and ensuring compliance with relevant laws.

SEBI has outlined that AI and machine learning tools and techniques can be either developed in-house by the recognized entities or acquired from third-party technology providers. These tools encompass applications, software programs, executable systems, or a combination thereof that are utilized by recognized stock exchanges or clearing corporations to facilitate trading, settlement, compliance requirements, management tasks, and other business activities. Whether these tools are offered to the public as part of products or used internally, the responsibility for their use falls on the entities employing them.

The introduction of these regulations highlights SEBI’s proactive approach to incorporating technological advancements like AI into the financial sector. By acknowledging the potential benefits and risks associated with AI and machine learning, SEBI aims to ensure that investors and stakeholders are protected while also promoting innovation and efficiency in stock exchanges and clearing corporations.

It is essential for recognized entities utilizing AI to prioritize data privacy, security, and integrity, as these factors are crucial for maintaining trust within the financial ecosystem. Compliance with existing laws and regulations is non-negotiable, emphasizing the need for responsible and ethical AI usage in the financial industry.

Overall, SEBI’s update on the concept of AI within the Securities Contracts Regulations demonstrates a commitment to fostering a technologically sophisticated and secure environment for market participants. By setting clear guidelines and expectations regarding AI implementation, SEBI aims to promote transparency, accountability, and resilience within the stock exchanges and clearing corporations under its purview. This move reflects a forward-looking approach to regulatory practices and positions India’s financial markets for continued growth and innovation in the digital age.