India’s markets regulator is considering sweeping changes to trading, supervision and technology rules, including a review of short selling, tighter controls on trading terminals and an AI sandbox.
India’s markets regulator is weighing a broad set of changes to make trading more liquid, supervision more efficient and technology oversight tighter, with Securities and Exchange Board of India chair Tuhin Kanta Pandey saying the watchdog is reviewing short selling and securities lending and borrowing rules while trying to curb misuse of trading terminals. Addressing the 16th International Capital Market Convention in Mumbai on Saturday, Pandey said Sebi was also looking at ways to bring its inspection systems into a single digital workflow and was exploring an artificial intelligence sandbox so new tools could be tested with clearer regulatory guardrails.
The review of short selling and securities lending and borrowing is part of a longer-running push to deepen India’s capital markets. Business Standard reported earlier this year that Pandey had already flagged a review of the framework as a way to strengthen the link between cash and derivatives trading and improve price discovery. In November last year, he said Sebi would form a working group to examine the rules, noting that short selling had changed little since 2007 and securities lending and borrowing remained less developed than in many global markets.
Pandey also said Sebi was finalising guidelines on the responsible use of AI, following a tiered approach that would set out accountability, data controls, emergency shut-off mechanisms and human oversight. According to his remarks, those principles would align with the toolkit produced by the International Organization of Securities Commissions. The regulator is also considering a market-making framework for corporate bonds, a move intended to support secondary trading in a segment that has often been thinly traded.
The chairman warned that rapid technological change was raising fresh operational and cyber risks across the market. “Algorithms now drive a growing share of trades. Artificial Intelligence is reshaping how people invest. Cyber-attacks grow sharper every year. A single outage can hurt thousands of investors within minutes. A single breach can shake trust across the system. So, treat cyber security as a business priority, not an IT expense. Test your systems. Plan for failure,” Pandey said in Mumbai.
Sebi is also working on a series of smaller but potentially important compliance changes. These include graded requirements for brokers, based on their size, client base and reliance on technology, as well as simpler rules for depository participants with stronger safeguards against fraud. The regulator plans to extend its automated give-up and take-up facility to custodial clients such as portfolio management services and alternative investment funds in the cash segment, and it wants a single submission system under the Samuhik Prativedan Manch to cover both exchanges and depositories. It is also addressing the use of parallel clearing in tender offers, buybacks and offers for sale, which it says could improve capital efficiency and lower compliance costs.
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