SEBI Considers Domestic AI Model as Digital Public Infrastructure for Indian Securities Market — October 28, 2026

In a strategic move to fortify technological sovereignty and modernize regulatory oversight across India's financial markets, the Securities and Exchange Board of India (SEBI) is exploring the development of a homegrown artificial intelligence model tailored specifically for the domestic securities ecosystem.

Delivering the keynote address at the Business Standard BFSI Insight Summit in Mumbai, SEBI Chairman Tuhin Kanta Pandey revealed that the market watchdog is evaluating a securities market-specific AI architecture that would be developed and governed domestically. Pandey indicated that the proposed solution could eventually operate as a form of Digital Public Infrastructure (DPI), mirroring India's successful rollout of foundational public digital architectures across payments and identity verification.

Addressing Data Sovereignty and Frontier AI Risks

The push for a proprietary domestic framework stems from regulatory apprehensions surrounding frontier AI models developed by foreign commercial entities. Pandey noted that the sensitive nature of market data necessitates rigorous safeguards over data availability and confidentiality, which third-party, cross-border models may not fully guarantee.

While acknowledging that machine learning and algorithmic tools offer unmatched capabilities in spotting complex trading patterns, evaluating systemic risk, and enhancing institutional supervision, the regulator underscored that technology cannot become a substitute for legal and operational accountability.

"Using AI will require reliable data, effective model oversight, and clarity about who is accountable for decisions," Pandey remarked, reiterating that ultimate responsibility for market conduct and algorithmic outcomes remains firmly with regulated entities.

Integrating IOSCO Standards and Governance Frameworks

To institutionalize these oversight mechanisms, SEBI is adopting the supervisory toolkit crafted by the International Organization of Securities Commissions (IOSCO). The global toolkit will form the foundation of an agile domestic governance framework that balances technological adoption with systemic safeguards.

The upcoming framework will build upon earlier regulatory measures—such as SEBI's Project SUDARSAN and R(AI)DAR surveillance engines—to ensure market operations remain transparent and orderly.

Key Pillars of SEBI's Proposed AI Architecture:

• Data Governance and Confidentiality: Ensuring that sensitive financial records, order books, and investor information remain localized and protected under domestic cyber protocols.
• Tiered Accountability: Mandating that registered intermediaries, asset management companies, and exchanges remain strictly responsible for outputs generated by both internal and outsourced AI tools.
• Mandatory Human-in-the-Loop Controls: Incorporating operational "kill switches" and explicit human intervention mechanisms to halt rogue automated systems or errant execution algorithms.
• Supervisory Surveillance: Utilizing machine learning to detect front-running, unauthorized investment advisory promotions, and coordinated manipulative trading patterns in real time.

Upgrading Cybersecurity and Infrastructure Standards

Alongside the AI agenda, SEBI is overhauling technical resilience across Market Infrastructure Institutions (MIIs), including stock exchanges, clearing corporations, and depositories. The regulator has proposed extending its comprehensive information technology and cybersecurity framework directly to the subsidiaries of MIIs, closing vulnerabilities that may arise through outsourced or auxiliary operations.

To bridge technical talent gaps, SEBI has also partnered with the National Institute of Securities Markets (NISM) and Rashtriya Raksha University (RRU) to launch targeted training programs for engineers managing Security Operations Centres (SOCs). These programs aim to equip security personnel with modern AI-driven alert analysis and automated threat-response capabilities.

Broader Market Impact

The regulatory evolution aligns with SEBI's ongoing initiatives to streamline compliance for institutional investors while lowering friction for retail participants. During the address, Pandey confirmed that SEBI is also reviewing compliance standards for Foreign Portfolio Investors (FPIs) to align domestic guidelines with international norms, ensuring India remains an attractive destination for foreign capital without sacrificing market oversight.

For market participants, brokers, and individual traders, the transition toward a homegrown AI supervisory framework signals a tighter surveillance grid against market manipulation, quicker processing of regulatory disclosures, and an emphasis on data integrity across all Indian capital market platforms.