Stock Market: There will be strictness on the use of AI in the market, draft guidelines issued

News Topical, Digital Desk : Now, companies using artificial intelligence and machine learning tools in the Indian stock market will have to exercise more responsibility and transparency than before. Regarding this, SEBI has issued a consultation paper in which several new rules have been suggested to ensure responsible and safe use of AI and machine learning. Actually, SEBI wants the use of technology to increase in the market but there should be no possibility of their misuse. For this reason, SEBI is insisting on some strictness in the rules for using them.

Why this paper has been issued

SEBI's objective is that the market should get the full benefits of modern technical tools like AI/ML but at the same time investor protection, market transparency and financial stability should also be maintained. In recent years, the use of AI/ML has increased rapidly in various areas of the stock market such as risk management, trading algorithms, customer support, cyber security and monitoring. What are the highlights of the guideline The guideline talks about model governance, according to which every institution should have a technically competent team that takes charge of monitoring, testing and controlling AI models. Along with this, there should be a backup process in case of any technical glitch or failure in AI models. At the same time, clear contracts and accountability should be fixed with third party vendors. Apart from this, the guideline for investor protection states that the institutions that use AI/ML models in operations that have direct contact with investors (such as trading, portfolio management, advisory services) will have to clearly tell the customers what kind of models they are using. Customers should be given complete information about the limitations, accuracy, charges and risks of the model in simple language. At the same time, the guideline said that before bringing any AI / ML model into the live system, it should be tested in a separate testing environment and the functioning of the model should be recorded and kept safe for up to 5 years. Continuous monitoring should ensure that the functioning of the model does not become abnormal over time. Along with this, strict cyber security measures should be implemented to ensure the security and confidentiality of the data being used for AI models. Which companies will this rule apply to? This guideline will apply to stock exchanges, brokers, clearing corporations, mutual funds and other registered intermediaries. However, where AI is being used only in cases like internal monitoring or cyber security, only some rules will be implemented. What next? SEBI has sought suggestions on this consultation paper from the public and market participants by July 11, 2025. After this the final guideline will be made.
 

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