AI in Securities Market - Letting the bots do the bull and bear talking

AI in the Securities Market: Legal Considerations, Opportunities, and Risks

Artificial Intelligence (“AI”) in the Securities Market of India is redefining the way markets operate. From instaneous trading algorithms to enhanced market surveillance, AI now forms an integral part of trading, compliance, and regulatory oversight. However, these technological advances also bring complex legal issues that investors, market participants, and regulators need to address.

AI in Securities Market is like the financial assistant who never sleeps, remembers everything, notices market shifts in seconds, and makes decisions faster than any human.

Indian securities law is at an inflection point i.e. at a moment of significant change. It is pertinent to note that while innovation is important, so is the insistence on maintaining market integrity. Participants must actively engage with both the letter and spirit of evolving regulations, ensuring AI-driven solutions withstand legal scrutiny.

Legal scope

AI’s presence is mostly visible in high-frequency trading, analysis predictions, and robot enabled advisory services. Securities and Exchange Board of India (“SEBI”) has efficiently adopted AI and machine learning to improve surveillance, quickly identifying suspicious trading patterns and market abuse.

SEBI is embracing and actively deploying AI for surveillance in real-time and has underscored the need for algorithmic accountability. Whether in algorithmic trading or AI-based research, clear legal obligations persist:

• Transparency and Explainability: AI-driven decisions may be opaque. SEBI and other regulators emphasise that market participants must be able to explain the rationale behind AI’s actions, especially where investor rights or market integrity are at stake.

• Accountability: Assigning responsibility for AI decisions, particularly those resulting in regulatory breaches or losses remains a central challenge. Existing frameworks like the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, may require reinterpretation to address liability in an AI-driven marketplace.

• Investor Protection and Data Privacy: AI tools can access and process sensitive personal data. Market intermediaries must comply with privacy laws and regulatory guidelines, ensuring robust data protection mechanisms.

  
  

Regulatory Response and Emerging Frameworks

SEBI has initiated consultations and issued discussion papers on the use of AI and machine learning ("ML") in the securities market. There is a growing recognition that legal frameworks must evolve to balance innovations with systemic safeguards, and investor and market protection.

On June 20, 2025, SEBI released a consultation paper on guidelines for responsible usage of Artificial Intelligence AI/ML In Indian Securities Markets to safeguard investor protection, market integrity, and financial stability. This paper covers global best practices, current usage of AI/ML, Investor Protection disclosure, tiered approach and public comments on the same.

Why it matters to you

With AI working behind the scenes, the securities market is much quicker, smarter, and more complex. This means decisions are made in real time and even small missteps can trigger regulatory scrutiny. For anyone involved in the market, keeping up with AI’s impact is crucial for protecting your interests and ensuring your strategies are both competitive and compliant in the market.

Closing Thought

For legal professionals and investors, the message is clear - AI can enhance both market opportunity and compliance, but only when used strategically and within regulatory provisions. Staying updated on evolving SEBI guidelines is crucial for anyone navigating today’s AI-driven markets.

AI in the securities market are where algorithms hustle while the rest of us are still searching for our calculators.