Sebi to soon roll out AI rules with a ‘kill switch’ for stock market

Sebi will soon issue guidelines for the responsible use of artificial intelligence (AI) and machine learning in India’s securities market, with the rules expected to cover a “kill switch,” human oversight and data controls.

The move comes as India’s capital markets expand rapidly, with around 149 million unique investors and market capitalisation at around 132% of GDP, Sebi Chairman Tuhin Kanta Pandey said at FICCI’s 23rd Annual Capital Markets Conference on August 19.

Pandey said India’s capital markets are no longer just a barometer of economic activity but have become an important driver of it. He said the markets now connect household savings with enterprises, global capital with domestic opportunities, and risk capital with new ideas.


In FY26, equity issuances crossed Rs 4.5 trillion, with around Rs 1.9 trillion raised through 366 IPOs. By the end of July 2026, Rs 260 billion had been raised through 79 IPOs, while another Rs 2 trillion could potentially be raised going forward, he said. Corporate bond issuances crossed Rs 9 trillion in FY26, while Rs 2.7 trillion was raised in the first four months of FY27.

Mutual fund assets stood at around Rs 86 trillion, with SIP assets accounting for more than one-fifth of industry assets. Pandey said this was evidence of financialisation in action, as households are increasingly becoming investors in India’s growth story.

The Sebi chairman said the next phase of India’s market journey will not be defined by scale alone, but by how well that scale is used. Financialisation, he said, must become broader and deeper, with participation spreading to new geographies, demographics and investor segments.

Technology is now part of market infrastructure, Pandey said. Digital KYC, paperless onboarding, mobile platforms and electronic payments have reduced friction for investors. AI can help with surveillance, risk assessment, fraud detection and investor servicing, but it also brings concerns around opacity, bias, cybersecurity, data protection and accountability.

“The question is not whether markets will use AI. The question is how we use it responsibly, while preserving trust,” Pandey said.

Sebi has already used AI through Project SUDARSAN and R(AI)DAR to identify suspicious financial promotions and potentially misleading advertisements. The regulator has also created the Cyber Suraksha Portal to strengthen information-sharing and cyber resilience across the market ecosystem.

Pandey said every Sebi-regulated entity will remain fully responsible for any AI or machine-learning tool it uses, whether developed internally or procured from a third party. That responsibility will extend to the privacy, security and integrity of investor data, as well as the outputs generated by the tool.

The proposed AI guidelines will follow a tiered approach, with an emphasis on accountability and governance controls. The framework will require a kill switch and human-in-the-loop controls, with data controls. Pandey said the aim is to strike a balance between innovation and investor protection.

The regulator is also looking at several market reforms. For portfolio managers, Sebi is consulting on allowing client funds to be invested in foreign securities, creating a mutual-fund-only PMS for mass-affluent investors, and supporting global fund-management activity from India.