SEBI Proposes First-Ever AI Guidelines for Algo Trading in India

MUMBAI | JUNE 23, 2025

In a landmark move, the Securities and Exchange Board of India (SEBI) has released a draft proposal to regulate the use of artificial intelligence and machine learning in the stock market — particularly in algorithmic trading.

The proposed guidelines aim to bring transparency, auditability, and fairness to an increasingly automated market landscape.

“AI is now integral to modern trading systems. These guidelines will ensure it’s used responsibly,” said a senior SEBI official.

What’s in the Draft?

Here’s what SEBI is suggesting:

• The draft guidelines include:

  • Mandatory registration of AI/ML models used by brokers and market intermediaries.

  • Detailed disclosure requirements about the functioning and decision logic of these models.

  • Periodic testing and certification to assess model performance and risks.

  • Real-time monitoring protocols to flag manipulative or erratic behavior.

  The market regulator has opened the document for public comments until June 30, 2025.

The regulator has invited public feedback until June 30, 2025.

“As technology evolves, market integrity must not be compromised,” SEBI said in its official note. “The use of AI and ML models should adhere to minimum standards to ensure auditability and fairness.”

Why This Matters to India’s Markets

India’s equity markets are seeing a sharp rise in AI-powered automated strategies, especially among high-frequency trading (HFT) firms and retail brokerages.

While algorithmic trading has helped improve market liquidity, concerns have grown over the unregulated use of complex, opaque AI models that may cause unintended volatility, flash crashes, or manipulation of price discovery.

Industry veterans welcomed the move.

“This is a step in the right direction,” said Arun Mehta, a Mumbai-based trading compliance consultant. “It will boost investor confidence and bring Indian markets in line with global best practices.”

India Joins Global Push for AI Oversight

Globally, financial watchdogs like the U.S. SEC, UK’s FCA, and EU’s ESMA have begun enforcing tighter norms around AI in finance. SEBI’s draft puts India on a similar path — signaling proactive regulation in the face of emerging technological disruption.

Once finalized, the framework could become a benchmark for responsible AI deployment in India’s financial sector, which is among the most dynamic in Asia.

“This sets the stage for a globally respected AI-driven financial system,” said Ananya Sen, fintech policy analyst.