SEBI Issues Directive To Stock Brokers, Depository Participants Using AI Tools
People use smartphones next to a robot. (Photographer: Qilai Shen/Bloomberg)

SEBI Issues Directive To Stock Brokers, Depository Participants Using AI Tools


Stock brokers and depository participants using applications based on artificial intelligence will have to make quarterly disclosures on their compliance with cyber security framework, according to the Securities and Exchange Board of India.

The directive comes after the regulator observed that AI or machine-learning systems are black boxes and their behaviour cannot be easily quantified.

"It is imperative to ensure that any advertised financial benefit owing to these technologies for products offered by intermediaries should not constitute to misrepresentation," the market regulator said in a circular on Friday.

SEBI directed stock brokers and depository participants using applications based on AI and machine learning to inform about its system whether it adheres to regulator's cyber security framework or not, among others.

Besides, they need to report in a prescribed format about the implementation of AI or machine learning system, safeguards in place to prevent abnormal behaviour of the AI or machine-learning application and whether the system disseminates investment or trading advice or strategies and name of the application, among others, SEBI said in a circular.

"With effect from quarter ending March 2019, registered stock brokers/ depository participant using AI/machine learning based application or system... are required to fill in form and make submissions on quarterly basis within 15 calendar days of the expiry of the quarter," it said.

Besides, the regulator is conducting a survey and creating an inventory of the AI/machine learning landscape in the financial markets to gain an in-depth understanding of the adoption of such technologies in the markets and to ensure preparedness for any AI/machine learning policies that may arise in the future, the circular added.

In a separate circular, the regulator said to harmonise the procedures for transmission of securities in dematerialised mode, with that of transmission of securities in physical mode, transmission of securities would be dealt in line with Listing Obligations and Disclosure Requirements Regulations.

Also read: SEBI Comes Out With New Rules Governing Changes In Issue Size

Accordingly, "succession certificate or probate of will or will or letter of administration or court decree, as may be applicable in terms of Indian Succession Act, 1925 has been prescribed as documentary requirement for transmission of securities held in physical mode" under LODR norms, the circular added.

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