The Securities and Exchange Board of India has issued guidelines for AI-driven trading systems as rising cyber risks and software vulnerabilities threaten market integrity. SEBI Chairman Tuhin Kanta Pandey announced this development on Monday, emphasizing that cyber risk from AI has increased and we are now issuing an advisory on how the SEBI ecosystem and regulated entities can be protected from that enhanced risk. The regulator is also strengthening cybersecurity measures across market intermediaries and regulated entities to address the growing dependence on AI that has heightened vulnerabilities that could threaten market integrity.
Sebi Chairman Tuhin Kanta Pandey emphasized that India's financial markets remain resilient despite significant volatility from the ongoing West Asia conflict. Speaking at the Regional Investors Seminar for Awareness, Pandey noted that volatility has shot up in the financial markets due to the ongoing West Asia conflict, but the Indian bourses have the capacity to 'absorb different types of shocks'. As reported by Moneycontrol, Pandey explained that when there is a crisis in one part of the world, it impacts the rest of the globe, with oil supply chain and prices affected, all economies have been affected by this and obviously, there are inflationary risks. However, he highlighted that the advantages of a resilient Indian market are that it is able to absorb different types of shocks, and when these end, the market again resumes its normal trajectory.
Pandey has identified artificial intelligence-driven cybersecurity threats as one of the most pressing risks to market integrity. According to reports from The Hindu BusinessLine, Pandey called for aggressive measures against AI-led cybersecurity risks, particularly emphasizing management across all software systems deployed in India's financial markets. The SEBI Chairman warned that increasing dependence on technology has also amplified vulnerabilities that could threaten market integrity. Speaking to ANI, Pandey explained that if certain cyber security is threatened, that means if vulnerabilities are found in the software, very, very quickly, there is a problem that we will be attacked and those attacks may be successful. He stressed the need for aggressive patch management and stronger verification systems to secure software, including applications deployed through third-party vendors.
To address cybersecurity concerns, SEBI plans to implement aggressive patch management and stronger verification systems to secure software applications. According to The Hindu BusinessLine, Pandey emphasized that there has to be aggressive patch management and extensive use of conventional tools to identify vulnerabilities. The SEBI Chairman stressed that SEBI is using mechanism to ensure that the market, market ecosystem, and intermediaries are protected from any cyber risk. This proactive approach aims to prevent successful attacks that could compromise market integrity through exploitation of software vulnerabilities. Two weeks ago, SEBI issued an advisory on emerging AI-led vulnerability identification tools such as Anthropic's recent model Mythos, directing market participants to immediately update operating systems with the latest security patches to mitigate known vulnerabilities.
India's securities market participation has witnessed remarkable growth, with retail participation in Indian securities markets surging to around 145 million unique investors compared with 38 million in FY19. As of FY26, 22 urban local bodies across India have raised more than ₹4,500 crore through municipal bond issuances, demonstrating the evolving municipal bond market's importance. The number of investors from Odisha participating in the securities market has grown more than tenfold to 2.85 million in FY26 from FY15 levels (285,000). However, only 9.5% of Indian households currently invest in securities market products, despite awareness levels standing at 63%. SEBI conducted more than 41,000 investor awareness programmes in FY26, reaching over 22 lakh participants across the country, while collaborating with the Ministry of Panchayati Raj to train panchayat representatives for financial literacy promotion.
