How SEBI is Using AI to Keep a Closer Watch on Markets

India's market regulator, the Securities and Exchange Board of India (SEBI), is increasingly relying on artificial intelligence to monitor complex trading activity, identify anomalies and detect potential market misconduct in real time. How SEBI's AI Surveillance Works On a typical workday, dozens of analysts work around screens, using AI tools to examine huge streams of market data, including stock volumes, derivative positions and algorithmic identifiers. SEBI also tracks suspicious stock tips and promotional posts across social media platforms and online forums. These are matched with trading activity to identify possible pump-and-dump schemes. One recent case highlighted the potential of the system. Last month, SEBI launched enforcement action against a JPMorgan Chase & Co. unit six days after its surveillance systems flagged suspicious activity in a newly launched closing auction mechanism, according to a person familiar with the matter. An alert generated by AI and machine-learning tools was among the factors underpinning the regulator's case. SEBI lifted a trading ban after impounding the alleged illegal gains, but the investigation will continue. SEBI Expands its AI Push The development is part of SEBI's broader effort to use AI to identify potential misconduct and emerging risks in increasingly complex financial markets. India's markets now involve nearly USD 4 trillion in notional derivatives trades, sophisticated high-speed traders and a growing volume of social media commentary and misinformation. AI helped generate more targeted alerts for unusual trading activity and speed up parts of the review process for initial public offerings by as much as 70%, according to people familiar with the matter. SEBI also expanded its team of engineers and analysts to more than 200 employees from about 20 five years ago. Social Media Under Surveillance SEBI extended its technology-driven monitoring to social media, which became a persistent source of market manipulation targeting India's 140-million-strong retail investor base. The regulator now makes as many as 7,000 requests a month to platforms including X, Instagram and Telegram to remove misinformation, up about 40 per cent from pandemic-era levels. The system helped take down more than 100,000 videos across networks. Also Read: NSE IPO: SEBI Chairman Says No Proposal to Trade Shares on NSE AI Still Needs Human Oversight SEBI began investing in a local data centre at its Mumbai headquarters in Bandra Kurla Complex in 2019. The facility became operational in 2021, the same year the regulator began deploying its in-house AI tool, Sudarshan. However, challenges remain, including AI hallucinations, data poisoning and limited access to graphics processing units because of a global supply crunch . SEBI officials still review AI-generated outputs and make adjustments to ensure decisions comply with regulations and can withstand legal scrutiny. “AI needs to be seen as an assistant, not as an autonomous regulator,” said JP Mishra, founder at Deep Algorithms Solutions. Experts also stress the need for strong model governance, data confidentiality and appropriate risk management as regulators across Asia expand their use of AI.