SEBI to overhaul short selling rules, launch AI sandbox for markets

The Securities and Exchange Board of India (SEBI) is conducting a detailed examination of its short selling and securities lending and borrowing (SLB) regulations as part of broader efforts to strengthen market infrastructure and risk management.

Beyond the review of these core trading mechanisms, the regulator is finalising guidelines for responsible artificial intelligence deployment in financial markets. SEBI is also developing a tiered compliance framework for brokers that will impose differentiated regulatory requirements based on their operational scale and complexity.

The move reflects SEBI's multi-pronged approach to modernising India's securities market. The regulator is simultaneously working on measures to enhance capital efficiency across market participants and strengthen supervisory mechanisms to better monitor trading activities and institutional behaviour.

These initiatives signal SEBI's intent to balance market innovation with investor protection. The AI sandbox initiative will allow controlled experimentation with emerging technologies while responsible AI guidelines will establish guardrails for algorithmic trading and automated decision-making systems used by market intermediaries.

The regulator is also focusing on bond market-making infrastructure as part of efforts to deepen and improve liquidity in India's fixed income markets. These changes are expected to be rolled out in a phased manner following stakeholder consultations.