Sebi Proposes AI Sandbox and Short Selling Revisions on Oct 24
The Securities and Exchange Board of India is reviewing short selling rules and plans to introduce an AI sandbox for innovative financial tools.
Sebi is revising short selling and SLB rules to enhance market liquidity.
An AI sandbox is being developed to test new technologies safely.
New compliance measures for brokers will be based on their operational scale.
On October 24, 2026, the Securities and Exchange Board of India (Sebi) announced a comprehensive review of short selling and securities lending and borrowing (SLB) regulations. This initiative aims to enhance market liquidity and improve price discovery mechanisms. Sebi Chairman Tuhin Kanta Pandey emphasized the importance of implementing safeguards to prevent the misuse of trading terminals during this review.
In addition to the short selling revisions, Sebi is working on consolidating its inspection portals into a unified digital workflow. This move is intended to streamline supervision processes, making them faster and more consistent. Furthermore, the regulator is exploring the establishment of an artificial intelligence (AI) sandbox, which would allow for the safe testing of innovative financial tools while ensuring regulatory clarity and necessary safeguards for developers.
During the 16th International Capital Market Convention held in Mumbai, Chairman Pandey highlighted that Sebi is finalizing guidelines for the responsible use of AI. These guidelines will incorporate a tiered approach that emphasizes accountability, data controls, and human oversight, aligning with international standards set by the International Organization of Securities Commissions. Additionally, Sebi is developing a market-making framework aimed at boosting secondary trading in corporate bonds.
Sebi is also addressing the growing risks associated with technology in trading, as algorithm-driven trades become increasingly prevalent. Pandey noted that cyber security must be prioritized as a business concern rather than merely an IT expense, urging firms to rigorously test their systems and prepare for potential failures. To further ease compliance burdens, Sebi is revising rules for depository participants to simplify requirements and bolster fraud prevention measures.
Looking ahead, Sebi plans to extend its automated give-up and take-up facility to custodial clients, including portfolio management services (PMS) and alternative investment funds (AIFs) in the cash segment. This initiative is designed to optimize capital efficiency and reduce compliance costs. As these developments unfold, the financial sector is poised for significant changes aimed at enhancing operational efficiency and investor protection.
