Sebi Reviews Short‑Selling Rules, Plans AI Sandbox and Bond Market‑Making Framework

Summary

The Securities and Exchange Board of India (Sebi) is reassessing its short‑selling and securities‑lending‑and‑borrowing (SLB) regulations, while also preparing an artificial‑intelligence (AI) sandbox and a new market‑making framework for corporate bonds. The moves aim to improve liquidity, price discovery and cyber‑security safeguards.

Key Initiatives

• Short‑selling and SLB review – Chairman Tuhin Kanta Pandey said Sebi will tighten oversight to prevent misuse of trading terminals and enhance price discovery.
• Digital inspection portal – A single workflow will replace fragmented portals, speeding up supervision.
• AI sandbox – Regulators will allow fintech innovators to test AI tools in a controlled environment, with tiered guidelines covering accountability, data controls, kill‑switches and human oversight, mirroring the IOSCO toolkit.
• Bond market‑making framework – A draft framework is being drafted to encourage secondary trading in corporate bonds.
• Graded compliance for brokers – Requirements will be calibrated to a broker’s size, client exposure and technology reliance.
• Extended automated give‑up/take‑up – Custodial clients such as PMS and AIFs will gain access in the cash segment, freeing funds and margins while awaiting custodian confirmation.
• Cyber‑security emphasis – Pandey warned that algorithmic trading and AI increase systemic risk, urging firms to treat cyber‑security as a business priority.

Practical Implications

• Brokers and market participants should monitor upcoming Sebi circulars for revised short‑selling limits and SLB procedures.
• Fintech firms planning AI‑driven trading tools can prepare documentation to meet the sandbox’s data‑control and kill‑switch requirements.
• Corporate bond investors may see tighter spreads and higher liquidity once the market‑making rules are implemented.
• Firms must audit cyber‑risk controls and develop incident‑response plans to comply with Sebi’s heightened security guidance.

How to Verify

The announcements were made at the 16th International Capital Market Convention of the Association of NSE Members of India (ANMI) in Mumbai. Official circulars will be posted on Sebi’s website (www.sebi.gov.in) and the regulator’s press‑release archive.

--- *All statements are attributed to Sebi Chairman Tuhin Kanta Pandey or to Sebi’s public communications. No speculative or unverified claims are included.*