NEW DELHI — The Securities and Exchange Board of India will release fresh guidelines on the Closing Auction Session within the coming week to resolve persistent issues surrounding derivatives settlement pricing on expiry days. Alongside the revised auction mechanism, the capital markets regulator is preparing a tiered, risk-based framework to oversee the deployment of artificial intelligence and machine learning in financial trading. Addressing the Capital Market Confluence 2026 in Mumbai on Saturday, SEBI Chairman Tuhin Kanta Pandey announced that market authorities are currently assessing feedback from a public consultation paper before publishing the binding rules. The forthcoming measures are designed to curb volatility during contract expirations while establishing strict standards of human accountability across algorithmic operations.
Tiered Safeguards and Kill Switches for Market Automation
Under the proposed technology framework, SEBI will apply compliance burdens according to the specific risks and market impact linked to each automated tool. Regulated institutions will remain directly responsible for the operational outcomes of automated decision-making, with automated systems prohibited from absorbing or deflecting institutional liabilities. The draft norms will require market participants to maintain robust data quality standards, secure model governance, and active cybersecurity defenses.
To counter critical systemic failures, the regulator will mandate the integration of emergency shutdown mechanisms, commonly known as kill switches, which can freeze automated programs during severe operational disruptions. The rules will demand sustained human intervention across critical risk management and investment choices, drawing directly from the AI Supervisory Toolkit formulated by the International Organization of Securities Commissions. Pandey emphasized that the adoption of automated technology will not diminish regulatory obligations, reiterating that institutions cannot delegate supervisory accountability to software algorithms.
Broadening Clearing Interoperability Across Capital Market Deals
Beyond algorithmic monitoring, SEBI plans to widen the scope of clearing corporation interoperability before the end of November 2026. The expanded regime will absorb specialized corporate transactions, including share buybacks, tender offers, and offers for sale. Under the existing operational framework, such corporate actions often demand distinct clearing channels, which raises operating costs and increases procedural overhead for market participants.
Bringing these transactions under an integrated clearing structure aims to streamline execution, improve working capital efficiency, and lower overall compliance expenses without compromising existing settlement safeguards. The market regulator views greater interoperability among clearing houses as a practical reform to eliminate structural complexity, allowing institutions to manage capital more effectively while maintaining settlement security across market segments.
Calibrated Broker Rules and Modernized Depository Standards
In addition to clearing improvements, SEBI is reviewing the broader regulatory architecture governing depository services. The market regulator is also designing a graded compliance model for registered stockbrokers, under which supervisory demands will correspond to firm scale, total client exposure, and dependence on digital infrastructure. This proportional oversight will replace uniform market requirements, focusing regulatory scrutiny primarily on brokerages whose large transaction volumes or technological integrations pose higher systemic risks.
These collective initiatives form part of SEBI’s broader agenda to modernize capital market architecture, improve trading efficiency, and strengthen investor safeguards. Through the imminent auction rules, expanded clearing mechanisms, and the tiered artificial intelligence policy, the market regulator is working to reinforce derivatives settlement stability while ensuring emerging technologies operate under clear institutional ownership and disciplined human oversight.
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