SEBI Expands AI Use to Monitor Market Manipulation and Online Fraud

The Securities and Exchange Board of India (SEBI) is using artificial intelligence to examine trading data and identify unusual activity, as per a Bloomberg report.  

The systems look at stock volumes, derivatives positions, and algorithmic identifiers for patterns that may require further checks. 

SEBI is also looking at stock tips and promotional posts on social media and online forums. These posts are compared with trading activity to check for possible pump-and-dump activity. 

JPMorgan Unit Flagged 

As per the report, an AI-generated alert was among the factors considered in SEBI’s recent enforcement action against a JPMorgan Chase & Co. unit. Surveillance systems had flagged activity six days after a new closing auction mechanism was introduced. 

SEBI later lifted the trading ban after impounding the alleged illegal gains. The investigation into the matter is continuing. 

Growing Market Surveillance 

The use of AI comes as India’s derivatives market has become more complex. Notional derivatives trades have reached nearly $4 trillion, while high-speed trading and algorithm-based strategies have increased the amount of data regulators need to examine. 

SEBI has also increased its engineering and analyst workforce to more than 200 employees, compared with around 20, five years ago. Machine learning has helped make alerts for unusual trading more targeted. 

Social Media Monitoring 

SEBI has extended its monitoring to platforms including X, Instagram, and Telegram. The regulator makes as many as 7,000 requests each month to remove misinformation, around 40% higher than pandemic-era levels. 

More than 100,000 videos have been removed across social media networks through these efforts, according to reports citing people familiar with the matter. 

SEBI’s In-House AI System 

SEBI began investing in a data centre at its Mumbai headquarters in 2019. The facility became operational in 2021, and the same year the regulator started using its in-house AI system, Sudarshan. 

The system has faced issues including inaccurate outputs from large language models. Other concerns include manipulated training data, social media content generated by bots, and limited access to graphics processing units. 

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Conclusion 

AI findings are still checked by SEBI officials before regulatory decisions are taken. The technology is being used as part of the regulator’s surveillance process, with human review remaining part of investigations. 

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