Sebi asks brokers, depositories using AI tools to make security disclosures

Stock brokers and depository participants using applications based on artificial intelligence (AI) will have to make quarterly disclosures on their compliance with cyber security framework, according to Sebi.
The directive comes after the regulator observed that AI/Machine Learning (ML) systems are black boxes and their behaviour cannot be easily quantified.
"It is imperative to ensure that any advertised financial benefit owing to these technologies for products offered by intermediaries should not constitute to misrepresentation," Sebi said in a circular Friday, according to Business Standard.
The market watchdog directed stock brokers and depository participants using applications based on artificial intelligence (AI) and machine learning (ML) to inform about its system whether it adheres to regulator's cyber security framework or not, among others.
Besides, they need to report in a prescribed format about the implementation of AI or ML system, safeguards in place to prevent abnormal behaviour of the AI or ML application and whether the system disseminates investment or trading advice or strategies and name of the application, among others, Sebi said in a circular.
"With effect from quarter ending March 2019, registered stock brokers/ depository participant using AI / ML based application or system... are required to fill in form and make submissions on quarterly basis within 15 calendar days of the expiry of the quarter," Sebi said.
Besides, the regulator is conducting a survey and creating an inventory of the AI / ML landscape in the financial markets to gain an in-depth understanding of the adoption of such technologies in the markets and to ensure preparedness for any AI / ML policies that may arise in the future, the circular added.
In a separate circular, Sebi said to harmonize the procedures for transmission of securities in dematerialized mode with that of transmission of securities in physical mode, transmission of securities would be dealt in line with LODR (Listing Obligations and Disclosure Requirements) Regulations.
Accordingly, "succession certificate or probate of will or will or letter of administration or court decree, as may be applicable in terms of Indian Succession Act, 1925 has been prescribed as documentary requirement for transmission of securities held in physical mode" under LODR norms, the circular added.