SEBI circular dated 4th January 2019 on Artificial Intelligence/ Machine Learning being used by market intermediaries
Background
1. There is increasing usage of AI (Artificial Intelligence) and ML (Machine Learning) as product offerings by market intermediaries and participants (eg: “robo advisors”) in investor and consumer facing products. SEBI is conducting a survey and creating an inventory of the AI / ML landscape in the Indian 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.
2. As most AI / ML systems are black boxes and their behavior cannot be easily quantified, it is imperative to ensure that any advertised financial benefit owing to these technologies in investor facing financial products offered by intermediaries should not constitute to misrepresentation
Scope definition
3. Any set of applications / software / programs / executable / systems (computer systems) – cumulatively called application and systems,
a. that are offered to investors (individuals and institutions) by market intermediaries to facilitate investing and trading, OR
b. to disseminate investments strategies and advice, OR
c. to carry out compliance operations / activities, where AI / ML is portrayed as a part of the public product offering or under usage for compliance or management purposes, is included in the scope of this circular. Here, “AI” / “ML” refers to the terms “Artificial Intelligence” and “Machine Learning” used as a part of the product offerings. In order to make the scope of this circular inclusive of various AI and ML technologies in use, the scope also covers Fin-Tech and Reg-Tech initiatives undertaken by market participants that involves AI and ML
4. Technologies that are considered to be categorized as AI and ML technologies in the scope of this circular, are explained in Annexure B.
Regulatory requirements
5. All registered Stock Brokers / Depository Participant offering or using applications or systems as defined in Annexure B, should participate in the reporting process by completing the AI / ML reporting form (see Annexure A).
6. With effect from quarter ending March 2019, registered Stock Brokers / Depository Participant using AI / ML based application or system as defined in Annexure B, are required to fill in the form (Annexure A) and make submissions on quarterly basis within 15 calendar days of the expiry of the quarter.
7. Stock Exchanges and Depositories have to consolidate and compile a report, on AI / ML applications and systems reported by registered Stock Brokers / Depository Participants in the reporting format (Annexure C) on quarterly basis. The said report (Annexure C) shall be submitted in soft copy only at AI_SE@sebi.gov.in (for Stock Exchange) / AI_DEP@sebi.gov.in (for Depositories) to SEBI within 30 calendar days of the expiry of the quarter, starting from quarter ending March 2019.
Full copy of the circular can be accessed here
Background
1. There is increasing usage of AI (Artificial Intelligence) and ML (Machine Learning) as product offerings by market intermediaries and participants (eg: “robo advisors”) in investor and consumer facing products. SEBI is conducting a survey and creating an inventory of the AI / ML landscape in the Indian 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.
2. As most AI / ML systems are black boxes and their behavior cannot be easily quantified, it is imperative to ensure that any advertised financial benefit owing to these technologies in investor facing financial products offered by intermediaries should not constitute to misrepresentation
Scope definition
3. Any set of applications / software / programs / executable / systems (computer systems) – cumulatively called application and systems,
a. that are offered to investors (individuals and institutions) by market intermediaries to facilitate investing and trading, OR
b. to disseminate investments strategies and advice, OR
c. to carry out compliance operations / activities, where AI / ML is portrayed as a part of the public product offering or under usage for compliance or management purposes, is included in the scope of this circular. Here, “AI” / “ML” refers to the terms “Artificial Intelligence” and “Machine Learning” used as a part of the product offerings. In order to make the scope of this circular inclusive of various AI and ML technologies in use, the scope also covers Fin-Tech and Reg-Tech initiatives undertaken by market participants that involves AI and ML
4. Technologies that are considered to be categorized as AI and ML technologies in the scope of this circular, are explained in Annexure B.
Regulatory requirements
5. All registered Stock Brokers / Depository Participant offering or using applications or systems as defined in Annexure B, should participate in the reporting process by completing the AI / ML reporting form (see Annexure A).
6. With effect from quarter ending March 2019, registered Stock Brokers / Depository Participant using AI / ML based application or system as defined in Annexure B, are required to fill in the form (Annexure A) and make submissions on quarterly basis within 15 calendar days of the expiry of the quarter.
7. Stock Exchanges and Depositories have to consolidate and compile a report, on AI / ML applications and systems reported by registered Stock Brokers / Depository Participants in the reporting format (Annexure C) on quarterly basis. The said report (Annexure C) shall be submitted in soft copy only at AI_SE@sebi.gov.in (for Stock Exchange) / AI_DEP@sebi.gov.in (for Depositories) to SEBI within 30 calendar days of the expiry of the quarter, starting from quarter ending March 2019.
Full copy of the circular can be accessed here
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