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The Securities and Exchange Board of India (SEBI) has specified a framework for "innovation sandbox" and believes that emerging technologies such as artificial intelligence (AI), machine learning (ML) and blockchain have great potential for the securities market.
Speaking at a research conference arranged by the National Institute of Securities Market, SEBI chairman Ajay Tyagi revealed that the securities watchdog is looking to boost the development and adoption of innovative fintech solutions.
Fintech Sandbox
"SEBI has specified a framework for “innovation sandbox” to provide fintech firms and individuals a testing environment for offline testing of their fintech solutions. Under the framework, Depositories, Exchanges and RTAs make available historical and anonymised data to eligible participants for testing their product. MIIs evaluate the results of such testing, based on which decision could be taken whether to deploy the fintech solution in the market," he said.
Blockchain, AI and ML
The regulator has been taking interest in emerging technologies such as blockchain for the past few years. In 2017, it formed the Committee on Financial and Regulatory Technologies (CFRT), which was tasked with, among other things, "assessing technological solutions for regulatory functions of SEBI...through application of new technological solutions like application of distributed ledger technology, big data, data analytics, artificial intelligence, machine learning, etc."
Underscoring the potential of blockchain technology in the securities market landscape, Tyagi said:
“Blockchain could be used in clearing, settlement and record-keeping given its benefits in maintaining records in distributed ledgers, while still being a single source of truth."
He noted that blockchain-based solutions are being developed by some foreign exchanges for settlement and by domestic exchanges for KYC recordkeeping purposes. Tyagi also noted the growing application of AI/ML in fund management, trading, supervision and surveillance activities.
“Surveillance of capital markets is another field where I believe a lot of improvement and efficiency can be brought through the use of advanced technology and data analytics. Catching malpractices in the market using the standards tools that analyze only structured data of price and volume is increasingly becoming difficult,” he added.
AI, ML and blockchain have taken off across the world in different areas and applications but they remain fairly new and untapped technologies. Tyagi believed that there is still a need for more active research on these technologies especially when it comes to exploring their usage in the securities market.
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