SEBI Plans New Stockbroker Rules, Tokenised Bonds and AI Sandbox
The Securities and Exchange Board of India is exploring a new set of capital market reforms aimed at simplifying regulatory compliance, strengthening investor protection and encouraging responsible use of emerging technologies. The proposed measures include a graded compliance framework for stockbrokers, expanded secondary-market trading in tokenised corporate bonds and a regulatory sandbox for artificial intelligence applications.
SEBI Chairman Tuhin Kanta Pandey outlined the regulator's priorities while addressing the 16th Association of NSE Members of India International Capital Market Convention in Mumbai on October 24, 2026. The announcements reflect the regulator's focus on improving market efficiency while addressing the operational and technological risks associated with a rapidly evolving financial system.
New Compliance Rules for Stockbrokers
SEBI is examining a graded compliance framework that would tailor regulatory requirements to the scale and risk profile of individual stockbrokers.
Under the proposed approach, compliance obligations could take account of a broker's business size, exposure to clients and dependence on technology. The aim is to ensure that regulatory requirements remain proportionate to the risks and operational complexity of different businesses.
Smaller brokers and large trading firms do not necessarily have identical operating structures or technology requirements. A framework that considers these differences could help reduce unnecessary administrative burdens while maintaining appropriate supervision.
However, the proposal is still under consideration. The detailed requirements, implementation timeline and any specific exemptions will depend on subsequent regulatory decisions and official notifications.
SEBI's broader objective is to make compliance more efficient without weakening the safeguards needed to protect investors and maintain market integrity.
Tokenised Corporate Bonds Under Demat 2.0
Another important area of reform involves the development of tokenised corporate bonds through the Demat 2.0 initiative.
Tokenisation involves representing ownership of a financial asset through a digital token recorded on a distributed ledger. In the corporate bond market, this technology can help streamline the recording of ownership, settlement and certain administrative processes.
SEBI and the Reserve Bank of India launched the Demat 2.0 pilot in September 2026. The initiative combines tokenised securities with digital settlement infrastructure to test whether transactions can be completed more efficiently.
During the initial phase, three issuers launched tokenised corporate bonds worth a combined Rs 1,025 crore. REC Limited issued bonds worth Rs 500 crore, Larsen and Toubro raised Rs 500 crore, and IIFL issued bonds worth Rs 25 crore.
The pilot is designed to test the issuance, holding, trading and settlement of corporate bonds using distributed ledger technology. It also connects with the Reserve Bank of India's wholesale central bank digital currency through the Unified Market Interface.
The technology can enable securities and funds to be transferred simultaneously, reducing the time and operational steps involved in settlement.
Secondary Trading Could Improve Bond Market Liquidity
SEBI is now planning the next phase of Demat 2.0, under which tokenised corporate bonds will be allowed to trade in the secondary market.
Secondary-market trading allows investors to buy or sell securities after their original issuance. Greater opportunities to trade corporate bonds could help investors manage their portfolios and provide additional flexibility when they need to sell holdings.
SEBI is also developing a market-making framework to support secondary trading in corporate bonds. Market makers can help improve liquidity by facilitating transactions and supporting the availability of buying and selling opportunities.
Corporate bonds are an important source of financing for companies. A deeper bond market can provide businesses with alternatives to bank borrowing while giving investors access to a wider range of fixed-income instruments.
Nevertheless, tokenisation does not eliminate the credit risk associated with a bond. Investors must still consider the issuer's financial position, credit rating, interest rate risk and the terms of the security.
The legal obligations of the issuer and existing investor protections remain applicable under the Demat 2.0 framework.
SEBI Explores an Artificial Intelligence Sandbox
SEBI is also exploring a regulatory sandbox for artificial intelligence applications in the securities market.
A regulatory sandbox is a controlled environment where new technologies can be tested under defined conditions. Such an arrangement can help businesses evaluate new tools while allowing regulators to understand potential risks before wider deployment.
Artificial intelligence is increasingly being used in financial services, including data analysis, customer support, fraud detection and investment-related applications. While these tools can improve efficiency, they can also create risks involving inaccurate outputs, data privacy, cybersecurity and accountability.
An AI sandbox could help SEBI assess how emerging applications behave in practical settings and identify safeguards that may be required.
The proposal is part of a wider effort to encourage innovation without compromising investor protection or the stability of the securities market.
Responsible AI Guidelines and Risk Controls
Alongside the proposed sandbox, SEBI is finalising guidelines for the responsible use of artificial intelligence.
The framework is expected to follow a tiered approach, with safeguards proportionate to the risks associated with different applications. Measures under consideration include clear accountability, data controls, emergency shutdown mechanisms and human oversight.
These controls are important because AI-powered systems may influence investment decisions, financial recommendations and trading operations. Errors or system failures could affect large numbers of investors if they are not detected and addressed quickly.
SEBI has also emphasised that cybersecurity should be treated as a business priority rather than solely as an information technology expense.
Market participants are expected to test their systems, prepare for operational disruptions and strengthen their ability to respond to cyberattacks.
The detailed AI requirements will depend on the regulator's final guidelines and the scope of their application to different market participants.
Review of Short Selling and Securities Lending
SEBI is also reviewing rules relating to short selling and securities lending and borrowing.
Short selling involves selling securities that the seller does not currently own, subject to applicable market rules and settlement requirements. Securities lending and borrowing allows market participants to lend or borrow securities for permitted purposes.
These mechanisms can support liquidity and price discovery, but they also require safeguards to manage settlement risks and prevent misuse.
A review of the existing framework could help the regulator assess whether current rules remain suitable for changing market conditions. Any changes would need to balance market efficiency with investor protection and orderly trading.
SEBI is also considering safeguards against the misuse of trading terminals and reviewing processes that could make supervision faster and more consistent.
Simplifying Compliance Across Market Infrastructure
The regulator is pursuing other measures to reduce repetitive reporting and strengthen oversight of market intermediaries.
One area involves the development of common digital reporting mechanisms that can reduce duplication across exchanges and depositories. Such systems can help firms submit information through a more streamlined process.
SEBI is also reviewing requirements affecting depository participants, with the objective of simplifying compliance while maintaining safeguards against fraud.
In addition, the regulator plans to extend the automated give-up and take-up facility in the cash market to custodial clients such as portfolio management services and alternative investment funds.
The facility is intended to reduce the need to block funds and margins while awaiting custodian confirmation, potentially improving capital efficiency for eligible participants.
The scope and timing of these changes will depend on the relevant implementation instructions.
Stronger Investor Protection Remains a Priority
SEBI's technology and compliance initiatives come amid concerns about misleading investment advice and fraudulent trading-related activity.
Pandey has warned that unregistered investment advisers and financial influencers can influence retail investment decisions. Investors may encounter misleading claims about guaranteed returns, quick profits or unauthorised trading services.
The regulator has introduced measures such as validated UPI handles, the SEBI Check platform and verified labels for trading applications to help investors distinguish legitimate intermediaries from fraudulent operations.
Investors should verify registration details before acting on financial advice, avoid transferring money to unverified accounts and be cautious of promises of guaranteed profits.
Greater digital access to financial markets must be accompanied by stronger awareness of investment risks and the importance of using authorised service providers.
