The main function of technology is to simplify complex tasks and processes with better efficiency and help reach accurate results. Almost every part of human life is tangled with technology in modern times. It has helped humans process faster and more in the limited time.
One of the most discussed technologies in the 21st century is AI or Artificial Intelligence. As the name suggests, it can be termed as an intelligence, knowledge, machine, system or technology capable of performing complex human functions. It collects data, stores it in its system and acts according to the situational requirements.
It is popularly used in various complex tasks to simplify and save the time and effort of humans. In India, the financial market regulator, the Securities Exchange Board of India (SEBI), is planning to leverage this technology to simplify the listing and some other processes for the companies. Let’s understand it in detail and analyse its impact.
Also read: The Impact of AI and Machine Learning on Stock Trading
Global AI revolution in financial markets
The world is pacing towards AI adoption for varied functions. It helps formulate simple processes, reduces human error, saves time, and improves accuracy. In the era of evolving financial securities, these qualities can enhance the investment process and create an inclusive environment for investors.
A study suggests that AI-driven financial instruments increase the trading volume compared to the regular instruments. Moreover, private brokerage and investment firms are growingly inclined towards integrating AI in their trading applications.
Source: International Monetary Funds
Algorithm trading is also gaining momentum. In this, pre-programmed models help the system execute orders at the desired rate and time. It helps generate gains with better efficiency.
Dive deeper: The Complete Guide to Algo Trading: Strategies and Potential Pitfalls
In India, SEBI is also planning to integrate AI in its application processing, IPO listing, document management, screening malicious activities and safeguarding retail investors.
IPO Process and security
India has observed a significant rise in the Initial Public Offers (IPOs) in recent times. The IPO market in the country has touched the mark of ₹1.6 trillion in 2024, and the rise is expected to continue in 2025. Investors are all bullish about new entrants in the market.
However, the IPO listing process and documentation involves many stages, and it can become complex for the companies:
- The company hires an investment banking firm that helps derive valuations, complete market formalities and launch IPO thoroughly.
- The investment banking firm prepares a Red Herring Prospectus (RHP) with all company details and publishes other documents along with the application to the SEBI.
- This IPO application is evaluated by the regulators, and IPO pricing is decided based on the fixed price or the book building method.
- Post this, an IPO is launched for the public subscription.
However, this process demands heavy time and effort from the unlisted company and the regulators.
Moreover, regulators observe instances where bogus companies are hyped-up to fulfil listing requirements, and their shares behave suspiciously. It causes a threat to the retail investors.
How will SEBI incorporate AI into its functions?
As per an interview with SEBI chairperson Madhabi Puri Buch, the regulatory body is seeking to facilitate a smooth IPO process. The following actions will be taken with the help of AI:
- Creation of a template for IPO filling. It will be a form-like structure with mandatory sections and an available provision to add other details based on the company’s desired disclosure.
- A single material disclosure facility in which data will be shared with all the necessary exchanges and institutions.
Impact of AI use
The active use of AI throughout the IPO filing will help simplify and speed up the process. Moreover, it would help scrutinise the aspects that may be suspicious but cleared in the IPO screening. Less time and effort can encourage companies to get listed in the market for better funding. As per the SEBI chairperson, the current run of the IPO market will continue, and modern initiatives like integration with AI may result in up to 1000 IPOs in the upcoming two years.
An interesting read: The Impact of AI and Machine Learning on Stock Trading
What is SEBI’s recent notification against AI usage?
In November 2024, SEBI released a consultation paper addressing the concerns AI use in the market operations by market infrastructure institutions, registered intermediaries and other SEBI-certified intermediaries. AI provides higher efficiency in operations, but it also creates risk factors.
Therefore, the SEBI paper proposed a system to shift the responsibility of investor protection to these intermediaries using AI for better gains and operational efficiency. The amendments regarding this proposal would be done for three types of regulations:
- The depository and its participants
- Intermediaries
- Stock exchanges and clearing corporations
Evaluating AI use by regulators
| Advantages | Disadvantages |
| Reduce time and effort to encourage more companies to get listed. | Data privacy and security can become a significant issue with new technology. |
| Better scrutiny by the regulators to bogus market listing and protect investors, | AI can be prone to lack ethical knowledge and transparency. |
Bottomline
SEBI’s outlook for leveraging technology like artificial intelligence to simplify the IPO process is futuristic. Their filling templates for IPOs will enhance the listing conditions and encourage businesses to get listed in the market. Moreover, regulators can scrutinise with greater detail. Overall, an informed use of AI will positively affect market efficiency in the long run.
Must read: How Robo Orders and Trading Bots Can Boost Intraday Trading
FAQs
- How is SEBI planning to use AI in IPO screening?
SEBI will prepare a template for IPO filing, which will require mandatory sections and extra disclosure by the company. These templates would be created and evaluated by AI. Moreover, it will help in better application scrutiny to avoid bogus companies in the market.
- How can AI be harmful?
AI requires extensive data for functioning. It may create data privacy and security concerns. Moreover, ethical clarity and transparency may also become an issue for AI use.
- Why is SEBI restricting AI in trading?
SEBI is not restricting AI use but is willing to shift the responsibility of investor protection to intermediaries. They use AI to generate higher returns with better order execution. However, it can create risks for investors.
- How will AI help in easing the IPO process?
As per the SEBI chairman, AI will be used to create an IPO filing template, which will eventually reduce the time and effort. Moreover, AI can multitask different scrutinies to evaluate a filing.
- What is algorithmic trading?
Computer programming by AI is used to execute market trades on predetermined price levels. This technology is known as algorithmic trading. It helps trade with better accuracy and details to generate significant market gains.
