Algorithmic Trading, AI, & Insider Trading: Emerging Challenges For SEBI
- IJLLR Journal
- 4 days ago
- 2 min read
Palak Singh, LL.M., Gujarat National Law University, Gandhinagar.
ABSTRACT
The advent of artificial intelligence (AI) in algorithmic trading has led to fundamental transformations in securities markets in ways both profound & unsettling. Trading that was once dominated by human brokers and physical floors is now governed by algorithms executing thousands of trades in milliseconds, raising critical questions about what constitutes “information” or “insider advantage.” For regulators like SEBI, this transformation from human intent to machine-led autonomy has exposed gaps in existing insider trading laws, which were designed to prevent misuse of Unpublished Price Sensitive Information (UPSI) but struggle to address predictive insights generated by AI from datasets such as social media, satellite imagery, or geolocation metrics.
The 2015 NSE co-location case exemplifies how even milliseconds of early access can disrupt markets, highlighting the challenge of defining insider trading in an era where UPSI can be inferred rather than disclosed. Accountability further complicates enforcement, raising questions about liability should it fall on programmers, deploying firms, or the AI systems themselves? While regulators globally diverge in approach, the SEC emphasizes human responsibility, the EU mandates strict audits, and Singapore promotes sandbox testing, the central dilemma remains unresolved.
This paper analyses the implications of AI-driven trading for India, emphasizing the need for SEBI to adopt outcome-focused reforms, including algorithm registration, black-box testing, digital whistleblowing, and real- time monitoring. It also explores the importance of harmonizing domestic regulation with global best practices to safeguard investor confidence. Ultimately, the paper argues that regulating AI-driven insider trading is not about restricting innovation but fostering transparency, fairness, and trust in India’s evolving financial markets.
Keywords: AI trading, Insider Trading, Market Manipulation, Unpublished Price Sensitive Information, Securities Exchange Board of India.
