SEBI's Tech Strategy to Combat Market Manipulation and Fraud

SEBI Chairman emphasizes AI use for investor awareness and fraud prevention, urging caution against false promises in the market.

Gopi

•March 2, 2026•6 mins read

Tech-driven regulation for market integrity.

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1. SEBI’s Evolving Regulatory Philosophy: “Optimum Regulation”

The Securities and Exchange Board of India (SEBI) is recalibrating its regulatory approach to balance market integrity with ease of doing business. Chairman Tuhin Kanta Pandey emphasised the objective of ensuring “optimum regulation” without “irritating” stakeholders such as exchanges, brokers, and investors. The focus is on enabling smooth market functioning while preventing misconduct.

Since assuming charge, the SEBI leadership has undertaken wide-ranging reforms. These include measures to simplify processes, enhance investor protection, stabilise derivatives markets, and strengthen intermediaries’ regulation. This reflects a governance shift toward dynamic, responsive, and risk-based supervision in a rapidly evolving capital market ecosystem.

The Indian capital market has expanded significantly in retail participation and technological integration post-COVID. In such a context, regulatory overreach can stifle innovation, while regulatory laxity can foster instability. Therefore, SEBI’s stated approach aims to combine flexibility with enforcement precision.

The governance logic lies in maintaining trust in financial markets—without trust, capital formation weakens; without regulatory balance, either market excesses or regulatory paralysis can undermine economic growth.

Key Reform Measures Announced

58 initiatives to ease business processes
9 broad initiatives to make markets more investor-centric
4 framework changes to strengthen regulation of intermediaries (e.g., exchanges)
13 measures for capital market development
6 regulations to cool speculation and stabilise the equity derivatives segment

2. Technology, AI and Cyber Fraud Prevention

SEBI is leveraging technology and Artificial Intelligence (AI) to strengthen surveillance and investor awareness. A major initiative is SEBI Check, integrated within the UPI interface, enabling investors to verify whether an intermediary is registered before making payments. This directly addresses the rising threat of fraudulent brokers promising unrealistic returns.

The regulator has collaborated with Bengaluru-based AI company SARVAM to conduct multilingual AI-driven investor outreach campaigns. A pilot project reportedly reached 3,85,000 people through AI-based calls explaining the SEBI Check tool. This marks a shift from traditional awareness campaigns to data-driven, scalable communication models.

The increasing digitisation of financial services has made cyber frauds more sophisticated. Regulatory technology (RegTech) and supervisory technology (SupTech) are therefore becoming central to financial governance. By embedding verification within widely used digital payment systems like UPI, SEBI is attempting preventive enforcement rather than post-facto punishment.

"If someone is approaching, people should say that ‘you are a fraud as your account does not show SEBI Check. I will lodge an FIR against you’." — Tuhin Kanta Pandey

If investor literacy does not keep pace with digitalisation, fraud risks multiply. Preventive technology tools reduce information asymmetry and strengthen first-line defence at the citizen level.

Implications

Reduces cyber fraud and impersonation risks
Strengthens retail investor confidence
Encourages formalisation of intermediaries
Demonstrates integration of fintech with regulatory oversight

3. Market Stability, Retail Participation and Derivatives Speculation

The post-COVID rally witnessed a surge in retail participation, especially in derivatives trading. However, recent market corrections amid foreign investor selling and geopolitical uncertainty have tested retail resilience. SEBI’s stance is that markets remain inherently stable and there is “no need of panic”.

The regulator has introduced 6 regulatory measures to cool excessive speculation, particularly in short-duration options trading. While derivatives are risk-hedging instruments, speculative overuse can distort price discovery and expose inexperienced investors to high volatility.

The Chairman emphasised disciplined, long-term investing as the path to wealth creation rather than short-term speculative gains. This aligns with global regulatory thinking that distinguishes between productive capital allocation and destabilising speculation.

Unchecked speculative bubbles can amplify systemic risk. Conversely, excessive restrictions may reduce market depth. The regulatory challenge is calibrating interventions without triggering capital flight or stifling liquidity.

Emerging Concerns

Rise of short-duration options speculation
Retail exposure to high-risk leveraged instruments
Mis-selling and unrealistic return promises

SEBI’s Approach

Cooling-off measures in derivatives
Monitoring financial influencers (“finfluencers”)
Emphasis on long-term investment discipline

4. Enforcement Framework and Regulatory Legitimacy

SEBI has taken enforcement actions against market manipulators and unregistered advisors, including high-profile cases such as Avadhut Sathe and Jane Street. Interim orders have been issued, and investigations are ongoing. These cases are currently under judicial scrutiny.

Criticism that SEBI acts as legislator, executive, and adjudicator simultaneously has resurfaced. However, the Chairman defended the regulatory model as consistent with global practice, arguing that fragmented enforcement structures would hinder timely responses in fast-moving markets.

He cited a strong litigation success rate:

80–90% success rate in tribunal cases
Higher success rate in the Supreme Court

The emphasis was on adherence to principles of natural justice while maintaining regulatory authority.

Financial markets operate in real time. Delayed enforcement can erode credibility, yet excessive concentration of power may invite concerns of overreach. Institutional legitimacy depends on transparency and procedural fairness.

5. Tackling Financial Influencers and Mis-selling

The rapid rise of social media-based financial advice has created regulatory grey zones. SEBI has warned against “swindlers” operating through WhatsApp groups and promising returns in options trading.

This reflects a broader governance issue: informal digital networks influencing formal financial markets. Mis-selling by unregistered advisors undermines investor protection frameworks and distorts market behaviour.

SEBI’s monitoring of such actors signals an expansion of regulatory perimeter into digital influence ecosystems.

If left unchecked, misinformation and unregulated advisory services can erode retail wealth and undermine confidence in regulated intermediaries.

6. Deepening Bond and Commodity Markets

Beyond equity markets, SEBI aims to deepen corporate bond markets and rejuvenate agri-commodities trading. Two working groups have submitted reports on issues affecting agricultural commodity markets. Proposed changes to long-static provisions may be released for public consultation.

India’s bond market remains underdeveloped relative to the size of its economy. Deepening corporate debt markets is essential for diversified financing beyond bank credit, thereby reducing systemic banking sector risks.

Similarly, efficient commodity markets support farmers, hedging mechanisms, and price discovery.

Diversified and deep financial markets enhance economic resilience. Over-reliance on equity markets or bank credit can create concentration risks.

Focus Areas

Reforms in agri-commodity regulations
Strengthening corporate bond market participation
Scientific policy writing and regulatory impact assessment

7. Evidence-Based Policy and Regulatory Impact Assessment

SEBI plans to make policy formulation more scientific by studying regulatory impacts. A committee under the Chief Economic Adviser V. Anantha Nageswaran is expected to deliberate on this approach.

This signals movement toward ex-ante and ex-post regulatory impact assessments (RIA), aligning with global best practices in financial governance. Evidence-based policymaking improves predictability and reduces compliance uncertainty.

Without systematic impact assessment, regulatory measures may create unintended distortions. Scientific policy design strengthens credibility and long-term market efficiency.

Conclusion

SEBI’s evolving strategy reflects a shift toward technology-driven supervision, calibrated enforcement, and market deepening. By combining AI-enabled investor protection, derivatives stabilisation, and evidence-based policymaking, the regulator seeks to maintain market integrity without impeding growth.

In the long term, such a balanced approach is critical for sustaining investor confidence, promoting capital formation, and supporting India’s aspiration of becoming a mature, globally competitive financial market.

Quick Q&A

Everything you need to know

‘Optimum regulation’ refers to a regulatory approach that ensures market integrity, investor protection, and systemic stability without overburdening market participants. SEBI’s Chairman has emphasized that regulation should not “irritate” stakeholders such as exchanges, brokers, and investors, but should instead create a predictable and fair ecosystem where capital formation can thrive.

Since assuming office, SEBI has rolled out multiple initiatives: easing business processes (58 measures), strengthening intermediary regulation, cooling speculation in derivatives, and enhancing investor education. This indicates a dual-track strategy — reducing compliance friction on one hand while tightening surveillance and enforcement on the other. For instance, measures to stabilise the equity derivatives segment coexist with initiatives to deepen corporate bond markets.

The challenge lies in avoiding regulatory overreach while preventing market abuse. In a fast-paced capital market, delayed or weak regulation can enable manipulation, whereas excessive controls can deter innovation and liquidity. Thus, ‘optimum regulation’ is essentially about achieving regulatory proportionality.

SEBI is increasingly adopting technology-driven supervision to tackle market manipulation and cyber fraud. One notable innovation is ‘SEBI Check’, integrated within the UPI interface, which enables investors to verify whether an intermediary is registered before making payments. This directly addresses fraud by unregistered advisors promising unrealistic returns.

Additionally, SEBI has collaborated with AI firm SARVAM to conduct multilingual automated awareness calls, reaching nearly 3.85 lakh individuals in a pilot phase. This use of AI enhances outreach, especially in diverse linguistic regions, and reduces the cost of investor education campaigns.

Beyond awareness, AI-driven surveillance tools can detect unusual trading patterns, insider trading signals, and derivative manipulation in real time. In an era of algorithmic trading and digital fraud, manual oversight is insufficient. Thus, technological integration strengthens both preventive regulation and post-facto enforcement.

The surge in retail participation in short-duration options trading has raised concerns about excessive speculation. While derivatives serve as hedging instruments, many retail investors treat them as speculative tools. SEBI introduced six measures to cool down speculation and stabilise the segment.

On one hand, regulation is necessary to prevent systemic risk and protect unsophisticated investors from financial losses amplified by leverage. Cases of financial influencers (‘finfluencers’) promoting options trading through WhatsApp groups illustrate the risks of misinformation.

On the other hand, overly restrictive measures could reduce liquidity and impede price discovery. SEBI’s stance that there are no signs of systemic instability suggests a calibrated approach rather than panic-driven intervention. The key issue is distinguishing between healthy market activity and destabilising speculation. Effective policy must combine surveillance, investor education, and proportionate restrictions.

Recent enforcement actions against alleged unregistered advisory operations and suspected market manipulation signal SEBI’s intent to assert regulatory authority. Interim orders, ongoing investigations, and defence before appellate tribunals indicate procedural adherence to natural justice.

SEBI reports a high success rate in tribunal and Supreme Court cases, suggesting judicial validation of its enforcement model. Critics argue that SEBI combines legislative, executive, and quasi-judicial functions. However, such a model is common among financial regulators globally, including the U.S. SEC.

These cases highlight the tension between aggressive market strategies and regulatory boundaries. While market participants may claim legitimate trading, regulators assess intent and impact on market fairness. Strong enforcement enhances credibility, deters manipulation, and reassures investors about market integrity.

India’s financial system remains bank-dominated, with relatively underdeveloped corporate bond markets. Deepening this segment can diversify funding sources for infrastructure and long-term projects, reduce pressure on banks, and enhance financial stability.

Similarly, rejuvenating agri-commodity markets can improve price discovery, risk hedging for farmers, and supply chain efficiency. Working groups examining inefficiencies in commodity regulations indicate SEBI’s intention to modernise outdated provisions.

A well-functioning bond and commodity market strengthens capital allocation efficiency. For example, developed economies rely heavily on bond financing for corporate growth. Expanding these segments aligns with India’s ambition of becoming a $5 trillion economy while reducing systemic concentration risks.

A comprehensive response must combine regulation, technology, and behavioural change. First, mandatory registration and disclosure norms for financial influencers can create accountability. Platforms hosting such content should be required to verify credentials and flag misleading claims.

Second, technological tools like SEBI Check must be widely publicised. AI-driven monitoring of social media channels can detect suspicious advisory groups. Swift enforcement and public naming of offenders can create deterrence.

Finally, sustained investor education is critical. Emphasising disciplined, long-term investing — as highlighted by SEBI’s leadership — can reduce susceptibility to get-rich-quick schemes. Financial literacy should be integrated into school curricula and public campaigns. The goal is to build a culture where investors question unrealistic promises rather than chase speculative hype.