Overview: Securities Exchange Board of India is exploring a domestically developed artificial intelligence (AI) model for the securities market while reviewing foreign portfolio investor (FPI) compliance. Separate consultation papers propose changes to SME IPO eligibility, monitoring of issue proceeds and cybersecurity requirements for market infrastructure institutions. Companies and intermediaries should distinguish these proposals from existing obligations. Public comments on the issue-proceeds and SME IPO proposals close on 3 and 4 November 2026, respectively.
Introduction
Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey has outlined plans to explore a domestic AI model for the securities market and review selected FPI compliance requirements. The announcements form part of a wider regulatory agenda covering technology, market access and investor protection.
Meanwhile, SEBI has invited public comments on proposed changes to Small and Medium Enterprise Initial Public Offering (SME IPO) rules and the monitoring of funds raised by listed companies. These consultations have near-term deadlines, making them particularly relevant to prospective issuers, listed businesses and their advisers.
SEBI Explores a Domestic AI Model
Pandey, at the BFSI summit, said SEBI was exploring a domestically developed and governed AI model designed for the securities market, potentially as Digital Public Infrastructure (DPI).
The stated concerns include confidentiality and the availability of advanced AI models. A domestic model is being explored as a possible response to these concerns. SEBI has not announced a launch date or made the proposed model mandatory for market participants.
SEBI is also working towards implementing the International Organization of Securities Commissions (IOSCO) supervisory toolkit for AI. This work concerns regulatory oversight and AI-related risks. The announcements do not introduce a universal AI-readiness audit or certification requirement for financial intermediaries.
FPI Compliance Review
SEBI plans to issue a consultation paper on aligning selected Indian compliance requirements for FPIs with global standards. Pandey indicated that some Indian requirements remain more onerous than those in other major markets, despite steps to simplify digital onboarding and investor access.
The planned consultation is intended to examine how unnecessary compliance burdens could be reduced while preserving investor protection and market integrity. It is not, by itself, a relaxation of current FPI obligations.
Foreign investors and their service providers should continue to follow applicable registration, reporting and other requirements until formal changes are notified. They should assess any proposed changes against their existing compliance processes once SEBI publishes the consultation paper.
SME IPOs: Proposed Market-Capitalisation Thresholds
SEBI’s consultation paper published on 14 October 2026 proposes replacing paid-up capital-based eligibility criteria with post-issue market-capitalisation thresholds.
The proposed routes are:
- Up to ₹1,000 crore: The issuer would be required to use the SME platform.
- Above ₹1,000 crore and up to ₹4,000 crore: The issuer could choose the SME platform or the Main Board, subject to the applicable conditions.
- Above ₹4,000 crore: The issuer would be required to use the Main Board under the proposed framework.
Issuers in the ₹1,000 crore TO ₹4,000 crore band choosing the SME platform would have to present restated consolidated financial statements prepared under Indian Accounting Standards (Ind AS), if they had not already adopted them. The requirement covers the preceding three financial years and the stub period, where applicable.
The paper also addresses changes in estimated market capitalisation during the IPO process. For example, an issuer that initially files for a Main Board IPO could be required to refile under the SME framework if its estimated post-issue market capitalisation falls to ₹1,000 crore or below by the relevant prospectus filing stage.
These are consultation proposals, not final amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.
Public comment deadline: 4th November, 2026
Prospective issuers and their advisers should review the full paper before submitting comments or making decisions based on the proposed eligibility criteria.
Issue-Proceeds Monitoring: Proposed Enforcement Measures
SEBI’s consultation paper dated 13th October, 2026 proposes changes to the monitoring and disclosure of funds raised by listed companies.
Monitoring agencies would be permitted to submit reports directly to stock exchanges within prescribed timelines. If a company fails to cooperate or provide complete supporting records, the agency could report on the best information available and attach a statement of non-cooperation.
The proposals also set out specific consequences:
- Proposed fine: Stock exchanges could levy ₹50,000 for each instance of non-cooperation reported for a quarter or half-year, as applicable.
- Rectification: If the company later supplies complete information, the monitoring agency would have 15 days from receipt of that information to submit a complete report recording that the non-cooperation has been rectified.
- Escalation: Stock exchanges could issue notices to non-compliant companies within 30 days of the report’s due date. If the complete report remains outstanding or the fine is unpaid within the prescribed 15-day period after notice, the exchanges would issue notices to promoters. If the default continues for a further 10 days, the proposed process provides for freezing promoters’ demat accounts under the applicable standard operating procedure.
- Monitoring-agency fees: Non-payment of fees would not, by itself, count as non-cooperation. A company would also be restricted from terminating or replacing its monitoring agency until the reported non-cooperation is rectified.
These measures remain proposals and should not be treated as current enforcement requirements.
Public comment deadline: 3rd November, 2026
Listed companies should maintain clear records of issue-proceeds utilisation, keep supporting documents accessible and respond promptly to monitoring agencies. Companies planning to raise capital should also understand the monitoring and disclosure requirements relevant to their proposed issue.
Cybersecurity and AI Skills
SEBI has separately proposed extending the applicable information technology and cybersecurity framework for market infrastructure institutions (MIIs) – including stock exchanges, clearing corporations and depositories—to their subsidiaries. The consultation paper was published on 11th September, 2026, and its public comment period closed on 2nd October, 2026.
Pandey also referred to a planned training programme involving the National Institute of Securities Markets (NISM) and Rashtriya Raksha University. It is intended to train security operations centre engineers to use AI tools to analyse alerts and develop automated responses.
The proposed extension of cybersecurity requirements and the AI training initiative address different issues: regulatory coverage on one hand and operational capability on the other. Market participants should continue following the requirements currently applicable to their category and monitor any subsequent SEBI directions.
What Businesses Should Do
- FPIs and their service providers: Maintain current compliance and review SEBI’s consultation when it is published.
- Prospective SME issuers: Examine the proposed listing routes and Ind AS conditions; consider commenting by 4th November.
- Listed companies: Review issue-proceeds records and the proposed monitoring-agency process before the 3rd November deadline.
- MIIs and subsidiaries: Check existing cybersecurity obligations and follow the outcome of the consultation.
- Businesses using AI: Document relevant data access, oversight and technology risks as sound governance practice, without assuming SEBI has imposed a universal AI audit.
Setindiabiz Support
Setindiabiz provides corporate secretarial and regulatory compliance support through its Secretarial Retainership services, covering applicable SEBI regulations, securities laws and BSE/NSE listing requirements.
Its India Entry Services support foreign businesses assessing suitable Indian entity or office structures and related registration and reporting requirements. Our professionals also support applicable corporate filings and regulatory documentation within the scope of the relevant engagement.
FAQs
No. SEBI has said it is exploring a domestically developed AI model for the securities market. No launch date has been announced.
The issue-proceeds monitoring consultation closes on 3rd November, 2026, and the SME IPO consultation closes on 4th November, 2026.
No. The ₹1,000 crore and ₹4,000 crore thresholds are proposals and should not be treated as final requirements unless SEBI subsequently notifies the changes.
The domestic AI model announcement does not establish a universal AI-readiness audit requirement. Intermediaries should continue to comply with the rules applicable to their category.
Under SEBI’s proposals, the agency could report using the best information available and flag the non-cooperation. The proposals also contemplate fines and escalation measures, including possible freezing of promoters’ demat accounts if the prescribed steps do not resolve the default.
