Securities and Exchange Board of India (SEBI) is developing an artificial intelligence-powered cybersecurity tool to enhance supervision of regulated entities, Chairman Tuhin Kanta Pandey announced at the BSE's Sensex 40th anniversary event. The regulator is simultaneously working on establishing a comprehensive technology roadmap for market infrastructure institutions to strengthen the securities market ecosystem.

AI-Driven Cybersecurity Enhancement

The AI-powered inspection tool currently under development will serve multiple critical functions in strengthening SEBI's regulatory oversight capabilities. Pandey explained that this tool represents a significant advancement in risk-based supervision methodology for regulated entities.

The AI-driven tool represents a significant step toward modernizing regulatory supervision methods and ensuring robust cybersecurity standards across the securities market.

Technology Roadmap for Market Infrastructure

SEBI is constituting a working group to develop a structured technology roadmap for market infrastructure institutions (MIIs). This comprehensive strategic framework will provide clear guidance for technological advancement across different planning horizons.

The technology roadmap aims to provide MIIs with structured guidance for technological advancement and infrastructure development to support the evolving needs of India's capital markets.

Regulatory Focus on Innovation and Market Integrity

Pandey urged exchanges and other market infrastructure institutions to continue investing in three critical areas: technology advancement, risk management systems, and cyber resilience capabilities. He emphasized the importance of ensuring that innovation strengthens rather than weakens market integrity.

The SEBI Chairman highlighted the regulator's ongoing focus on strengthening regulatory architecture that upholds market integrity amid widening participation and diversification in the investor base. He noted that enduring markets are built on institutions that inspire trust, regulation that evolves with markets, and systems that continuously adapt and upgrade.

Market Development Context

Speaking at the Sensex 40th anniversary celebration, Pandey described the benchmark index, launched in 1986, as more than just a market indicator. He called it a testament to India's capital market journey, noting that India's securities market is deeply intertwined with the history of the Bombay Stock Exchange, now BSE, which stands as one of the oldest stock exchanges in Asia.

The announcements reflect SEBI's commitment to leveraging advanced technology for regulatory enhancement while maintaining the integrity and stability of India's growing capital markets ecosystem.

The Securities and Exchange Board of India (SEBI) has announced detailed phased timelines for merchant bankers to comply with enhanced Merchant Bankers Regulations, including higher capital adequacy, liquid net worth requirements, underwriting limits and strengthened governance norms. The revised framework becomes effective January 3, 2026, raising entry barriers and tightening ongoing compliance for both new and existing merchant bankers. The regulatory tightening comes against the backdrop of a record primary market, with India emerging as the world's second-largest equity issuance hub, raising over $21.00 billion through IPOs and other public issues.

Implementation Timeline and Capital Requirements

Under the new regime, applicants seeking registration from January 3, 2026 must meet enhanced net worth and liquid net worth requirements upfront. Existing merchant bankers will receive a phased transition period extending till January 2028. The framework represents amendments to the SEBI (Merchant Bankers) Regulations, 1992, with staggered compliance timelines for existing entities.

Liquid Net Worth Standards and Asset Definition

SEBI has clearly defined "liquid net worth" as unencumbered cash or near-cash assets that must be maintained at all times. This includes cash, bank deposits, government securities, select mutual fund units and listed Nifty 500 shares, subject to prescribed haircuts. The liquid net worth thresholds represent 25% of the corresponding net worth requirements. Firms failing to meet Category I thresholds will be automatically reclassified as Category II.

Underwriting Limits and Compliance Requirements

SEBI has capped underwriting exposure, mandating that total underwriting obligations cannot exceed 20 times a merchant banker's liquid net worth. Existing entities have until January 2, 2028 to align with this requirement, providing a two-year transition window. Regular half-yearly certification by chartered accountants will be required to demonstrate ongoing compliance with capital, liquidity and underwriting limits.

Enhanced Governance Framework

Governance and personnel norms have been significantly tightened. Merchant bankers must appoint an independent compliance officer, separate from the principal officer and key operational staff, by April 3, 2026. Principal officers must have at least five years of financial market experience, with existing firms given one year to comply. Professional certification has been made mandatory, requiring relevant employees and compliance officers to clear specified NISM examinations within stipulated timelines.

Revenue Requirements and Operational Restrictions

Merchant bankers will now be required to generate minimum revenue from permitted activities - ₹25.00 crore for Category I and ₹5.00 crore for Category II on a cumulative three-year basis, failing which registration may be cancelled. The first assessment will be conducted from April 2029. The circular also bars outsourcing of core merchant banking activities beyond a short transition period, tightens disclosure norms, and mandates that merchant bankers cannot lead manage any public issue where their directors or key personnel hold more than 0.10% of paid-up share capital or shares worth more than ₹10.00 lakh. The phased approach seeks to balance stability with continuity while setting higher standards for financial strength and governance in an increasingly vibrant IPO ecosystem.