Tag: Securities Law

If you are not happy with the results, please do another search

AI in Capital Markets: Why the Industry Is Embracing Artificial Intelligence

Digital tablet displaying rising bar chart with a rocket icon symbolizing business growth and innovation.

Capital markets have long been shaped by technological innovation. From the transition to electronic trading and algorithmic execution to the adoption of cloud computing, big data analytics and digital platforms, technology has consistently enhanced the speed, efficiency and accessibility of financial markets. Artificial intelligence (AI), however, represents a fundamental shift. Unlike previous technological advancements that primarily automated processes, AI has the potential to augment, or in certain applications, perform complex analytical, diligence and decision-making functions that were traditionally dependent on human expertise.

This evolution is transforming nearly every segment of the capital markets ecosystem. Reports suggests that investment banks are using AI to analyse large volumes of market data and streamline due diligence, asset managers are integrating AI into investment research and portfolio management, brokers are enhancing client engagement and fraud detection, while regulators such as stock exchanges and Securities and Exchange Board of India (SEBI) are exploring AI-enabled market surveillance and supervisory technologies. As AI capabilities continue to mature, its adoption is moving beyond isolated experimentation to becoming an integral component of business strategy.

This article examines the commercial and technological forces driving AI adoption across capital markets stakeholders. Rather than focusing on regulatory responses, which will be explored later in this series, this article seeks to explain why AI has become a strategic priority for market participants and why understanding this transformation is increasingly important for issuers, intermediaries, advisors, investors and regulators alike.

 

Capital Markets Have Entered a New Technological Phase

The increasing adoption of AI within capital markets is not an isolated technological trend; rather, it is the culmination of a broader digital transformation that has been underway for more than two decades. Financial institutions have progressively digitised trading infrastructure, client interfaces, compliance processes and operational functions, generating unprecedented volumes of structured and unstructured data. At the same time, advances in cloud computing, greater computing power and the emergence of large language models have significantly lowered the barriers to deploying sophisticated AI applications.

These developments have coincided with growing competitive pressure to process information faster, improve operational efficiency and derive actionable insights from increasingly complex datasets. AI is therefore being adopted not simply because it is technologically novel, but because it enables  the market participants to analyse information at a scale and speed that would be difficult to achieve through traditional analytical methods alone.

The International Monetary Fund observes that many contemporary AI applications represent an evolution of existing quantitative and analytical techniques rather than an abrupt departure from previous market practices. What distinguishes recent developments, however, is the rapid advancement of generative AI, which has expanded AI’s potential beyond quantitative modelling into knowledge-intensive activities such as document analysis, research, diligence, drafting and communication. This evolution is reshaping how capital market participants generate insights, interact with clients and manage internal workflows.

Importantly, AI adoption remains uneven across jurisdictions and market participants. Larger institutions with significant technological capabilities continue to lead implementation, while adoption among emerging markets varies depending on market maturity, digital infrastructure and regulatory capacity. Nevertheless, the overall trajectory is clear: AI is increasingly becoming part of the core operating model of modern capital markets, and it is no longer considered as a good to have modus operandi.

 

AI Across the Capital Markets Ecosystem

One of the defining characteristics of AI adoption is its breadth. Rather than being confined to a single market function, AI is increasingly being deployed across the entire capital markets value chain, supporting front-office, middle-office and back-office operations.

Within investment banking, AI is assisting professionals in analysing prospectuses, reviewing transaction documents, conducting due diligence and extracting insights from extensive datasets. These capabilities enable transaction teams to process information more efficiently while allowing professionals to focus on higher-value analytical and strategic work.

For asset managers and investment advisers, AI supports portfolio construction, market research, sentiment analysis, alternative data analysis and investment decision-making. Machine learning techniques are also being used to strengthen risk assessment and identify market patterns that may not be readily apparent through conventional analytical methods.

Brokers and trading firms are increasingly incorporating AI into algorithmic trading, execution optimisation, fraud detection, customer support and personalised client engagement. Meanwhile, stock exchanges and market infrastructure institutions are exploring AI-enabled surveillance tools to identify unusual trading patterns, detect potential market abuse and improve operational resilience.

Regulators themselves are also recognising AI’s potential. Supervisory authorities across several jurisdictions are examining how AI and supervisory technology can enhance market monitoring, improve data analysis and strengthen regulatory oversight. This demonstrates that AI is influencing not only regulated entities but also the institutions responsible for supervising them.

Although individual use cases continue to evolve, a common theme emerges: AI is becoming embedded within critical business processes rather than operating as a standalone technological solution. This transition marks an important shift in how capital market institutions view AI, not as an experimental innovation but as a capability capable of enhancing efficiency, decision-making and operational resilience.

 

Why Organisations Are Investing in AI and why AI Matters for Capital Market Participants

The rapid adoption of AI across capital markets is not driven by technological novelty alone. Rather, it reflects a convergence of commercial, operational and strategic considerations that are reshaping how financial institutions compete. As markets become increasingly data-intensive and regulatory expectations continue to evolve, institutions are seeking technologies that can improve efficiency while strengthening decision-making and risk management.

One of the most significant drivers is the exponential growth in market information. Capital market participants now process vast quantities of structured and unstructured data, including regulatory filings, issuer disclosures, market announcements, trading data, macroeconomic indicators, news, research reports and alternative data sources. Analysing this information manually has become increasingly resource intensive. AI enables institutions to process large datasets more efficiently, identify relationships across multiple data sources and generate insights that support faster and more informed decisions.

Operational efficiency is another important consideration. Financial institutions are deploying AI to automate repetitive, rules-based tasks that previously required significant manual effort. Document review, information extraction, internal knowledge management, workflow automation and client servicing are increasingly supported by AI-enabled tools. Rather than replacing professional judgement, these applications enable legal, compliance, operations and transaction teams to devote greater attention to complex analytical work where human expertise remains essential.

AI is also being adopted to strengthen risk management capabilities. Advanced analytical models can assist institutions in identifying anomalies, monitoring trading behaviour, detecting potential fraud and supporting compliance monitoring. As capital markets continue to generate increasingly complex datasets, AI provides an opportunity to improve the speed and consistency with which potential risks are identified and assessed.

Perhaps most importantly, AI is becoming a source of competitive advantage. Institutions that are able to integrate AI responsibly into research, execution, client servicing and operational processes may improve productivity, reduce costs and enhance the quality of decision-making. In an environment where speed, information and execution quality are critical differentiators, AI is increasingly viewed as a strategic business capability rather than a standalone technology investment.

This widespread adoption also reflects a broader structural shift. Historically, competitive advantage in capital markets was often associated with scale, access to information and execution capabilities. Today, those advantages are increasingly complemented by the ability to transform vast amounts of data into timely and actionable insights. AI therefore represents not merely another technological innovation but an increasingly important component of institutional capability.

For Indian capital market participants, these developments are particularly relevant. Although India has not yet introduced a dedicated regulatory framework governing AI in securities markets, SEBI has acknowledged the growing importance of AI and, in May 2026, issued an advisory on the responsible use of advanced AI tools for vulnerability detection. While this advisory is focused on cybersecurity rather than AI governance more broadly, it reflects the regulator’s recognition of AI as an emerging area of supervisory interest. As global regulatory thinking continues to evolve, Indian market participants may benefit from understanding these developments early, enabling them to strengthen governance frameworks and prepare for future regulatory expectations without presuming the direction of any future SEBI framework.

 

Conclusion

Artificial intelligence is rapidly becoming an integral part of the capital markets ecosystem. Its adoption is being driven not by technological experimentation alone, but by the increasing complexity of financial markets, the exponential growth of data and the need for faster, more informed decision-making. Across investment banking, asset management, brokerage, market infrastructure and regulatory oversight, AI is beginning to reshape how institutions operate and compete.

At the same time, the increasing integration of AI into critical market functions raises important questions about governance, accountability and market integrity. These issues explain why regulators worldwide are paying closer attention to AI and why understanding its implications has become a strategic priority for capital market participants.

The next article in this series explores these issues in greater depth by examining the principal risks associated with AI adoption and why responsible governance has become central to the future of AI in capital markets.

Authored by: Anshu Bansal, Partner, and Rashmita Das, Legal Researcher.

SEBI’s Revised Open-Market Buy-Back Framework: A New Responsibility Architecture for Transaction Execution

Stacks of coins with rising financial graphs representing equity market growth

The Securities and Exchange Board of India’s revised framework for buy-backs marks a structural change in the execution and compliance architecture applicable to listed companies. Alongside reintroducing open-market buy-backs through the stock-exchange route with effect from August 1, 2026, SEBI has made the appointment of a merchant banker discretionary for buy-backs. Where a company does not appoint a merchant banker, functions previously vested/performed by merchant bankers are distributed among the company, its compliance officer, statutory auditor, secretarial auditor and the stock exchanges.

The significance of the revised framework therefore extends beyond the return of the stock-exchange route. It introduces an alternative model of transaction accountability: the regulatory functions associated with a buy-back remain, but their performance no longer necessarily depends upon the a a single category of registered transaction intermediary.

 

Regulatory background to the revived stock-exchange route

SEBI’s reconsideration of open-market buy-backs through stock exchanges followed changes in both the regulatory and taxation context. The April 2026 consultation paper noted that the earlier concerns underlying discontinuation of the route included the inability to identify whether a shareholder’s trade had resulted in participation in the buy-back and the resulting tax-induced inequity among public shareholders.

In reconsidering the route, SEBI recorded that the revised taxation framework had addressed the earlier concern regarding differential tax treatment. The April consultation paper also noted that execution under an order-driven market mechanism is determined through price-time matching, giving public shareholders an equal opportunity to participate under uniform conditions. SEBI further identified continuous price discovery and liquidity as features of the stock-exchange route.

The SEBI Board subsequently approved reintroduction of the route from August 1, 2026. The approved framework requires completion of an open-market buy-back through the stock exchange within 66 working days from its opening, with at least 40% of the amount earmarked for the buy-back to be utilised during the first half of the buy-back period.

 

Merchant banker appointment becomes discretionary

The change in the role of merchant bankers emerged from SEBI’s broader review and rationalisation of the SEBI Buy-Back Regulations. Under the framework considered in the May 2026 consultation paper, merchant bankers were mandatorily appointed and performed functions including filing-related activities, dissemination, escrow-related compliance and oversight of regulatory compliance.

SEBI’s review proceeded on three stated considerations. First, it observed that the securities market ecosystem had evolved through continuous disclosure mechanisms and enhanced governance frameworks. Second, it noted that several functions performed by merchant bankers were procedural or operational and capable of being performed by the company or other market infrastructure institutions. Third, the Board of Directors remained responsible for matters including correctness of disclosures, statutory compliance, the declaration of solvency and extinguishment of securities.

The May consultation paper proposed dispensing with mandatory merchant banker appointment and reallocating existing functions. The SEBI-approved framework, however, framed the final position as one of discretionary appointment: a company may appoint a merchant banker, but where it elects not to do so, the functions otherwise undertaken by the merchant banker are allocated across the company, compliance officer, statutory auditor, secretarial auditor and stock exchanges.

This distinction is material. The framework does not dispense with the underlying compliance functions merely because no merchant banker is appointed. Instead, it changes the identity of the actor responsible for performing particular functions.

 

A distributed model of transaction responsibility

The May consultation paper provides the clearest regulatory background to the redistribution exercise. Its Annexure I mapped existing merchant banker functions against proposed alternative responsibility holders. The company was proposed to assume responsibility for filing the letter of offer and public announcement, payment of applicable fees and ensuring that the relevant disclosure documents were true, fair and adequate. The company was also proposed to assume responsibility for the final report, ensuring the availability of funds and firm financial arrangements for implementation of the buy-back, and compliance with the relevant provisions of the Companies Act, 2013.

Certification and assurance functions were separated from these issuer responsibilities. The consultation proposed assigning certification of compliance with the Buy-Back Regulations and the due diligence certification function to the secretarial auditor. The Board decision subsequently identified both the statutory auditor and secretarial auditor among the actors to whom responsibilities are allocated where a merchant banker is not appointed.

The execution-side architecture similarly moves away from reliance upon a single intermediary. Under the consultation proposal, oversight and operation of escrow arrangements, including specified functions concerning bank guarantees, cash deposits, approved securities, invocation and release, were proposed to be assigned to the designated stock exchange. Certification relating to adequacy of sell orders and volume-weighted average price was also proposed to be undertaken by stock exchanges.

The consultation paper proposed assigning the merchant banker’s presence during extinguishment or destruction of securities acquired through an open-market buy-back, and verification of compliance with extinguishment requirements, to the company’s compliance officer.

The regulatory design, therefore, is one of functional separation. Issuer-side filing and funding responsibilities, independent certification, market-infrastructure oversight and internal compliance functions are allocated to different actors already done with some success forrights issues..

 

Execution safeguards under the revived route

The revised framework also modifies the mechanics of open-market execution. The SEBI decision records that, given the changed taxation framework and the prohibition on promoter participation in open-market buy-backs, transactions under the stock-exchange route will be treated as normal trading transactions. Accordingly, the earlier requirements for a separate trading window and display of the company’s identity as purchaser on the trading screen have been dispensed with.

This represents a material difference from the April consultation paper, which had proposed reintroducing the route by applying the existing framework under the SEBI Buy-Back Regulations and circulars issued thereunder. That paper referred to the then-existing framework, including restrictions on volume, timing of bid placement and the permissible price range for orders. The final Board-approved position expressly removes the separate-window and purchaser-identity requirements; accordingly, the consultation proposal should not be treated as an exact statement of the final execution architecture.

Other safeguards operate around participation and execution. Promoters and their associates cannot participate in the open-market buy-back, and their shares or other specified securities are required to remain frozen at the ISIN level during the buy-back period. SEBI stated that this measure is intended to prevent inadvertent dealing during the buy-back period, which is sagacious in the day and age of wealth managers and portfolio managers.

The framework also requires proposed buy-backs to continue to comply with minimum public shareholding requirements.

 

Disclosure and shareholder communication

The framework retains public disclosure as a central component of the transaction while adding a direct shareholder communication requirement. The SEBI decision provides that information regarding open-market buy-backs must be disseminated to shareholders electronically, in addition to the public announcement already made through newspaper advertisements.

The redistribution of responsibility is particularly relevant here. The May consultation paper proposed that filing and public-announcement responsibilities previously associated with the merchant banker be performed by the company itself.

Optionality in merchant banker appointment does not remove the disclosure framework. Where no merchant banker is appointed, the architecture instead places issuer-facing disclosure responsibilities directly within the company-led compliance process, while retaining independent and infrastructure-level functions with other identified actors.

 

Implications for the transaction execution ecosystem

The revised framework changes the institutional structure of buy-back execution without eliminating the underlying regulatory controls. For merchant bankers, their role remains part of the transaction commercial structure.

For listed companies, proceeding without a merchant banker does not create a reduced-compliance route. Filing, funding, certification, escrow oversight, transaction execution, extinguishment and final reporting remain regulated functions, but responsibility for them is allocated across the issuer and specified assurance, compliance and market-infrastructure actors.

The principal regulatory significance of the amendment therefore lies in the movement from mandatory intermediary-led coordination to function-specific accountability. The revised model preserves the regulatory components of a buy-back transaction while allowing companies discretion over whether those components are coordinated through an appointed merchant banker or discharged through the alternative responsibility architecture established by the framework.

Authored by: Sourav Modi, Partner and Rashmita Das, Legal Researcher.

Deals & Matter Corner

View More

Articles & Publications

View More

JSA Live

View More

Blogs

View More