SEBI to Overhaul SME Listing Rules and AI Guidelines

The Securities and Exchange Board of India is launching a comprehensive overhaul of the framework governing small and medium enterprise (SME) listings to remove barriers curbing corporate growth. Chairman Tuhin Kanta Pandey announced the review during the 23rd FICCI Annual Capital Markets Conference in Mumbai, identifying high costs from ineffective market-making and underwriting systems as primary hurdles. He noted that previous attempts to limit retail participation by increasing trading lots and application sizes failed, and the regulator now intends to address trading difficulties caused by odd lots and restrictive migration requirements linked to paid-up capital through a forthcoming consultation paper.

Simultaneously, the regulator is developing guidelines for the responsible use of artificial intelligence and machine learning in securities markets. The framework will employ a tiered regulatory approach requiring regulated entities to implement kill switch mechanisms, humans in the loop controls, and strict data protections. Pandey emphasized that entities remain fully responsible for any AI tools they deploy, regardless of whether the technology was developed internally or procured from third parties.

Additional regulatory initiatives include a detailed study on futures and options trading for FY26 and proposed changes to portfolio manager regulations to attract more global fund management activity to India. The regulator also highlighted a new closing auction session designed to detect market manipulation more quickly, warning that strict action will be taken against such activity.