AI AS A TOOL FOR MARKET SURVEILLNCE IN SECURITIES MARKET AND ENFORCEMENT

Artificial intelligence is changing how securities markets are monitored, as trading now happens at a speed and volume that human supervisors cannot track. This paper examines the use of AI as a tool for market surveillance and enforcement, focusing on India’s securities market and the approaches of the Securities and Exchange Board of India (SEBI) and the U.S. Securities and Exchange Commission (SEC). It explains how AI systems analyse trade orders, market data and participant behaviour across exchanges to flag manipulative practices such as spoofing and layering, and notes the SEC’s ARTEMIS system as a global example. The paper also considers the risks AI brings, including deepfakes and AI-generated misinformation that mislead retail investors and distort prices, the “black box” problem of explaining algorithmic decisions, and “AI washing”, where firms exaggerate their use of AI. It then reviews the regulatory response: the India AI Governance Guidelines, the IndiaAI Mission and AI Safety Institute, SEBI’s proposed principles for the responsible use of AI, and the EU Artificial Intelligence Act. The paper concludes that AI can make fraud detection more efficient, but only if it is accompanied by auditability, explainability, accountability and investor protection, so that the law keeps pace with the technology.