Securities and Exchange Board of India (SEBI) is planning to come up with a sandbox policy to support technology development for financial markets, an official said here on Thursday.
“We will come out with a sandbox policy. We are examining whether any changes in laws are required in terms of its dispensation,” SEBI Chairman Ajay Tyagi said on the sidelines of the 8th India Finance Conference, organised by IIM-Calcutta.
Sandbox concept is something that one can try before implementing it on a larger scale and it refers to experimenting and learning before adopting a technology or system.
Tyagi said the capital market regulator is also working out whether something new can be tried without any legislative changes.
The Insurance Regulatory and Development Authority of India has set up a committee to look into the concept of a regulatory sandbox in India.
He pointed out that there had been substantial technology interventions in capital markets in the past and it would continue.
Tyagi also said that Machine-learning and Artificial Intelligence have made inroads in the area of high frequency and algorithmic trading and some bits of fund management as well.
Going ahead, they would find increasing applications in areas of capital market that require rapid processing of large amounts of information or data, which is otherwise not possible for humans to meaningfully process, he said.
On the other hand, block-chain technology, due to its ability to maintain transactions or contractual obligations as distributed ledgers, with all its inherent advantages, may pose serious challenge to any centralised record-keeping institution, such as exchanges, depositories and other entities related to payments and settlement, Tyagi said.
According to him, regulators may have to develop the capacity to vet software codes and algorithms, test those algorithms for malfunction, if any, and consider encoding checks and balances of investor protection in those smart contracts and algorithms itself.
As data usage and requirements get further deepened, concerns relating to “security” of data would become even more pronounced, Tyagi said.
Markets, accordingly, would have to remain vigilant and continue to adopt sophisticated cyber-security and cyber-resilience measures, he added.