Algorithmic Trading; SEBI Act; Market Manipulation; Artificial Intelligence; Securities Regulation

CONCEPTUAL FOUNDATIONS AND LEGAL FRAMEWORK OF AI IN SECURITIES MARKETS Kavidharani R, 10th Semester Student pursuing BALLB(Hons) course at Presidency University, Bengaluru (India) Download Manuscript doi.org/10.70183/lijdlr.2026.v04.107 This paper examines the conceptual foundations and legal framework governing the use of Artificial Intelligence in Indian securities markets. It begins by analysing key AI technologies, including machine learning paradigms, algorithmic trading, high-frequency trading, arbitrage mechanisms, and robo-advisory systems, with particular attention to their technical limitations and corresponding legal implications. The paper then situates these technologies within the institutional structure of Indian securities markets, focusing on the roles of stock exchanges, clearing corporations, depositories, and key intermediaries such as brokers and investment advisers. In its final section, the paper undertakes a doctrinal analysis of the statutory and regulatory framework, including the Securities and Exchange Board of India Act, 1992, the Securities Contracts (Regulation) Act, 1956, and key SEBI regulations, alongside the constitutional constraints under Articles 14, 19(1)(g), and 21, and the applicability of the Information Technology Act, 2000. The analysis identifies three structural gaps: the absence of statutory definitions for AI-driven trading practices, the inadequacy of intent-based liability standards in addressing autonomous systems, and the underdeveloped constitutional jurisprudence governing AI regulation in securities markets. The paper argues for a calibrated regulatory approach that balances innovation with investor protection and market integrity.