India's market regulator, the Securities and Exchange Board of India (Sebi), has deployed artificial intelligence capabilities that are generating a growing number of actionable alerts, revealing patterns of front-running in the portfolio management services (PMS) industry. The development was announced by Manoj Kumar, executive director of Sebi, at the Association of Portfolio Managers in India's (Apmi) PMS Leadership Conclave in Chennai on Friday.
Sebi's AI Alerts and Findings
According to Kumar, the AI tools have recently generated enough alerts that, over time, have indicated a certain amount of front-running is occurring in the PMS industry. "We always believed this was something largely confined to the mutual fund space," he said, adding that the regulator is now "analysing how it has impacted investors."
The regulator's AI systems have become a cornerstone of its market surveillance, with Kumar emphasising that the tools are helping uncover patterns that might otherwise go unnoticed. The findings mark a significant expansion of Sebi's oversight beyond the mutual fund sector.
Regulator's Approach: Handholding and Awareness
Kumar outlined Sebi's stance on compliance, describing it as a "handholding" approach towards resolution. He acknowledged that operators may sometimes commit unintended violations, stating: "We always see that when you operate, there can be some unintended violations. As long as these violations remain unintended, we are very, very accommodative." He added, "We will listen to your viewpoint."
However, Kumar stressed that the objective is to create greater awareness within the PMS industry and discourage any activity that could be perceived as even "remotely" impermissible or viewed negatively by investors. This dual approach — accommodative for genuine errors but firm against deliberate misconduct — reflects Sebi's strategy to foster compliance while maintaining market integrity.
Industry Reaction
Speaking to The Times of India on the sidelines of the conclave, Apmi chairman Biharilal Deora said the review would support the industry's growth. His comments suggest that the PMS industry, which manages portfolios for high-net-worth individuals, sees the regulatory scrutiny as a constructive step rather than a threat.
| Key Aspect | Details |
|---|---|
| Regulator | Securities and Exchange Board of India (Sebi) |
| Tool | Artificial intelligence-based surveillance |
| Discovery | Front-running patterns in PMS industry |
| Previous belief | Front-running largely confined to mutual funds |
| Sebi executive | Manoj Kumar, executive director |
| Event | Apmi PMS Leadership Conclave, Chennai |
| Industry body | Association of Portfolio Managers in India (Apmi) |
| Apmi chairman | Biharilal Deora |
| Regulatory stance | Handholding for unintended violations; zero tolerance for deliberate misconduct |
| Next step | Analysing investor impact |
Implications for the PMS Industry
The detection of front-running — a practice where a trader executes orders on a security for its own account while taking advantage of advance knowledge of pending orders from clients — could lead to heightened compliance requirements for PMS firms. Sebi's use of AI to uncover such patterns signals a more proactive and technology-driven oversight regime. For investors, the regulator's analysis of impact may result in enhanced transparency and investor protection measures.
With the Apmi chairman endorsing the review, the industry appears aligned with Sebi's goals. The next milestone will be Sebi's detailed findings on investor impact and any subsequent regulatory actions.
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