SEBI intensifies crackdown as insider trading probes increase 106% YoY
The Securities and Exchange Board of India (SEBI) has reported a significant increase in its investigations into insider trading and front running cases during FY24. According to the data, the number of probes related to insider trading rose from 85 in FY23 to 175 in FY24, translating to an increase of nearly 106% year-on-year. Similarly, inquiries into front running saw a more than three-fold increase from 24 to 83 within the same period.
SEBI's enhanced surveillance capabilities
The surge in investigations coincides with SEBI's establishment of a lab equipped with multiple data sources, data analytics tools, and digital forensic tools. This setup was designed to bolster its surveillance and investigation capabilities. Some of these tools were developed in-house while others were procured and customized as per regulatory requirements.
Tools enhance SEBI's data analysis capabilities
The tools have significantly improved SEBI's ability to analyze both structured and unstructured data from internal and public sources. They are used to identify connections among entities suspected of alleged securities market violations. These tools employ advanced technologies such as network visualization, graph database, AI/ML, etc., as stated in the annual report.
Experts attribute probe surge to data and technology use
Experts suggest that the rise in regulatory investigations is due to an increased focus on data and technology use. This allows SEBI to process large volumes of data quickly and reduce enforcement action time. Tomu Francis, Partner at Khaitan & Co, a leading law firm in the securities market arena, stated that "SEBI has over the last financial year, became more proactive in relation to market fraud investigations."
SEBI's tech use aids in market fraud investigations
Francis further explained that insider trading investigations typically require companies to provide a list of connected persons and others involved in company processes leading up to a disclosure of price sensitive information. This information is analyzed by SEBI to determine potential leaks or access to UPSI (Unpublished Price Sensitive Information). Similarly, SEBI's use of technology has allowed it to sift through large amounts of trade related data between a larger number of parties in its price and volume manipulation investigations.
Increased enforcement action to strengthen India's global market position
Makarand Joshi, Founder of MMJC and Associates, a corporate compliance firm, believes that increased enforcement action from SEBI concerning cases related to insider trading and market manipulation will strengthen India's position in the global markets while attracting more investors. He stated that "Enforcement relating to insider trading and price manipulation is hygiene for the capital market." He further added that "Increase in enforcement around insider trading, price manipulation is to ensure fair play in the market."
