Sebi ups vigil on market to prevent manipulation

Rajesh Abraham, Anto T Joseph, Financial Chronicle, 25/8/11


The Securities and Exchange Board of India (Sebi) is beefing up its internal market surveillance systems to check stock manipulations on a real-time basis, chairman UK Sinha said.

The market regulator is also concerned about rising retail participation in the risky equity derivatives segment, Sinha said, adding that Sebi would check if some sort of misselling or mis-communication is going to investors to lure them into this segment.

At present, retail segment’s share in equity derivatives – termed as weapons of mass destruction by billionaire investor Warren Buffet – is nearly 60 per cent compared with that of only 13 per cent from institutions, who are relatively better equipped to deal with such sophisticated and risky trades.

In an exclusive interview with Financial Chronicle, Sinha said the capital market regulator through its integrated market surveillance system generates 12 different kinds of alerts on doubtful or suspicious trades in the stock market. This will be beefed up further to send a clear message to rogue traders that the regulator was on top of things.

“Sebi has introduced an integrated surveillance system. This means we have our own independent system where data from all exchanges are captured automatically on a real-time basis. That part of the project is over,” Sinha said.

“The second part is what we do with the data? Have we developed enough business intelligence to take that data forward to identify any pattern that can be suspicious? That part is going on,” the Sebi chief said.

The alerts on which the system generates information is only the initial stage of phase one. “We have to take it to a very different level so that if anybody is trying to manipulate any scrip or the market, our system is able to tell us immediately. Bu immediately, I mean immediately, on a real-time basis. That is our ambition,” Sinha said.

The Sebi chief said allowing an offence to take place and punish the guilty was not the regulator’s goal. “Our job is to stop the offence. It will take a few years. One phase will be completed by the end of this year,” he said.

On increased participation of small investors in the risky equity derivatives segment, Sinha said it throws up challenges for Sebi to see what sort of communication was going to them.

“Are retail investors being told in very clear terms what are the risks? If there is any mis-selling and mis-communication, we will definitely look into it, because if 60 per cent of investors in a country like India, where the level of financial literacy is not very high, are participating in derivatives, then Sebi should look at the way sales are happening. We will definitely look at the way communication is happening,” he said.


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