Wednesday, September 27, 2023
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SEBI to go after suspicious trading activity


Capital markets regulator SEBI plans to fix suspicious trading activity (STA) that provides an unfair advantage to a select few. In a consultation paper on late Thursday, the regulator suggested a regulatory framework for defining unusual trading pattern, material non-public information and suspicious trading activity.

Accordingly, a repetitive pattern of trading activity by a person or a group of connected persons that involves a substantial change in risk taken in one or more securities over short periods of time and consequently delivers abnormal profits or averted ab-normal losses will be treated as unusual trading pattern (UTP).

Besides, there have been instances where the trading pattern of a single person or a group of persons, which in isolation appear to be normal, when analysed holistically, exhibit the UTP. Such trading activity shall also be deemed to be UTP, SEBI paper said.

Other parameters

Information (that can influence a share price movement) such as about a company or security, which was generally not available; any impending order in a security and an impending recommendation; and advice by name, etc, in a security, by an influencer, to the public/followers/subscribers will be considered as material non-public information (MNPI).

A person or a group of connected persons, if found to be exhibiting UTP, in a security or a group of securities, where such UTP coincides with MNPI in relation to that security or group of securities, such UTP will be deemed to be STA, SEBI said.

Despite SEBI’s surveillance systems repeatedly detecting such instances of Insider Trading and Front Running, the use of innovative, vanishing, and encrypted methods of private communication, as well as complex and untraceable funding arrangements, makes it impossible to establish the preponderance of probability. “These methods pose significant challenges in gathering conclusive evidence and proving the occurrence of such fraudulent activities,” SEBI said.

A person or group of connected persons, being called upon to explain the STA exhibited by them, are not able to effectively rebut or provide explanation, then such trading activity will be deemed to be an Unexplained Suspicious Trading Activity (USTA), the paper said.

SEBI has sought public comments on the proposal by June 2.




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