SEBI to go after suspicious trading activity

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Capital markets regulator SEBI plans to reform shady trading activity (STA) that provides an unfair advantage to a select few. In an advisory paper late Thursday, the regulator proposed a regulatory framework for identifying unusual trading pattern, non-public material information, and suspicious trading activity.

Accordingly, the recurring pattern of trading activity by a person or group of related persons that includes a substantial change in the risks that are exposed to one or more securities over short periods of time and thus leads to abnormal profits or abnormal losses that have been avoided. It will be treated as an Unusual Trading Pattern (UTP).

Besides, there have been cases when the trading style of one person or group of people, which separately appears to be normal, when analyzed holistically, shows UTP. The SEBI paper said such business activity is also considered a UTP.

Other parameters

information (which could affect the movement of a share price) such as a company or a security, which was not publicly available; any impending warrant in a security and impending recommendation; And advice by name, etc., in security, by the influencer, to the audience/followers/subscribers is considered Material Non-Public Information (MNPI).

A person or group of related persons, if found to be offering a UTP, in a security or group of securities, where such UTP matches the MNPI with respect to that security or group of securities, such UTP will be deemed to be an STA, SEBI said.

Although SEBI’s monitoring systems repeatedly detect such instances of insider trading and front-running, the use of innovative, evasive, and encrypted methods of private communication, as well as complex and untraceable funding arrangements, makes it impossible to prove the preponderance of the probability. “These methods pose significant challenges in gathering conclusive evidence and proving that such fraudulent activities are taking place,” SEBI said.

The newspaper said if any person or group of related persons, who are called to explain the STA they are offering, are unable to refute or provide an effective explanation, then that business is deemed to be an Unexplained Suspicious Business Act (USTA). .

SEBI sought public comment on the proposal by June 2.