SEBI Framework for Unexplained Suspicious Trading Pattern

May 19, 2023

The Securities and Exchange Board of India (Sebi) has proposed a robust regulatory framework to address the issue of suspicious trading patterns in the financial markets. By prohibiting individuals from engaging in suspicious trading activities related to material non-public information, Sebi seeks to ensure transparency and integrity in the securities market.

Understanding the Proposed Framework

Sebi’s regulatory framework specifically targets the phenomenon of suspicious trading patterns. The framework seeks to prevent individuals from participating in trades that revolve around material non-public information, unless they can effectively rebut the presumption of violating securities laws. By doing so, Sebi aims to address insider trading and front running practices that undermine market fairness.

Prohibiting the Exploitation of Material Non-Public Information

According to Sebi, the presence of material non-public information that can reasonably impact the price of a security, particularly in the form of impending recommendations by influencers, is of great concern. Sebi defines influencers as individuals capable of influencing investment decisions for a considerable number of people through their statements or representations. The proposed framework ensures that trading activities based on such information are regulated, thereby protecting market participants from unfair advantages.

Challenges in Establishing Violations

Sebi acknowledges the difficulties it faces in establishing violations in cases involving encrypted or vanishing messages. Such communication methods make it arduous to establish direct connections between tipper and tippee in insider trading scenarios. Additionally, front running cases employ mule accounts and untraceable funding arrangements, making it challenging to establish funding connections between the involved parties.

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