Markets regulator Securities and Exchange Board of India (Sebi) has proposed an institutional mechanism that will require stock brokers to put in place systems for detection and prevention of market abuse.
Sebi has released a consultation paper that seeks views from market participants on a proposal which requires broking firms and their senior management to be accountable for such detection/ prevention of fraud or marker abuse, by setting up robust surveillance and control systems, and ensuring appropriate escalation and reporting mechanisms.
This proposal also enumerates some of the common examples of market abuses that brokers must look to detect/prevent, the entities who should be subject to surveillance, and the accountability that is entailed.
Currently, there are no specific regulatory provisions that cast responsibility on brokers to put in place systems for detection and prevention of fraud or market abuse.
The list of probable instances / indicators of fraud or market abuse which the broker’s system should be equipped to monitor, at a minimum, are as follows:
a)Creation of misleading appearance of trading,
b)Price manipulation,
c)Front running,
d)Insider trading,
e)Mis-selling,
f)Unauthorised trading, including facilitation of ‘mule’ accounts that act as a front for unauthorised trading
g)Pump and dump,
h)Spoofing,
i)Disproportionate trading activity vis-à-vis reported income/net worth,
j)Frequent changes in KYC submitted by clients.
Sebi has proposed that the...
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