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Manipulation probes by SEBI hit a new high

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The market watchdog probed 174 cases between April and December 2016, the highest in any fiscal so far

SEBI’s 54-page March order barring Reliance Industries and 12 other entities from the equity derivatives segment for one year and directing them to disgorge almost Rs. 1,000 crore featured the word ‘manipulation’ 15 times.

That the markets regulator wasn’t singling out this one high-profile case was evident from the fact that the number of market manipulation and price rigging cases investigated by the Securities and Exchange Board of India (SEBI) touched an all-time high of 174 in the nine-month period between April and December 2016.

This was the highest in the last seven financial years since data had been made available. Incidentally, this was also the first time that the number of such cases had exceeded 100 in a fiscal. The previous high was 86 in 2012-13.

“SEBI’s increased monitoring perhaps in the matters relating to collective investment schemes, misuse of long term capital gains (LTCG) and intentional self-trades through algorithmic trading seems to have led to the increase in numbers,” said Sumit Agrawal, partner, Suvan Law Advisors.

“Usually operators tend to do some of these activities assuming SEBI might not be able to capture it in their alerts or systems.

But SEBI has come a long way in its surveillance systems and risk containment measures,” he added.

In 2015-16, SEBI had initiated investigation into as many as 84 case for market manipulation and price rigging.

The investigations are yet to be completed and in some instances, could be that the probe may reveal that it was not a case of manipulation or price rigging.

Even in cases where investigations were completed, manipulation and price rigging as a category had historically accounted for the largest share among all forms of investigations.

Price rigging

Between April and December 2016, SEBI completed investigations in 70 matters of which 57 were related to market manipulation and price rigging.

The SEBI data, however, does not throw light on the number of cases related to global depository receipts (GDRs), mutual funds or collective investment schemes (CIS) being investigated into.

Also, it is unclear how many cases relating to non-disclosures are under examination.

Apart from market manipulation and price rigging, the market regulator had categorised investigations under insider trading, takeovers and issue related manipulation segments.

Further categorisation of cases could certainly provide clarity as going by some of the interim orders, notices or appeals at the Securities Appellate Tribunal (SAT), it is clear that there have been many instances of investigations related to misuse of long term capital gains (LTCG), front running and self- trades in the recent past.

Interestingly, experts also attribute the rising number of such cases (being investigated) to the fact that the regulator had strengthened its investigation and surveillance prowess and a higher number of alerts are now being handled.

‘Increased bandwidth’

“The emphasis clearly seems to be on reducing market manipulation activities and with the increased bandwidth, the regulator seems to be taking up more alerts,” said Tejesh Chitlangi, partner, IC Legal.

“Stock exchanges provide information to SEBI that generates internal alerts as well. SEBI has been hiring professionals from top institutions, that has increased its capacity to better handle such cases. Market integrity is of paramount importance and SEBI has started looking at more cases of market manipulation,” added Mr. Chitlangi.

SEBI has come a long way in its surveillance systemsSumit Agrawal,Partner, Suvan Law Advisors