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Spike in insider trading, manipulation

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Insider trading, manipulation and stock price rigging are at their peak in India’s equity markets. In 2016- 17, there were nearly 185 fresh cases of market manipulation and price rigging and 34 new cases of insider trading under investigation by market regulator SEBI.

This is more than double the number of such cases in the previous year, data gathered by BusinessLine from SEBI revealed.

Targeting tax evaders

The rise in numbers is mainly on the back of tip-offs from the Income-Tax Department, which has been closely studying tax evasion via stock markets post demonetisation in November 2016, a SEBI official said.

The I-T Department’s main area of study has been the evasion of short-term tax by traders who book fictitious profits and losses. In 2016-17, 76 per cent of cases taken up for investigation pertained to manipulation and price rigging compared with 63 per cent in 2015-16.

Such investigations by SEBI were not as high even when it was probing the IPO scam between between 2003 and 2005 by the now infamous Rupal Panchal, who opened thousands of demat accounts to corner shares in 18 public issue-bound companies.

“SEBI has been empowered by an amendment to its insider trading rules in 2015, which is why it can now investigate more alerts. It is not necessary that final orders be passed in all the cases and investigations close in many of them if no violation is found,” Sumit Agarwal, Partner, Suvan Law Advisors.

A SEBI official said it had received alerts and complaints regarding a few top corporate houses, too. Insider trading is when a ‘connected person’, who may be an associate or a key management employee or one close to the promoters, deals in the shares of a particular company on material information that is not know to the public.

Rigging or manipulation is artificial price movement in stocks by traders.

SEBI issued 37 warning letters and 35 deficiency letters to mutual funds in 2016-17 for non-compliance with regulations and launched adjudication proceedings against three of them.

The markets are agog with rumours of a few fund managers being probed by SEBI for front-running and insider trading.

Commodity market probes

Investigations taken up by SEBI in the commodity markets too rose by 62 per cent. Overall, the regulator took up 97 cases in the commodity markets for detailed investigation in 2016-17 compared with 61 in 2015-16.

A total of 2,328 cases have been taken up for investigation by SEBI so far, of which probes have been completed in 2,059 cases.