'From mother-in-law to behenoi': How Sebi is battling insider trading

Violations and wrong-doings in the market can be done in many ways but insider trading and front running always grab the most headlines and all stakeholders, including capital markets regulator Securities and Exchange Board of India (Sebi) is well aware of the fact. 

Speaking at the 49th Foundation Day Lecture of IIM Bangalore, Sebi chairperson Madhabi Puri Buch highlighted the advancements that the regulator has done in terms of harnessing technology and data to prevent or minimise wrongdoings in the securities market. 

Interestingly, she also highlighted the way violators have evolved following the regulator’s enhanced focus on technology as a tool to aid in surveillance. 

“People’s modus operandi becomes smarter and smarter. Earlier people used to be foolish enough to do insider trading in their own names. Then they realised that Sebi can catch them so they started doing [trading] in their mother, father, etc name,” she said while replying to audience queries post her presentation. 

“Then they realised that common surnames also Sebi catches. Then they started doing in mother-in-law’s name. Then they realised Sebi is now able to connect mother-in-law also then ‘behnois’ became very popular. I am serious. Because there is no way you can connect your sister’s husband. Then we realised we can do [catch] through call data records. Then they moved to WhatsApp. Now WhatsApp is a problem,” added Buch, the first female chief of the capital markets watchdog. 

While she acknowledged that regulators typically remain one step behind when compared to the wrongdoers, she stressed on the fact that the idea is to “to make it harder and harder for people to do wrong things”. 

Meanwhile, during her speech, the Sebi chairperson said the capital markets watchdog has a strong algorithm – developed in-house – that throws alerts related to insider trading and front running. 

“We assembled a team of relatively young officers who put together the most amazing algorithms that I have ever seen across my 25 years of career. So today when we look at the data, we look at the algo and we look at the alerts, it’s magic. Because you can look at the data and say here is this guy, look at his trading pattern, that’s insider trading. It is as simple as that,” she said. 

She further added that while there have been certain setbacks as the regulation has not kept pace with technology, the watchdog is now “busy trying to fix the regulation (and) we think we will get there in a few months”.   

“The objective of the regulator is not to catch people doing bad things. The objective is to prevent people [from] doing bad things,” she said.

Also Read: Sebi bars Bombay Dyeing, Wadia family from security market, slaps Rs 15.75-cr fine

Also Read: SEBI fines Rs 6 lakh on 3 individuals for violating insider trading norms in PVR