Sebi gets new software tools for fraud detection, probes

PTI Posted online: Sunday, Apr 06, 2014 at 0000 hrs
Mumbai : With an aim to beef up its capabilities to detect frauds and bring scamsters to book, Sebi is putting in place new software tools to help in its investigations and surveillance activities.

The new tools would help the capital markets watchdog in keeping a close watch on possible manipulative activities in the stock markets by monitoring suspicious trades as also by analysing the information available in the public domain such as on social media and other Internet platforms.

According to a senior official, Sebi has identified enhancement of its market surveillance capabilities as a core focus area for the current financial year.

"Capacity building for effective integrated surveillance particularly of derivatives market is essential so as to allign with the ever-changing market dynamics.

"During the year, special focus will be laid on enhancement of skill sets for using analytical and statistical tools to facilitate effective surveillance," he added.

In the budget estimates for the current fiscal 2014-15, Sebi has already accounted for the necessary expenses towards 'software for investigation work and Fraud Intelligence Software', sources said, while adding that this project was currently under implementation.

Sebi has already carried out upgradation of its Integrated Market Surveillance System (IMSS), through which it undertakes its market surveillance functions and collects data for suspicious market activities through multiple sources, including its network systems at stock exchanges and other market infrastructure institutions.

Sebi also intends to further beef up in due course its Data Warehousing and Business Intelligence System (DWBIS), which is used for speedy analysis of data and identification of possible violations like insider trading, sources said.

For the time being, an intermediate upgradation is being carried out of the DWIBS tool, while an open-tender process may be adopted in some time for further works in this regard.

Sebi already has got a sophisticated surveillance system, which generates at least 100 alerts of suspicious trading activities every day. After following up on all these alerts on various automated parameters, an estimated 8-10 alerts are taken for next-level analysis and therefore investigation and enforcement actions are carried out for necessary cases.

The surveillance systems also track media reports for information being shared among the investors and those are put under scanner that appear suspicious and in violation to the Sebi regulations and model codes of conduct for various entities, including listed companies and market intermediaries.

Sebi has also set up a Forensic Accounting Cell to tackle corporate frauds by listed firms and market entities. The cell also works towards improving the quality of financial information disclosed by the companies, besides assisting in detection of financial irregularities.

To enhance the quality of financial reporting done by listed entities, Sebi has set up a Qualified Audit Report Review (QARC) on which auditing regulator ICAI, stock exchanges and other stakeholders are also represented.

With an aim to strengthen its surveillance functions to detect fraudulent and manipulative activities, Sebi is also planning to study market intelligence infrastructure and techniques of regulators in the US, UK, Australia and Hong Kong.

The proposed study will also include the best practices followed in developed markets for surveillance of algorithmic and high frequency trading, an area which has been a matter of concern not only for India but also for many others.

The study is one of the major policy initiatives proposed by Sebi for the current fiscal.

The study would include analysis of their surveillance infrastructure and techniques to decipher patterns in the trading, formation of associations between entities, gathering of market intelligence including linkage of price volume pattern to market information, etc.

With regard to Sebi's capacity building initiatives, an independent consultant has suggested that the regulator needs to undertake technical training, especially in areas like inspection and surveillance, on a much larger scale and the same would be pursued in the next fiscal more vigorously.

At present, Sebi's average training budget per person per year is the lowest among all its peer regulators, while the area of skill development also needs a further fillip.

While Sebi is already working on increasing its staff strength in a gradual manner from about 700 currently, it is looking to achieve quality enhancement of staff through better training and skill enhancement measures, so as to further bolster the supervisory and regulatory capacity of the organisation.