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Sebi, exchanges beef up surveillance; debars 1,350 entities

New Delhi: Putting to use alerts generated by its robust surveillance mechanism, regulator Sebi has debarred nearly 1,350 entities from the markets for misusing exchange platform to evade taxes and other manipulations. Besides, stock exchanges
PTI April 03, 2016 19:19 IST
PTI

New Delhi: Putting to use alerts generated by its robust surveillance mechanism, regulator Sebi has debarred nearly 1,350 entities from the markets for misusing exchange platform to evade taxes and other manipulations.

Besides, stock exchanges have also suspended trading in nearly 200 shares of listed companies while trade has been restricted in more than 150 other stocks as part of their own surveillance measures.

The coordinated efforts of Securities and Exchange Board of India (Sebi) and stock exchanges have resulted in an effective surveillance of the securities market, a senior official said.

”The regulator’s efforts to maintain the market integrity and to protect interests of investors have also resulted in greater confidence and trust of investors in Indian market. This will go a long way in bringing even more participation of investors, especially retail investors,” he added.

Sebi and stock exchanges constantly monitor and take surveillance actions based on the alerts generated by a robust ‘alert generation system’ and on the basis of other inputs received from various sources including investigative agencies and government departments.

”The regulator is in constant touch with stock exchanges and in full coordination they have carried out various actions such as debarment of entities, suspension of scrips, halting payout of funds, reduction in circuit filters, etc, as part of their surveillance measures to protect the integrity of the market,” the official added.

Sebi’s Integrated Surveillance Department (ISD) receives information from number of sources such as media scanning, IB reports, SCORES (Sebi’s online complaint redresssal system), Suspicious Transaction Report (STRs) and exchanges.

This is in addition to Sebi’s IMSS (Integrated Market Surveillance System) and DWBIS (Data Warehousing and Business Intelligence System) systems, which form the core of alert generation process. More than 100 alerts are generated on an average every day, which are processed further and acted upon.

The information from various sources is aggregated across exchanges and analysed by dynamic system based parameters and pattern recognising modules which throw up alerts for first level processing.

These first level alerts are further screened by a central processing team which filters out alerts for second level scrutiny. The scrips shortlisted after scrutiny are further comprehensively analysed by Stock Exchanges and ISD for ascertaining any prima facie violations warranting immediate action.

The official said Sebi has taken action in several cases in the recent past involving different kind of modus operandi such as misuse of stock exchange platform for bogus LTCG (Long Term Capital Gains), misuse of illiquid options, issue of duplicate/bogus shares, misuse of commodities exchange platform etc.

”Altogether, Sebi has debarred nearly 1,350 entities from the market in last two years. In addition, as a surveillance measure, stock exchanges have suspended trading in nearly 200 securities of listed companies and moved over 150 scrips to lower price bands during the last two years,” he added.

Giving category-wise details, the official said action has been taken in case of stocks with abnormal price movements not supported by fundamentals.

Based on dynamic and objective parameters identified jointly by Sebi and stock exchanges, trading was suspended in around 125 securities of listed companies with very poor fundamentals or no fundamentals at all to explain abnormal price rise.

Following this, the stock exchanges have also moved 154 scrips to lower price bands of 2% and 5%.

Besides, action has been taken against companies for misuse of preferential issue route. Sebi found several companies misusing the route of issue of shares on preferential basis, allegedly for booking artificial profit or loss by manipulating the share prices.

With respect to 12 such companies, Sebi has passed interim directions and debarred several entities from the market to protect the integrity of the market.

In a few cases where Sebi and stock exchanges suspected there is a possibility of misuse of preferential issue of shares, exchanges have suspended trading in 66 scrips as a surveillance measure after giving due notice to the market.

Further, in order to follow the principle of natural justice and for revocation of suspension in such cases, stock exchanges in their suspension notices have clarified that these companies have been given opportunity to submit certain documents to satisfy the stock exchanges that the use of preferential shares route has not been misused.

Upon submission of the relevant documents, up to the satisfaction of the exchanges, trading in the shares of these companies would be restored.

Action has also been taken against entities for misuse of commodities exchange platform, a new domain where Sebi has been given regulatory responsibility.

Prompt action was taken by debarring certain brokers and clients who were prima facie found to be misusing the exchange platform to manipulate the commodities market.

In another case, after observing manipulative trades by certain entities in illiquid stock options, Sebi has debarred 59 clients and 22 trading members through interim directions and proceedings are underway to bring the examination to a logical conclusion.

Prior to Sebi order, as a preemptive measure, BSE stopped trading in ‘deep out of money options’ from July 2015 and now provides trading in only 3 options (one in the money, one at the money and one out of money) series.

During monitoring of the market, it was also observed that there were issuance non-genuine share certificates to certain entities and these entities were subsequently found to be pushing the price of scrip by controlling supply of shares.

Their suspicious acts selling shares in minuscule quantities despite there being a huge demand, contributing to 100% trading volume on most of the days.

Trades were placed in a manner so as to maintain daily average volume and not letting the liquidity dry out by sequentially selling shares and this indicated that their selling pattern was not normal and was prima facie directed towards pushing up the price of the scrip.

Action were taken in such cases and orders have been passed against such entities.

In other cases, based on prima facie findings of abnormal trading patterns by trading members, administrative actions have been taken by Sebi and stock exchanges in the form of caution/warning letters, observation letters, etc.