The Securities Exchange Board of India (Sebi) is reviewing its regulations to mitigate the challenges posed by the increased adoption of new-age technological tools by market participants.
According to a source privy to the Hindu Business Line, Sebi is reportedly seeking the government’s clearance under the Information Technology Act, 2000 to intercept and decrypt digital communications.
What Is The Problem?
Sebi came under criticism regarding the Axis Mutual Funds case recently.
Axis Mutual Fund finds itself in the middle of allegations that two of its fund managers were misusing information for personal gains. Click here to read more about it.
Sebi is being criticised by market participants for not doing the needful when it comes to detecting fraud, insider trading and front-running in the market. “Front-running is a reality but the people involved do not leave any trail because they use digital platforms that enable anonymity. Messages on certain platforms disappear, making it difficult for them to get caught,” said the Hindu Business Line source.
What Has Sebi Done?
In the face of mounting criticism, Sebi has set up an internal committee to review its existing regulations. “Technology is changing fast and this has also changed the way the market operates. But some of the regulations are from an earlier era. We want to make sure the regulations keep pace with innovations in the marketplace. While innovation will always be ahead, regulations should not be more than two steps behind,” said the source.
In the past, Sebi had penalised some individuals for circulating Unpublished Price Sensitive Information (UPSI) relating to renowned companies of India like Bajaj Auto, Bata India, Ambuja Cements, Asian Paints, Wipro, Mindtree and others. But most of them were let go since Sebi could not provide the digital trail evidence.
What Does Sebi Want?
The source said that Sebi is seeking authorisation from the central government under Section 69 (1) of the Information Technology Act, 2000, and Rule 4 of the Information Technology (Procedure and Safeguard for Monitoring and Collecting Traffic Data or Information) Rules.
This section and rules authorisation if granted will give SEBI the power to access digital communication channels and, if necessary, intercept and decrypt them too.
However, this may not sit well with activists, who maintain that law enforcement agencies could very well abuse this power and violate an individual’s right to privacy.