Centre turns down Sebi request to tap phones in insider trading cases

The latest request was made after it was found that sensitive information pertaining to some of the marquee companies was being leaked by some or the other source

The Centre has rejected the Securities and Exchange Board of India’s (Sebi’s) proposal for being granted the powers to tap phone calls to book those doing insider trading.

The government authority concerned is learnt to be of the view that access to the details of phone calls should be used in only cases such as threats to national security, terror financing, and money laundering. 

According to government sources, such powers are the last resort and are meant to be used sparingly because they conflict with fundamental rights. Besides, if it gives such powers to one regulator, it has to give them to others also. An internal mechanism to deal with such confidential information is needed, sources said.

Sebi, on the other hand, mostly takes up cases that are civil in nature, said two people in the know. It made the request because of sensitive information on marquee companies coming out of the closet.

The regulator is facing challenges even after an extensive inquiry to nab people who did the mischief. In the recent WhatsApp earning leaks, Sebi investigated market participants, including brokerage firms, analysts, and company executives, and penalised some of them. But still gaps remained.

An email sent to Sebi did not get a reply. Sebi has the powers to ask for call records, such as the numbers dialled and the duration of the calls.

Sebi has been requesting the government to allow it to wiretap, which regulators such as the Securities Exchange Commission of the US can. 

The changing dynamics of the securities markets and the methods manipulators adopt require stiff action. Through phone call details, it would be able to get evidence that can stand up in court.

“The regulator has been facing criticism for failing to get convicted those doing insider trading. This is because it is all but impossible to establish the charges, which could be proved only if Sebi can intercept the calls and electronic communication,” said one of the two persons cited above.

Sebi’s latest Annual Report said in FY19 it took up 70 cases, of which 19 had been completed. 

Pavan Kumar Vijay, founder, Corporate Professionals, said: “Sebi has wide powers, including search and arrest. Phone tapping requires checks and balances and secure handling. In the past, there were leaks of private conversations, which have made it difficult for the authorities to allow these powers to regulators that deal with civil offences.”