Chillar insiders and a needle in a million haystacks

National Stock Exchange (NSE) chief Ravi Narain has come candid on the elephant in the room. In an interview to The Economic Times published on Monday, Narain said insider trading, "is rampant here. I believe, but a lot of it is what we would say is at chillar level." Coming from the man who has lorded over the markets as the chief of the dominant stock exchange for the best part of two decades, these words are controversial, to say the least. Of course, we are also assuming that he was referring to the insider trading of the illegal variety.

The dictionary meaning of the word rampant is "flourishing or spreading unchecked". Assuming he used that word to mean one of the above, what has he done as the chief of the exchange, considered a frontline regulator, to prevent this? Has he taken up the issues with the regulator? How many times? In what fora were these issues raised? What was the response?

In his 19-odd years with the exchange, about a dozen of which he has spent as its chief, Narain would have come in touch and worked with half-a-dozen Sebi chairmen. He should give some insights on who did what. And, on why insider trading is flourishing or spreading unchecked.

He should also throw some light on what according to him is chillar (small change) level. He should do so before walking into the sunset though he has the option of shooting the messenger, saying the quote itself was taken out of context.

That brings us to the role of media as carrier of insider information. In the absence of clear-cut definitions, an entire assembly line has been built in the media industry to disseminate insider information as 'Breaking News'.

It could be a deal, an order or some regulatory action. Journalists, irrespective of the medium, toss these pieces of information to their consumers in various forms. Some are able to put things in the right context. Others are clueless. There are entire websites dedicated to unpublished, price-sensitive insider information, especially on deals. Even reward systems have evolved around this so-called News Breaks. Meanwhile, the legit shareholder, who does not subscribe to these news peddlers, who is following the rules and looking for information in the exchange site, gets zilch.

Companies do not have or do not follow any guidelines on disclosure of such price-sensitive information. The exchange asks questions once in a while. The company gives some vague answer; often denies that such a development is even remotely possible. Few days later, it contradicts itself by announcing the deal.

Some insiders have built entire empires by selectively leaking information and pumping stock. They don't themselves trade, but they do so through others and take a cut outside. There should be stronger provisions in the regulation that attempts to check this or bring it to book.

The two journalists, who are part of the new Sebi panel announced last week to review insider trading regulations should help the regulator frame rules that sensitise both media and the companies.

NSE and other market infra firms do not figure in this panel. Also, the panel interestingly does not have a person of technological expertise, which Narain said is likely to play a key role in nabbing insiders. Because, like an Economist article put it, nabbing insider trades in the best of times was like looking for a needle in a haystack. In these days of tech-driven trading, it is like looking for a needle in a million haystacks.