Markets regulator Sebi turns its glare on insider trading, shows data

The share of such cases has been rising in the number of investigations by the regulator

The share of insider trading cases being probed by the Securities and Exchange Board of India (Sebi), in recent years, has sharply risen in the overall number of investigations by the markets regulator, the data shows.

From FY19 to FY21, insider trading cases comprised over 30 per cent of the total number of investigation cases under Sebi's purview; in the ongoing financial year, this share stood at nearly 22 per cent (until November 2021). From FY03 until FY18, such cases mostly accounted for less than 20 per cent of the annual total -- many a time even less than 10 per cent.

The annual average number of insider trading cases being probed by the regualtor, too, has doubled over the past five years, including FY22, when compared with the previous years. Sebi has taken up a total 177 insider trading cases for investigation since April 2017 — an average of around 38 cases a year. The yearly average was 15 for the previous decade-and-a-half, shows a Business Standard analysis of Sebi's data. The past numbers were compiled from annual reports for the last 20 years.  Additional information for the current financial year, which is not in the public domain, has been obtained through an application under the Right to Information (RTI) Act.

The share of insider trading cases over the last five years has been 26.6 per cent. It was 13.7 per cent over the previous 15 years.

“...let me say among all the violations, we treat insider trading as the most serious one. It goes against the very basics of trust in the securities market," Sebi chairman Ajay Tyagi had said in his November interview with Business Standard.

The overall number of cases taken up by the regulator, however, has not grown in the same way. The annual average number of cases taken up was 134 across all offences since the financial year beginning FY18. The average for the decade-and-a-half preceding years was 120. This indicated that the increase in insider trading probes may have come at the cost of investigations into other violations.

For example, the annual number of market manipulation and price rigging cases investigated is down to 50 since FY18, from 82 (the previous 15 years’ average). Issue-related manipulation cases are down from 8 to 1. Takeover investigations are also down marginally.

An email sent to the regulator did not receive a reply.

While noting that it is up to the regulator to decide what kind of cases it wishes to focus on, Sandeep Parekh, founder of Finsec Law Advisors and former executive director, Sebi, said that prioritising certain kinds in the absence of increased manpower would mean that some areas might get less attention than required. "It obviously comes at a cost," he said.  

Vaneesa Agrawal, founder of law firm Thinking Legal and former Sebi official who had worked on insider trading regulations, said that focus on one segment is likely to affect others, if the same number of people are available to take up the cases.  

"There is a limitation on the number of investigations that can be undertaken with limited resources," she said.

Also, there could be an increase in the number of alerts in recent years, resulting in more formal cases, she noted. She also highlighted that the size of the market has also grown.

The market capitalisation in FY03 was less than Rs 6 trillion. It is currently Rs 269 trillion. Primary market tracker PRIME Database records show six initial public offerings raised Rs 1,039 crore in FY03. There were 67 issues that mopped Rs 1.1 trillion in FY21.

The average annual number of investigations was 132 in the five years from FY03. The period of roughly five years ending in FY22 has seen an annual average of 134.

The regulator’s last annual report said it has been hiring more to deal with additional responsibilities, including acting as the commodities market watchdog. It was looking to add 147 officers to its existing staff strength of 850. Parekh said one constraint for Sebi is to get people with sufficient experience to handle such cases. Any decision to increase the number of investigations through hiring more people will take some time to play out, as new hires will need to gain experience for a few years.  “There will be a lag,” he added.