Sebi may dial Centre to intercept calls for checking insider trading

The Securities and Exchange Board of India (Sebi) wishes to intercept telephone calls and electronic communications of those it suspects of offences in the markets it monitors, such as insider trading.

Acting on recommendations made by a committee on fair market conduct, headed by former law secretary T K Vishwanathan, it has approached other law enforcement agencies for details of a needed legal framework, said a source. He adds that a proposal in this regard would be going to the Union ministries of finance and home.

The income tax (I-T) department and Enforcement Directorate (ED) had recently briefed Sebi in this regard, another source said. AN e-mail sent to Sebi on Monday remained unanswered. Legal interception, a formal term for phone tapping, comes under the purview of the Indian Telegraph Act. At present, such powers are with the Intelligence Bureau, Narcotics Control Bureau, ED, I-T department, Central Bureau of Investigation and Directorate of Revenue Intelligence.

This comes in the wake of matters being probed by Sebi such as the WhatsApp earnings leak case, where relatives of senior executives, as also various employees, at listed companies have come under its scanner.

Keeping a check

• T K Vishwnathan committee on fair market conduct recommends call interception

• Markets regulator seeks procedure details from law enforcement agencies 

• Aim is to gather evidences to establish insider trading charges 

• Sebi is facing difficulties to crack down on fraudsters due to lack of evidence 

• Move significant after earnings of listed firms were leaked on social media platforms 

• DoT had earlier rejected proposal saying regulator does not fit into definition of law enforcement agencies

An enforcement officer said an agency wishing to tap someone's communications has to justify the case on the ground of a threat to national security or sovereignty. In making the request, an agency has to fill a specific form and give a summary of the case and reason for an interception. This needs to be approved by the designated authority or head of the organisation. Then, the Union home ministry must approve. In a case deemed of high urgency, the permission usually comes within a day. Once approved, the agency could tap phone calls for a minimum of 60 days, which could be increased later.

The Viswanathan panel had suggested Sebi get these powers, considering the challenges it faces on insider trading. Those in support point to past instances where Sebi could not pursue some matters due to lack of conclusive evidence. Tapping of phone calls would produce acceptable evidence for judicial authorities.

“This could pave the way for Sebi to investigate such cases more efficiently, which often hit the wall,” said J N Gupta, managing director at SES, a governance advisory entity, However, it should be used with adequate safeguards and due-diligence, to address privacy concerns, he added.

Sebi had earlier, too, sought such powers. In 2009 and 2011, the department of telecommunications had rejected the proposal, says the markets regulator did not fit the definition as other law enforcement agencies did.