Sebi probes large-scale 'pump-and-dump' of stocks

The cases have been found to be quite frequent in certain mid-cap stocks, especially from the infrastructure sector

A large number of ‘pump-and-dump’ activities in stocks have come under the scanner of the Securities and Exchange Board of India (Sebi), which suspects certain brokers and other entities of luring small investors into artificially high trade volumes.

The surge in these manipulative activities, known as ‘pump-and-dump’ in market parlance as they involve sudden sale of shares after creating huge volumes with significant buying activities, has been noticed by Sebi’s Data Warehousing and Business Intelligence System (DWBIS).

The system has now begun providing “pattern recognition algorithms” to monitor the trade and order data received by Sebi in order to identify networked clients who possibly collectively indulge in violations of securities laws.

A senior official said alerts of high materiality are being generated by the DWBIS, pursuant to which Sebi has detected possible market violations through activities such as pump-and-dump, insider trading and front running.

Pump-and-dump cases have been found to be frequent in certain mid-cap stocks, especially from the infrastructure sector, he added.

These stocks are mostly of those companies that have been in the news for problems relating to their funding plans, the official said, but did not specify the names.

The method of operations generally starts with huge buy orders alongside circulation of positive news about resolution of long-pending problems at those companies, followed by large-scale sale of the same shares at a later stage, he said. Besides detecting the possible cases of market manipulation, Sebi’s DWBIS tools are also helping it to build linkages between various transactions and activities of the networked entities.

The official said DWBIS is providing Sebi with the capability to query and perform analytics on vast amounts of data and obtain the desired output in a timely manner. Sebi has implemented two phases of the DWBIS project and the third phase is currently being tested for live implementation. The tools available in this system are proving useful in catching the manipulators at an early stage, the official said.