Vendors highlight chinks in Sebi's surveillance system

At present, there is no way to detect if an entity is manipulating share prices without actually carrying out any trades

Technology vendors met with market regulator Securities and Exchange Board of India (Sebi) recently to highlight the chinks in the regulator’s surveillance system.

“Vendors have suggested that surveillance at Sebi be made more real time instead of the T+1 mechanism that exists today. At present, the regulator checks on the trades that have happened and not the order book, which could give a better clue on any possible manipulation,” said a person familiar with the matter, on condition of anonymity.

At present, there is no way to detect if an entity is manipulating the share prices without actually carrying out any trades, added the person. “It’s like an auction where an entity can drive up prices, forcing others to bid at higher prices,” he said.  

This is a problem worldwide including developed markets such as the US and the UK, which also track data on T+1 basis, say experts. The US SEC has recently invested in a new technology called MIDAS to better track real-time data.

The aim of MIDAS is to analyse information on orders placed below the best bid or above the best offer, and not just data on the price and size of the best bid and best offer for each stock on each exchange. Every day MIDAS collects about 1 billion records from the proprietary feeds of each of the 13 national equity exchanges time-stamped to the microsecond. MIDAS analyses thousands of stocks over periods of six months or even a year, involving 100 billion records at a time.

Sebi is currently undertaking a comprehensive review of its surveillance systems with help from independent experts. The aim is to check manipulators, including black money launderers. Sebi has been asked by a Special Investigation Team (SIT) on Black Money appointed by the Supreme Court to take measures to catch those laundering black money through trading in P-Notes and illiquid stocks.

An email sent to Sebi regarding plans to beef up its surveillance system went answered.  Sebi is also reportedly planning to expand the capacity of its Data Warehousing and Business Intelligence System (DWIBS), used to identify possible violations like insider trading, front running and share price manipulation.

DWIBS went live in December 2011 and has helped Sebi crack a number of fraudulent activities. The system collects transaction and master data from exchanges and depositories daily. The market regulator is particularly concerned about manipulation done through algorithmic trading and plans to impose curbs on the same.

“Algo or HFTs are prone to high risks. We are examining a number of options to bring these down,” Sebi chairman UK Sinha had said in July.