Sebi developing tools to curb fraudulent trades: Tuhin Kanta Pandey

Regulator to float consultation papers on MIIs guidelines, easier KYC for NRIs

Securities and Exchange Board of India (Sebi) Chairman Tuhin Kanta Pandey on Saturday outlined a series of measures to strengthen the regulator’s surveillance against fraudulent trading activities and address risks arising from technological advancements.

 

Speaking at the Bombay Stock Exchange Brokers’ Forum’s Capital Market Confluence, Pandey said the regulator is shifting towards a framework of predictive oversight in its market surveillance efforts.

 

“On the surveillance front, we are moving from reactive supervision to predictive oversight. We have revamped our data warehouse system to develop new rule-based alerts to identify ‘pump and dump’ patterns and detect fraudulent trades in bulk deals,” said Pandey.

 

 

On the sidelines, the Sebi chairman explained that the regulator is enhancing its monitoring framework by studying patterns observed in past pump-and-dump cases where Sebi has already passed enforcement orders.

 

Highlighting the growing cyber risks that could disrupt market operations, Pandey said Sebi will soon issue guidelines on the “Air Gap” requirement in consultation with Market Infrastructure Institutions (MIIs).

 

The “Air Gap” refers to the segregation of core systems from external networks to ensure that critical operations of MIIs—such as stock exchanges and clearing corporations—remain functional even if external-facing networks are compromised.

 

Pandey added that MIIs are being subjected to live disaster recovery drills and stress testing.

 

Sebi is also examining the introduction of a safety mechanism for depository participants—similar to the framework already available for stockbrokers—to mitigate outage-related risks.

 

The Sebi chief said facilitating easier access for non-resident Indians (NRIs) through simpler KYC procedures is a regulatory priority. The market regulator is in consultation with the Unique Identification Authority of India (UIDAI) and the Reserve Bank of India (RBI) to enable KYC verification for NRIs without requiring physical presence in India.

 

Commenting on the short-term derivatives segment, particularly index options, Pandey said that while a number of measures have already been implemented after detailed analysis, Sebi will continue to adopt a consultative approach before introducing new steps.

 

“The use of algorithmic and high-frequency trading has witnessed significant growth. Currently, such trades account for a substantial share of volumes in our equity and derivatives markets. We will constantly update our regulatory framework to ensure a fair, transparent, and resilient market,” Pandey said.

 

He added that Sebi is reviewing the securities lending and borrowing mechanism to further deepen liquidity in the cash equities segment.

 

Pandey said Sebi is also undertaking initiatives to strengthen both agri and non-agri commodity markets.

 

“Many other commodity derivatives have the potential if we are able to help resolve some key issues,” he said, noting that working groups are discussing ways to eliminate structural barriers and consulting with the Income Tax Department on tax-related matters.

 

The bond market, Pandey added, remains a key area of focus, with Sebi looking to enhance investor participation and promote bond derivatives.

 

Pandey also announced that Sebi is working to make the registration process for foreign portfolio investors (FPIs) fully digital, faster, and portal-based.

 

“We would like to be among the best in the world in terms of facilitating registration. There is no risk to it—it’s only a process improvement. It’s more about identifying issues and addressing them,” said the Sebi chief, highlighting ongoing discussions with the RBI and tax authorities to simplify the procedure.

 

The chairman also said Sebi will approve the proposed review of Stock Broker Regulations in December, incorporating several suggestions received from market participants.