Market regulator Sebi search-and-seizure operations jump 2x in FY24

Locations outside metros also see action in FY24

Stock market regulator Securities and Exchange Board of India (Sebi) has increased the use of search-and-seizure operations, a relatively recent addition to its powers, as it conducted 106 operations across 83 locations, including those outside major metros, in FY24, according to data from the regulator’s annual report released earlier in August. This is more than 100 per cent increase from FY23, data compiled from previous annual reports showed. Sebi had conducted search and seizure operations covering 47 entities across 40 locations in FY23.

Teams involved in such operations typically travel to these locations on a confidential basis, sharing information only with those who need to know these info, even within the regulator.

“They visit even remote places,” said a Sebi official.

Sometimes violations that are not strictly related to the securities market have been found, such as large amounts of unaccounted-for cash, which would have to be passed on as a reference to income tax authorities, the official added.

A former Sebi official said search-and-seizure powers have deterrent effect. Intermediaries, who may otherwise only have feared a notice, now also know that the regulator can take stronger action. This can cause many to fall in line, he suggested.

Shriram Subramanian, founder and managing director of domestic proxy advisor InGovern Research Services, said that it makes sense from a regulatory perspective to ensure that any malfeasance is nipped in the bud during such a strong bull run; this may have caused Sebi’s greater reliance on its search-and-seizure powers.

“Probably the new chairperson is more assertive… Obviously, Sebi will be slightly wary of any blow-ups happening,” Subramanian said.

The Securities Laws (Amendment) Act, 2014 granted the regulator powers to conduct search-and-seizure “with authorisation from the designated court” in Mumbai. It was notified with effect from June 17, 2015. The regulator carried out three search-and-seizure operations in FY22 before the recent surge.

“In order to keep up the standards of operations on a par with those of the other enforcement agencies conducting search-and-seizure, Sebi officers have undergone training by agencies like National Academy of Direct Taxes (I-T department),” said the FY24 annual report.

The report noted that the operations revealed evidence of price and volume manipulation of stocks through the use of platforms like YouTube and WhatsApp. Investors were tricked into buying shares at pumped-up valuations even as the perpetrators exited the stocks. The regulator also used its powers to look into front-running, which involved using conduit accounts to act in advance of orders from big clients.

It took up 160 cases of market manipulation and price rigging in FY24, compared to 54 in the previous year. The total number of investigations taken up rose to 342 in FY24, compared to 144 in FY23. The number of investigations completed rose to 197 in FY24 compared to 152 in FY23.

An email sent to Sebi was not immediately responded to.