Currently, Sebi’s Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) and Prohibition of Insider Trading (PIT) Regulations deal with such activities. However, the regulator has found it challenging to establish violations under the existing regulatory framework with the advent of new technology such as vanishing messages.
Under the proposed regulation, those indulging in suspicious trading activities or making abnormal gains will be deemed to be violating the securities laws unless they are able to effectively prove otherwise. “A new regulatory framework is required to be conceptualised wherein a person or group of connected persons exhibiting an unexplained suspicious trading pattern i.e. repetitive abnormal gainful dealings in a security or a set of securities, around the presence of material non-public information, would be deemed to be violating the securities laws, unless they are able to effectively rebut the said presumption,” Sebi said.
The proposed framework prescribes action based on unusual trading patterns like repetitive patterns of trades by a person or a group of connected people, substantial change in risk taken, abnormal gains or averting abnormal losses. It will also include material non-public information (MNPI), which will cover information that is generally not available or an impending advice or recommendation by an influencer which can have a reasonable impact on the price of the securities of a company.
The proposal to charge an individual or a group making abnormal gains is on the lines of that used by the income-tax department. Sebi has proposed that the alleged wrongdoers will have to prove their trades are not based on MNPI. Further, they will have to submit detailed documentary evidence to substantiate their claims. A failure in providing effective explanation by the person or the connected person will result in a regulatory action by Sebi.
