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Market regulator SEBI’s probe into the recent ‘earnings leak’ may be a test of its mettle in gathering evidence on insider-trading relying on encrypted digital technology.
Media reports last November suggested that quarterly results of nearly a dozen companies were circulating on Whatsapp groups. The regulator is seeking help from forensic and cyber security experts to crack the case, a source close to the development told BusinessLine .
SEBI recently conducted searches on stock market analysts and traders, seizing laptops, mobiles and other digital devices through which key financial numbers of companies were circulated ahead of their official release. Finding out which company officials, if any, leaked information, will be key to cracking the case.
“Digital devices are just a means for distribution of information. Media hype with regard to the case is around the use of Whatsapp but finding the source of leakage of information is the main job,” said Deven Choksey, Promoter, KR Choksey Investment Managers. “A mere clampdown on distribution channels may not be an effective solution to stop insider trading or such offences.”
“As a matter of gathering evidence, SEBI will have to go from ‘effect’ to ‘cause’ and use of encrypted digital technology in this seems a challenge. If the challenge is overcome, the case may set a precedent,” said Sandeep Parekh, Partner, Finsec law advisors.
SEBI is also analysing the trading patterns in companies around their results announcements and intends to match these with data it hopes to recover from the seized devices, the source said.
The regulator has referred the matter to its ‘Fair Market Committee’, constituted to suggest ways to improve market surveillance, especially with regard to trading technology and insider trading. “The progress of this case could shape regulations with regard to surveillance of technology,” said JN Gupta, former ED, SEBI.
SEBI officials say they are looking at 35 people, including company executives, brokerages, and entities, who may have made trading gains out of leaked unpublished price-sensitive information (UPSI).
It is also studying ways to tighten norms on prohibition of insider trading to prevent use of digital technology to leak UPSI, the source said.
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