Once installed, SEBI's system will be capable of innumerable things, allowing the regulator a `God's eye' view of equity and derivatives trades across the country.

Kripa Raman

Mumbai, May 20

IF entities A and B trade through broker X, then do their transactions tend to bear an uncanny relation to trades between entities C and D, made through broker Y?

The stock market regulator SEBI's wildest suspicions can be followed up using the diagnostic tools of the regulator's Integrated Market Surveillance System which is to be put in place in nine months' time.

Transactions on the stock markets will be recorded and stored, and can be tossed up in any permutation and combination, however peculiar and far-fetched.

There is an existing library of 200 situations which can be used by the system to prompt a near real-time alert at the SEBI surveillance end, said Mr Vijay, Corporate Vice-President, HCL Technologies Ltd, which is implementing the system for SEBI. Additional customised alerts can be provided for depending on SEBI's requirements.

The system will use an application software product for real-time surveillance developed by a global company SMARTS Pvt Ltd; this product is being used across 16 exchanges and 4 regulators across the world, he said.

Once installed, SEBI's system will be capable of innumerable things, allowing the regulator a `God's eye' view of equity and derivatives trades across the country.

If someone places a large order for a scrip which rises, only to cancel it later and sell his own stock before the scrip falls, the system can sound an alert.

Market manipulation, insider trading, inflating prices at the start of trade in the morning or at close of trade in the evening, wash trades... all these can be recorded and mapped against client IDs.

Not only that, the system can record and map transactions against news feeds. Is the stock price based on certain news that may have been planted by interested parties? It can also integrate any non-public information that may be available.

The strength of the system will lie in its alert capabilities, said Mr Vijay. SEBI can then intervene on a real-time basis instead of taking time to establish what has happened.

Although the software will provide the regulator all the technology by which it can intervene, it is entirely up to SEBI to decide which alerts it would wish to install and of course, what it will do once it is aware of these alerts, said an official close to the implementation of the system.

Data from stock exchanges would be automatically fed into SEBI's surveillance system on a near real-time basis. Currently on the equity markets, cash and derivative will be covered.

The system is technically capable of integrating the commodity markets as well.

SEBI's tender for the system took nearly a year to finalise. HCL Infosystems will do the systems integration, providing hardware, implementing software and establishing all the networking that is required in this contract that is worth more than Rs 26 crore.

Disaster recovery systems would also be set up to ensure that the system can run 100 per cent of the time.

"Another May 17, 2004 on the stock markets will be unlikely when it took a very long time for SEBI to know what was happening," said Mr Vijay.

(This article was published in the Business Line print edition dated May 22, 2005)
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