The Securities and Exchange Board of India (SEBI), led by its new chairperson Madhabi Puri Buch, is undertaking a complete review of regulations to ensure it is ready to meet the challenges posed by the fast-changing adoption of technology by market players.

The regulator is also seeking the Centre’s clearance under the Information Technology Act to intercept and decrypt digital communications.

Panel set up

SEBI has set up an internal committee to review regulations, according to a source close to the development. “Technology is changing fast and this has also changed the way the market operates. But some of the regulations are from an earlier era. We want to make sure the regulations keep pace with innovations in the marketplace. While innovation will always be ahead, regulations should not be more than two steps behind,” said the source.

This comes even as the regulator has been criticised for not doing enough when it comes to detecting fraud, insider trading, and front-running in the market. “Front-running is a reality but the people involved do not leave any trail because they use digital platforms that enable anonymity. Messages on certain platforms disappear making it difficult for them to get caught,” said the source.

For example, SEBI had penalised some individuals for the circulation of Unpublished Price Sensitive Information (UPSI) in various private WhatsApp groups about certain companies, including Bajaj Auto, Bata India, Ambuja Cement, Asian Paints, Wipro and Mindtree, ahead of their official announcements to the exchanges. However, the Securities Appellate Tribunal (SAT) ruled in favour of the traders stating that SEBI could not prove that they were the originators of the messages. In several other cases, the courts have ruled against SEBI as it could not produce the digital trail of the alleged illegal transactions.

Snooping powers

Now, in a bid to have a better surveillance mechanism, the regulator is seeking authorisation from the Centre under Section 69 (1) of the Information Technology Act, 2000, and Rule 4 of the Information Technology (Procedure and Safeguard for Monitoring and Collecting Traffic Data or Information) Rules. These rules allow select agencies to access digital communication channels and carry out interception and decryption of computer information.

However, internet activists have been raising concerns over such snooping powers to law enforcement agencies citing potential misuse that could lead to violation of individual privacy. But sources close to the regulator said though the concerns over privacy are real, potential misuse can be prevented through the adoption of the right technology. 

“Earlier, SEBI had asked for permission to tap phone calls. This was not granted. That’s fine because now no one uses telephones to communicate. If SEBI is given powers to intercept and access digital communication then that would empower the regulator to act faster,” the source said.

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