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As analysts and common investors alike obsess over the right valuation of stocks in a market that seems high on adrenaline, there is some good news and some bad news on how well it is doing on the integrity front.
Trends in investigations by market regulator SEBI suggest that share price rigging has gone down and is at its lowest in nearly a decade. However, insider trading is on the rise, the trends show.
In FY 2019-20, SEBI detected only 35 cases of share price rigging, which basically involves artificial demand, supply trades to move price. It is the lowest detection rate since at least 2008. Experts say SEBI’s intense surveillance measures and the various circuit filters that it has imposed have curbed price rigging in the cash segment.
Market experts said that price rigging could still be rampant in derivatives, with the use of social media and other modes of rumour mongering, as there are no restrictions in this segment. For instance, brokers say rigging scare was high when Vodafone Idea, which is in derivatives, rose by 50 per cent in a single day in 2020 on rumours that Google was investing in the company, which turned out to be false.
Dubious record
When it comes to insider trading, in the two years including the financial year (FY) 2018-19 and 2019-20, SEBI detected 119 cases of insider trading, which is higher than the number of cases detected by SEBI in any of the previous years since its inception.
The highest number of insider trading cases SEBI detected was 34 in 2016-17, which has jumped to 70 in 2018-19 and 49 in 2019-20. Insider trading is done by company insiders or entities closely linked to the company management or promoters. SEBI’s insider trading probe revolves around unpublished price sensitive information (UPSI) and its possession by entities that have traded in the stock and their linkages.
Low detection rate
“Insider trading is relatively easy to prove since only possession of UPSI needs to be shown. Comparatively, in price rigging cases, intent should be proved. Regulators do not have infinite resources, so they have to choose their battles and decide what is more serious. SEBI seems to be refocusing,” said Sandeep Parekh, founder, FinSec Law Advisors.
Parekh says the detection rate in both insider trading and market manipulation cases is still low in India. SEBI’s crackdown on Rakesh Jhunjhunwala and entities linked to him; Aptech; Kishore Biyani of Futures Group; Sun Pharma board members; and Spice Jet are a few high-profile examples of the regulator getting aggressive in its clean-up drive.
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