Money & Banking

TCS, Wipro among five firms shortlisted by SEBI for fraud detection project

Suresh P Iyengar Mumbai | Updated on September 02, 2021

Companies to implement data analytics-based software to detect fraud and alert SEBI

Markets regulator SEBI has shortlisted TCS, Wipro, Capgemini Technology Services, L&T Infotech and NEC Corporation India for implementing data analytics-based software to detect fraud and alert the regulator to take corrective measures and levy penalties.

The Securities and Exchange Board of India currently has a data warehousing system that acquires data from external entities such as exchanges, depositories, RTAs, and news on a daily basis. The warehouse holds data for the last 10 years. SEBI is also in the process of implementing a Data Lake which will host the data and analytical environment on which the data analytics models need to be deployed by the newly shortlisted entities.

The project is expected to be completed in 12 months from the date of signing of the agreement, said SEBI.

To check freak trades

While the cash segment of equity markets has enough safeguards including price filters and surveillance measures, such curbs aren’t present for derivatives, leaving the field open for manipulators, said a broker.

Freak trades in the equity futures and options segments are becoming more frequent. Late last month, derivative traders witnessed a sharp spike in some options contracts on the NSE. The call option contract for the NSE’s main index Nifty (16,450 strike price) for the August expiry jumped 800 per cent from ₹100 to ₹800. Similarly, the put option contract for the Bank Nifty index (37,000) strike price rose by 2,000 per cent from a low of ₹1 to touch a high of ₹2,040.

Interestingly, on all these occasions, the reversal to normal happened in a few seconds. Incidentally, it was the third such freak trade in the last two months. Such wild swing in prices triggers pre-determined stop-loss set by the traders, leading to heavy losses.

Scope of the project

SEBI has an Integrated Market Surveillance System for cross-market surveillance. It uses the SMARTS software engine for alert generation and graphical analysis.

The market regulator now intends to implement Data Analytics Projects and build Data Models to leverage artificial intelligence and machine learning.

The new software will enhance the current system to track abnormal trading behaviour through Trading Pattern Analysis at both member and client level, alert for block deal trades, circular trading besides spoofing — a form of market manipulation whereby a trader places one or more highly-visible non-bonafide orders to mislead the true value of the stock.

While the current system can identify spoofing by a single entity, there is a need to enhance the scope of identification of such trading patterns, so as to bring in those scenarios where a group of connected entities is involved in spoofing.

Published on September 02, 2021

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