Friday, December 01, 2006

Market gets extra padding to avert scams

The cat-and-mouse game between the market regulator and market manipulators will be fought more keenly now. The much-awaited Integrated Market Surveillance System becomes operational on Friday.

Developed at a cost of Rs 22 crore, the IMSS will significantly reduce the time taken by the Securities and Exchange Board of India (Sebi) for conducting investigations in cases of market manipulation, helping it crack down on more offenders. According to Sebi, the IMSS integrates transaction data from stock exchanges, depositories and clearing data from clearing corporations and throws up alerts on abnormal movements. This will help the regulator monitor daily proceedings at the bourses more effectively.

“For investigating officers, the biggest advantage is that the IMSS will reduce the time taken for conducting the (investigation) process by 2-3 months, which is usually the time spent in collating the data,” said R Ravichandran, chief general manager, Sebi. Investigations into cases of market manipulation takes anywhere between six months and one year, depending on the complexity of the case.

However, whole time member G Ananthraman also made it clear the stock exchanges will be the first line of defence in the area of market surveillance. “This system does not in anyway detract from the exchanges and depositories, their role of providing the first level of regulation,” he said.

And, it will not be just market operators who will be subject to increased scrutiny by the regulator. Institutional players, which indulge in a malpractice known as ‘marking the close’, will also be closely watched. Mutual funds - foreign and local - are known to ramp up the prices of stocks in which they have a major holding, on certain dates like June 30 and December 31, so as to boost the net asset value of their schemes.

The IMSS will help strengthen Sebi’s ability to monitor abnormal/unusual trading patterns for the identifying, analysing and initiating timely action and would also be used for meeting information requirements of internal departments.

Mr Ravichandran said the system would take a few days to stabilise and will go through a process of customisation in which parameters will be specified so as to throw up alerts highlighting abnormal movements.

The system will check for violations like creation of artificial volumes, synchronised trading, artificially price influencing trades, potential insider trading among others.The IMSS is currently being used by four securities market regulators and 14 stock exchanges across the world.

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