India Uses Technology Extensively to Protect Clients’ Securities, SEBI Chairperson Says

India stands out globally for its unparalleled “margin protection” measures, utilizing technology extensively to safeguard clients’ securities, stated Madhabi Puri Buch, the chairperson of the Securities and Exchange Board of India (SEBI) on Friday. Buch highlighted the unique advantage of India’s strong culture of data and technology, acknowledged by foreign investors, making the role of the capital market regulator highly effective.

Speaking at the Indian Institute of Management-Bangalore’s 49th Foundation Day celebrations, Buch underscored the significant technological advancements in the Indian market, asserting that India leads the world in terms of margin protection and the safeguarding of clients’ securities.

Detailing the role of data in surveillance to detect malpractices during trading, Buch explained how algorithms and alerts are employed to analyze trading patterns and identify potential ‘insider trading.’ SEBI has introduced innovative measures, such as embedding QR codes that reveal video clips illustrating the ‘Delta’ positions of individuals, aiding in the identification of suspicious trading activities.

SEBI is also leveraging technology to combat ‘front running’ in the mutual fund market. Buch acknowledged that the regulatory body has faced challenges due to the lag in regulations keeping pace with technology but assured that efforts are underway to address this issue in the coming months.

Highlighting the use of ‘Suptech’ or Supervisory Technology, Buch emphasized SEBI’s commitment to inspecting and ensuring compliance with regulations. She provided an example from the mutual fund industry, where SEBI collected data from all 44 mutual fund houses, developed 80 algorithms, and transparently communicated the logic and interpretation of SEBI laws to the industry.

Buch clarified that the objective is preventive rather than punitive, aiming to deter misconduct rather than catch wrongdoers. SEBI conducts quarterly inspections, providing the industry with the opportunity to rectify mistakes independently. Buch acknowledged that the true challenge lies in identifying violations of the spirit of the law, not just the letter of the law, marking the beginning of a more intricate regulatory landscape.