Insider trading was once among the big temptations of corporate life. A quick buck could be made on stock markets off privileged information at little risk of getting caught. But we are now in an era of online data capture and the space for impunity should reduce with each leap in surveillance technology. The ratio of executives who get away with ill-gotten gains to those who get nabbed will never be known, but it is a welcome revelation that a role was played by digital tools in spotting anomalies that led to charges being framed in India’s latest case. On Tuesday, the Securities and Exchange Board of India (Sebi) barred from market participation two managers at Infosys Ltd and six external entities accused of having used unpublished data on its quarterly results to make money off trades. Sebi’s order also sought to disgorge them of a sum of about ₹3.1 crore, the illegal profits they allegedly made. Infosys has ordered an investigation of what happened. Capital One and Tesora Capital, a couple of small firms said to have bought and sold Infy shares on insider tip-offs, will need to do far more to salvage their reputation.
According to Sebi, it was an alert sounded last July by its internal scanners that prompted a closer look at suspicious Infy stock trades around the declaration of its financial results. Activity before and after Infosys’s release of numbers for the June quarter was placed under its lens. Eventually, a longer timeline showed similar trading behaviour over several quarters. If Sebi’s surveillance has been on an upward curve of sophistication, it should not surprise us. The portfolio is currently held by its wholetime director Madhabi Puri Buch, the former chief of ICICI Securities Ltd who joined the regulator in 2017 armed with vast experience in private-sector banking, especially investment services. There have been several changes since then. In 2019, Sebi’s chairperson Ajay Tyagi said that the board would spend ₹500 crore on a technology upgrade to enhance its analytical capabilities. As part of its ‘data lake’ project, modern tools of pattern recognition, artificial intelligence and machine learning were to be deployed. Watching stock markets for various violations is an essential part of any such watchdog’s job, of course. Keeping track of who is privy to what information is another aspect. In 2018, Sebi had directed companies to maintain databases of all such senior-level staff, loaded with their identities, roles and PAN numbers, and structured suitably to not just enable internal controls, but also show time stamps and let audit trails be traced. These norms have been refined for clarity on data access and enlarged for wider coverage; consultants, auditors and the like have all been drawn in. Given the scope of this exercise, we can assume that Sebi is significantly better placed now to map market patterns against business information flows.
While our market regulator seems well equipped, the same cannot be said with confidence of companies. The disruption caused by covid threw the data systems of several in disarray and the lurch away from offices to homes could have opened up cracks for vital nuggets to slip out. This is unlikely to have happened on a scale large enough to pose a systemic risk. Still, businesses cannot afford any laxity on cyber security if they want to stay free of scandals. They must double down on data integrity and warn employees against its misuse. If a memo from the top boss doesn’t deter them from sneaky market manoeuvres, Sebi’s software antlers should.
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