Market surveillance is the detection and investigation of unfair, manipulative, or unlawful trading actions in the securities markets. With confidence in the fairness and accuracy of transactions, buyers and sellers are prepared to participate in orderly markets, which are supported by market surveillance. Without market regulation, a market might become disorganised, which would deter investment and impede economic expansion. Both the public and private sectors are able to offer market surveillance. According to two persons with knowledge of matters, the Securities and Exchange Board of India (Sebi) is attempting to make a real-time monitoring system. To do this, Sebi will use AI to form a platform that may gather and analyse data and flag questionable transactions during trading hours.
Market surveillance is a common activity among those working in the business sector. For instance, Nasdaq, Inc. provides a software called SMARTS for market surveillance that helps different exchanges, regulatory bodies, and brokers keep an eye on trade activity across various markets and asset classes. The CME Group operates a market surveillance team within its own exchange to find, watch, and analyse trading positions and transactions. For other significant exchanges like NYSE Euronext, such as IBM (Surveillance Insight for Financial Services) and Thomson Reuters (Accelus Market Surveillance—now Connected Risk from Refinitiv), these third-party software platform and analytics providers offer assistance in the customization and setup of comprehensive surveillance capabilities.
Governmental organisations like the Division of Enforcement of the Securities and Exchange Commission (SEC) conduct extensive market surveillance as an additional layer of control to support the enforcement of securities laws and safeguard investors against fraud. Specific market segments are covered by market surveillance by more specialised government agencies like the Commodity Futures Trading Commission (CFTC) (for example, the futures market). Market monitoring is also done by for-profit, self-regulatory groups like the National Futures Association (NFA).
The following are the various surveillance methods used in the stock market:
Since there are many ways to manipulate security transactions, the Exchange has put in place a robust surveillance system to safeguard market integrity. It contains:
Online Monitoring: The NSCCL has a monitoring and surveillance system in place that allows for real-time monitoring of member exposure. A system of notifications has been integrated so that when members go close to their permissible limitations (reaching 70 percent, 85 percent, 90 percent, 95 percent, and 100 percent), both the member and NSCCL are warned in accordance with pre-set thresholds. The solution gives NSSCL the ability to proactively check further micro-details of members’ status as needed.
The online surveillance system also produces a number of warnings and reports for any price or volume movement of securities that deviates from historical norms or patterns. The exchange has set up a system that generates notifications for this reason. Alerts are examined, and if appropriate, follow-up action is taken. Securities with open positions are also examined.
Additionally, rumours in print media are monitored, and in cases where they are price-sensitive, businesses are contacted for confirmation. The public and members are informed of any responses received.
Examination and Research:
In order to confirm that numerous Exchange rules, bylaws, and regulations are being followed, a minimum of 20% of the active trading members must undergo an annual inspection. Every year, inspections of more members than required by law are typically conducted. The inspection checks at random to see if the members’ business practises harm investor interests. The investigation is based on a number of notifications that need additional examination. A more thorough investigation is launched if additional analysis points to any potential abnormal behaviour that departs from historical trends, patterns, and trade concentration at the member level of the NSE. Discipline is taken against the member if the thorough inquiry reveals any irregular activity. SEBI is notified if the inquiry reveals any potential improper behaviour involving exchanges and/or potential client involvement.
The regulator has taken into account such a surveillance system in the past. Similar proposals were proposed by Sebi in 2015, but they were never implemented because of a lack of technology. The second person cited above stated, “In the previous few years, Sebi has acquired a number of new technologies and has also developed a specific team for dealing with big data and artificial intelligence. The current Sebi interface processing exchange data is unable to make choices right away. Based on the several search filters that have been used, it solely produces red flags. Each day, this technology generates thousands of red signals, which Sebi staff manually examine. On the other hand, the new technology can analyse the data better and lighten the workload on people as well.
The platform elevates Sebi to the elite group of international market regulators with this kind of real-time information access. Such surveillance systems are used by the Securities Exchange Commission (SEC), the Financial Services Agency of Japan, and the China Securities Regulatory Commission. Following the system’s implementation, Sebi intends to use it as an umbrella application and develop unique, customised solutions for market surveillance for mutual funds, brokers, and overseas investors.
The metric was implemented by SEBI to monitor securities that have an abnormal price increase that is inconsistent with the company’s financial health and fundamentals, including, among other things, its earnings, book value, and price to earnings ratio. The metric was implemented by SEBI to monitor securities that have an abnormal price increase that is inconsistent with the company’s financial health and fundamentals, including, among other things, its earnings, book value, and price to earnings ratio. The main goal of the graded monitoring framework is to warn and safeguard investors who are dealing in an asset that is experiencing unusual price fluctuations. Shares of firms may fall under SEBI’s “shell companies” or “measure for suspected price manipulation” categories. The action would serve as a warning to market participants that they should exercise extra caution and diligence when trading in assets that have been placed under surveillance. A quarterly evaluation of securities would take place. The securities would be sequentially shifted from a larger level to a lower stage according to criteria.
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