Sebi probes large-scale 'pump and dump' trade

A large number of 'pump-and-dump' activities in stocks has come under the scanner of market regulator Sebi, which suspects certain brokers and other entities of luring small investors into artificially high trade volumes.

The surge in these manipulative activities, known as 'pump-and-dump' in market parlance as they involve sudden sale of shares after creating huge volumes with significant buying activities, has been noticed by Sebi's Data Warehousing and Business Intelligence System (DWBIS).

The system has now begun providing "pattern recognition algorithms" to monitor the trade and order data received by Sebi in order to identify networked clients who possibly collectively indulge in violations of securities laws.

A senior official said that alerts of high materiality are being generated by the DWBIS, pursuant to which Sebi has detected possible market violations through activities such as pump-and-dump, insider trading and front running.

The pump-and-dump cases have been found to be quite frequent in certain mid-cap stocks, especially from the infrastructure sector, he added.

These stocks are mostly of those companies that have been in news for problems relating to their funding plans, the official said, but did not specify the names.

The modus operandi generally starts with huge buy orders alongside circulation of positive news about resolution of long-pending problems at those companies, followed by large- scale sale of the same shares at a later stage, he said.

The official said that DWBIS is providing Sebi with a capability to query and perform analytics on vast amounts of data and obtain the desired output in a timely manner.
Sebi has so far implemented two phases of the ambitious DWBIS project and the third phase is currently being tested for live implementation and the tools available in this system are proving very useful in catching the manipulators at an early stage, the official said.

The first phase was implemented in early 2011 for speedy analysis of data and identification of possible violations by use of modern technology in terms of computation.
The third phase would help Sebi meet data requirements of its research department. This phase would incorporate in-house and outside data related for research purposes, such as financials of companies, transactions, primary market data, mutual funds, corporate actions, takeover and buyback information.