Regulatory and Trading Environment - Newspaper Summary

 The sources highlight that the Securities and Exchange Board of India (SEBI) is actively focusing on regulatory enhancements and market surveillance to foster digital resilience, combat fraud, improve liquidity, and streamline operational processes within the financial market landscape.

I. Enhancing Market Integrity and Combating Fraud

SEBI is shifting its focus from reactive supervision to predictive oversight and taking concrete steps to safeguard retail investors from increasingly sophisticated digital frauds.

• New Surveillance Systems: SEBI has introduced new rule-based alert tools designed to spot pump-and-dump schemes and suspicious bulk trades to strengthen market surveillance. These alerts are designed to reflect patterns often observed through SEBI’s enforcement orders against market manipulation.
• Fighting Digital Fraud (Verification Tick Marks): SEBI has addressed the threat of fraudulent trading apps by asking Google to add verification tick marks for authentic broking applications on the Play Store. This measure is intended to help investors prevent themselves from getting scammed. A Whole-Time Member of SEBI confirmed that Google has agreed, and the verified tick feature is expected to appear on the Play Store within two months.
• Video-Based KYC (Know-Your-Customer): SEBI is testing a video-based KYC system in consultation with the Unique Identification Authority of India and the Reserve Bank of India. This system aims to allow non-resident Indians (NRIs) to complete verification remotely without needing to travel to India.
• Digital Resilience and Data-Driven Supervision: The SEBI Chairman stated that the regulator’s focus will increasingly be on digital resilience and data-driven supervision, especially amid the growth of algorithmic trading.

II. Regulatory Focus on Trading Mechanisms and Market Deepening

SEBI is addressing core trading and operational mechanisms to boost market efficiency and investor protection.

• Algorithmic (Algo) Trading: The regulator acknowledges that "Algo trading is the future" and the immediate challenge lies in implementing the algorithmic trading framework, which is currently facing operational hurdles. SEBI has set a timeline of December to resolve all issues related to algo trading implementation.
• Reviewing Securities Lending and Borrowing (SLB): SEBI is reviewing the Securities Lending and Borrowing (SLB) mechanism to determine if any process or structural changes are needed to make it simpler and more widely used by market participants. The goal is to deepen the daily cash equity volumes, which have nearly doubled to over ₹1-lakh crore in the past three years.
  • SLB Mechanism: The SLB mechanism allows investors to lend idle shares for a pay-off and allows others to borrow shares for purposes like short-selling and arbitrage. These transactions are done via exchanges and are regulated.
• Derivatives Market and Risk Management: Following detailed data analysis of index options, SEBI has introduced several measures in the short-term derivatives market and will continue to adopt a consultative approach in framing further changes. This is to ensure investors understand the risks and suitability of such products.
• Commodity Market Revival: SEBI is working on reviving the commodity market and introducing measures to boost liquidity. A challenge noted is the "constitutional limits" preventing SEBI from dealing with spot transactions in commodities, as that falls under state governments, despite farmers needing immediate payment rather than waiting for future settlement.
• Operational Continuity: SEBI is working to require key market participants to ensure operational continuity during outages, similar to existing rules for stockbrokers.

III. Protecting Unclaimed Assets (Mutual Funds and Securities)

SEBI has implemented new measures to help investors retrieve unclaimed assets across the financial ecosystem.

• Mutual Fund Investment Tracing and Retrieval Assistant (MITRA): SEBI launched MITRA (Mutual Fund Investment Tracing and Retrieval Assistant) on February 12 to tackle the issue of over ₹3,000 crore lying unclaimed with the mutual fund industry.
• Industry-Wide Database: MITRA offers a searchable, industry-wide database of inactive and unclaimed folios, which can be accessed via MF Central, AMFI, SEBI, and AMC websites. This acts as a safeguard against misuse of inactive folios. Unclaimed proceeds and dividends often arise when payments bounce back due to issues like closed bank accounts or incomplete KYC.
• Unclaimed Shares and Dividends: Shares and dividends that go unclaimed for seven consecutive years move to the Investor Education and Protection Fund (IEPF) under the Ministry of Corporate Affairs. Claimants can search the IEPF portal and file Form IEPF-5 for retrieval. SEBI and IEPFA also organize Niveshak Shivir (Investor Camp) to provide guided claim support and KYC updates.

IV. Cross-Border Regulatory Challenges

The regulatory environment is marked by challenges in cross-border cooperation involving high-profile entities.

• US SEC Summons Request: The US Securities and Exchange Commission (SEC) has requested action from Indian authorities to serve summons and complaints to Adani Group executives concerning alleged securities fraud and a $265-million bribery scheme. The SEC has reported to a New York court that India’s Ministry of Law and Justice has yet to act on its repeated requests to serve the legal documents to Gautam Adani and Sagar Adani. The SEC intends to continue pursuing service via the Hague Service Convention.