Sebi proposes to curb shady trading gains

Under the proposed framework, entities failing to offer a satisfactory reason for making such stellar gains could face legal consequences for being involved in illegitimate trade practices. Sebi’s move mirrors Section 68 of the Income Tax Act, which subjects taxpayers to taxation on any unexplained income if they fail to satisfactorily provide an account of their funds’ source.

“A new regulatory framework is required to be conceptualized wherein a person or group of connected persons exhibiting unexplained suspicious trading patterns, which is, repetitive abnormal gainful dealings in a security or a set of securities, around the presence of material non-public information, will be deemed to be violating the securities laws, unless they are able to effectively rebut the presumption,” Sebi said in a discussion paper.

Unexplained trading patterns would include situations involving a substantial change in the risk taken in one or more securities over short periods of time,the markets watchdog said.

Suspicious trading may also include instances, wherein an investment move by a group or any individual either delivers abnormal profits or prevents abnormal losses, Sebi added.

A rebuttal by the defendant needs to prove that the investment decision taken by them was not based on any material information that has not been disclosed to the public shareholders of the company, it said.

Sebi has sought comments from all stakeholders, including market participants, on its proposals by 2 June. The move is being seen as an attempt to curtail unregulated trading and frequent abnormal profits by traders in the securities market.