Markets regulator Securities and Exchange Board of India (Sebi) has launched a sophisticated integrated market surveillance system, which will track data from all market players - stock exchanges, securities depositories and their associates, as well as online and offline (physical) clearing house data, to detect and track "abnormal" market patterns and behaviour.
The system, developed at a cost of Rs 22 crore by Australian financial markets software specialist SMARTS Pty Ltd and HCL Technologies, will go live from Friday, December 1.
Though similar systems are being used by market regulators around the world, Sebi has scored a global first by integrating the entire range of market activity in both the cash and derivates sections of the BSE and NSE, as well as stock depositories, depository participants and clearing houses.
Announcing the launch of Sebi's Integrated Market Surveillance System (IMSS) in Mumbai on Thursday, Sebi whole-time member G Anantharaman, who also heads its surveillance and investigation sections, said the objective was to capture market transaction data and develop sophisticated "alert engines" which will quickly detect "potential market abnormalities".
"Given the increasing complexity and sophistication of market instruments, transactions and technology, developing an audit trail has become difficult," Anantharaman pointed out.
That job will now be done by IMSS. The system will 3-4 gigabytes of data daily and will store a staggering 1.2 terabytes of data. "We would be able to access seven years of transaction data without much loss of time," said R. Ravichandran, general manager (surveillance and investigation), Sebi.
Locked behind ultra-secure access controls (the security system which controls access to this information includes sophisticated biometrics, as well as "double-level" access barriers, which combine passwords with knowledge unique to the individual accessing the system), a 50-strong team of Sebi officials will be able to monitor and "replay" every securities-related transaction in the country.
That itself is a humungous task. The NSE is the world's third-largest stock exchange by volume, while the BSE is the world's fifth-biggest. The two exchanges log an average of 5 million transactions per day, with average trading volumes of Rs 45,000 crore per day. And these are just the averages. On a volatile day, this could easily double.
The IMSS will enable Sebi to home in on any suspicious activity in any stock in any segment, in slices as thin as a fraction of a second. What's more, it can even home in on the parties involved in the transactions, and also track all their other activity.
However, "this is not a replacement for regulation by the exchanges," Anantharaman stressed. Since Sebi will only get the data after trading hours, real-time intervention will continue to be done by the stock exchanges themselves, he added.
The system has been under test for some months now, and Sebi has already developed as many as 39 different tye of alerts, including several for detecting activities unique to the Indian environment, such as "wash trading" of dud stock, or "pump and dump" sales in penny stocks, where promoters "talk-up" their stock by releasing what looks like favourable news to the market, while dumping their holdings through dummy fronts.