Market Abuse
Market abuse encompasses illegal practices in financial markets that unfairly advantage certain participants at the expense of others, including insider trading, market manipulation, and dissemination of false or misleading information, all of which undermine market integrity and investor confidence.
Market abuse is a broad category of prohibited conduct under securities law globally. In India, the primary regulatory framework addressing market abuse is SEBI (Prohibition of Insider Trading) Regulations, 2015, and SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. Together, these two sets of regulations cover the two main pillars of market abuse: trading on non-public information and deliberate manipulation of market prices or perceptions.
Insider trading — the most commonly discussed form of market abuse — involves trading in securities while in possession of material, non-public information (MNPI). The 2015 SEBI Insider Trading Regulations strengthened the earlier 1992 framework by expanding the definition of insiders, requiring companies to maintain structured digital databases of 'connected persons', mandating pre-clearance of trades by designated persons, and imposing minimum holding periods and trading windows.
Market manipulation takes several forms in Indian markets. Pump-and-dump schemes, where operators inflate a stock's price through coordinated buying and misleading information, then sell at elevated prices, have been a recurring problem particularly in small- and micro-cap stocks. SEBI's investigation orders over the years have documented numerous such instances, with penalties including disgorgement of profits, fines, and market debarment orders. The Securities Appellate Tribunal (SAT) has upheld many of SEBI's orders in manipulation cases.
The dissemination of false and misleading information — whether through WhatsApp groups, social media platforms, or unregistered investment advisers — is another form of market abuse that SEBI has been actively tackling. SEBI's 2020 amendments to its circulars on social media communication and the SEBI (Research Analysts) Regulations have attempted to bring greater accountability to investment recommendations made in public forums.
The consequences of market abuse for market confidence are severe. When investors believe that prices are being manipulated or that insiders are profiting at their expense, they reduce their participation in markets, widen bid-ask spreads, and demand higher risk premia. SEBI's market surveillance systems — including its Integrated Market Surveillance System (IMSS) — use algorithmic pattern detection to identify suspicious trading activity for investigation.