The Securities and Exchange Board of India (SEBI) has clarified that its market surveillance system is automated and agnostic, issuing alerts whenever violations occur, irrespective of the individual involved.Kamlesh Chandra Varshney, Whole Time Member at SEBI, told CNBC-TV18 that the alerts generated by the system form the basis of deeper examinations and investigations. “We generally don’t comment on individual investigations, but… whatever investigation or surveillance we do, it is the kind of system that we have inside our surveillance. Whenever there is a violation, it comes out as an alert, and then further examination or investigation takes place. That alert is agnostic of any individual,” Varshney said.Addressing concerns about high-frequency trading scrutiny, particularly around names like Jane Street and Millennium, Varshney stressed that SEBI continuously monitors all potential violations. “So, if there is anybody else as well doing that violation, that will also be under examination. But what is the result of that examination, we probably cannot share,” he said.
On the derivatives front, SEBI has set up a specialised team along with the National Stock Exchange (NSE) to enhance F&O market surveillance. “We are strengthening our surveillance, NSE is strengthening its own surveillance, and we are working in coordination with each other,” Varshney said.He added that SEBI is actively hiring PhD students to support advanced surveillance work, aiming to detect and address violations more effectively.Regarding the timing of past actions, Varshney defended SEBI’s processes. “Every examination within SEBI takes time… It is very easy to say somebody is doing a violation, but that is not enough for us to act. We have to go to the root of that particular violation and establish it because it has to be sustained in a court of law. A lot of work is required to be done; therefore, it takes time, but it gets done.”Varshney also highlighted the complexity of F&O market manipulations, including sophisticated strategies such as gamma, theta, and vega manipulations, underscoring the need for specialised expertise to monitor and investigate these trades.Below is the excerpt of the interview.
Q: I want to start with what is uppermost in the minds of media and the market, Jane Street? I mean, is that the only surveillance, or one would assume the word Millennium also cropped up in the papers because of the fight they had. Are there other high-frequency trading guys whom you all are surveying?Varshney: We generally don’t comment on individual investigations, but keeping that individual’s name aside, whatever investigation or surveillance we do, it is the kind of system that we have inside our surveillance. Whenever there is a violation, it comes out as an alert, and then further examination or investigation takes place. That alert is agnostic of any individual. So, if one person is doing a violation, that alert will come; if somebody else is doing that violation, that alert will come again. So, if there is anybody else as well doing that violation, that will also be under examination. But what is the result of that examination, we probably cannot share.On this specific F&O, we have constituted a special team inside the surveillance department, along with NSE. So, we are strengthening our surveillance, NSE is strengthening its own surveillance, and we are working in coordination with each other.We are actually hiring PhD students to help us in our surveillance work. And we hope that if there is any further violation than what we have noticed, all that would be examined and brought to book.Q: This is very important—that there is a special committee within both SEBI and NSE to look at surveillance more closely. But this committee came later, because if this committee was there, you would have caught Jane Street even earlier.Varshney: No. Even in the Jane Street case, both SEBI and NSE worked together. So, it’s not that they did not work together. This is now a specialised focus cell with expertise. Because we do understand that we need special expertise to understand some of the manipulations. See, there is one manipulation that has been noticed, which is gamma manipulation. There could be, I’m not saying it is there, but there could be Vegas, there are Thetas. So, there are a lot of things that happen in the F&O market, and there are special people who understand that particular expertise.Q: My only point was, this Jane Street-Millennium thing came in the papers. So, was SEBI late? Did the surveillance catch it a little late?Varshney: No, not at all. I don’t think so. What happens is that every examination within SEBI takes time, and not just SEBI alone, but any enforcement agency. So, it is very easy to say somebody is doing a violation, but that is not enough for us to act. We have to go to the root of that particular violation and establish it because it has to be sustained in a court of law. It is not that SEBI has passed an order and that is the final word. A lot of work is required to be done; therefore, it takes time, but it gets done.Watch the video for more
