The SEBI recently published a consultation paper seeking to regulate unexplained, suspicious trading activity through a new set of regulations as the "use of innovative, vanishing and encrypted methods of private communication, as well as complex and untraceable funding arrangements" allow people/entities to do fraudulent activities while masking their identities and connections. Therefore, SEBI is inviting public comments on the draft of the "SEBI (Prohibition of Unexplained Suspicious Trading Activities in the Securities Market) Regulations, 2023".

It outlines a framework where the regulator can start an investigation if it detects suspicious activity and can penalise if no effective counter is presented. Under it, unusual trading pattern (UTP) when combined with the existence of material non-public information (MNPI) points to suspicious trading activity (STA). Further, when this suspicious trading activity (STA) is combined with the absence of an effective rebuttal or explanation, it can be seen as an unexplained suspicious trading activity (USTA). 

As per SEBI, it has always relied on the principle of "preponderance of probability", which means a high probability of violation, to act against people who are flouting the law. But modern technology seems to be making this a difficult proposition.

Click the icon to access the SEBI consultation paper