Sebi frown on WhatsApp

Dealing room activities of brokers, fund managers and other institutional investors have come under regulatory scanner for possible manipulations through use of Web-based social networking apps and messaging platforms such as WhatsApp and BlackBerry Messenger (BBM).

While the use of personal mobile phones are already prohibited inside dealing rooms — where trades are executed on behalf of clients — some brokers and fund managers have been found to be active on social networking and other Web-based groups and messaging platforms while placing orders, sources said.

This has brought to fore significant risks of insider trading, front running and other manipulative activities with regard to key client trade information being shared with outside investors or even among the dealers possibly working as a cartel, they added.

Brokers and fund managers are not allowed to use their personal mobile phones inside dealing rooms to receive orders from clients, while fund houses and brokerage firms are required to store records of all client calls for future inspections by the Securities and Exchange Board of India (Sebi).

Sebi is considering further tightening its norms with regard to dealing room communications, given the fast emergence of social networking and other Web-based messaging platforms. Those likely to be affected include entities dealing in stocks, derivatives and currency trading.

In a global probe into suspected rigging of forex rates, including those involving rupee as well, foreign regulators already suspect the use of intra-bank and Web-based messaging platforms among currency traders. Subsequently, many large global banks have already started clamping down on the use of such platforms inside their dealing rooms and similar action can be expected with regard to Indian markets as well.

The market watchdog is already mulling steps to check risks posed by the use of new-age smartphone messaging services such as BBM and WhatsApp by manipulators to spread sensitive information about their target stocks.

Messages through applications such as WhatsApp and BBM are difficult to monitor, given the multi-level difficulties faced in tracking the source and spread of market-sensitive information through these platforms.