SEBI is designed to shift the burden of proof to the accused in suspicious transactions

India’s market regulator SEBI has proposed new rules that put the burden of proof on the accused in some cases of insider trading, front-running and similar violations, as the use of encrypted or vanishing communications and untraceable funding arrangements impair the regulator’s ability to conduct and win cases .

An unusual trading pattern – involving significant changes in risk or unusual gains – that coincides with material non-public information about a security constitutes suspicious activity unless the alleged perpetrator can refute it with evidence, the SEBI said in a consultation paper on Thursday .

Abnormal Trading Cases

SEBI cited 97 cases of unusual trading, such as B. repeated concentrated positions a company took ahead of news events at a company, but said no cases could be identified, partly due to a lack of evidence of communications.

The proposed regulation is a useful means of overcoming court rulings that require more convincing evidence, said Shruti Rajan, a partner at Mumbai-based law firm Trilegal. However, many reputable traders would have to go to the trouble of explaining their deals to SEBI, and without proposed time limits or statutes of limitations for investigations, the process itself can often feel endless, she said.

Deeming provisions are not new. In its paper, SEBI referred to similar provisions in income tax law on unsettled cash advances and in US securities law.

Globalized money paths and technological innovations have prompted more lawmakers and regulators to take such steps, said Amit Desai, a criminal defense attorney.

“When the burden of proof shifts, there needs to be clearer, objective standards that serve as a safeguard,” Desai said. SEBI is designed to shift the burden of proof to the accused in suspicious transactions

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