Investor protection is perhaps the most important justification for securities market regulation. To achieve this goal, there are a number of considerations. First, the conviction that investors should be safeguarded against unscrupulous people or organizations that aim to acquire money by issuing securities that are ultimately worthless is motivated by a feeling of justice or equality.
Second, caveat emptor cannot be extended to the financial market as a whole. When it comes to an economy’s well-being, investors must have faith in the integrity of the capital markets in order for it to attract the maximum amount of money.
Such logic may lead to the conclusion that the largest number of investors could be recruited if a positive return was guaranteed for each investment bought.
Capital market efficiency requires an investor to bear some risk since no enterprise can be funded without taking a chance on a loss. It is vital to develop a uniform set of regulations for international equity trading in order to maximize the efficiency of the trading system itself and the standards for pricing, reporting and accounting processes.
According to the NASD’s Gordon Macklin, there must be four preconditions in order to participate in the worldwide market: adequate demand, automated and technologically proficient systems, decreased communication costs, and answers to the regulatory and legal challenges found in global trading.
Cyber Crimes In Trading Markets And Its Effects
The Securities and Exchange Board of India (Sebi) has emphasized the necessity for cyber security standards in the securities sector, as internet trading has grown exponentially.
A framework is essential to safeguard enterprises and people, according to Sebi chairman U K Sinha. He was presenting at a conference on cyber security and resilience that was co-hosted by Sebi, BSE, and EY.
Malicious actors from inside or outside the nation initiate cyberattacks against financial services companies with the goal of committing financial fraud or causing systemic disruption. It is also worth noting that as long as the Forex market is a decentralized market, the number of cybercrimes is higher compared to regulated markets.
The steps against cybercrimes will have a significant effect on SEBI registered FX brokers, which provide financial services for Forex traders and try to protect the investors’ rights. In addition to that, SEBI tries to make its regulating framework more safeguarded to avoid investors becoming a victim of scammers and fraudsters.
The sophistication of these assaults is rising, as is the vulnerability of the financial markets. “Securities markets throughout the globe are quite fragile,” Sinha added. Some of these attackers seem to be using technology that suggests the participation of nation-states.
The finest technology and resources are made available to those who can use them, and some of these efforts are state-sponsored.” Larger systems, cultures, and countries are all impacted by it.
He went on to say that these assaults are not limited to the financial services industry, but affect every area of the economy. According to Governor of Maharashtra, Vidyasagar Rao who was also present at the occasion, terrorist organizations are now using stock market manipulation to collect money for their activities.
In the wake of a cyberattack that placed 3.2 million bank debit cards in danger, the government, the Reserve Bank of India, and banks began a damage-control effort. However, some banks have encouraged their clients to update the security codes on their cards or request replacements, including the State Bank of India which has banned 600,000 cards and will replace them at no cost to users.
Although the securities market systems are continually being enhanced, a high-level committee has been established to assure complete security, according to a senior Sebi official. While Sebi’s full-time cyber security policy director will lead the committee’s work, the group will also be responsible for making sure regulations are being implemented throughout markets and addressing any issues that may arise.
Members of Sebi’s staff will be drawn from the field of information technology (IT). This committee and the stock exchanges will get notifications from the regulator if the stock exchanges’ systems, networks, and databases are breached, according to the source stated above.
In the recent past, Sebi has seen a few instances of technological malfunctions affecting a stock exchange or other financial institution. It was discovered in August that three computers at the BSE had software infections, which were detected and wiped clean, although the viruses had no effect on the BSE’s day-to-day operations or any of its divisions. Though this regulator is concerned, it is possible that cyberattacks are to blame.
In order to offer necessary services and conduct systemically important duties in connection with securities trading, clearing, and settlement, Sebi said that MIIs must have a strong cyber security architecture.
Cyber security and cyber resilience mechanisms include governance, identification, protection monitoring and detection, responses, and recovery; exchange of information; training; and periodic audit, Sebi stated in a circular. The commodities market received the same circular at the beginning of the year.
Massive amounts of private and sensitive information may be found in the databases kept by stock and commodities exchanges. Because of this, experts argue that it is imperative that they give top importance to cyber security.
Cyber thieves, according to security experts, utilize proxy servers to mask their tracks via the use of technology. Encryption is commonly used to hide the tracks of such assaults. According to the International Organization of Securities Commissions, which includes Sebi, 89 securities exchanges were examined in 2014 and found that more than half of the exchanges had been targeted by cyberattacks in the previous year.