Regulating Market Manipulation in the Digital Age: Evaluating SEBI’s Enforcement Gaps and the Need for Legislative Reform
Krishnanunni J and Jenny Rose PG
(Christ (Deemed to be University), Bangalore.)
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Abstract
The recent proliferation of market manipulation driven by social media presents a unique
regulatory threat to financial markets, and it is especially pertinent in emerging economies like India. This paper assesses how digital platforms and social media applications such as Twitter, Reddit, Telegram and WhatsApp have marked a transition to new norms of market behavior. This behavior contributes to stock price movements through misinformation, coordinated trading and viral speculation.
The article considers the constraints of the market regulator SEBI concerning a market manipulation framework, including the Infibeam Avenues Stock Crash (2018), Adani-Hindenberg Controversy (2023), and WhatsApp-based Insider Trading Ring, which raises potentially unacceptable financial rumors that can trigger an upgrade with a large scale.
With the rise of finfluencers and investment groups, there is an increasing concern about
the retail investor's vulnerability and market integrity. SEBI's present regulatory framework,
designed ominously for pre-digital manipulation schemes, cannot grapple with the speed of udicial borders, online actors oblivion, and digital misinformation.
This paper explores SEBI's enforcement mechanisms, provides comparative analysis to SEC (U.S.), FCA (U.K.), and ASIC (Australia) as well as international regulatory responses, and possible policy innovation. Among the challenges are separating free speech and manipulation, tracing rumors and misinformation, and taking action with cross-border violations. The article suggests for a multi-pronged approach that includes AI-powered real-time surveillance, eliminating unlicensed stock-tip groups, providing SEBI more power to police rules outside of India, and better educating investors. The objective of these changes is to find a compromise between making financial markets more democratic and keeping the integrity of the market in an increasingly digital world.​