Market regulator Sebi will take action against those found manipulating IPOs of companies and pitched for more checks and balances in high-frequency trading.
"Some members are indulging in manipulation...Sebi is looking at manipulation of the IPO market," said Sebi chairman UK Sinha. "We will be taking action after the completion of due process," he said.
The regulator will review the entire process of initial share sale and will put in place a centralised KYC norm for financial sector intermediaries, he said. It will also review and strengthen its 10-year old risk management system.
"For us at Sebi RMS is sacrosanct...We will not like anybody taking chances with it and that is why we are going in for a review," Sinha told reporters at an event organised by Association of National Exchange Members of India. He cautioned against market intermediaries' negligence on compliance as it could increase chances of default.
"a¦some people in the market are opting for lax compliance and more risky ways to expand their business in times of downturn...We have a problem because people are taking more leverage than they can. This raises chances of default...So we have to take measures," he said.
On high frequency or algorithmic trading he said it requires strict checks as it involves potential risks. He cited instances of short-collection of client margins and large-scale violations of client code.
"I am not saying you stop algorithmic trading or high volume trading, but you need to ensure adequate measures are in place."
International organisations such as IOSCO and Financial Stability Board have also underscored the risks involved in high-frequency trading, he said.
"Incidents in some markets have challenged the text book belief that excess liquidity leads to better price discovery," he said.
Sinha supported traders and exchanges demand for reduction in securities transaction tax. "Sebi is in dialogue with the government on the issue," he said, adding the government will address the issue at an appropriate time.