Explain how SEBI’s Market Surveillance System helps maintain price stability in the Indian equity market. Discuss at least three tools used by SEBI and provide an example of how each tool is applied.
Answer
SEBI’s Market Surveillance System uses circuit breakers, real‑time trade monitoring, and market depth analysis to detect and stop abnormal trading, thereby maintaining price stability.
Step-by-step solution
- Circuit breakers halt trading when a stock moves beyond a set threshold (e.g., a 20% intraday drop stops trading to prevent panic).
- Real‑time trade monitoring compares buy and sell patterns to detect wash trades; anomalous patterns trigger investigations.
- Market depth analysis flags sudden large orders that could move prices, leading to temporary trade halts.
Common mistake: Listing tools without explaining their function or real‑world impact
Concept tested: SEBI market surveillance mechanisms
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