In today’s wired and wireless world, it is impossible to stop information from flowing. Not only is it impracticable, it is also getting increasingly difficult to track down information flows after they happen.

Rajat Gupta was convicted on the basis of a telephone call he made immediately after a board meeting. Sixteen seconds after a board meeting ended (which Mr Gupta participated by phone), he is said to have called to Raj Rajaratnam at the Galleon Group hedge fund. A $5 billion investment by Warren Buffett had just been approved in the Goldman Sachs board meeting.

Two minutes later, Mr Rajaratnam ordered the purchase of one lakh shares of Goldman Sachs. A minute later, he ordered another 2.5 lakh shares. Total outlay? $43 million.

This conviction was possible because of phone records.

But what if no records were available? What if the information transmitted was indistinguishable from trillions of data packets traversing the web every hour? What if it had not been a phone call?

That must be happening today. Somewhere? Everywhere? In all probability, lots of price sensitive information is being transmitted over the web using devices like smartphones. With phone apps proliferating and smartphones becoming ubiquitous, it will not be easy to nail the next conviction for insider trading.

On its part, SEBI is beginning to take note of this issue. A recent article in ET spoke about SEBI taking ‘stringent action to check the risks of new smartphone messaging services’. The article goes on to say this:

‘Traders, possibly working as a cartel, are using these platforms for insider trading, front running and other manipulative activities, said market sources. For instance, a market operator buys a stock and then leaks price-sensitive information about it on instant messaging and social media platforms, leading to the stock running up sharply, at which point the operator exits his positions with huge profits.’

This is going to be an uphill battle. SEBI can’t keep pace with the growth of apps and smart devices. They may start thinking about ring fencing trading room environments and putting in place data monitoring mechanisms. But with encryption, cloaking and newer ways to ensure anonymity, that will not be easy either.

Perhaps the best way is for all capital market regulators around the world to get together to find technological solutions to track and log information flows that can be used for subsequent legal proceedings.