India's SEBI gets teeth to act against exchanges

Tuesday 06th February 2018 09:31 EST

The government of India has given more powers to the Securities and Exchange Board of India (SEBI) to impose monetary penalties on important market intermediaries such as stock exchanges and clearing corporations and also act against newer categories of participants likes investment advisers, research analysts, real estate investment trusts and infrastructure investment trusts. The new act now allows the market regulator to impose a monetary penalty of at least £500,000 on stock exchanges, clearing corporations and depositories for non-compliance with regulatory norms.

The penalty can go up to £2.5 million or three times the amount of gains made out of such failure or non-compliance. Hitherto, SEBI only had the power to censure or warn against any form of failure. Incidentally, the new powers come at a time when the National Stock Exchange is under the SEBI scanner in the co-location matter, with regard to which it has been alleged that a certain set of brokers were given preferential access allowing them to make undue gains.

The amendments also allow SEBI to act against entities that furnish false or incomplete information to the regulator. Earlier, it could act only if the entity did not furnish any information. The whole-time members of SEBI have also been given additional powers to act against wrongdoers. “[Powers to] punish for filing of false, incorrect or incomplete information, return, report, books or other documents was very much needed for SEBI,” said Sumit Agrawal, a regulatory lawyer and an ex-SEBI official.

Quality of disclosure

“It will increase the quality of disclosure rather than just tick-the-box approach. Twin-fold penalty powers with the wholetime member and adjudicating officer (AO) is welcome for efficient use of human resources. Minimum penalty of £500,000 proposed on market intermediaries such as stock exchanges, clearing corporations and depositories [has emerged] for the first time and is likely to be used rarely,” he added. This is not the first time that the government has used the Union Budget to empower the capital market regulator.

While presenting the Budget for 2015-16, finance minister Arun Jaitley proposed the merger of the then commodity market regulator Forward Markets Commission with SEBI. This followed the £560 million settlement scam at the National Spot Exchange Ltd., which came out in the open in July 2013.

“Since things are more electronic now, it is becoming easier for regulators to keep track of happenings in the market, more so [to track] non-compliance,” said Pranav Jain, partner, MDP & Partners, a law firm.

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