SEBI changes settlement rules, clears common advertising code

The settlement amount will comprise a base amount linked to the minimum penalty for the violation under securities laws, along with multipliers based on the stage of proceedings, “regulatory action factor”, gravity of the violation and “aggravating factors”.

SEBI has also separated “wrongful gains” from the calculation of the base amount, following concerns over “double counting” that could increase penalties.

“Wrongful gains, losses avoided, or loss caused to investors will not be considered while determining the base amount. Such amounts, where quantified, will be disgorged separately. This removes the existing double counting of such amounts in computation of settlement terms,” the regulator said.

The new regulations will come into force the day after 30 days from the date of their notification. SEBI will also issue a settlement notice to entities under investigation before issuing a show-cause notice, giving them 60 days to file a settlement application.

“The philosophy remains the same, nothing has changed. If there is any egregious case which should not be settled, will not be settled. The discretion also remains with the panel of WTMs (whole-time members) to reject any case, even if recommended. So that part has not changed,” said WTM Kamlesh Varshney.

The revised regulations also aim to make adjudication proceedings more institutional and consistent, rather than leaving them to the discretion of the SEBI member delivering the order.

Settlement allows an entity under investigation to agree with the regulator to end proceedings in exchange for a specified sum, “without admitting or denying guilt.”

The settlement framework has come into focus over the past week after five listed Adani Group companies settled adjudication proceedings initiated by SEBI for Rs 1.5 crore over alleged disclosure and corporate governance violations arising from its examination of issues highlighted in a research report published by Hindenburg.

Common advertising code

SEBI also approved a common advertising code for regulated entities, allowing them to use celebrities for brand-level promotions while removing the requirement for prior approval for most advertisements.

“CAC replaces the existing entity-specific advertisement frameworks individually prescribed under respective SEBI regulations/master circulars and/or through circulars issued by recognised stock exchanges/respective supervisory bodies,” the regulator said in its press release.

Celebrity endorsements by entities such as stock brokers, depository participants, investment advisers and mutual funds will require prior approval. However, the requirement for approval for other types of advertisements has been removed, SEBI said.

SEBI backs closing auction session

The regulator also backed the closing auction session (CAS), with Chairman Tuhin Kanta Pandey saying market participants would have to adapt to changing realities.

“Every market is peculiar and we should not be ashamed to adjust with the realities of the current market,” Pandey said.

He added that SEBI had received more than 3,500 comments on its consultation paper on proposed changes to CAS. The regulator had proposed a blended system combining the traditional volume-weighted average price with the CAS mechanism to determine closing prices in the equity market.

The consultation paper, released earlier this month, closes on October 3. SEBI will analyse the responses before deciding on the implementation of the proposed changes.