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Tuesday, July 17, 2018

Insider trading,risk management key focus areas for 2014: Sebi

Sebi is currently in the process of overhauling its nearly two decade old insider trading norms.

Written by PTI | Mumbai | Published: January 1, 2014 3:05:05 pm

Looking to safeguard the interest of small investors and overall market place,Sebi has identified a greater oversight mechanism on insider trading and a stronger risk management framework as among key focus areas for 2014.

“In the new year,our focus areas will be strengthening the insider trading mechanism and further strengthening the risk management system on the exchanges,” Sebi Chairman U K Sinha said while listing out key priorities before the capital markets regulator in 2014.

“These are the two major focus areas. Besides,we also plan to put in place final guidelines for research analysts,for which we have come out with draft norms and all these matters are being actively considered right now,” Sinha said in an interview.

“On insider trading,we have done many things,but still I will say it is something about which there is a perception in the country that Sebi needs to do more.

“Often,people compare us with the US,without realising that there it is not the SEC (Securities Exchange Commission) alone,but most of the high-profile cases in the US have been handled by their criminal justice system,” he said.

Sebi is currently in the process of overhauling its nearly two decade old insider trading norms,pursuant to which those indulging in unlawful insider trading activities would be dealt with severely.

Many new categories of persons,including public servants,regulatory officials,judiciary and government officials dealing with unpublished price-sensitive information are being brought under the purview of insider trading.

At the same time,new norms would also seek to clearly differentiate between ‘innocent mistakes’ and genuine transactions of company executives from the unlawful and serious trading offences.

Often,comparisons have been made between regulatory action against insider trading in India and the US,where some high-profile cases including that of former banker Rajat Gupta has come to light in recent months.

Commenting on this,Sebi chief said that “in India,people say such actions have been taken in the US,and what is Sebi doing? The fact is,Sebi has to work according to task accorded to it and we are doing our part very effectively”.

The framework to deal with insider trading is being further strengthened and an expert committee has submitted its report on overhaul of insider trading norms,he said.

Sebi has also got greater powers to deal with fraudsters and manipulators. It can pass disgorgement order,conduct search and seizure,attach properties,freeze accounts,pass settlement orders and initiate recovery proceedings.

Besides,it can seek information from anyone including banks and telecom companies to help in its probe and take stricter action against illegal money-pooling activities,while special courts are being set up to expedite its prosecution cases.

With regard to the secondary markets,Sebi is working on a number of initiatives to be unveiled during 2014.

These include risk management framework for high frequency and algo trading,trade annulment policy,interoperability of clearing corporations,policy on stress testing and a Securities Guarantee Fund without including margin money.

Besides,measures to strengthen the SME platform,revisit the policy for proprietary trades,exit of regional stock exchanges (RSEs) and making the arbitration mechanism more investor friendly and independent are also in the pipeline.

Sinha said that Sebi was able to provide clarity and a direction to the market in areas like corporate governance and investor protection during 2013.

Besides,Sebi also implemented wide-ranging measures to attract more foreign inflows into the Indian capital market to fund widening current account deficit.

It also prescribed adoption of risk-based Know Your Client (KYC) norms for foreign investors by categorising them into three segments. While the registration process for government related entities would be the simplest,it would be most stringent for charitable trusts and individuals.

Sebi has also allowed start-ups and small and medium enterprises (SMEs) to get listed on bourses without making an initial public offering (IPO),while new rules were also put in place for angel investors during the year.

For the mutual fund industry,Sebi issued a framework on ‘product labelling’ with colour coding for MFs in a move to help investors assess the risk associated with the schemes.

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