Certain transactions in shares

The Code says that a member must disclose their, and their family’s (spouse, dependent children below 18 years of age) holdings within 15 days of the assumption of Office, and annually update this disclosure within 15 days of the close of the financial year. Moreover, substantial transactions (greater than 5,000 shares or of monetary value of 1 lakh) need to be disclosed within 15 days of such a transaction. Lastly, members are not allowed to deal in shares based on “unpublished price sensitive information which he may have got access to”.

Outside private activities

SEBI board members are not allowed to hold any other office of profit, i.e. a position that brings or has the potential to bring to the person holding it some financial gain, advantage, or benefit. They are also not allowed to engage in any other professional activity, “which entails receipt of salary or professional fees”.

Board members are not allowed to accept “any gift by whatever name called, to the extent possible, from a regulated entity”. If they do receive such a gift whose value exceeds Rs 1,000, they have to hand it over to the General Services Department of the SEBI, and are not allowed to keep it.

Miscellaneous situations

Members are bound to disclose “any post, other employment or fiduciary position” which they hold or have held in the past five years, in connection with any regulated entity. This would include things like being a board member of a company, or being employed as a consultant by a company. Moreover, they must disclose “any other significant relationship, including a professional, personal, financial or family relationship held in connection with a regulated entity” and “any honorary position, by whatever name called, in any organisation”.

This is an archive article published on August 12, 2024

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Hindenburg’s new allegations: How SEBI board is supposed to address conflicts of interest

SEBI’s ‘Code on Conflict of Interest’ seeks to ensure that the board ‘conducts in a manner that does not compromise its ability to accomplish its mandate or undermine the public confidence’ in the body

Madhabi Puri Buch is the first woman to head SEBI. (PTI Photo/File)

By: Explained Desk

4 min readNew DelhiAug 13, 2024 11:56 AM IST First published on: Aug 12, 2024 at 05:42 PM IST

Almost 18 months after it accused the Adani Group of “brazen stock market manipulation” and “accounting fraud”, the US-based shortseller Hindenburg Research on Saturday (August 10) alleged that SEBI chairperson Madhabi Puri Buch “had stake in obscure offshore entities used in the Adani money siphoning scandal”, citing whistleblower documents.

In response, Madhavi Puri Buch and her husband Dhaval Buch said that the investment in question was made “almost 2 years before Madhabi joined SEBI”. They added that “all disclosures and recusals have been diligently followed, including disclosures of all securities held or subsequently transferred”.

Here is what SEBI’s ‘Code on Conflict of Interests for Members of Board’ (henceforth, the Code) says about disclosures and recusals.

Read | Hindenburg alleges impropriety by Sebi chief: what conflict-of-interest rules apply to market regulators in US and UK?

What constitutes conflict of interest?

According to the Code, ‘conflict of interest’ refers to “any personal interest or association of a board member, which is likely to influence the decision of the Board in a matter, as viewed by an independent third party”. It can constitute a number of different things, which are either barred altogether or need to be disclosed by the concerned board member.

These include:

01
Certain transactions in shares
The Code says that a member must disclose their, and their family’s (spouse, dependent children below 18 years of age) holdings within 15 days of the assumption of Office, and annually update this disclosure within 15 days of the close of the financial year. Moreover, substantial transactions (greater than 5,000 shares or of monetary value of 1 lakh) need to be disclosed within 15 days of such a transaction. Lastly, members are not allowed to deal in shares based on “unpublished price sensitive information which he may have got access to”.
02
Outside private activities
SEBI board members are not allowed to hold any other office of profit, i.e. a position that brings or has the potential to bring to the person holding it some financial gain, advantage, or benefit. They are also not allowed to engage in any other professional activity, “which entails receipt of salary or professional fees”.
03
Acceptance of gifts
Board members are not allowed to accept “any gift by whatever name called, to the extent possible, from a regulated entity”. If they do receive such a gift whose value exceeds Rs 1,000, they have to hand it over to the General Services Department of the SEBI, and are not allowed to keep it.
04
Miscellaneous situations
Members are bound to disclose “any post, other employment or fiduciary position” which they hold or have held in the past five years, in connection with any regulated entity. This would include things like being a board member of a company, or being employed as a consultant by a company. Moreover, they must disclose “any other significant relationship, including a professional, personal, financial or family relationship held in connection with a regulated entity” and “any honorary position, by whatever name called, in any organisation”.

What is the procedure for managing conflict of interest?

As a general principle, SEBI board members are to “take all steps necessary to ensure that any conflict of interest… does not affect any decision of the Board” and not to “exploit to his personal advantage, any personal or professional relationship with regulated entities or any employee of such entities”.

This is to be done by a system of disclosures and recusals. Disclosures have to be made “at the earliest possible opportunity”. If any member is unsure whether there is a conflict of interest or not, they “shall seek determination from the Chairman”. If the chairman is in doubt regarding their own conflict of interest, she has to “seek determination from the [entire] Board”.

Also Read | As Sebi chief Madhabi Buch digs heels in, key query: Did she disclose fund linked to Adani?

If the chairman or the board determines that there is indeed a conflict of interest, the concerned member “shall refrain from dealing with the particular matter”. The rules are very clear on this — “No Member shall hear or decide any matter where he has a conflict of interest”, they say. There is no scope for an exception.

Does the public have to be apprised about conflicts of interest in the SEBI board?

No. “The information as disclosed under this Code shall be kept confidential… save in the following circumstances”, the Code says. These circumstances include:

Where there is a requirement for disclosure for the purposes of managing potential or actual conflicts;
Where there is a requirement for disclosure following the change of responsibilities of a Member;
Where there is a requirement for the purposes of disciplinary proceedings; or
Where there is any legal or regulatory obligation to disclose the information.

The custody of all documents/records pertaining to board members’ disclosures is maintained by the secretary to the board. Members of the public can bring material evidence to this secretary in case they believe that “a Member has an interest in a particular matter”. The secretary is obligated to place the details of such a matter to the board.