SEBI announced a framework to stop stock broker fraud

Staff Reporter

The Securities and Exchange Board of India (SEBI) announced a number of proposals on Wednesday, the important among them being putting an end to the practice of holding permanent directorship at boards of listed companies and the establishment of a framework to stop stock broker fraud. SEBI's board approved the suggestions at its meeting on Wednesday 

SEBI Chairperson Madhabi Puri Buch announced that SEBI will institute a formal mechanism for the prevention and detection of fraud or market abuse by stock brokers. Amendments will be made to the stock brokers' regulations that will also provide for having a whistle-blower policy as well as systems for surveillance of trading activities and internal controls.

On Adani-Hindenburg issue, SEBI Chairperson Madhabi Puri Buch said, "Elephant in the room is Adani, we don't comment on subjudice matters. If you see the SC order it instructs us to give updates. That is why we are not allowed to discuss the matter with the public at large. We will follow the advice of the Supreme Court in (the Adani case). We are duty bound to follow it."

Buch said that one of the issues SEBI has been looking into is the spirit of law vs letter of the law. We want to take this forward in the coming year and we have been speaking about what the regulator needs to do about it. 

Private Equity (PE) Funds To Sponsor Mutual Fund Schemes

SEBI's borad approved a legal framework to let private equity funds to sponsor mutual funds to help the mutual fund industry grow. Chairperson Madhabi Puri Buch said, "We would like more innovation in the MF industry. Self-sponsored AMC will also be now allowed...Once their kids become mature, sponsors can exit without having to find a new parents for this grown-up child."

The SEBI chief further noted that AMC must also safeguard unitholders' interest, rather only the focusing on the interest of shareholders.

Approval Of ESG Disclosures

The market regulator approved the regulatory framework for ESG (Environmental, Social and Governance) disclosures by listed companies. SEBI Chairperson Madhabi Puri Buch said, "We now have a very powerful tool known as RSR which will help us in assured ESG rating ahead of anyone on the planet. In terms of ESG investing, risk of greenwashing must be minimised, therefore we are introducing two things. Mutual funds have a restriction on how many schemes they can launch. We have now created ESG as a category, in short you can have more ESG schemes going forward. But, at the same time, there is greater emphasis on disclosures so that investors know what they are putting their money into."

"ESG rating providers must be governed. Conflict of interest is very important. Audit firms have come under tremendous scrutiny... right at the start we want to make sure there is no conflict of interest (in terms of giving assurance and rating services, and consultation services," Buch said. 

Fund-Blocking Facility For Secondary Market Investors

SEBI also brought in a, Application Supported By Blocked Amount (ASBA) facility for the secondary market. SEBI Chairperson Madhabi Puri Buch said, "At this time, it will be voluntary for brokers and investors to provide and avail of this."

Applications for initial public offerings (IPOs) and other primary market issues must follow the ASBA procedure. Although blocked under ASBA, the money stays in your account and earns interest.

Through the proposed facility, which would be optional for investors as well as stock brokers, SEBI said it aims to bring efficiency in the secondary market ecosystem by allowing usage of same blocked amount towards margin and settlement obligations. This would result in lower working capital requirements for the members.

SEBI Chairperson also said, "Global jurisdictions are just amazed. We are perhaps very unique and the entire chain is transparent. I refer this as India market stack. The board has approved a Framework to provide for an institutional mechanism for prevention and detection of fraud or market abuse by stock brokers. In secondary market, amendment to the stock broker regulations, which casts a responsibility on the broker to monitor for market abuse." 

Disclosure Of 'Material Developments'

In an effort to increase openness and ensure prompt disclosure of "material developments," SEBI has asked the top 100 businesses listed in the stock exchanges to confirm or refute market rumours that affect share prices. According to a press release issued by SEBI following a board meeting, the rule will take effect on October 1, 2023 for the top 100 businesses by market capitalisation, and on April 1, 2024 for the top 250.

In order to establish whether an occurrence is material, the regulator stated that it will implement quantitative benchmarks, but it did not immediately specify what those measures would be. The SEBI further stated that exchanges must be notified within 30 minutes of any material events or disclosures arising from a board of directors meeting.

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