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Sebi widens fraudulent, unfair trade practices list

By Super
Sebi widens fraudulent, unfair trade practices list
New Delhi: Sebi has decided to tighten norms for tackling fraudulent and unfair trade practices so as to hold individuals as well as market entities equally guilty for manipulations by removing regulatory lacunae.

The Securities and Exchange Board of India is also expanding the list of activities that attract penal actions under its Prevention of Fraudulent and Unfair Trade Practices regulations, a senior official said.

The capital markets watchdog is planning to strictly enforce these norms, which cover a wide array of manipulative activities, such as publishing advertisements with misleading or distorted information to influence the investors' decision, planting of false or misleading news and inducing investors to carry out transactions for personal gains, he said.

In a meeting held last week, Sebi's board decided to include unauthorised Collective Investment Schemes (CIS) in the list of fraudulent and unfair trade practices.

Sebi is now planning to amend 10-year old norms in this regard to remove certain gaps, which enabled penal actions against individuals to be challenged on the ground that they meant only for market entities, the official said.

Sebi has come across many cases where it has been claimed that the norms do not explicitly permit penal action against individuals fund houses and foreign funds, for certain 'fraudulent and unfair trade practices' like front running, withholding of key information from the investor and making false promises or claims to induce the clients into a securities transaction.

In some cases, these individuals have been employees or associates of market intermediaries like brokerage firms, the official said.

'Front running' refers to an intermediary (or an associated individual) buying or selling securities in advance of a substantial client order, or whereby a forward position is taken about an impending transaction in the same or related futures or options contract.

Another major change being implemented by Sebi in this regard relates to an amendment that would leave the list of 'fraudulent and unfair trade practices' open ended, rather than restricting it to 19 broad categories currently.


While unauthorised CIS activities are being added as a distinct 20th category for such violations, Sebi has decided that the regulations would apply to all kinds of direct or indirect dealings (buy, sell or otherwise) in securities in a fraudulent manner, as also to use of any manipulative or deceptive device, scheme, artifice or ways in connection with issue, purchase or sale of securities.

Irrespective of the categories of securities, markets segment or class of intermediaries or persons involved, these rules would also apply in cases where anyone (individuals or entities) engage in any act, practice or, course of business which operates or would operate as a fraud or deceit upon anyone through any dealings in listed or to-be-listed securities, according to officials.

Sebi first came out with its regulations for fraudulent and unfair trade practices in 1995, which were replaced by a new set of norms in 2003.

Two major amendments were carried out in these regulations in 2007 (with regard to the powers for serving summons and notices) and in 2012 (to include mis-selling of mutual funds and other deceptive activities).


Story first published: Monday, August 19, 2013, 10:01 [IST]
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