Sebi. (Photo: Kamlesh Pednekar)
Market regulator Securities and Exchange Board of India (Sebi) will next week decide on the action to be taken against 116 brokers involved in the Rs 40-billion investor default. While the total default amount to investors is Rs 54 billion and involves 147 brokers, action will be taken against only those brokers who are registered with the Sebi. The remaining 31 don’t fall under Sebi's purview.
The matter will be deliberated by the Sebi board during its board meeting scheduled for September 18. The move follows an investigative report prepared by the Economic Offence Wing (EOW) of Mumbai Police. Sources say 17 brokers account for 80 per cent of the total default amount. Legal experts say brokers could face a heavy penalty, market ban or lose fit and proper status. Sebi board’s decision will put an end to the five-year old matter involving some prominent brokers and 13,000 investors.
Besides, the Sebi board will also discuss at least half a dozen other key issues including implementation of recommendations made by former Law Secretary TK Viswanathan-led committee on fair market access. The panel has made a slew of recommendations to curb insider trading by improving surveillance, investigations and enforcement mechanism. The committee has also suggested measures pertaining to high-frequency trades and algorithmic trading. The panel has also recommended that the market regulator should get powers to intercept and tap phone calls. Sources say the Sebi board might consider seeking from the government such powers with adequate checks and balances.
On the agenda
To decide action in the NSEL matter
Action against 116 brokers defrauded Rs 40 billion
Implementation of fair market conduct committee recommendations
To propose changes in the consent framework
Framework to enhance market borrowing by large corporates
To revise provision pertaining to re-classification of person as promoter
Sebi board will also approve changes to the consent framework based on recommendations made by another committee headed by Justice AR Dave. Some of the key proposals in this regard include settlement with confidentiality - akin to the approver framework in the US, imposing time limit and ceiling on such consent pleas. Sebi may also keep out wilful defaulters and fugitive economic offenders from the purview of consent settlement.
Further, the Sebi board will approve a framework that will nudge large borrowers towards the corporate bond market. The objective of the move, first announced in this year’s Union Budget, is to reduce strain on the banking system and develop a vibrant corporate bond market. The framework will be made applicable from next fiscal and will mandate large corporates to meet a fourth of their borrowings from the bond markets.
Sebi will also introduce changes to rules that allow classification of promoters as ordinary shareholders. Going ahead, a promoter group entity would require shareholders’ approval for such a move.
The market regulator could also allow interoperability among clearing corporations, a measure that has been debated for years. Interoperability will help reduce trading costs and provide investors with more flexibility to trade in a security on multiple platforms.
Sebi will also introduce a ‘common application form’ for foreign portfolio investors.