Sebi proposes new norms for settlement of default proceedings

Oct 15 2013, 01:26 IST
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SummaryRegulator can consider any plea for settlement

The Securities and Exchange Board of India (Sebi) on Monday proposed new norms for settlement of administrative and civil proceedings against defaulters, saying that it will not settle proceedings related to insider trading, manipulative practices by mutual funds and illegitimate pooling of funds.

The proposal, however, provides an escape route as it gives Sebi board the power to consider any application for settlement.

While Sebi has taken a strong stance against cases relating to insider trading etc, it has taken a relatively moderate stand on cases related to front running (mutual funds) and in case the applicant fails to make an open offer.

Sebi has said that it will settle cases of front running if the applicant intends to make good the losses due to investors. Front running is an illegal practice where a broker trades a stock first on his own account based on information that clients may not know, while taking advantage of advance knowledge of pending orders from clients for that stock.

This would give the broker an unfair advantage since he can close out his position based on the price level set by the subsequent client orders.

In the case of failure to make an open offer, the regulator will settle the case if the applicant intends to make the open offer, or in case it is found that the open offer was not beneficial for the shareholder.

Sebi issued a consultation paper on the draft Sebi (Settlement of Administrative and Civil Proceedings) Regulations, 2013, on Monday, in line with the powers conferred to it by the Ordinance promulgated by the President of India on September 16, 2013 to settle administrative and civil proceedings.

Sebi has, however, clarified that it will not accept application for settlement if the default was committed within a period of two years of the previous settlement and also if the applicant has been party to two settlements.

Within the new draft regulations on which Sebi will accept suggestions till October 30, 2013, it has stated that the applications will be accepted only if they are made within 60 days of the show cause notice.

Under the settlement, Sebi can go for either settlement amount, voluntary closure of certificate of registration or closure of business or a combination of the same.

Sebi will form a high powered advisory committee consisting of a retired judge of High Court and three external experts who will consider and recommend terms of settlement.

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