Sebi tightens 'conflict of interest' rules for market entities

Aug 28 2013, 18:25 IST
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SummaryCredit rating agencies would need to ensure compliance to the new guidelines by October 1.

To ensure fair and non- discriminatory treatment to all investors and companies, Sebi today asked stock exchanges, rating agencies, brokers, depositories and other market entities to put in place a strong system to manage any conflict of interest.

The credit rating agencies have been specifically asked to deploy adequate systems and policies to ensure that they address any conflict of interest during investment decisions of their own funds or by their top management and employees.

The rating agencies, their employees and key executives have also been asked not to "take undue advantage of any price sensitive information that they may have about any company".

The key executives, such as CEOs and Managing Directors, would need to take prior approval from the Compliance Officer for sale or purchase of securities of the companies with which the credit rating agency may have rating-related dealings.

Issuing detailed guidelines for avoidance and handling of 'conflict of interest' by market infrastructure institutions and intermediaries, Sebi said all such entities and associated persons would need to maintain "high standards of integrity" in conduct of their business.

They have also been asked not to use any information received from the clients, under the normal business dealings, for any personal interest and to put in place "information barriers" to block flow of confidential information from one department to another.

While separate 'conflict of interest' guidelines are already in place for different classes of entities, Sebi decided to put in place comprehensive general guidelines for all intermediaries as per the Principles set by the International Organisation of Securities Commissions (IOSCO), a grouping of securities regulators from across the world.

Credit rating agencies would need to ensure compliance to the new guidelines by October 1, the others have been asked to review their existing polices and comply within six months.

Market intermediaries, stock exchanges, clearing corporations and depositories have also been made responsible for educating their 'associated persons' for compliance of these guidelines.

All these entities and associated persons would need to lay down, with active involvement of senior management, policies and internal procedures to identify and avoid or to deal or manage actual or potential conflict of interest.

They would also need to develop an internal code of conduct governing operations and formulate standards of appropriate conduct in the performance of their activities, and ensure to communicate such policies, procedures and code to all concerned.

The market entities would also need to disclose to their clients the possible source

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