Sebi toughens stance on insider trading

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SummaryRIL case against Sebi not allowing consent pleas up at SAT on Jan 6

While Reliance Industries (RIL) continues to fight the Securities and Exchange Board of India’s (Sebi) May 2012 circular on insider trading in the Securities Appellate Tribunal (SAT), the capital market regulator on Tuesday today toughened its stance on not allowing consent orders in instances of insider trading.

The Sebi board approved the Sebi (Settlement of Administrative and Civil Proceedings) Regulations, 2013 — this means ‘serious offences’ such as insider trading will now be excludedfrom the ‘scope of the settlement’. Such a regulation will now carry more weight in a court of law; a circular, legal experts pointed out, can be more easily challenged in court.

SAT will hear RIL’s case pertaining to a consent plea on January 6, 2014; RIL has challenged Sebi’s decision to keep the case out of the consent mechanism. While SAT had suggested that Sebi consider RIL’s consent application — a process that allows companies and individuals to settle disputes by paying a sum without admission or denial of wrongdoing — the regulator declined, leaving it to the tribunal to take a decision. In May 2012, Sebi tightened the norms for settlement through the consent framework through a circular, which has now become a regulation. At its last hearing on December 20, SAT disposed of RIL’s appeal requesting access to more documents.

The Sebi board, which met in Mumbai on Tuesday, also noted that the existing tax treatment for foreign institutional investors (FIIs) will be extended to foreign portfolio investors (FPIs). The clarity on the tax treatment of FPIs comes nearly six months after the capital market watchdog accepted the recommendations of the KM Chandrasekhar committee on rationalisation of investment routes for overseas investors by merging FIIs, sub-accounts and qualified foreign investors into a new investor class to be termed as FPIs.

According to Section 115 AD of the Income Tax Act, FIIs and sub-accounts do not need to pay any long-term capital gains tax if the shares are held for more than a year.

Short-term capital gains are taxed at 15% while interest earned on bonds are taxed at 20%. The interest on government bonds and certain prescribed corporate debt, however, attract tax of only 5% instead of 20%.

The board also said grading of initial public offerings (IPOs) would be optional. The move was in response to requests from various sections of the market, including, investor associations, investment bankers and also the advisory committee of Sebi.

The Sebi board also approved the amendment to the regulations governing collective investment schemes (CIS) to include the changes proposed in the Securities Laws (Amendment) Ordinance, 2013. According to the ordinance, any scheme involving a corpus of over Rs 100 crore will be deemed to be a CIS.

The capital market regulator also broadened the scope of companies eligible to file a shelf prospectus to publicly issue non-convertible debt securities; infrastructure debt funds, RBI-registered NBFCs, HFCs registered with National Housing Bank and those authorised by CBDT to make public issue tax-free secured bonds can file a shelf prospectus. The board also approved the Sebi (Procedure for Search and Seizure) Regulations, 2013, and amended the Sebi (Investor Protection and Education Fund) Regulations, 2009, to factor in the changes in the Sebi powers post the ordinance. According to Sebi, the investor protection fund can be utilised for “restitution to investors and in case of failure of identification of investors, for the credit of amounts disgorged”.

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