Stringent code of ethics for SE brass to be effective from Aug

Virendra Verma

Mumbai, May 22: THE Securities and Exchange Board of India (Sebi) has finally put in place the code of ethics for stock exchange directors and officials. This code comes into effect from August 2001.

The market regulator last week issued circulars to all the stock exchanges giving them the deadline of July-end, before which they have to implement the ethics code. Sebi board had cleared the code in its board meeting held on May 5.

The new stringent code of ethics gains importance more so in the light of the crisis at the CSE and the removal of broker directors from the governing board of the The Stock Exchange, Mumbai (BSE) by Sebi earlier this year. This code for directors and functionaries of the exchange seeks to establish a minimum level of business/professional ethics to be followed by these functionaries, towards establishing a fair and transparent marketplace.

The code has four fundamental principles:
* Fairness and transparency in dealing with matters relating to the exchange and the investors
* Compliance with all regulations laid down by regulatory agencies and stock exchanges.
* Exercising due diligence in the performance of duties
* Avoidance of conflict of interest between self interest of directors/functionaries and interests of stock exchange and investors
In order to implement this code at the exchange level, Sebi has asked the stock exchanges to set-up an ethics committee to lay down the procedures. The committee will comprise up to 40 per cent of the members from the elected directors or exchange members.

In addition, a compliance officer from the exchange too will have to be appointed for executing the code of ethics. According to the code, the elected office bearers (president/vice president/treasurer) of the exchange shall not do proprietary trades in securities directly or indirectly during the period of holding office. All directors, on a periodic basis, will have to disclose the trading conducted by firms or corporate entities in which they hold 20 per cent or more stake. But this condition will not be applicable to nominee directors like Sebi, RBI, DCA nominees as they will be governed by their own codes. For the stock exchange officials (general managers and above) all transactions in the stock market must be of investment nature and not speculative.