The regulator believes that insider trading is among the most serious of capital market offences and is, therefore, strictly against the idea of letting the offender off with only a monetary penalty and not even an admission of guilt. The list of offences that can be dealt through the consent route under the new guidelines will not include insider trading, said a highly placed Sebi official. Sebi is formulating a set of stable guidelines for consent orders and is of the view that a monetary penalty is grossly insufficient when compared to the offence.
Interestingly, this could have an impact on many high-profile cases, including one involving Reliance Industries (RIL), which allegedly indulged in insider trading activity in 2007. While the case is yet to be settled, it was believed this would be done through consent with a monetary penalty in the range of R500 crore to R2,000 crore. It is not clear whether the new guidelines, as and when they come, will apply to old cases already gone into the consent order process in the earlier system.
According to the Sebi official, another highlight of the new guidelines would be the manner in which offences related to disclosure of information would be treated. If an entity reveals or confesses to the offence immediately after it has occurred, then the quantum of penalty would be less compared to instances where there is a delay.
There would be a much harsher penalty if the offender takes a long time to disclose information, said the source. The idea is that the penalty should be structured in a way that it acts as a deterrent. Sebi has also done some empirical modelling for gradation of penalties.
Interestingly, such a move would be welcomed by market watchers as the consent route has been highly criticised for the manner in which some cases have been settled.
The feeling is that some of the bigger and better-known names have been able to get away with more lenient terms while smaller entities ended up shelling out higher penalties for similar offences. Among the high-profile cases settled through consent, Anil Ambani and four other officials along with Reliance Infrastructure and Reliance Natural Resources were asked to pay Rs 50 crore in January 2011. The settlement was done for alleged routing of funds raised through overseas bonds to the stock market in 2007.
The consent order mechanism was introduced by Sebi in 2007 and refers to the practice of negotiation while settling civil or administrative matters against wrongdoers. Based on the kind of offence, the regulator either imposes a monetary penalty or suspends or cancels the registration. It is based on the plea bargaining mechanism, also popular with the Securities and Exchange Commission of the US.
A complete overhaul of consent order guidelines has been on the radar of Sebi chairman UK Sinha ever since he assumed office in February 2011. Sinha has on occasions drawn attention to the fact that there is a lack of consistency and transparency while settling matters through the consent route. Incidentally, on April 13, Sinha had said that the new consent rules will be announced in another four weeks.