The Securities and Exchange Board of India (Sebi) on Wednesday directed Axis Bank to conduct an internal inquiry into the leakage of unpublished price-sensitive information (UPSI) relating to its financial results and to take appropriate action against those responsible for it, including probing the roles of all who were members of any committees involved and anyone who had access to the information. The regulator asked Axis Bank to further strengthen its systems to ensure that such instances of leakage of UPSI do not recur. Sebi said that the inquiry must be completed in three months, and Axis Bank must file a report within seven days of completion.
The directive seems to be the first of several such actions that might be initiated by the market regulator against companies whose price-sensitive information was found to have been circulated on social media before their official declaration. It also raises a bigger question on selective flow of sensitive information and insider trading.
Sebi’s action comes after news reports referred to the circulation of UPSI of certain companies in various private WhatsApp groups ahead of their official announcements and filings with the respective stock exchanges. During a preliminary examination by Sebi, it was observed that in the case of Axis Bank, the messages circulated almost matched with the quarterly financial results for June 2017, which were published subsequently.
The actual results were intimated to the stock exchanges on July 25, 2017 at 4.23 pm. However, according to media reports, the messages with the details were in circulation since the morning of July 25, 2017. It was noted that the figures in WhatsApp groups about Axis Bank were either matching in totality or were close to the actual announcements, except the figures for “slippage”.
The Sebi order said information was sought from Axis Bank with regard to the circulation of its results for the quarter ended June 2017 in WhatsApp groups prior to its official announcement. Axis Bank was also asked to submit information regarding the processes and controls that it has in place regarding handling of UPSI. In response, Axis Bank submitted that it has ensured adherence to the applicable laws and had adopted adequate processes and controls to maintain confidentiality of price-sensitive information relating to the bank.
Axis Bank also said access or communication of such information is made on a need-to-know basis. It also provided particulars of the processes in that regard. The regulator said Axis Bank also provided the chronology of events relating to preparation and finalisation of its June 2017 financials. It submitted that the process for generation of data started from July 1, 2017, and the financial results were formally disclosed on July 25, 2017.
“Such leakage is prima facie attributable to the inadequacy of the processes/controls/systems that Axis Bank as a listed company had put in place. While procurement or communication of UPSI by any person is identified as a violation of regulation 3 of PIT Regulations and section 12A(e) of the Sebi Act, it becomes incumbent upon every listed company to put in place processes/ controls/systems that would ensure that such procurement or communication of UPSI does not take place,” Sebi said in its order.