The Securities and Exchange Board of India (SEBI) on Wednesday imposed a penalty of Rs 25 lakh on the Bombay Stock Exchange. This was basically done for two main reasons – not giving all investors equal access to corporate announcements, and not acting against brokers who often changed trade details during transactions.
The capital market regulator took this decision after checking BSE’s systems during an inspection carried out between February 2021 and September 2022.
In its 45-page order, Sebi said BSE’s system gave early access to some paid clients and its internal listing team, letting them see corporate announcements before they were shared publicly on the BSE website. This broke fair disclosure rules.
“I find that the system architecture of BSE did not ensure equal, unrestricted, transparent, and fair access to information/data with regard to corporate announcements of listed companies to all persons as required under regulation 39(3) of the SECC Regulations,” the SEBI adjudicating officer ruled.
What were the regulatory violations?
The investigation revealed that BSE’s load balancing system distributed access through multiple databases, creating timing disparities in information availability. In 98 out of 100 instances examined, the LCM received data before it was replicated to other databases, while in 6 out of 100 cases, paid subscribers received information before general website users could access it.
SEBI found this arrangement violated Regulation 39(3) of the Securities Contracts (Regulation) Regulations, 2018. In addition to the same, BSE’s inadequate monitoring of client code modifications (CCM) was also noted. The market regulator also stated that the BSE did not establish a “really simple syndication (RSS) feed to mitigate the risk of unequal access to corporate disclosures.
BSE’s defense
The legal team of the BSE showed no acceptance of the defaults. They stated that the alleged violations can be remedied by corrective measures. BSE also defended the no-loss-no-gain argument following SEBI’s action. They said that, no loss was caused to the investors and no gain was made by BSE in relation to the allegations.
BSE’s counsel said the exchange has taken corrective steps, including introducing time gaps for paid subscriber data access from September 13, 2023, updating its system to prioritise public website access, and improving monitoring of error accounts.
As per SEBI, the stock exchange has violated the safeguard to ensure simultaneous and equal access to all stakeholders. It is critical to maintaining market integrity and prevent unfair information advantage.