Mumbai, Dec. 24: The Securities and Exchange Board of India (Sebi) today decided to keep out serious offences such as insider trading or front-running from the purview of the consent mechanism even as it armed itself with search and seizure powers and more teeth to regulate money-pooling schemes.
At a meeting held today, the Sebi board approved the Sebi (Settlement of Administrative and Civil Proceedings) Regulations, 2013. According to the norms, offences such as insider trading cannot be settled by the consent mechanism.
Consent mechanism is a procedure wherein the market regulator settles charges against a particular party without admission or denial of guilt. This is against a penalty or a market ban. Apart from insider trading, other offences where consent mechanism will not be applicable include front-running and the failure to make an open offer in accordance with the provisions of the Sebi act.
Front-running is the use of non-public information to directly or indirectly, buy or sell securities or enter into options or futures contracts, in advance of a substantial order.
Sebi’s decision on consent mechanism comes at a time the Securities Appellate Tribunal (SAT) is hearing a matter between the market regulator and Reliance Industries Ltd over an alleged insider trading probe, which Sebi has declined to settle through the consent route.
The market regulator got more powers following the promulgation of The Securities Laws (Amendment) Second Ordinance 2013. It can now regulate money pooling schemes under any arrangement involving a corpus amount of Rs 100 crore or more as they can now be deemed to be a collective investment scheme (CIS) activity.
At the meeting today, a proposal to amend Sebi’s CIS norms was approved to provide for a framework for the regulation of all activities deemed to be CIS schemes. Moreover, additional requirements for continuous compliance by registered CIS entities were also okayed by the board.
The ordinance also confers direct powers to the Sebi chairman to authorise an investigating authority or any other officer of Sebi to search premises where incriminating documents are lying and seize such documents. It also empowered the regulator to make regulations for executing the search operations and to ensure safe custody of any books of account or other documents that are seized.
In this regard, the board approved Sebi (Procedure for Search and Seizure) Regulations, 2013, which is on the lines of the provisions on the income tax act and provides detailed procedures for such operations by the regulator.
The board also decided to enhance the list of entities that can come out with a shelf prospectus ahead of the issue of non-convertible debt securities.
At present, only banks and financial institutions can come out with such a prospectus (they do not have to file prospectus at every stage of offer of securities).
The market regulator said that public financial institutions, banks, infrastructure debt funds and non-banking finance companies could come out with shelf prospectus, provided they met certain conditions. Sebi also dispensed with the rule where companies coming out with IPO were made to compulsorily seek grading of their issues. This is now voluntary.