New Delhi, Oct. 28: The Cabinet today cleared an Ordinance giving wide-ranging stock market policing and penal powers to Securities and Exchange Board of India (Sebi). These include the authority to slap penalties on rogue traders that could go up to as much as three times the defalcation amount.
Explaining the significance of this penal power, a government spokesperson said if a broker, banker or company is found guilty of committing market irregularities to the tune of Rs 1,000 crore, the accused is liable to be fined Rs 3,000 crore.
The tough penal deterrent is expected to check a repeat of the stock market scam of February 2000 as well as other scams like the Madhavpura Co-operative bank scam. Earlier, the maximum fine that could be imposed by Sebi was Rs 5 lakh.
Briefing reporters here today, finance secretary S. Narayan said: “The recent expositions of Sebi have shown the limitations of the Sebi Act,” he said, adding all sums realised through penalties and fines by Sebi would go to the Consolidated Fund of India.
Narayan said government would come up with the new guidelines and notifications within 60 days of promulgation of the Ordinance. The decree will also redefine offences like insider trading, fraudulent and manipulating trade practices and market manipulation.
The official said the Ordinance to the Sebi Act of 1992 is the latest in a series of steps by the government to make the market safer for investors and to attract back small investors to bourses.
The official said the Ordinance will also allow Sebi to carry out investigations, searches and seizures though in a limited manner as well as to pass orders in the same way as the Department of Company Affairs does. “The search and seizures can be undertaken by Sebi only after getting an order from a magistrate,” Narayan said.
The judicial mechanisms surrounding the enforcement process will be made stronger. As part of its efforts to ensure a safer capital market, Sebi recently barred some tainted stock-brokerages from trading. Among them are the high profile KSC Securities, Credit Suisse First Boston and the First Global Group.
The Ordinance, in line with the Justice Dhanuka report, will also allow Sebi to expand its team to nine members from the current six. Of these, three will be whole-time members, besides the chairman.
The decree also sets up a three-member Securities Appelate Tribunal (SAT). Its presiding officer either be a servicing or retired judge of the Supreme court or a serving or retired chief justice of a high court, to be appointed in consultation with the Chief Justice of India. The official said the Ordinance will empower SAT and courts to compound offences. He also said appeals against SAT orders will go to the Supreme Court on points of law.