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TK Viswanathan Committee on Fair Market Conduct

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August 16, 2018

What is the issue?

  • The SEBI-appointed TK Viswanathan committee on fair market conduct recently released its report.
  • Granting more powers to Securities and Exchange Board of India (SEBI) has given way to many concerns.

What was the committee on?

  • The regulation of securities markets has evolved, since the setting up of the SEBI.
  • However it is still a work in progress as mischievous practices continue to exist.
  • The committee was aimed at addressing the illegal practices and ensuring fair conduct among investors.

What are the key recommendations?

  • Malpractices - The committee said Benami trading should also be deemed fraudulent if it leads to manipulation.
  • Also, SEBI may consider any trading by players beyond their known ‘financial resources’ as fraud.
  • The committee has suggested changes to existing regulations to better prosecute malpractices as these.
  • It said the scope of regulations on fraud should not just cover intermediaries.
  • It should also cover employees and agents of these intermediaries who often escape after indulging in fraudulent activity.
  • It is also suggested that SEBI be given the power to grant immunity to whistle-blowers who help uncover illegal activities.
  • Insider trading - It is a practice wherein investment decisions are made by having access to otherwise non public information.
  • Among a number of recommendations on insider trading, is the creation of two separate codes of conduct.
  • One would set minimum standards on dealing with insider information by listed companies.
  • The other would set standards for market intermediaries and others who are handling price-sensitive information.
  • Information - Companies should maintain details of
  1. immediate relatives of designated persons who might deal with sensitive information
  2. people with whom the designated person might share a material financial relationship or who share the same address for a year
  • Such information may be maintained by the company in a searchable electronic format.
  • It may also be shared with the SEBI when sought on a case-to-case basis.
  • Calls - Currently, SEBI has the power to only ask for call records including numbers and durations.
  • The committee has recommended direct power for SEBI to tap telephones and other electronic communication devices.
  • This is to check insider trading and other frauds.
  • However, proper checks and balances over this power are to be ensured by necessary amendment in the relevant laws.
  • Front entities - Front entities are that which lent their names or trading accounts to others.
  • The committee has recommended the inclusion of a new sub-section within the SEBI Act, 1992 in this regard.
  • This would specifically prohibit devices, schemes or artifices employed for manipulating the books of accounts or financial statements of a listed company.

What are the benefits?

  • A strong regulator serves as a good deterrent to fraudulent practices in the market.
  • Greater executive powers can help the regulator take swifter action against offenders.
  • They do not, instead, have to rely on government bodies such as the Ministry of Corporate Affairs.
  • This could also free SEBI from various manifestations of political influence.
  • As SEBI can better understand the complex nuances that financial market fraud entails, it may be better placed to enforce the law.

What are the contentions?

  • Calls - Powers such as tapping phone calls are already vested in the police and investigating agencies. E.g. CBI
  • So it might be extreme and tyrannical if extended to financial regulators as well.
  • This gains significance in the backdrop of the increasing importance for privacy in recent times.
  • Frauds - SEBI is set to be granted the power to act directly against “perpetrators of financial statements fraud”.
  • In essence, this means SEBI can act not only against listed entities under its extant powers.
  • Rather, it could also act against those who aid or abet financial fraud, including the accountants and auditors.
  • Too much of deterrence could possibly discourage and drive away the genuine investors.


Source: Business Standard, The Hindu

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