SEBI mulls new rules to curb ‘conflict of interest’ in market

‘Conflict of interest’ has emerged as a major area of concern for regulators across the world, including in India, and the new rules would look at removing the loopholes that allow irregularities like insider trading, front-running and misaligned employee incentives

New Delhi: The Securities and Exchange Board of India (SEBI) is considering a new set of norms to check ‘conflict of interests’ in the stock market, as it looks to rein in any nexus amongst the corporates, research analysts, investment advisors, and various market entities, reports PTI.

The new rules would also look at discouraging misaligned employee incentives—a practice prevalent among the capital market entities for rewarding their staff purely on the basis of business generated by them and irrespective of the interest of customers or investors being safeguarded.

SEBI is framing these rules in accordance with a new set of initiatives proposed by the International Organisation of Securities Commissions (IOSCO) to safeguard the markets across the world from any irregularities.

IOSCO, a global cooperative of market regulatory agencies from across the world, including India, has called for effective steps by the regulators against conflict of interest and misalignment of incentives in securities market.

The new rules, to be called “Guidelines For Dealing With Conflicts of Interest in Securities Market”, would apply to all the entities present in the Indian capital market, directly or indirectly, as also their employees.

These would include all participants in Indian securities market, associated persons, investment vehicles, collective pools of capital, institutional investors and stock exchanges.

An official said that ‘conflict of interest’ has emerged as a major area of concern for regulators across the world, including in India, and the new rules would look at removing the loopholes that allow irregularities like insider trading, front-running and misaligned employee incentives.

The aim is to check those actions of the market entities, as also of their employees, where interest of investors could be compromised to promote the business interests, he said.

Currently, SEBI has prescribed codes of conduct for market intermediaries to deal with the conflicts of interests in the market, while there are also regulations with penal provisions for insider trading and unfair practices.

But, there are no guidelines to identify and deal with conflict of interest by associated market entities such as research analysts, investment advisors and employees of market intermediaries etc, which are not registered and regulated by SEBI at present.

The market regulator is of the view that the absence of a general and comprehensive principle to deal with conflict of interests poses regulatory gaps in oversight and mitigation of possible conflicts of interest that may arise in the activities of these associated entities.

The new norms would also focus on active involvement of senior management of market participants, adoption of clear and concise policies, adequate disclosures, information barriers and effective corporate governance procedures.

At the employee level, the focus would be on remuneration to commensurate with the job functions, maintaining record of activities and specific prohibitions, among others.

As per IOSCO, the most common conflict of interests include use of non-public insider information obtained in the course of business, front-running, cherry picking (of stocks), unfair treatment among investors and unfair practices in analysis report preparation and distribution.

While framing the new rules, SEBI would also draw from the report of a working group on conflicts of interest in the Indian financial sector by RBI.

As per the report, the major sources of ‘conflict of interest’ in Indian financial sector include closely-held structure of Indian corporates, cross-holding among the companies, a dominant role of promoters in governing the companies and ‘tunnelling’ or diversion of funds between different firms within the business groups.

SEBI has previously said that conflicts of interest also arise where market participants, who are supposed to act in the interests of customers or investors, use their authority or information to instead advance their own interest.

Such motives could be achieved through bad financial advice, inappropriate margin lending, misleading disclosure and reporting, front running and front loading, among others.

“Conflicts of interest also arise in the case of stock exchanges in their dual role as self regulatory organisations (SROs) and commercial business entities,” SEBI said in a recent memorandum submitted to its board.

“... Business interest of an exchange may prompt an exchange to turn a blind eye to a broker churning their clients’ accounts as higher volumes means greater income for the exchange,” SEBI said.

While SEBI has been promoting the SRO (Self Regulatory Organisation) model for various market segments, it has found the self-regulation as such as a “glaring source of conflict of interest”.

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Dr Kalam’s ‘assurance’ on nuclear power plants draws flak

To people living in the vicinity of nuclear power plants, what matters is scientifically substantiated logic

Former bureaucrats and activists have expressed their bewilderment at former president Dr APJ Abdul Kalam’s controversial defence of nuclear power plants. Dr Kalam’s article in The Hindu has been followed by a string of letters and comments from sector experts, who have pointed out the loopholes in his reasoning.

Former finance and power secretary, EAS Sarma, in a letter to Dr Kalam asks, “When you brushed aside the safety concerns about nuclear technology as mere conjectures, did you make an effort to ask the nuclear establishment whether Nuclear Power Corporation of India (NCPIL) had ever carried out a reliable engineering study of each existing nuclear power plant to estimate the compound probability of an accident taking place as a result of a mechanical failure arising from the failure of individual components? If this has not done, can you jump to the conclusion that the probability of an accident is negligible, merely on the basis of your own appreciation of the number of accidents that have taken place during the last few decades?”

Mr Sarma, a resident of Vishakhapatnam, heads an environmentalists’ group called ‘Forum for Better Vishakha’. He has expressed his apprehensions about the upcoming Kovvada nuclear power plant near Srikakulam, which is his native place. He pointed out that though NCPIL has adopted a zoning system around nuclear power plants; and have earmarked a monitoring zone of 16km around the power plants, the residents of that area have not been told about this.

Terming Dr Kalam’s article as biased, Mr Sarma has alleged that the former president has underplayed the negative aspects of nuclear power, and has not mentioned the long-term impact of radioactivity on health. Mr Sarma also said that Dr Kalam has not considered the costs of decommissioning nuclear plants or managing toxic wastes. He further asks, “Are you aware that these costs are difficult to quantify? The cost of decommissioning Chernobyl will never be known, as it can never be decommissioned. With foreign financial help, Russians are building a sarcophagus around the contaminated Chernobyl reactors! Till date, the cost of Fukushima is not known.”

His thoughts have been echoed by a former general manager of railways at Indian Railway Service of Engineers, who says, “The public at large and the educated intelligentsia have all grave doubts about the safety of our country depending on nuclear power. After the recent disaster in Japan at Fukushima, Germany has already decided to phase out existing N-plants and stop the construction of new ones.” He has requested Dr Kalam to write another article and address the questions Mr Sarma has raised.

Former IAS officer MG Devasahayam said, “I wonder as to why the venerable Dr Kalam is on an emotional overdrive preaching for nuclear power. He compares nuclear disasters with air-crash and missile-launching snags, calls the protesters ignorant cowards and goes to Kudunkulam to proclaim that the nuclear plant is a boon to the locals.”

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COMMENTS

MUKESH

5 years ago



HOWEVER SAFE ANY NUCLEAR PLANT MAY BE, IT IS NEVER SAFE AGAINST FORCES OF NATURE, WHICH IS GOING TO CAUSE MORE HAVOC IN YEARS TO COME DUE VARIOUS IMBALANCES GLOBALLY - CLIMATE CHANGE, EARTHQUAKES, TSUNAMIS OF MUCH GREATER PROPORTIONS & DAMAGE, NOT COUNTING HUMAN MICHIEFS LIKE TERROR ATTACKS & OTHER MAN-MADE DISASTERS!

JAPANESE ARE THE MOST SAFETY CONSCIOUS, YET AGAINST FORCES OF NATURE AT FUKUSHIMA, THEY WERE HELPLESS!

IN A COUNTRY LIKE INDIA, WHERE EVEN ORDINARY ACCIDENT & SMALL DISASTERS ARE NOT MANAGED, BUT MISMANAGED, ANY NUCLEAR DISASTER, WHEN IT HAPPENS, WOULD BE THE WORST KIND IN HUMAN HISTORY AS INDIANS MAKE A JACKASS OF THEMSELVES! NONE OF THE EXPERTS' ASSURANCES MEAN A DAMNED! THIS IS NOT A COUNTRY WHERE SAFETY OR HUMAN LIVES ARE EVER VALUED AT ALL AS A MATTER OF HABIT!
DESPITE ALL THE MERITS OF NUCLEAR POWER, IT IS MOST FOOLISH TO GO FOR IT IN A COUNTRY LIKE INDIA WHERE NOBODY IS RESPONSIBLE FOR ANYTHING.

BM Hegde

5 years ago

“The liberties of a people never were, nor ever will be, secure, when the transactions of their rulers may be concealed from them.” Patrick Henry.

Clean nuclear power, coming from a conventional nuclear fission reactor, is only a myth! Of course, in the limited sense of carbon footprints, it could be clean. If one were alive to the story of nuclear disasters-man made like Hiroshima and accidental ones like Chernobyl and Fukushima recently-one would shudder to think of nuclear energy as safe and clean. Hiroshima was millions of times more sinister than the 9/11 inhuman destruction in New York City. Chernobyl is still killing people even as far away as Scotland. An estimated 4000 to 40,000 have already met their maker as per the official statistics, exiting here through the cancer door. Many more must be incubating still. Fukushima was so big a disaster which no one can size up so soon. A total of 6,00,000 pounds of plutonium and other wastes from nuclear sources are waiting to be disposed off all over the world. The owners do not even know where to dispose them off. As the half life of that stuff is around 750 years; many, many more future generations will have to suffer for our sins!

ajit

5 years ago

Please piblish Mr. E A S Sarma's letter and holistic article by Mr. Sankar Sharma as a rejoinder to Mr. Kalam. Available on http://www.dianuke.org.

Greek PM to step down in deal to save country, euro

After a closed-doors meeting between prime minister George Papandreou, opposition chief Antonis Samaras and head of state president Carolos Papoulias that lasted almost two hours, the statement was passed around to a waiting crowd of reporters from around the world that the prime minister would step down

Athens: Political leaders in Greece clinched a historic deal to form a national unity government to haul the debt-wracked country, and the Eurozone, back from the brink of disaster, reports PTI.

Prime minister George Papandreou crucially agreed to step down on Sunday, removing a key stumbling block which had held up an accord just hours before nervous financial markets reopen today with the euro in the line of fire.

“An agreement was reached to form a new government to immediately lead the country to elections after ratifying the decisions taken by the European Council,” the Greek president’s office said in a statement.

After a closed-doors meeting between Mr Papandreou, opposition chief Antonis Samaras and head of state president Carolos Papoulias that lasted almost two hours, the statement was passed around to a waiting scrum of reporters from around the world, causing a near-stampede.

“Prime minister George Papandreou has already stated that he will not lead the new government,” it added.

“Tomorrow there will be a new communication between the prime minister and the head of the opposition on the new prime minister and the new government.”

With patience in Europe and in Greece wearing thin, pressure had mounted throughout the day for an agreement that Mr Papandreou had said was needed to keep Greece in the Eurozone.

European leaders had become increasingly frustrated at the political impasse in Athens at a time when they want to press ahead with hard-won agreements reached in late October on tackling the Eurozone debt crisis.

The accord comes just ahead of a key Euro group finance ministers meeting today to discuss whether to release an eight billion euro ($11 billion) slice of bailout cash that Greek finance minister Evangelos Venizelos says is needed by 15th December to keep the country afloat.

There will likely be no let-up too in the pressure on Athens to implement stinging austerity measures in return for the cash payment, available under the first May 2010 Greek bailout package.

The new government will be tasked with implementing the terms of an October European Union (EU) bailout deal that calls for further harsh austerity measures on Greece, already at breaking point due to a shrinking economy and rapidly rising unemployment.

Greek media earlier tipped finance minister Mr Venizelos to take over from Mr Papandreou as the talks got bogged down for almost two days in a dangerous game of brinkmanship, with Samaras insisting on immediate elections, which Mr Papandreou resisted as too risky.
The damaging political stalemate threatened to see the country run out of cash within weeks after European leaders secured their hard-won overall Eurozone debt crisis accord at a summit late last month.

Greek business and church leaders piled the pressure on politicians to agree a national unity government as quickly as possible, saying the country’s future was at stake.

“The future of all of us for the next decade is being decided right now,” the Greek federation of enterprises said in a statement yesterday.

“The more the uncertainty lasts, the more the country is literally hanging by a thread,” the group said, calling for a “bold compromise of political maturity and national responsibility.”

Meanwhile, Constantinos Michalos, head of the Athens Chamber of Commerce, said the stalemate needed to be broken by yesterday, warning otherwise of dire consequences when the financial markets open again today.

“A solution is required immediately otherwise the country risks finding itself out of the Eurozone tomorrow,” said Mr Michalos.

Mr Papandreou set the ball rolling on Monday with a shock announcement that Greece would hold a referendum on the terms of its October bailout deal which calls for further fierce austerity measures.

The move stunned fellow European leaders, sent global markets into a tailspin and earned the Greek prime minister a humiliating dressing-down by the France and Germany on Wednesday ahead of a G20 meeting.

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