SEBI To Put in Place Mechanism To Prevent Frauds and Market Abuse by Stock Brokers; Asks Top-100 Companies To Confirm or Deny Market Rumours
Moneylife Digital Team 29 March 2023
Market regulator Securities and Exchange Board of India (SEBI) decided to put in place a framework to prevent fraud and market abuse by stock brokers. The SEBI board, at its meeting in Mumbai, also asked the top-100 listed companies to confirm or deny market rumours that impact share prices. SEBI also asked listed companies to fill the vacancy of directors, compliance officers, chief executive officers and chief financial officer within three months from the date of such vacancy to ensure that such critical positions are not kept vacant.
To facilitate more comprehensive and timely disclosure, the SEBI board approved amendments to listing obligations and disclosure requirements (LODR) regulations. It includes disclosure of material events or information by listed entities, mandatory disclosure of certain types of agreements and introduction of a quantitative threshold for determining the 'materiality' of events or information.
"Stricter timeline for disclosure of material events or information for which decision has been taken in the meeting of the board of directors, within 30 minutes, and which are emanating from within the listed entity within 12 hours. Market rumours to be verified and confirmed, denied or clarified, as the case may be, by top 100 listed entities by market capitalisation effective from 1 October 2023 and by top 250 listed entities from 1 April 2024," the market regulator says.
To mitigate credit risk on intermediaries and the risk of potential misuse of clients' funds, the market regulator approved a proposal to introduce a regulatory framework on the upstreaming of clients' funds by stock brokers (SBs) and clearing members (CMs) to clearing corporations (CCs). 
"Under the approved framework, clients' funds shall be upstreamed by SB and non-bank CMs to CCs on end of day (EOD) basis, so as to ensure that clients' funds are not retained by SBs and non-bank CMs. The funds shall be upstreamed only in the form of cash, the lien on fixed deposit receipts-FDRs, subject to certain conditions, or the pledge of units of mutual fund overnight schemes (MFOS). 
"The framework will not apply to bank-CMs, including bank custodians, and to proprietary funds of SBs or CMs in any segment. The framework is proposed to be implemented with a glide path comprising two phases. The first phase of the framework is expected to be implemented from 1 July 2023," SEBI says.
In its meeting, the board decided to amend stock brokers' regulations to institute a formal mechanism for preventing and detecting fraud or market abuse by stock brokers. It includes systems for surveillance of trading activities and internal controls, obligations of the stock broker and its employees, escalation and reporting mechanisms and whistle-blower policy. These approved amendments will come into effect from 1 October 2023.
To strengthen its investor grievance redressal mechanism, SEBI decided to amend regulations to operationalise online dispute resolution (ODR) mechanism for investors across registered intermediaries and regulated entities. The ODR mechanism includes extending the market infrastructure institutions (MIIs) administered conciliation and arbitration mechanism to registered intermediaries or regulated entities and their investors and clients.
It also includes conducting proceedings in a hybrid mode, expanding the capacity of the MII-administered conciliation and arbitration mechanism with the aid of ODR institutions, and streamlining the dispute resolution process and adoption of other measures to strengthen the enforcement of awards.
To provide clarity on the roles and responsibilities of trustees and board of asset management companies (AMCs) of mutual funds, the board approved amendments to SEBI (Mutual Funds) Regulations. The amendment provided for the identification of specific areas as the core responsibilities of trustees which would require an independent evaluation and due diligence by the trustees. 
"Areas of potential conflict of interest between the shareholders of the AMC and unitholders of its schemes were highlighted. The aforesaid amendment shall also explicitly make the board of AMC responsible for protecting unitholders' interests, in addition to AMC stakeholders' interests and will provide for the constitution of a unitholder protection committee by the board of the AMC with a focus on unitholders' protection," SEBI says.
The board approved amendments to SEBI (Mutual Funds) Regulations under which, while strengthening the existing eligibility criteria for sponsors, introduced an alternative route to enable diverse entities to become sponsors of MFs. 
SEBI says, "Such entities, who otherwise may not have been eligible to be sponsors, include private equity funds, with requisite safeguards in the proposal. The amendments also allow 'self-sponsored AMCs' to continue the mutual fund business, subject to the said AMCs fulfilling certain criteria. This would give the original sponsor flexibility to voluntarily disassociate itself from the MF without needing to induct a new and eligible sponsor."
The board also approved the broad framework for application supported by blocked amount (ASBA) like facility being made available to investors for secondary market trading. The facility is based on blocking funds for trading in the secondary market through unified payment interface (UPI). However, it will be optional for investors as well as stock brokers.
SEBI decided to extend to a contiguous block of three years the period of compliance for large corporates to meet their financing needs from debt markets through the issuance of debt securities to the extent of 25% of their incremental borrowings in a contiguous block of two financial years.
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