SEBI (SETTLEMENT OF ADMINISTRATIVE AND CIVIL PROCEEDINGS) REGULATIONS, 2013

GAURAV SHARMA

4112009009
Source:- Mint, 15th Oct. 2013

INTRODUCTION
SEBI on Monday proposed tighter norms Related to insider trading and front-running in the listed space Proposed norms are somewhat similar to the existing consent mechanism rules under Sebi Put out a consultative paper on the proposed set of regulations to be named as Sebi (Settlement of Administrative and Civil Proceedings) Regulations, 2013 Seeking public comments till 30 October

ABBREVIATIONS USED
Insider Trading
Trading of a public company's stock or other securities by individuals with access to non-public information about the company In various countries, it is illegal It is seen as being unfair to other investors who do not have access to the information

Front Runner
Illegal practice of a stockbroker executing orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers

Ponzi Schemes
Fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation.

Open Offer
A secondary market offering in which a shareholder is given the opportunity to purchase stock at a price that is lower than the current market price.

CURRENT SETTLEMENT SCHEME

A case can be settled through many ways: A certain settlement amount Appropriate directions Voluntary suspension of registration certificate Closure of business A combination of settlement amount and other such actions

An entity can settle cases of alleged defaults with Sebi By paying a certain amount The consent order disposes of the case against the entity without admission or denial of guilt. Consent orders do not carry the details of defaults and Sebis investigations Settlement orders will do so.

PROPOSED SCHEME
Under settlement, Sebi will not accept requests for settling any proceeding that involves: Alleged commission of insider trading Serious fraud and unfair trade practices such as front running Failure to make an open offer Defaults or manipulative practices by mutual funds among others Illegal money raising activities

Also proposed to make public details of every case

Will not apply to cases whose proceedings are pending before the tribunal or any court

NEW MECHANISM
Any person against whom any proceeding has been or is likely to be initiated may file an application for settlement within 60 days from the date of service of show-cause notice by the market regulator If the alleged default involves insider trading or misuse of unpublished pricesensitive information, a settlement application cannot be filed The regulator will also not allow settlement if the alleged violations involve fraudulent and unfair trade practices such as front running that may have caused substantial losses for investors, especially the retail ones Regulator can dispose of the case if the entity intends to make good the losses to investors Alleged manipulations by mutual funds which may have caused substantial losses to its unitholders also cannot go for settlement An entity can't seek settlement of any proceedings if the alleged default has been committed within two years of an earlier settlement involving them

ANALYSIS & CONCLUSION

These laws are consistent with international best practices This will help in reducing the cases of fraud, insider trading & defaults This will also draw a clear line between consent cases and settlement cases

This assumes significance in the backdrop of a recent ruling by the Securities Appellate Tribunal (SAT)
Transparency will improve This will increase the faith of retail investors in the market