The journey that started almost 29 years ago with the prime objective of investor protection and development and regulation of securities market here, Indian securities market and SEBI have grown from year to year, and this market experienced a drastic shift from merit based regulatory system to market oriented based disclosures regime.
In this timeline, SEBI has tried to incorporate various global and internationally acclaimed principles within its regulation which has constantly enhanced the efficiency and integrity in securities market here and catapulted it into a global platform.
A) Types of Unfair Offences where SEBI took the charge in its own hand:
- Scalping: A trading which specializes in taking profits on small price changes soon after a trade has been entered into and has become profitable. E.g. Harshad Mehta scam.
- Puffing Advertisements / Rumour Fraud: The best e.g. of Surana Solar Ltd., wherein a person through an already established name, here ‘Rakesh Jhunjhunwala’, created frenzy in the market, by purchasing chunk of the company’s shares in Rakesh’s name, also called ‘The Badshah of Dalal Street’, and because of which after price reached high, he dumped the stock and take back profits.
- Front Running: An unethical practice wherein a broker having an advanced knowledge of pending orders trades through his personal account, thereby stepping ahead of orders yet to be placed.
- Circular Trading: A fraudulent practice wherein a broker enters into sell order knowing that by offsetting buy orders, the same number of shares at same price will be or have been entered. E.g. Ketan Parekh Scam.
- Churning and Burning: A practice wherein brokers increase their commission by performing large number of trades through his client’s name.
- Pump and Dump: Attempting to increase share price through recommendations based on false and misleading statements.[1]
- Ponzi Schemes: Working through enregistered CIS. E.g. Sahara, Sharda Chit Fund scam, etc.
B) Regulatory provisions for investigating Insider Trading and Market Abuse:
SEBI expressly prohibits an ‘Insider’ from dealing in securities market either directly or indirectly, when having with him ‘UPSI’. SEBI (Prohibition of Insider Trading) Regulations of 1992 have been enacted under Sec.30 of 1992 Act and are intended to curb insider trading in securities. And Share Dealing Code is an addition to it which restricts the directors and other employees of a company from dealing in their securities on basis of UPSI available to them because of their respective position.
Similarly SEBI also enacted PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) Regulations and SAST (Substantial Acquisition of Shares and Takeovers) Regulations in place.
SEBI has the power of a civil court for examination of documents or witnesses, and apart from this it can also, either during or after the investigation/ inquiry, in the interest of investors can:
1. Suspend the trading in a security on recognized stock exchange.
2. Restrict any person from dealing in securities market.
3. Suspend any office bearer of a recognized stock exchange or an organization from holding such position.
4. Direct any intermediary or any person associated with securities market to not to dispose of such assets forming part of a transaction which is under investigation.
5. Appoint one or more officers to inspect the books of accounts of Insider or his associates.
6. Can also appoint a qualified auditor for detailed investigation of books of that insider, and many such powers.[2]
Insiders who violates such regulations are liable upto Rs. 25 Cr or 3 times the amount of profit gained, whichever is higher.[3] No doubt that SEBI since its inception have been taking the cases seriously and has involved in active adjudicatory proceedings and its related mechanism for levying monetary penalty and sending the concerned behind bars, but when it especially comes to investigation and inspection part, what more is further expected from this watchdog is to increase risk awareness and improve its risk assessment, and go for re-defining the monetary penalties to make this framework more effective.
[1] Report Of Joint Parliamentary Committee On Stock Market Scams And Matters Relating Thereto (Lok Sabha Secretariat 2021)<https://watchoutinvestors.com/JPC_REPORT.PDF>
[2] SEBI Act 1992.
[3] Ibid
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