In the wake of a spurt in allegations of fraudulent behaviour by India Inc, capital market regulator Sebi, gave a stern warning to corporates to be on the “right side” and not indulge in market manipulation and insider trading. “Some corporates, who ideally should not have fallen into this category or this trap, we are discovering that due to lack of focus this (illegal activity) is happening…I’d like corporates in India to be on the right side of Sebi,” its new Chairman, U K Sinha, said during an address to the members of industry body, Assocham, here.

Corporates should definitely access the markets to grow, but should not come to the “adverse” notice of Sebi. “What I mean is in matters like market manipulation, insider trading,” he clarified, insisting that Sebi is more interested in fulfilling its mandated job of developing the market rather than playing the role of a vigilant watchdog. Asking for extra caution by corporates in their

internal systems, Sinha said promoters and top management “are not able to safeguard themselves against certain things which might be happening without their knowledge or without their support.”

Sinha said discovery of documentary evidence and analysis done by Sebi recently prompted these remarks while speaking before representatives of India Inc, his first such interaction since taking over in February this year.

Sebi is currently in the midst of setting-up a world-class facility having the best of surveillance capabilities, Sinha said, adding that more than half of the work on it is complete and the entire facility will be operational in six months.

“It will be possible for us to find a good trail,” he said.

Speaking about the accounting and audit fraternity, he new Sebi chief said the regulator would take action if it finds any “collusion” between the audit firms and corporates and asked the latter to adhere to the highest standards of financial reporting.

“Besides concentrating on your vision and business growth, also devote some time on issues of internal controls within your system and things like financial reporting,” Sinha said.

The Sebi chief’s comments come close on the heels of a string of allegations of insider trading, market manipulation and misuse of borrowed funds coming to Sebi’s notice wherein the corporates concerned have walked out by paying hefty “consent fees”, choosing not to challenge the allegations.

Expressing reservations over on corporate governance, the Sebi chief said generally , it is limited to issues like independent directors making it very “cosmetic” in nature.

On the takeover code, Sinha said consultations are currently on at various levels and said he expects the final guidelines to come out in a “couple of months”.

Coming out in support of pension money being invested in the equity markets, Sinha said a working group’s recommendation of allowing trusts to invest up to 15 per cent is yet to be notified and added that Sebi has taken it up with the Government at the “appropriate level”.

Sebi will focus towards deepening the markets going forward, Sinha said, pointing out to certain concerns like low participation of domestic institutions, skewed geographical growth and failure to attract pension funds to the market.

Batting for retail investors, Sinha said current know your customer (KYC) requirements are not harmonious for investors and the contracts they enter into while purchasing shares also need a “major overhaul”. A working group has been constituted to remove “bottlenecks and discrepancies”, he said.

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February 2024