Why Sebi’s new rules are causing concern

Author: Ashley Lee | Published: 29 Nov 2012
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Although the Securities and Exchange Board of India’s (Sebi’s) enforcement regime has previously been criticised for a lack of activity, its new standards have counsel concerned.

Sebi’s switch to a more scientific standard is much less flexible and has left counsel with fewer options.

But the changes may be due to India’s market structure.

Cyril Shroff, managing partner of Amarchand Mangaldas, said that if issues were found in a prospectus in the US, the issuer would be sued for millions of dollars. But that system isn’t present in India.

“Instead, Indian regulators are more prescriptive and descriptive to compensate for lack of the system,” said Shroff, speaking at IFLR’s India Capital Markets Forum.

The new system’s short confession window of only sixty days is especially difficult within a large company’s structure in which it may take longer to make decisions.

The scientific method by which penalties are set is also an issue, particularly since there are no mechanisms for overrides.

US jurisprudence

jurisprudence for recent enforcement actions has also been unclear. Market participants observed that Sebi has turned to US case-law on insider trading cases.

But they also noted that US criminal processes may not be aligned with those in India. “It’s a massive jump, and will be tough for Sebi to defend in India’s courts,” said one source.

But panelists approved of Sebi’s more robust enforcement activity. Kotak Mahindra’s Ajay Vaidya said, “Sebi’s enforcement regime has gone up significantly, and I welcome the change.”

See also

‘Why Sebi’s primary markets reforms disappoint’ http://www.iflr.com/Article/3082391/Why-Sebis-primary-market-reforms-disappoint.html

‘India’s balance of PE regulation and investor friendliness’ http://www.iflr.com/Article/3096549/Search/Results/Indias-balance-of-PE-regulation-and-investor-friendliness.html

‘How India flash crash could affect algos’

http://www.iflr.com/Article/3103609/Search/Results/How-India-flash-crash-could-affect-algos.html