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Sebi bars trading by bourse office bearers; formulates code of ethics

Value Research/Aabhas Pandya

The Securities and Exchange Board of India announced in New Delhi on Thursday that it was barring proprietary trading by all stock exchange presidents, vice-presidents and treasurers in an effort to boost confidence in domestic markets.

A code of ethics has been put in place wherein the office-bearers of a stock exchange become more liable. The president, vice-president and treasurer of an exchange will not be allowed to indulge in proprietary trading.

Other broker directors will have to disclose their proprietary trades to the Ethics Committee of the stock exchange governing board that will be formed.

However, it is still not clear whether the broker directors' firms will be allowed to trade. A top-ranking official of Sebi, when quizzed, was evasive and said, "One will have to go through the fine print.''

In Automated Lending and Borrowing Mechanism (ALBM) of the NSE and in the Borrowing and Lending of Securities System (BLESS) system of the BSE, the securities that are lent will have to be deposited with the clearing house and cannot be sold or substituted during the same settlement.

In another development, Sebi has directed stock exchanges to comply with the requirement of introducing gross margining on the basis of data available from the trading systems and not on self-certification basis by March 31, 2001.

The meeting, chaired by Sebi chairman D R Mehta, took stock of the market situation and discuss ways of implementing steps announced by Finance Minister Yashwant Sinha, including corporatisation of bourses.

On the issue of corporatisation of stock exchanges, Mehta said the Parliament will have to amend the SECA Act or bring a new legislation. He confessed that Sebi was understaffed and the manpower will soon be spruced for better vigilance of the markets.

Mehta had come under sharp attack for Sebi's failure to check insider trading in the market that is believed to have brought down the Sensex thrice by over 170 points after the Budget presentation.

There were demands for Mehta's resignation from certain quarters but Sinha on Tuesday gave a clean chit to the Sebi chairman saying his integrity was unquestionable and the regulator had acted swiftly to deal with the situation.

Mehta assured that there was no problem regarding payment and Trade Guarantee Fund at the Calcutta bourse. He also stated that there was prima facie evidence against certain brokers regarding price rigging in Global Trust Bank scrip and a detailed investigation was on.

Sebi also announced that initial public offer forms will be available in newspapers and on the Internet due to investor complaints of non-availability of forms.

Some other steps include allowing companies to issue debt securities to the public without listing equity. So far, only infrastructure companies and municipal corporations were allowed this facility. However, the debt issue should be investment grade and if the size is in excess of Rs 1 billion, the security should carry ratings from two credit rating agencies. The issuers have been allowed a 20 per cent band on coupon rate/pricing at the time of filing of offer document with the facility for book-building.

In a step to make Sebi-regulated intermediaries more accountable, the market regulator has decided that any advice on a particular security or investment proposal will have to be accompanied by a disclosure of the entity's interest in that security. The advisor will also have to disclose his employer firm or his dependent family member's interest (including long and short position) in that security.

The compliance officer of such a firm will be responsible in maintaining this information.

The board has also approved a simplified format for half-yearly disclosure of unaudited results by mutual funds. This includes unit capital, performance in terms of dividend and change in net asset value during the six months, reserves, percentage of management fee and recurring expenses to net assets, investments and payments made to associate companies and details of large holdings. This information should be made public within one-month of the close of each half year. Sebi has also reduced the time frame for despatch of dividend warrants from the current 42 days to 30 days. Further, the directors of asset management companies are now required to file the details of their transactions in securities on a quarterly basis.

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