SEBI Board’s Code on Conflict of Interest

SEBI Board’s Code on Conflict of Interest

Sub: Eco

Sec: Capital Market

• Background:
  • Hindenburg Research accused SEBI Chairperson Madhabi Puri Buch of having a stake in offshore entities linked to the Adani money siphoning scandal.
  • Buch and her husband clarified that the investment was made before her tenure at SEBI, and all necessary disclosures were followed.
• Definition of Conflict of Interest:
  • Conflict of Interest refers to any personal interest or association of a board member that could influence the Board’s decision on a matter, as perceived by an independent third party.
• Key Areas Requiring Disclosure:
  • Transactions in Shares:
    • Board members must disclose their and their family’s (spouse, dependent children under 18) shareholdings within 15 days of assuming office.
    • Updates are required annually within 15 days after the fiscal year ends.
    • Substantial transactions (over 5,000 shares or ₹1 lakh in value) must be disclosed within 15 days of the transaction.
    • Members are prohibited from dealing in shares based on unpublished price-sensitive information.
  • Outside Private Activities:
    • Members are not allowed to hold any other office of profit or engage in professional activities that result in financial gain.
  • Acceptance of Gifts:
    • Members cannot accept gifts from regulated entities, except small tokens valued under ₹1,000.
    • Any gift over this amount must be handed over to SEBI’s General Services Department.
  • Miscellaneous Situations:
    • Members must disclose any post, employment, or fiduciary positions held in the last five years with a regulated entity.
    • Disclosures are also required for any significant personal or financial relationships with a regulated entity and any honorary positions held.
  • Procedure for Managing Conflict of Interest:
    • Disclosures:
      • Members are required to disclose conflicts of interest at the earliest possible opportunity.
      • If uncertain, members must seek determination from the Chairperson. If the Chairperson has doubts about their own conflict of interest, they must seek the Board’s determination.
  • Recusals:
    • If a conflict of interest is confirmed, the member must refrain from participating in the matter.
    • No exceptions: Members are strictly prohibited from hearing or deciding on matters where they have a conflict of interest.
  • Public Disclosure:
    • Confidentiality:
      • Information disclosed under the Code is to be kept confidential unless required for managing conflicts, disciplinary proceedings, or by legal/regulatory obligations.
      • The public can submit evidence to the Board Secretary if they suspect a conflict of interest involving a board member.

The framework ensures that SEBI operates with integrity and transparency, maintaining public confidence in its decisions.

Securities and Exchange Board of India Act, 1992

The Securities and Exchange Board of India Act, 1992 is a significant piece of legislation that established the Securities and Exchange Board of India (SEBI) as the regulatory authority for the securities market in India.

 The Act was enacted by the Parliament of India and came into force on April 30, 1992. It provides SEBI with statutory powers to regulate and oversee various aspects of the securities market. Not only this, the Act protects the interests of investors and promotes the development and integrity of the securities market.

Role of SEBI in the Indian Financial Market

Here are a few of the key roles and functions of SEBI:

• Regulatory Functions: SEBI is tasked with regulating and supervising various segments of the securities market, including stock exchanges, stockbrokers, depository participants, mutual funds, portfolio managers, investment advisers, credit rating agencies, and other market intermediaries. The Act empowers SEBI to formulate regulations, issue guidelines, and prescribe codes of conduct to govern the conduct of market participants.
• Investor Protection: The Act aims to protect the interests of investors by requiring issuers of securities to make accurate and timely disclosures, promoting transparency and fairness in the securities market, and prohibiting fraudulent and unfair trade practices. SEBI is authorized to take measures to prevent market manipulation, insider trading, and other market abuses.
• Enforcement Powers: SEBI is vested with enforcement powers to investigate violations of securities laws and regulations, conduct inquiries and inspections, impose penalties and sanctions on offenders, and initiate legal proceedings against individuals and entities found guilty of market misconduct.
• Market Development: The Act empowers SEBI to promote the development and expansion of the securities market in India by introducing new products and services, facilitating capital formation, encouraging innovation and technological advancements, and attracting domestic and foreign investments.
• Appeals and Adjudication: The Act provides for the establishment of the Securities Appellate Tribunal (SAT) as an appellate authority to hear appeals against SEBI’s orders and decisions. SAT has the power to adjudicate disputes related to securities laws and regulations.
• Investor Education and Awareness: SEBI undertakes initiatives to educate investors about the risks and opportunities associated with investing in the securities market. It conducts investor awareness programs, disseminates investor education materials, and provides guidance on prudent investment practices, risk management, and regulatory compliance. SEBI aims to empower investors with knowledge and skills to make informed investment decisions and protect themselves from fraud and misconduct.