BREAKINGVIEWS - SEBI needs to get tougher

MUMBAI Fri May 25, 2012 3:45pm IST

A broker looks at computer screens at a stock brokerage firm in Mumbai May 10, 2010. REUTERS/Arko Datta/Files

A broker looks at computer screens at a stock brokerage firm in Mumbai May 10, 2010.

Credit: Reuters/Arko Datta/Files

Related Topics

We can be heroes

We can be heroes

Walking among us are superheroes, ready to appear anywhere they're needed, whether it's for voting, promoting or protesting.  Slideshow 

MUMBAI (Reuters Breakingviews) - India's market regulator SEBI may remove the option to settle serious cases like insider trading without admitting guilt. That could lead to even less enforcement from the Securities and Exchange Board of India (SEBI) than at present. But if it hardens SEBI's resolve to land a high-profile conviction, such self-denying ordnance may be worth it.

The Indian consent order process is modelled on the U.S. system although in SEBI's case settlements have become the norm. SEBI has only been around since 1992. Yet the lack of any major conviction in two decades weakens its credibility. Perhaps that's why it wants to close off the settlement route for more severe transgressions. The regulator is to announce the changes within weeks, according to the Financial Express.

Settlements are generally a good thing. They allow quick and pragmatic decisions to be taken without the expense and risk of a legal process. The fines involved can be pretty big - take the record $10 million settlement secured in January 2011 with the tycoon Anil Ambani's Reliance Group. But the ability to settle leaves the regulator vulnerable to political pressure to do so. The financial element also potentially distorts decision making.

Problems with the consent process have to be weighed against the alternatives. The legal system in India is notoriously snail paced and open to corruption. On the other side of the ledger, it has the advantage of transparency. The evidence presented, the reasoning and the decision are all open to scrutiny. Consent orders are dealt with behind closed doors.

Cutting off the settlement avenue for big offences could in the short term see even less punishment meted out given the hurdles to securing a successful prosecution. SEBI risks getting mired in a string of litigation which ultimately proves unsuccessful.

But as things stand, settlements risk being seen as a no more than cost of doing business. Just one landmark conviction for SEBI would resonate and have a lasting deterrent effect. Reform is worth a try.

Context news

- The Securities and Exchange Board of India (SEBI) is reviewing its guidelines for consent orders and may announce that insider trading cases will be outside the scope of the revised process, the Financial Express reported on May 25, citing a highly placed SEBI official.

- SEBI declined to comment on the report.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

(Editing by Chris Hughes and David Evans)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Markets

REUTERS SHOWCASE

Banned From Bidding

Banned From Bidding

India bans Finmeccanica from bidding for contracts amid graft case.  Full Article 

Sugar Talk

Sugar Talk

Sugar export rebound at risk from rising domestic prices.  Full Article 

GDP Preview

GDP Preview

Economy likely grew faster in June quarter: Reuters poll.  Full Article 

New Ordeal

New Ordeal

After disasters, stricken Malaysia Airlines staff brace for job cuts.  Full Article 

Deal Talk

Deal Talk

Kleiner to invest in messaging startup Snapchat at near-$10 bln valuation - report.  Full Article 

Expert Zone

Expert Zone

Column - Why inflation is so persistent.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage