(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By Jeff Glekin
MUMBAI, May 25 (Reuters Breakingviews) - India's market
regulator 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
than at present. But if it hardens SEBI's resolve to land a
high-profile conviction, such self-denying ordnance may be worth
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
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.
- 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.
- For previous columns by the author, Reuters customers can
(Editing by Chris Hughes and David Evans)