(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own)
By Jeff Glekin
MUMBAI, May 29 (Reuters Breakingviews) - India's stock
market regulator has done the right thing in removing the option
to settle serious cases of market abuse like insider trading.
The Securities and Exchange Board of India's new regime now has
a real incentive to secure hard convictions. The change won't be
smooth - but that's not all bad news.
SEBI's detractors argue that the reform effectively passes
the buck to a snail-paced and corrupt legal system. That's
unfair. The legal system is by no means perfect, but in recent
important cases it has proved to be robust and fairly speedy.
The Supreme Court's Vodafone and 2G rulings this year have been
both tough and timely.
Under the old system, settlements risked being seen as a no
more than cost of doing business. They involve no admission of
guilt. But just one landmark prosecution for SEBI would have a
lasting deterrent effect. And the potential to settle cases has
left SEBI vulnerable to political and financial pressure to do
so. Last June, SEBI's former deputy wrote a remarkably anguished
letter to the prime minister claiming that SEBI's chairman was
being pressured by the finance ministry to go easy on powerful
corporate groups under investigation by the regulator.
But the reform, while well flagged, has created some
confusion. How are the new norms to be applied to active cases
such as the one against Mukesh Ambani's Reliance,
which dates back to 2007? The case concerns alleged breaches in
connection with the sale of shares in the erstwhile Reliance
Petroleum. Reliance has reportedly twice attempted to settle the
case by consent, only to be rebuffed by SEBI. Are these probes
subject to the new or the old regime?
One option which the regulator should consider is to create
a window, say for three months, to allow parties under
investigation to make final settlement offers. SEBI need not
agree, and there could be a rather unseemly dash. But it would
at least close the door firmly on the old system. And it would
also create a strong incentive for the parties to make SEBI
juicy offers that it would be hard to refuse.
- The Securities and Exchange Board of India (SEBI) said on
May 28 that it would not settle serious cases, such as insider
trading and unfair trade practices, through the use of consent
orders -- a mechanism that avoids lengthy legal proceedings.
- The watchdog also said it would not consider an
application for a consent order without completing
- Reuters: Indian regulator toughens stance on serious cases
- SEBI Circular: link.reuters.com/sux48s
- Request for information: link.reuters.com/tux48s
- For previous columns by the author, Reuters customers can
(Editing by Chris Hughes and David Evans)