Sebi to tighten conflict-of-interest and insider trading norms for top officials

Mumbai: A high-level committee set up to examine conflict-of-interest rules and disclosure norms for top officials of the Securities and Exchange Board of India (Sebi) has proposed that the chairman and its whole-time members must be termed as 'insiders' under the insider trading rules.

The six-member panel, headed by former chief vigilance commissioner Pratyush Sinha, was formed by Sebi chief Tuhin Kanta Pandey after his predecessor - Madhabi Puri Buch - faced significant allegations, including conflict of interest.

Classifying the Sebi chairperson and whole-time members as 'insiders' will subject them to the same legal trading restrictions as employees, ensuring they can't trade while possessing price-sensitive information.

"Sebi ESR (Employee Service Regulation) deems every Sebi employee to be an 'insider' for Sebi insider trading regulations. However, the chairman and the whole-time members are not covered by these regulations, though conceivably they have more access to UPSI (unpublished price-sensitive information) than Sebi's employees. This is anomalous," the panel said in its 98-page report.

The report will be taken to the Sebi board before any decision is made on its recommendations, said a person close to the development.

If the suggestions are accepted by the board, it would bring Sebi in line with its global counterparts, such as the US Securities and Exchange Commission, which publishes financial holdings, positions held, and outside affiliations of its commissioners and senior leadership annually.

"Conflict of interest norms are the moral spine of any regulator. Regulators must hold themselves to standards even higher than those they enforce on listed companies and intermediaries," said Sumit Agrawal, senior partner, Regstreet Law Advisors.

The Congress Party had accused the former Sebi chairperson of trading in listed securities, selling employee stock options from her previous employer, ICICI Bank, during her term at Sebi, and making money through her advisory firm that offered consultancy services to listed companies, breaching the regulator’s conflict-of-interest policy.

The Buchs and Sebi had issued statements rebutting these allegations. The expert panel suggested the introduction of an institutional mechanism for the recusal of Sebi board members while handling conflict-ofinterest cases.

The committee also suggested that applicants for the position of chairman and members of Sebi must disclose actual, potential, and perceived conflict-of-interest risks of a financial and non-financial nature to the finance ministry. It said all board members and employees should make initial, annual, eventbased, and exit (on the date of demitting office) disclosures of assets, liabilities, trading activities, family and other professional relationships, and interests to Sebi’s proposed Office of Ethics and Compliance and the Oversight Committee on Ethics and Compliance

However, the chairman, whole-time members and employees at the level of chief general manager should also make public disclosure of their assets and liabilities statement.

This requirement may not apply to part-time members, as they do not handle Sebi’s day-to-day activities, the report said. The committee has recommended uniform application of trading restrictions on the chairman and wholetime members, as is currently the case for Sebi employees.

The panel recommended that Sebi should establish an anonymous whistleblower system for reporting actual, potential, or perceived conflicts of interest by board members, employees and external stakeholders. Further, investments in equity and equity-related instruments in commercial ventures (including unlisted companies) must be fully liquidated or kept frozen, and no transaction or activity is to be allowed in these investments during the tenure of the chairman or the whole-time members.