The Surveillance Master – SEBI
Reference: Master Circular on Surveillance of Securities Market, Dated 23.03.2023
The Securities and Exchange Board of India, on 23rd March 2023, issued a master circular, i.e., a compilation of all the circulars pertaining to the surveillance of the securities market, the circular deals with the subjects of
1) Trading rules and shareholding in dematerialized mode
2) Monitoring of unauthenticated news circulated by SEBI registered market intermediaries through various modes of communication
3) Disclosure reporting under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015.
SEBI, in compliance with Chapter IV: POWERS AND FUNCTIONS OF THE BOARD, Section 11(1) of THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992, according to which it is the duty of the board to protect
the interests of investors in securities and to promote the development of, and to
regulate the securities market, by such measures as it thinks fit.
I. Need for Protection of Investors:
But what exactly does the ‘protection of the interest of the investors’ mean? Why do they need to be protected by regulations in a free marketplace?
Here’s why:
The National Institute for Securities Markets (NISM) refers to ‘Securities and Securities markets’ in the following manner:
What the same is trying to convey is:
In an ordinary market place, there are consumers (buyers) who wish to buy a certain product or service and there are sellers (providers) of that product or service, the desire to buy of the consumer is met with desire to sell of the seller through a medium of exchange, i.e. money. In and ideal world, demand will be equivalent to the supply and hence there will be a sort of market equilibrium; however, there are some inefficiencies and gaps between demand, supply and information dissemination due to which there is price inflation, deflation, correction which happens cyclically.
Like the purpose of ordinary market is transfer of products and services for money, the purpose of securities markets is CAPITAL ALLOCATION, what that means is that, the consumers here are the savers of money or investors of money, i.e. the ones who do not need the money in the present, allocate it to sellers of securities, who issue those securities to receive the money from these consumers with the promise to return the money in the future with interest (or appreciation in value, depending upon the securities), because these sellers need that capital in the present and are hopeful that the same will increase in value in the future on the plans that they have for its utilization. The gap in the securities market is the need for capital in the future for one and the need for capital in the future for another.
Securities markets aim to fill this gap by allocating the money efficiently and to try and provide maximum opportunities for utilization of any idle capital. Again, in an ideal world, this allocation would be devoid of any inefficiencies and irregularities; however, the increasing development of the securities markets, with the introduction of alternative investments like hedge funds, pooled investments, commodities etc., increasing information and unsolicited advice being circulated via various platforms, globalization etc., there is a strong need for regulation of the securities markets to ensure that the people who trust the market to invest their hard-earned money are not cheated and the entire purpose of Capital Allocation through the securities markets is not defeated.
II. Trading Rules and shareholding in dematerialized mode
The first subject of the compilation dealt in the master circular is regarding Compliance with dematerialization for Trading & Shareholding. The provisions of this are straightforward and emphasis on the following:
a. Point 1.1 of the above subject states that normal segment trading for companies shall be allowed only if the company has achieved 100% of promoter’s and promoter group’s shareholding in dematerialized form else they shall remain the Trade for Trade (TFT) segment unless they company with the requirement of dematerialization.
b. In Point no. 1.2., SEBI states cases where the trading shall take place in TFT segment for first 10 trading days with applicable price band while keeping the price band open on the first day of trading with making an exception for original scrips, on which derivatives products are available or included in indices on which derivatives products are available.
Those cases have been mentioned in the point numbers 1.2.1, 1.2.2 & 1.2.3.
c. In the last Point, 1.3., SEBI states that the Stock Exchanges shall ensure that before trading of the scrips the companies have complied with the disclosure requirements and that the public dissemination of the same is done via the website of the stock exchanges.
In conclusion, this section makes clear the mandate & guidelines for dematerialization along with the consequences for non-compliance.
III. Monitoring of unauthenticated news circulated by SEBI Registered Market Intermediaries through various modes of communication
In the current age of social media and self – proclaimed advisors armed with various modes of communication like blogs, chats etc., the monitoring of information and news dissemination is a serious problem. This sub - section of the circular only deals with the incorrect or inaccurate circulation of information by those otherwise mandated by the code of conduct for Stock Brokers and respective regulations of various intermediaries registered with SEBI addressing the broader problem partly.
In the Point no 2.2, SEBI acknowledged the serious consequences and damages that unauthenticated news or market rumours can cause to normal market functioning and behaviour. SEBI points out the lack of internal control as the reason for the same and in the following points directs various guidelines to resolve the issue.
Point No. 2.3 and its sub points deals with directives issued by SEBI which are:
- Proper internal code of conduct
- Discouragement for circulation of rumours
- Supervised access to modes of communication that can lead to the amplification of rumours and unauthenticated information
- Record maintenance for logs to the above modes of communication (e.g. social media app log ins)
- Proper compliance procedures for transfer of information and considered violations in case of breach
In conclusion, SEBI via this subject, though narrowly, deals with an important issue that affects the normal functioning of the market, especially in a country like India, where the scope for amplification, considering the number of participants in the market, is more and hence better caution is a necessity.
IV. Disclosure reporting under the SEBI (Prohibition of Insider Trading) Regulations, 2015
The final subject dealt by SEBI in this master circular is the importance of disclosure.
SEBI provides various guidelines for the following regulations and annexes the forms required for the corresponding disclosures.
3.1. Disclosures under Regulation 6 and Regulation 8 (Code of Fair Disclosure) and Regulation 9 (Code of Conduct)
3.2. Reporting to Stock Exchanges regarding violations relating to the Code of Conduct
3.3. Automation of Continual Disclosures under Regulation 7(2) of SEBI (Prohibition of Insider Trading) Regulations, 2015 - System driven disclosures
3.4. Trading Window Closure
Finally, the intent of the circular is ready reference for all circulars in relation to surveillance in the Securities Market and hence shall be considered as a ready guide with the inclusion of forms as annexures.
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