Sebi’s consent mechanism pays off
Total number of market violations settled through system doubles in FY 18
MHowsettlements have played outunder newrules arkets regulator Securities and
Exchange Board of India (Sebi) settled double the number of cases through the so-called consent mechanism in 2017-18, compared to the previous fiscal. According to data, Sebi resolved 200 cases through the consent route last fiscal as against 103 in 2016-17.
The amount earned by Sebi as settlement fees also saw a more than twofold increase to ~300 million in FY18, compared to ~135 million in FY17.
Legal experts say the regulator is opting for the consent route to resolve several smaller and relatively less serious violations from the purview. For matters in order to avoid piling up instance, insider trading or front running, cases. The consent mechanism is the which have market-wide impact, process under which an alleged wrongdoer cannot be resolved through the consent can settle a violation with Sebi mechanism. More than half of the investigations without admitting or denying the guilt. taken up by Sebi are either The settlement involves penal action, market manipulation or insider trading which could be fees, a market ban, or cases, most of which cannot be resolved both. Over the years, the importance through the consent process. of the consent route has gone up as it “Consent mechanism is an effective helps cut down on time and conserves way for Sebi to reduce the burden of resources for tedious litigations. pending cases. The resources of Sebi
Market experts say there are several would be insufficient to prosecute every cases pending before Sebi where the violation. Sebi should consider using amount of alleged unlawful gains could the consent route for even the serious be less than ~500,000. offences by imposing exemplary penalty,”
One of the biggest impediments for said Sandeep Parekh, founder, extensive use of the consent mechanism Finsec has Law been Advisors. the exclusion of serious ‘14-15 112 ‘15-16 120 ‘16-17 187 ‘17-18 232 108 177 171 241 NO. OF APPLICATIONS 41 34 103 200
Sebi had initially come up with a circular for settling cases through the consent mechanism in 2007. The circular talked about the basic procedure that needed to be adopted for consent. According to the original 2007 circular, any type of market manipulation could be settled through consent. However, in 2011, Sebi faced backlash for settling particular cases through this route.
This prompted Sebi to reconsider its stance on the consent process. In 2012, the regulator came up with a new circular, which said serious violations like insider trading, fraudulent and unfair trade practices that have a market-wide impact, failure to make open offers, and front running, were all excluded from the consent process.