JOIN USSebi seeking to nip mart nexus
The new rules would look at discouraging misaligned employee incentives — a practice prevalent among capital market entities for rewarding their staff on the basis of business generated by them irrespective of interest of customers or investors being safeguarded.
The Securities & Exchange Board of India (Sebi) is framing these rules in accordance with a new set of initiatives proposed by the International Organisation of Securities Commissions (IOSCO) to safeguard the markets across the world from any irregularities.
The new rules — “Guidelines For Dealing With Conflicts of Interest in Securities Market”, would apply to all entities present in the Indian capital market, directly or indirectly, and their employees. It would include all participants in Indian securities market, associated persons, investment vehicles, collective pools of capital, institutional investors and stock exchanges.
An official said “conflict of interests” has emerged as a major area of concern for regulators across the world, and the new rules would look at removing the loopholes that allow irregularities like insider trading, front-running and misaligned employee incentives.
The aim is to check those actions of the market entities, as also of their employees, where interest of investors could be compromised to promote the business interests, he said.
The new norms would also focus on active involvement of senior management of market participants, adoption of clear and concise policies, adequate disclosures, information barriers and effective corporate governance procedures. At the employee level, focus would be on remuneration to commensurate with job functions, maintaining record of activities and specific prohibitions et al.
The major sources of ‘conflict of interests’ include closely-held structure of Indian corporates, cross-holding among the companies, a dominant role of promoters in governing the companies and “tunnelling” or diversion of funds between different firms within the business groups.