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Informist, Saturday, Aug 10, 2024

 

By Rajesh Gajra

 

MUMBAI – The Securities and Exchange Board of India has initiated focused inspections of the surveillance functions of BSE Ltd, National Stock Exchange, Central Depository Services Ltd, National Securities Depository, it said in the annual report for 2023-24 (Apr-Mar) released on Friday. Stock exchanges and depositories also play a regulatory role in the securities market, and SEBI's focused inspections will evaluate the suitability and sufficiency of their surveillance systems and procedures.

 

SEBI said in the annual report that even in 2023-24 it did regular inspections of BSE, NSE, Multi Commodity Exchange of India Ltd, National Commodity and Derivatives Exchange, Metropolitan Stock Exchange of India, along with the clearing corporations of these exchanges. Similar inspections were also carried out of the two depositories--CDSL and NSDL. Further, a regular inspection was done of AMC Repo Clearing which is a central counter-party offering clearing and settlement to all trades on NSE and BSE under triparty repo in corporate debt securities.

 

Focused inspections by SEBI are different from regular inspections. Regular inspections are mandated to be carried out by SEBI under the securities laws and these are aimed at overseeing whether the regulated entities are complying with all the relevant regulations in their daily activities.

 

On other hand, focused inspections are additional and optional ones where SEBI does a deep dive into any particular area of activity of the market entity to see if there is any scope for improvement and remedial measures. Even in 2022-23 SEBI had carried out thematic inspections of BSE and NSE with respect to processing of investor claims received against Karvy Stock Broking, as per its disclosure in the annual report for the preceding year, 2022-23.

 

In 2023-24, apart from exchanges, clearing corporations, and depositories, SEBI also inspected 149 stock brokers as against 87 in the previous year. Of the 149 brokers inspected, three were wholesale debt market members. The market regulator did inspections of 40 depository participants in 2023-24 as against 28 in the previous year.

 

"The nature of these inspections (of brokers and depository participants) were comprehensive and thematic," SEBI said in the annual report. In thematic inspections of brokers and depository participants aspects such as "advance brokerage, control over authorised person, technical glitches, misuse of trading terminals, handling of funds and securities of clients, settlement of accounts of clients on timely basis, segregation of clients and proprietary funds/securities, pledging of securities by the broker, investor redressal mechanism, KYC (know your client) norms" were covered, SEBI said.

 

The market regulator identified a few specific areas of concern with regard to three mutual funds, 15 portfolio managers, and one registrar and transfer agent, and carried out thematic inspections in 2023-24. The market regulator did not detail what these areas of concern were, in the annual report.

 

Apart from these thematic inspections, SEBI did regular inspections of 25 mutual funds and their respective registrar and transfer agents, as against 24 mutual funds in the previous year. In the case of portfolio managers, 13 regular inspections were carried out in 2023-24 as against 17 in the previous year.

 

In case of other fund management entities and their activities, there was an uptick in regular inspections by SEBI. It inspected six real estate investment trusts in 2023-24 as against two in the preceding year. Similarly, it inspected six infrastructure investment trusts as against three. Alternative investment fund inspections were 17 in number, the same as the previous year.

 

INVESTIGATIONS

Inspections apart, the market regulator is supposed to carry out enquiries and investigations where a breach of securities market laws, regulations, and circulars is suspected. In 2023-24, there was a 2.37 times jump up in SEBI's investigations initiated to 342. These included 160 cases of suspected market manipulation and price rigging as against 54 in the previous year. Investigations in market manipulation and price rigging were completed for 57 cases in 2023-24 as against 67 cases in the previous year.

 

Of the 160 cases taken up for probe in 2023-24, more than half, or 83, pertained to suspected front running cases, and 77 were for suspected price and volume manipulation. In the previous year, similar probes covered 24 front-running and 29 price and volume rigging cases.

 

The market regulator took a keen interest in trades by entities who were considered insiders under the insider trading regulations. SEBI initiated probes for suspected insider trading norms breach in 175 cases in 2023-24, a little more than double the number of similar cases in the previous year.

 

The market regulator also got more active in 2023-24 in investigating allegations of fraudulent mis-statement in financial statements of listed companies. SEBI took up 63 such suspected cases for investigation as against 35 in the previous year, and completed 33 investigations in 2023-24 compared to 31 in the previous year.  End

 

Edited by Akul Nishant Akhoury

 

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