Case Study: A Bill with A Class Act
The role of a well‐functioning financial market is to create conditions wherein the savings in the economy can be smoothly channelized into investments. To make this transmission smooth and attractive for all stakeholders, it’s important that everyone plays by the rules. So, the rules have to be well defined and the interests of all stakeholders adequately protected.
Stock markets in India are regulated and monitored by the Securities and Exchange Board of India (SEBI). Its mandate is to work for the betterment of the market and protect investors’ interest. SEBI constantly works towards improving the rules and laws governing the stock
Further, two class action suits for the same case will not be admitted. The person responsible for the wrongdoing will have to pay the costs associated with the suit. However, if the application is found frivolous, the applicant will have to pay the opposite party a maximum of Rs.1 lakh.
The provision of class action suit is likely to increase shareholder activism, which will, in turn, make company managements more responsible and accountable.
SEBI also pointed its gaze at stock exchanges, with a circular in November asking them to put systems in place to monitor the disclosures made by listed companies. There are concerns that disclosures filed are at times inadequate and inaccurate. Therefore, the stock exchanges should monitor the content.
To give exchanges time to put the necessary infrastructure in place, SEBI has asked them to start this exercise with the top 500 companies by market capitalization from the quarter ending December 2013. A penalty structure is already in place for not submitting or delaying the submission of information. Says Prithvi Haldea, Chairman, Prime Database: “This will improve the compliance a lot. The stock exchanges were working like a post office—they were getting the information and uploading it without doing any checks.” Haldea further argues that the penalty should be imposed on the management and not the company. After all, if the shares are suspended from trading, it’s the investor who suffers.
Easy to read information
In another move to improve access to data, SEBI has asked all merchant bankers to cull out the general information about a public issue from the abridged prospectus and publish it separately in the form of a General Information Document (GID). It even stipulates how many GIDs to print: at least 5% of the abridged prospectus printed or 50,000, whichever is lesser.
“What was happening was that the abridged prospectus was becoming bulkier and bulkier; most of the information was standard. So the idea (behind GID) is to take out the general information and give company specific information in a more readable format,” says Haldea.
It has made things easier for companies as well. In a board meeting on 24 December, SEBI made the grading process for initial public offerings voluntary. This was mandatory till now. It also approved the SEBI (Procedure for Search and Seizure) Regulations, 2013, on the back of The Securities Laws (Amendment) Second Ordinance, 2013, which gives power to the SEBI chairman to authorize investigations, and search any premises and seize documents for it.
These changes are a move forward. In the end, your money will feel safe when it is away from you.
Source: Thursday, December 26, 2013, Delhi, Livemint
a) Explain the role of SEBI (Stock Exchange Board of India) as the regulator and monitor of stock market in India.
The Primary function of Securities and Exchange Board of India under the SEBI Act, 1992...