Calls for collective approach against fraudulent practices
The Securities and Exchange Board of India (Sebi) chairperson Madhabi Puri Buch on Thursday urged market participants and industry officials to report bad practices or mischief in the market to avoid a ‘heavy hand’ from the regulator.
Amid instances of front-running and manipulation, the market regulator has introduced an institutional mechanism for stock brokers to prevent market abuse, and a similar framework is expected for the mutual fund industry. These include more surveillance, obligations on employees, a stringent reporting mechanism, and a whistleblower policy.
Addressing portfolio managers and portfolio management service (PMS) providers, Buch asked ‘good players’ to bring forth bad practices to build trust in the ecosystem.
“When mischief happens, trust is eroded. To rebuild that trust, it takes a lot of time. Not just for that one person who did the wrong thing, but the trust for the entire ecosystem goes down. Because there is mischief in the market, the regulator has no other option but to come back with a mechanism to try and check; so you get more regulations,” said Buch while delivering a speech at an event organised by the Association of Portfolio Managers in India (APMI), an industry group.
“We urge the industry association to bring forth to the regulator any instances of mischief in the market so that the regulator can take early action and not wait until it explodes in the system and then we have to come down with a heavy hand,” she added.
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The Sebi boss asked portfolio managers to join the association for collective opinion, industry standards, and to reduce the cost of compliance with a collective approach.
“The regulator cannot survive if it does not co-create and if it does something in isolation. Regulations cannot survive unless they are sensible and grounded in the reality of the business,” said Buch.
The market regulator has taken stringent measures to weed out malpractices from the market ecosystem at intermediary levels like stock brokers, mutual funds, and even investment advisors and research analysts.
The steps follow instances of front-running, misutilisation of client funds, manipulation of accounts, insider trading, among others.