SEBI International Advisory Board discusses Insider Trading, REIT, Cyber Security and other major issues

The third meeting of the International Advisory Board (IAB) of the Securities and Exchange Board of India (SEBI) was held on December 9 & 10, 2013 at Bangalore. Major issues discussed during the meeting are:

 i.              Insider Trading: Global best practices and lessons for India
IAB deliberated on insider trading prohibition frameworks in various jurisdictions and observed that SEBI has a comparable framework. It also appreciated SEBI™s policy of not settling cases of insider trading. IAB suggested that SEBI should publicize major insider trading cases in a separate section on SEBI website for easier access; may have provisions to compensate victims, if any, of insider trading offences; and should encourage an effective whistle blowing framework in securities market by ensuring adequate legal protection of whistle blowers. Heavy penalty along with naming and shaming were also suggested to be used as major deterrence to insider trading and other offenses in the securities market.

ii.            REITs & Business Trusts: Proposed framework for India vis-à-vis global practices
IAB discussed various aspects of the proposed REITs frameworks by SEBI and observed that the proposed framework is of good standard. In this context IAB members highlighted various aspects and concerns of REITs markets in Australia, USA, Hong Kong, Singapore, South Africa, etc. Some of the suggestions which emerged from the discussion include- having an internationally competitive taxation regime, including pass through status for REITs; oversight of managers of REITs in addition to the oversight of their trustees; gradual expansion of REITs to include retail investments; and a separate framework for Infrastructure Investment Trusts.

iii.           SEBI™s Consent Mechanism: The global experience and learning for SEBI
The IAB deliberated on the revised consent mechanism which is applicable only to certain range of cases that excludes cases involving serious violations. IAB, after deliberating on the formula based determination of consent mechanism, suggested judgmental variations in consent amount on a case to case basis so as to make it effectively deterrent in nature. IAB expressed its satisfaction on the framework for consent mechanism which includes High Powered Advisory Committee (HPAC) and the committee of Whole Time Members of SEBI, both of which together bring in the necessary independence to the mechanism of deciding consent amount.

 iv.           Cyber Security: Issues and concerns for securities market infrastructure.
It was noted that there seems to be a general consensus around the world markets that though, presently, there are no global standards to deal with this issue, the same needs to be tackled on a priority basis. Need for having adequate Disaster Recovery System (DRS) & Business Continuity Plan (BCP) was emphasized. It was also agreed that to begin with there is a felt need to prevent and manage internal sabotage and to strengthen our internal systems towards this end.

 In addition to the above issues, IAB also deliberated on recent macro-economic trends and their impact on securities markets. It was observed that slowing down of growth in Indian economy is more attributable to internal factors rather than external. It was further observed that share of manufacturing output in Indian GDP has been stagnant despite faster growth in Indian economy in the last two decades, a phenomenon different from other growing economies like China, Korea, Taiwan, etc. (where share of manufacturing output increased with economic growth). Need for development of corporate bond market was also emphasized.

 A presentation on the development and regulation of the South African securities markets was also made and some potential lessons like the necessity of a robust debt market, the need for strong auditing and reporting standards and protection of minority shareholders™ interest were highlighted.

SEBI had constituted the IAB in September, 2011, as part of the measures initiated by SEBI to respond to the challenges arising out of the global financial crisis. The role of IAB is to guide SEBI with its advice on future direction for the organization, taking into account relevant global experiences, emerging challenges and latest developments in the regulatory space.

Meetings of IAB are organized by SEBI in India. Its previous two meetings were held on January 27, 2012 at Delhi and on November 3 – 4, 2012 at Mumbai.

The current Members of the IAB, in addition to Chairman, SEBI are Prof. Viral Acharya, Ms. Jane Diplock, Mr. Russell Loubser, Prof. Mark Maletz, Prof. Maureen O™Hara, Prof. Arvind Panagariya and Dr. Andrew Sheng (arranged alphabetically by the surnames). Mr. Loubser has recently joined the IAB. 

Prof. Acharya is the C.V. Starr Professor of Economics in the Department of Finance at New York University Stern School of Business and a Member of Advisory Scientific Committee of European Systemic Risk Board.

Ms. Diplock is presently an Independent Director of Singapore Exchange Limited, Australian Financial Services Group Pty Limited, International Integrated Reporting Committee Board and Member of Public Interest Oversight Board (PIOB). She is also the former Chairman of both the Executive Committee of IOSCO and of the New Zealand Securities Commission.

Mr. Loubser, former CEO of Johannesburg Stock Exchange, has been one of the prime movers of modernization and development of stock exchange business in South Africa. He was a member of the team that started the Futures Industry in South Africa in 1987. He has served as Chair, Working Committee of World Federation of Exchanges and as Deputy Chair of South African Futures Exchange. Mr. Loubser was also a member of the prestigious King Commission on Corporate Governance.

Prof. Maletz is a Senior Fellow at Harvard Business School and an internationally recognized thought leader in the areas of leadership development and organization transformation. Prof. O™Hara, the Robert W. Purcell Professor of Finance at the Johnson Graduate School of Management, Cornell University, is the Chairman of the Economic Advisory Board of the FINRA and a Member of the CFTC-SEC Task Force investigating the ˜flash crash™.

Prof. Panagariya is the Jagdish Bhagwati Professor of Indian Political Economy at Columbia University and the former Chief Economist of the Asian Development Bank.

Dr. Sheng, the former Chairman of the Securities and Futures Commission of Hong Kong, is presently the Chief Advisor to the China Banking Regulatory Commission and a Board Member of the Qatar Financial Centre Regulatory Authority.

Mr. Prashant Saran, Mr. Rajeev Kumar Agarwal & Mr. S. Raman – Whole Time Members of SEBI and all the Executive Directors of SEBI also participated in the two day deliberations.

Tags: China Banking Regulatory CommissionIndiaInsider TradingNew York University Stern School of BusinessReal estate investment trustSEBISecurities & Exchange Board of IndiaSouth Africa

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