SEBI amends Regulation prohibiting fraudulent and unfair trade practices in the Securities Market; expands meaning of ‘dealing in securities’
In a recent Notification dated 31st December, 2018, the Securities and Exchange Board of India (“SEBI”) with a view to further streamline the provisions prohibiting fraudulent and unfair trade practices in the securities market, has gone ahead and prescribed amendments to the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“Regulation”).
The amendments to these Regulations will come into effect from 1st February, 2019.
- The meaning of the term “Dealing in Securities” stands expanded and now will also include such activities done by any person who has been knowingly designed to influence the decision of investors in securities; and any act of providing assistance to carry out the acts. Prior to the amendment, the definition of “Dealing in Securities” included an act of buying, selling or subscribing pursuant to any issue of any security or agreeing to buy, sell or subscribe to any issue of any security or otherwise transacting in any way in any security by any persons including as principal, agent, or intermediary.
- The Amendment Regulation has now added the word ‘Manipulative”, which will be read in similar lines to activities of fraud and unfair trade practices in securities.
- Regulation 4 which deals with the list of activities that involve manipulative, fraudulent and unfair trade practices while dealing in securities by a person has also undergone changes. Some of the keypointers of the activities substituted are listed below:
a. Inducing of any person to subscribe to an issue of the securities for fraudulently securing the minimum subscription to such issue of securities, by advancing or agreeing to advance any money to any other person or through any other means or; inducing of any person for dealing in any securities for artificially inflating, depressing, maintaining or causing fluctuation in the price of securities through any means including by paying, offering or agreeing to pay or offer any money or money’s worth, directly or indirectly, to any person have been considered as activities that can be considered as manipulative, fraudulent or unfair trade practices in securities.
b. The amendment has enhanced the clause which states activities like selling, dealing or pledging of stolen, counterfeit or fraudulently issued securities whether in physical or dematerialized form as fraudulent. However, the amendment has incorporated two provisos which nullifies the activities as manipulative, fraudulent, or unfair trade practice in securities:
i. if the person selling, dealing in or pledging stolen, counterfeit or fraudulently issued securities was a holder in due course; or
ii. the stolen, counterfeit or fraudulently issued securities were previously traded on the market through a bona fide transaction.
c. As per the amendment, the following activities has been omitted from the purview of being manipulative, fraudulent, or unfair trade practice in securities:
i. an intermediary promising a certain price in respect of buying or selling of a security to a client and waiting till a discrepancy arises in the price of such security and retaining the difference in prices as profit for himself;
ii. an intermediary providing his clients with such information relating to a security as cannot be verified by the clients before their dealing in such security;
iii. an advertisement that is misleading or that contains information in a distorted manner and which may influence the decision of the investors;
iv. an intermediary reporting trading transaction to his clients entered into on their behalf in an inflated manner in order to increase his commission and brokerage;
v. an intermediary not disclosing to his client transactions entered into on his behalf including taking an option position.