Disclosures by Sebi members not said to face checks for violations

Disclosure requirements for board members at India’s capital market regulator are under the spotlight in the wake of impropriety charges by Hindenburg Research and the Opposition Congress against chairperson Madhabi Puri Buch, whose allegedly undeclared conflicts of interest lapses have lately come under attack.

Rules require Securities and Exchange Board of India (Sebi) board members, including the chairperson, to disclose their and their spouses’ holdings in listed shares and convertible instruments to Sebi. However, former Sebi members told ET that the lack of scrutiny beyond the filing process leaves the system exposed to more allegations and controversies in the future.

ET spoke to four former Sebi members, who spoke on the condition of anonymity.

The Congress had alleged Buch violated Sebi’s conflict of interest policy after she traded in listed securities worth about ₹37 crore, and sold employee stock options received from previous employer ICICI Bank during her term at the regulator.

FILING OF DISCLOSURES

In the current system, Sebi’s board members disclose their share transactions to the “board cell”, which is overseen by an officer at the level of a chief general manager.

While this board cell is ultimately overseen by the Sebi chairperson, the officer does not separately analyse the share transactions to determine whether the board members potentially violated Sebi’s conflict of interest code, including trading rules related to unpublished price-sensitive information (UPSI).

“It’s merely a filing requirement,” said a former Sebi member. “There was no verification of the documents done, nor were we given any feedback.”

However, for other Sebi employees, the disclosures are verified by the regulator’s human resources department.According to one of the former Sebi members, unless the government requests for the board member’s records, the disclosures remain with the board cell. “If there is a conflict of interest, the chairperson’s disclosures can be scrutinised by the board,” he said.

The Sebi board hasn’t looked into Buch’s disclosures so far.

The eight-member board is scheduled to meet on September 30. An email sent to Sebi on Wednesday remained unanswered until the publication of this report.

To be sure, Sebi board members nominated by the finance ministry, corporate affairs ministry and the Reserve Bank of India (RBI) are exempt from making disclosures to the board cell if they have made similar disclosures to their respective parent organisations.

“The board cell only maintains the disclosures submitted by the whole-time members and part-time independent members,” said another former Sebi member. “It’s like as if the right hand doesn’t know what the left hand does – the Sebi board is unaware of what its members, including the chairperson, have disclosed.”

Subhash Chandra Garg, who was on the Sebi board along with Buch (both were members at that time), had earlier said no disclosures were made by Buch or any other member to the board regarding their business interests.

NEED FOR A TRADING PLAN

Sebi’s rules for its board members are in contrast with the rules formulated for board members of listed companies. For example, key management personnel of listed companies with access to price-sensitive information are required by Sebi to give a trading plan for the sale of employee stock option shares, present it to the compliance officer for approval, and make public disclosures before executing the trades. However, Sebi board members do not present any trading plan to the board cell.

“Rules need to be revamped mandating Sebi board members to disclose both trading plans and have them approved,” suggested a former Sebi member.