Sebi: Conflict of interest disclosures may be on Sebi agenda

Mumbai: The board of the Securities and Exchange Board of India (Sebi) is likely to discuss a framework for the disclosure of members’ conflicts of interest at its first meeting under new chairman Tuhin Kanta Pandey on March 24, said people with knowledge of the matter.

The board will also consider a proposal on the appointment process for key management personnel at market infrastructure institutions such as stock exchanges and easing rules for foreign portfolio investors (FPIs).

The conflict-of-interest code for board members had come under the spotlight following accusations against former Sebi chairperson Madhabi Puri Buch by Hindenburg Research and the Congress party.

Sebi and Buch, who headed the regulatory body for three years until February 28, had denied the accusations.

Board members and their spouses have to disclose their assets to Sebi.

Norms Introduced in 2008
But the lack of scrutiny beyond the filing process has left the system exposed to allegations and controversies, former Sebi board members said.

Sebi introduced conflict of interest regulations for its board members in 2008, with only one revision implemented since then. Notably, all previous chairpersons, except Buch who had a private sector background, have had bureaucratic careers.

“I think trust and transparency extend to Sebi itself,” Pandey, who is also a bureaucrat that succeeded Buch, had said in his first public speech since taking over. “We need to be more transparent, for example, on the conflict of interest of the board… And we will be coming forward with our own plan to further transparently reveal these conflicts of interest to the public.”

Under the current system, Sebi board members have to disclose share transactions to the board cell, which is overseen by an officer at the level of chief general manager. While the board cell is ultimately overseen by the Sebi chairperson, the officer does not separately analyse share transactions to determine whether board members potentially violated the conflict-of-interest code, including trading rules related to unpublished price-sensitive information.

Part-time board members nominated by the finance ministry, corporate affairs ministry and the Reserve Bank of India are exempted from making disclosures to the board cell if they have informed their respective parent organisations. Former Sebi board members said making the disclosures is a filing requirement with no verification of documents. However, for other Sebi staff, the disclosures are verified by the regulator’s human resource department. The regulator’s rules for board members are in contrast with those for directors of listed companies.

For instance, key management personnel of listed entities with access to price-sensitive information are required by Sebi to provide a trading plan for the sale of employee stock option shares, present it to compliance officers for approval and make disclosures before executing any transactions.

However, Sebi board members don’t present any trading plan to the board cell.

Reducing compliance burden
The Sebi board will also discuss a plan to raise the threshold for granular ownership disclosures by FPIs to Rs 50,000 crore from the current Rs 25,000 crore. This proposal is in response to the increase in market volumes. Raising the threshold will help reduce the compliance burden. Since October 1, 2024, FPIs have sold over Rs 3 lakh crore worth of Indian equities.

The regulator’s board is also likely to take up the proposal on the appointment process for key personnel at stock exchanges and depositories for discussion. There has been pushback from the market on this plan, said people with knowledge of the matter.”The board will take into consideration the public views received and take decisions in light of that. Earlier even if the public views were against Sebi’s suggestions, still the regulator would go ahead with it,” one of the persons said. “There is a shift in the policy making process under the new chairman.”

Sebi couldn’t be reached for comments.