Mumbai: The Securities and Exchange Board of India (SEBI) Wednesday imposed a penalty of Rs 25 lakh on BSE Ltd for violation of norms related to dissemination of price-sensitive information by corporates, weak supervision of broker trades, and laxity in taking action.
The punitive action follows an inspection of the stock exchange carried out between February 2021 and September 2022, after which a show cause notice was issued.
The SEBI investigation revealed that BSE’s system architecture allowed its paid clients and internal listing compliance monitoring (LCM) team to access corporate announcements before these were made public through its website.
The capital markets regulator observed that the data dissemination process lacked safeguards to ensure simultaneous and equal access to all stakeholders, which is critical to maintaining market integrity and preventing unfair information advantage.
It concluded after its probe that the BSE failed to comply with the regulation that mandates stock exchanges to ensure fair and transparent access to all users.
It also noted that the BSE did not establish a really simple syndication (RSS) feed, which could have mitigated the risk of unequal access to corporate disclosures.
The SEBI also flagged serious shortcomings in BSE’s monitoring of client code modifications, which are permitted only in case of genuine errors.
The exchange failed to initiate disciplinary action against brokers with frequent modifications and did not adequately monitor ‘error accounts’, raising concerns over the possibility of misuse and lack of due diligence in trades between unrelated institutional clients.
The exchange was found to be merely taking confirmation from brokers with respect to trades transferred to the error account being subsequently liquidated. Inspection of all brokers for error account review was not being done every year, and even when it was done, the BSE was relying on confirmations provided by brokers themselves.
The SEBI order points out that, being a first-level regulator, the “BSE must have internal controls on how to manage and handle such corporate announcements so as to ensure compliance with its obligations”.
It said all persons should have unrestricted, transparent and fair access to information.
“The availability of information about listed companies with employees of LCM of the BSE and its paid subscribers before it is available to general investors through its website of the BSE has clearly impaired the concept of impartiality, transparency and fairness of information dissemination from the first-level regulator BSE,” the order states.
“This case involves multiple acts of omissions, laxity and negligence with a certain amount of lethargic approach, which cannot be allowed to be exonerated if the first level regulator having paramount duties of regulation and oversight shows such approach of lax regulation leaving visible scope for misuse of its systems,” the order added.
IANS
