NEW DELHI: The Securities and Exchange Board of India (Sebi) has notified a new institutional mechanism that mandates stock brokers to implement systems for identifying and preventing market abuse including misleading appearance of trading, price manipulation, front running, pump and dump schemes, insider trading, mis-selling, and unauthorized trading and the facilitation of ‘mule accounts’.
Broking firms and their senior management will now be held accountable for detecting and preventing fraud or market abuse by implementing robust surveillance and control systems. They will also be required to create appropriate escalation and reporting mechanisms.
There were no specific regulatory provisions that held brokers responsible for establishing a system to prevent market abuse till date.
The market regulator has amended the stock brokers and PFUTP rules, which came into effect on June 27 to implement these changes.
“Any deviation in adherence to internal controls, risk management policy, surveillance policy, policy for onboarding of clients along with the proposed corrective actions for such deviation shall be placed before the appropriate Committee, Board of Directors or such other equivalent or analogous bodies of the stock broker at regular intervals and such deviations shall also form a part of the report to be submitted by the stock broker to the stock exchanges,” said the market watchdog.
Meanwhile, the stock broker will also be required to implement a whistleblower policy that provides a confidential channel for employees and other stakeholders to raise concerns about suspected fraudulent, unfair, or unethical practices, with adequate protection to whistleblowers.
Additionally, the market regulator has tightened rules to curb trading through mule accounts. “Transactions through mule accounts for indulging in manipulative, fraudulent and unfair trade practice shall be and shall always be deemed to have been included in PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms,” said Sebi in its statement.
