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MAINTAINING THE FAIRNESS AND INTEGRITY OF THE MARKETS
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sunandaC
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MAINTAINING THE FAIRNESS AND INTEGRITY OF THE MARKETS - September 20th, 2010

MAINTAINING THE FAIRNESS AND INTEGRITY OF THE MARKETS

Before the formation of SEBI, the breach of regulations was the norm and compliance was an exception. It was vital from the point of view of promoting the investor’s confidence that the situation needed to be reversed. SEBI sent a strong message to the market participants that the strict observance of regulations was essential.

The success of any regulator in exercising enforcement depends on its effectiveness in investigating market abuses and in imposing different penalties. SEBI has been empowered to conduct inspections, investigate violations of regulations and take punitive actions.

SEBI has been authorized to enforce the prohibition of manipulative and unfair trade practices. Price rigging on the stock exchanges through fraudulent practices leads to loss of investor confidence. With the computerization of the trading and settlement system, it has become more difficult to abuse the process.

It is virtually impossible to conceal the audit trail of such manipulations. SEBI has also directed the stock exchanges to set-up market surveillance systems backed by adequate infrastructure and manpower. The concept of circuit breakers and price bands has been introduced to check excessive volatility due to speculation.

In addition SEBI itself monitors and investigates irregular price movements.
It is difficult to prove cases of insider trading without conclusive evidence. The use, for profit, of privileged access to price sensitive information by insiders, before it is in the public domain, constitutes insider trading.


In an effort to curb this malpractice, SEBI has issued SEBI (Insider Trading) Regulations, 1992, which empowers it to start criminal prosecution against the accused. In addition to this, SEBI has encouraged continuous disclosures and timely dissemination of price sensitive information.

SEBI has been empowered to carry out inspection of stock exchanges, market intermediaries, mutual funds, etc. The operations of stock exchanges are subject to regular inspection by SEBI.

The focus of this inspection is on exchange administration, compliance with all SEBI regulations and directives and enforcement by the exchange of its own rules, byelaws and listing agreements.

The various deficiencies noticed during the inspections are taken up with the Governing Board. Further, the SEBI nominees on the Governing Board are advised to pursue these matters. SEBI also conducts inspections at random on market intermediaries. In case of serious lapses or violations being noticed on inspections, inquiry proceedings are initiated.

Appropriate punitive action like suspension or cancellation of registration is also taken. SEBI has also initiated penal action against issues for misstatements in the offer documents and against merchant bankers failing to exercise other due diligence obligations. In certain cases, SEBI has even directed the companies to refund the entire issue proceeds to the investors
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