Friday, December 12, 2008

Self Regulation for Directors on SEBI's Board

I recently blogged about the transparency measures that SEBI has initiated by deciding to make its agenda papers and minutes of proceedings public.

Under the first such disclosure, it is now learnt that on December 4, 2008, the Board of Directors of SEBI adopted a Code on Conflict of Interests for its members. You can get it on the hyperlink above.

In a nutshell, the Code requires every director to make disclosures of his conflict of interests, and enjoins a duty on the director to "ensure" that any conflict of interest does not affect any decisions of SEBI. An express bar not to exploit any personal or professional relationship with regulated entities or employees of such entities has also been brought in.

Every director of SEBI now has to declare his holdings and his family's holdings in shares. At the end of every financial year, within 15 days, the disclosures are required to be updated. Wholetime Members of SEBI are required to make disclosures within 15 days of every transaction.

Once agenda papers are circulated, a director is required to disclosure the nature of interest in any item on the agenda, and obviously, refrain from deliberations on the agenda item. Even if a director of SEBI has a dispute in relation to any service availed of from any market intermediary, that would have to be disclosed.

The Code also introduces a gift policy and discourages gifts altogether. Any gift that could have a value of above Rs. 1,000 has to be handed over to SEBI.

Every director of SEBI has to disclose any post, employment or fiduciary position which he holds or has held in the preceding five years. Every other significant relationship, whether financial, professional, personal or family relationship with any regulated entity has to be disclosed. Honorary positions too have to be disclosed.

The potential conflict of interest has to be disclosed. The SEBI Chairman may determine any doubt in this regard. If the Chairman has a doubt, he would seek a determination from the SEBI Board of Directors.

Interestingly, any person who has reasonable ground to believe there is a conflict of interest may bring the matter to the attention of the "Secretary to the Board", who would place the complaint before the Chairman.

The Code provides that the information disclosed would be kept confidential except where disclosure is necessary for managing conflicts, or for disciplinary action, or under requirements of law. Therefore, the Right to Information Act would indeed be applicable and such information can be accessed.

I don't want to sound boring laudatory, but this is another step towards institutionalizing the functioning of the apex regulator in India's capital markets, and bringing in transparency. There has been some debate on the blog about the introduction of new amendments to the regulations prohibiting insider trading. By turning the spotlight inwards, any governmental authority would only prove that projecting one's performance is better achieved by discharging one's statutory mandate transparently than by holding press briefings.

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