Friday, March 25, 2011

SEBI’s Call to Promote Market Transparency

In a circular issued this week, SEBI has advised market intermediaries to put in place a code of conduct and internal controls to prevent circulation of rumours and unverified information in blogs, chats and messenger sites. SEBI seeks to impose a check on circulation of such information, as “market rumours do considerable damage to the normal functioning and behaviour of the market and distort price discovery mechanisms”. The idea is to avoid market manipulation and other tendencies such as front running of stocks by market intermediaries (or their employees) and circular trading.

By a follow-up addendum, SEBI’s imposes the primary responsibility of controlling information available with market intermediaries on the compliance officer. In case of any breach, the compliance officer will also be held liable for breach of duty in addition to the employee committing a specific violation. This appears to be a method of self-regulation imposed on intermediaries with the compliance officer acting as the gatekeepers. But, as highlighted in this news report, it remains to be seen whether SEBI can effectively implement such a code of conduct given the explosion of information in the digital age and the difficulties in monitoring such information flow.

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