Last week SEBI had issued a circular which prevented the circulation of unauthenticated news or rumours by market intermediaries. SEBI noted that market rumours can do considerable damage to the normal functioning and behavior of the market and distort the price discovery mechanisms. Towards this end, SEBI has issued the following directions to the market intermediaries:
New compliances for market intermediaries
1. Market intermediaries should have in place proper internal code of conduct and controls to prevent circulation of unauthenticated news or rumours.
2. Employees of market intermediaries should not encourage or circulate rumours or information obtained without verification.
3. Access of employees of market intermediaries to blogs/chat forums etc. should either be restricted under supervision or access should not be allowed.
4. Logs for any usage of such blogs/chat forums etc. shall be treated as records and the same should be maintained as specified by the respective Regulations which govern the concerned intermediary.
5. Employees should be directed that any market related news received by them either in their official mail/personal mail/ blog or in any other manner, should be forwarded only after the same has been seen and approved by the concerned Intermediary’s Compliance Officer. If an employee fails to do so, he/she shall be deemed to have violated the various provisions contained in SEBI Act/Rules/Regulations etc. and shall be liable for actions. The Compliance Officer shall also be held liable for breach of duty in this regard.
Challenges
1. The new direction from SEBI seeks to restrict circulation of rumours or unauthenticated news by market intermediaries i.e. the SEBI registered intermediaries like a stock broker or a portfolio manager. However, in many cases the sources of unauthenticated news or rumours are not SEBI registered intermediaries but private persons giving stock advice or websites, forums, blogs etc. managed by entities other than SEBI registered market intermediaries. Thus the new direction from SEBI has failed to address the threats posed by private persons or blogs and forums managed by entities other than SEBI registered market intermediaries.
2. SEBI has mandated that any market related news received by employees of market intermediaries, should be forwarded by the employee only after the same has been seen and approved by the concerned Intermediary’s Compliance Officer. However, it is difficult for Market Intermediaries having large number of employees to implement the same. Also it is difficult for any entity to monitor all the online activities of their employees like emails, chats, blog posts, forum posts etc.
New compliances for market intermediaries
1. Market intermediaries should have in place proper internal code of conduct and controls to prevent circulation of unauthenticated news or rumours.
2. Employees of market intermediaries should not encourage or circulate rumours or information obtained without verification.
3. Access of employees of market intermediaries to blogs/chat forums etc. should either be restricted under supervision or access should not be allowed.
4. Logs for any usage of such blogs/chat forums etc. shall be treated as records and the same should be maintained as specified by the respective Regulations which govern the concerned intermediary.
5. Employees should be directed that any market related news received by them either in their official mail/personal mail/ blog or in any other manner, should be forwarded only after the same has been seen and approved by the concerned Intermediary’s Compliance Officer. If an employee fails to do so, he/she shall be deemed to have violated the various provisions contained in SEBI Act/Rules/Regulations etc. and shall be liable for actions. The Compliance Officer shall also be held liable for breach of duty in this regard.
Challenges
1. The new direction from SEBI seeks to restrict circulation of rumours or unauthenticated news by market intermediaries i.e. the SEBI registered intermediaries like a stock broker or a portfolio manager. However, in many cases the sources of unauthenticated news or rumours are not SEBI registered intermediaries but private persons giving stock advice or websites, forums, blogs etc. managed by entities other than SEBI registered market intermediaries. Thus the new direction from SEBI has failed to address the threats posed by private persons or blogs and forums managed by entities other than SEBI registered market intermediaries.
2. SEBI has mandated that any market related news received by employees of market intermediaries, should be forwarded by the employee only after the same has been seen and approved by the concerned Intermediary’s Compliance Officer. However, it is difficult for Market Intermediaries having large number of employees to implement the same. Also it is difficult for any entity to monitor all the online activities of their employees like emails, chats, blog posts, forum posts etc.
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