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Sebi to penalise stock exchanges for any lapses in surveillance

Mumbai, June 6, 2024 

Under the new framework effective July 1, Sebi will impose penalties in case of surveillance-related lapses on stock exchanges, clearing corporations, and depositories

Lapses by stock exchanges and other market infrastructure institutions (MIIs) in detecting abnormal or suspicious trading activities will now invite financial disincentives as the Securities and Exchange Board of India (Sebi) came out with a detailed framework on Thursday.

“They need to be well equipped to detect market abuse, including new modus-operandi that could be adopted by unscrupulous elements and take suitable, prompt, effective and preventive action against such activities,” said Sebi.

Under the new framework effective July 1, markets regulator Sebi will impose penalties in case of surveillance related lapses on stock exchanges, clearing corporations, and depositories. MIIs are required to report suspicious activities, take pre-emptive measures and issue alerts.

The penalty will be based on the annual turnover in the previous financial year and the number of instances of surveillance lapses during a financial year. For instance, if an MII has over Rs 1,000 crore annual turnover, then Rs 25 lakh will be imposed on the first lapse while Rs 1 crore for third instance onwards for each lapse in the FY.

The money will be deposited in the investor protection and education fund.

The MIIs will be given an opportunity to make their submissions on the matter before a disincentive is levied. In recent times, there have been instances where several retail traders complained of being trapped with their positions and losses due to bigger option players and operators.

The market regulator has emphasised on the role of surveillance and MIIs as ‘first-level regulators' amidst increased retail participation, trading in derivatives segment, and use of new trading techniques and strategies.

“Since any lapse in monitoring to detect and deter manipulative or abusive trading would show lacking adequate actions for surveillance related activity on the part of MIIs that may have an adverse effect on the investors’ trust and confidence in the securities market, it has been decided by Sebi, after consultation with MIIs, for MIIs to implement a framework for Surveillance Related Lapses,” said Sebi.

The regulator, however, specified that such a penalty will not be imposed in case of minor errors.

[The Business Standard]

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