Securities and Exchange Board of India (SEBI) has slapped a penalty of ₹25 lakh on BSE Ltd for several violations related to dissemination of price sensitive information by corporates, weak supervision of broker trades and laxity in taking action.
The regulator had undertaken an inspection of the stock exchange between February 2021 and September 2022, and thereafter issued a show cause notice.
Key charges
One of the major charges against BSE was that prior to September 2023, its system architecture allowed the listing compliance monitoring team (LCM) and the paid subscribers to access corporate announcements before they were made available to all viewers on its website. It also alleged that till the time ordinary investors manually browsed announcements and information on each update there was potential for Algos to “read such machine readable corporate announcement/information pushed to paid clients.”
While later BSE fixed the problem of equal access by creating a time gap it was done only after the lapses were pointed out.
Lapses in process, monitoring mechanism
The inspection also found lapses in process and monitoring mechanism regarding client code modification. Under SEBI norms, SEs can permit modifications to client code post trade execution only in case of genuine error or wrong data entry made by trading members.
BSE was found to have failed to formulate policy with respect to defining brokers as frequent modifiers in terms of number of modifications done by a broker and no disciplinary action was triggered. The exchange was found to be merely taking confirmation from brokers with respect to trades transferred to error account being subsequently liquidated. Inspection of all brokers for error account review was not being done every year and even when it was done, BSE was relying on confirmations provided by brokers themselves.
While passing the order SEBI said that being a first level regulator “BSE must have internal controls on how to manage and handle such corporate announcements so as to ensure compliance with its obligations.” It said all persons should have unrestricted, transparent and fair access to information.
“The availability of information about listed companies with employees of LCM of BSE and its paid subscribers before it is available to general investors through its website of BSE has clearly impaired the concept of impartiality, transparency and fairness of information dissemination from the first level regulator BSE,” the order said.
It also said that BSE had displayed laxity and negligence in not supervising norms on client code modifications.
“This case involves multiple acts of omissions, laxity and negligence with a certain amount of lethargic approach which cannot be allowed to be exonerated if the first level regulator having paramount duties of regulation and oversight shows such approach of lax regulation leaving visible scope for misuse of its systems,” it said.
BSE has been directed to pay the penalty within 45 days of the receipt of the order.