Sweeping powers to bourses: Experts for gradual approach by SEBI

KR Srivats New Delhi | Updated on May 06, 2014 Published on May 06, 2014

Freezing promoters’ stake a ‘harsh measure’ for failing to obey listing norms

The Securities and Exchange Board of India is looking to expand the stock exchanges’ armoury in dealing with companies that are non-compliant with listing conditions. But the market regulator needs to take a balanced approach and not go overboard in introducing harsh measures, such as freezing promoters’ shareholding, say capital market experts.

Bourses — as a first-level regulator — may soon be empowered to freeze promoters’ shareholding if a company violates listing conditions, according to the proposed ‘listing regulation’, the draft of which was put up for public comments by SEBI on Monday.

Public comments on the draft listing regulations can be sent to SEBI till this month end, the capital market regulator has said.

A regulation on listing is expected to have better force of law than a listing agreement, which is a contract between the company issuing the securities and the stock exchange.

The powers proposed to be conferred on the bourses include levy of fines, suspension, freezing of promoters’ shareholding and other powers specified by SEBI through circulars or guidelines.

Arming bourses with the power to freeze promoters’ shareholding for a company’s non-compliance will be a draconian move, MS Sahoo, former SEBI Wholetime Member told Business Line.

“We need to move in a gradual manner. A promoter should not be held responsible for every lapse of a company,” he said, adding capacity needed to be built up in stock exchanges to have a quasi-judicial process.

It was only since September last year that stock exchanges were empowered by SEBI to levy fines on non-compliant companies, Prithvi Haldea, Chairman of PRIME Database, said.

“I have not come across a situation where a stock exchange has taken action such as freezing of promoters’ shareholding,” he added.

Another issue that must be factored in is that bourses are ‘for profit’ organisations and there is a conflict of interest in initiating severe action against erring companies who do not comply with listing conditions.

On the powers being conferred on the bourses, Pankaj Chadha, partner in a member firm of Ernst & Young Global, said the draft sought to “pretty much correct the course” and enable SEBI to perform its regulatory duties in an efficient manner.

Published on May 06, 2014
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