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Sebi to tighten algo trade norms, take action against audit lapses

business Updated: May 26, 2016 06:27 IST
Press Trust of India
Press Trust of India

NEW DELHI: Setting an ambitious agenda for the current fiscal (2016-17), the Securities and Exchange Board of India (Sebi) on Wednesday announced it will put in place stringent norms for high-frequency trades along with higher penalties for misuse, initiate strong action against auditors for lapses and expressed hope that P-Note users will start directly investing in the Indian market.

The watchdog also plans to seek delisting of over 4,200 listed companies whose shares are not being traded, apart from having an online platform for sale and purchase of mutual funds.

As part of efforts to further strengthen the domestic markets and protect investor interests, Sebi is also eyeing more strong regulations for credit rating agencies, which, among others, will require such entities to disclose reasons for their actions.

Concerned over misuse of the high-frequency or algo trade, Sebi chairman U K Sinha said a strong set of norms will be in place in three to four months to ensure fair opportunity for trading entities.

“While Sebi is among the first regulators to have some kind of regulations in place on HFT (high- frequency trading), there is a need to make it stronger. We are working on that. It is not only about misuse of algo trade and co-location facilities, but also about fairness, and we are trying to address the issue. We are now looking to increase penalty for its misuse.”

The regulator will soon float a discussion paper in this regard.

To weed out shares that are not being actively traded, Sebi will push for delisting of more than over 4,200 listed companies, while promoters refusing to provide an exit opportunity to investors will face strict penal action.

In addition, it has also warned of stringent action against auditors who turn a blind eye to lapses in financial accounts of listed companies.

Close on the heels of making norms stricter for Participatory Notes (P-Notes), Sinha ruled out any concession for hedge funds with riskier profile in Indian markets, and stressed that P-Note users should eventually move to the direct route of investment.

Taking note of the risks posed by possible cyber attacks, the chairman said the regulator is working to address the gaps, and will ensure that appropriate action is taken soon. “There are some government agencies also looking into the aspects of cyber security from the perspective of national security, and they have also given us some inputs.”

With regard to P-Notes, Sinha said their share in foreign portfolio investments has already fallen to a record low of 9.3%.

Allaying concerns that the tightening of rules for these offshore investment instruments would hit the flow of funds, Sinha said there are over 8,000 FPIs registered in India, but only 39 of them are issuing ODIs.

Sinha also spoke in favour of a model for the mutual fund industry, where investors buy the products directly without any middlemen, and said that a new online platform for buying and selling these instruments will be in place soon. “We should worry more about investors than about those doing business of mutual fund distribution. Globally, the mutual fund is moving towards direct buying.”