The Securities and Exchange Board of India (Sebi) has rolled out an institutional mechanism mandating stock brokers to establish systems aimed at detecting and preventing market abuse.
Previously, brokers were not specifically tasked by regulations to create such preventive systems
Under the new mechanism, both broking firms and their senior management will be accountable for setting up robust surveillance and control systems to detect and prevent fraud or market abuse. Additionally, brokers are required to implement appropriate escalation and reporting mechanisms.
Sebi’s notification outlines various instances of fraud or market abuse that brokers’ systems should monitor, including price manipulation, insider trading, and unauthorized trading through ‘mule accounts.’
Sebi mandates that brokers report any suspicious activity to the stock exchanges within 48 hours of detection. A summary analysis and action report on such activities must be submitted on a half-yearly basis.
Deviations from internal controls or risk management policies must be reported to the appropriate committee or board of directors and included in the report submitted to stock exchanges.
The notification also reinforces the need for a whistleblower policy to protect those who raise concerns about unethical practices.
Furthermore, the regulator has tightened rules to curb trading through mule accounts, considering them a part of the PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms.
These measures became effective from June 27.