An Overview on SEBI’s Master Circular on Surveillance of Securities Market 2021

An Overview on SEBI’s Master Circular on Surveillance of Securities Market 2021

Executive Summary:

• • • SEBI has adopted measures to modulate sharp and destabilizing price movements in the shares of companies, to encourage better price discovery and to increase transparency in securities market.
    • Directions to SEBI Registered Market Intermediaries to maintain internal code of conduct and exercise controls in respect of unauthenticated news.
    • Provides for modifications in disclosure, reporting violations etc. under the SEBI (Prohibition of Insider Trading) Regulations 2015.

Introduction:

The Indian economy has been blooming since the adoption of the new economic policy in 1991. The services sector in India such as banking, finance, insurance, information technology services, and more importantly the securities market, has benefited the most from this economic policy.

Securities market is a component of the wider financial market where securities can be bought and sold between subjects of the economy, on the basis of demand and supply.It has two interdependent and inseparable sectors, viz., the primary market sector and secondary market sector.Under primary market sector,securities are issued by companies either as a new issue or as an offer for sale. Both equity and debt securities have a primary market where they are first issued.Secondary marketis the normal trading market where the actual trading of these securities takes place. Primary issues of debt and equity eventually get traded in the secondary market for price discovery.

Regulatory Framework of the Indian Securities Market:

The Indian Securities Markets are regulated and monitored by Securities and Exchange Board of India (SEBI), the Ministry of Finance (MOF), Ministry of Corporate Affairs (MCA), Department of Economic Affairs (DEA) and The Reserve Bank of India (RBI).

Functions of the SEBI:

SEBIis the principal regulator of the securities market and has 3 principal objectives viz. facilitating the growth of capital markets, protecting the interests of small investors and maintaining the integrity of markets.

• SEBI has codified regulations that cover all activities and intermediaries in the securities markets & helps to protect the interests of investors, regulates business and promotes development of securities market.
• Inspections of the intermediaries to ensure compliance with prescribed standards.
• SEBI takes care of research and development to ensure the securities market is efficient at all times.

Master Circular on Surveillance of Securities Market 2021:

In order to enable the users to have an access to all the applicable circulars at one place, the SEBI has issued a master circular on Surveillance of Securities Market on 1stMarch 2021, addressing all recognized stock exchanges, depositories, listed companies, market intermediaries registered with SEBI, and fiduciaries. Some of the main aspects covered under the master circular are:

A. Trading Rules & Shareholding in Dematerialized Mode:
SEBI has in consultation with stock exchanges adopted the following measures to modulate sharp and destabilizing price movements in the shares of companies, to encourage better price discovery and to increase transparency in securities market –
The securities of all companies can be traded in the normal segment of exchange where-

• i. The company has by 31st October 2010 achieved minimum of 50% of non-promoters holding in dematerialized form.
• ii. The company has achieved 100% of promoter’s and promoter group’s shareholding in dematerialized form latest by the quarter ended December 2011 as reported to the stock exchanges.In respect of compliance of provision of 100% promoter(s) holding in demat form, exemptions can be allowed in certain cases –
  • a) Shares not been lodged for transfer with the company as being sold by the promoter(s) in physical mode.
  • b) Matters concerning part/entire shareholding of promoters/promoter group are sub-judice before any Court/Tribunal.
  • c) Due to death of any promoter(s) shares cannot be converted into demat form.
  • d) Shares allotted to promoter(s) that await final approval for listing from stock exchange and such pendency is less than 30 days or shares that upon receipt of final listing approval from stock exchange are pending conversion to demat and such pendency is less than 15 days.
• iii. Where companies do not satisfy the above criteria/conditions, the trading in securities of such companies shall take place in trade for trade (TFT) segment.TFT is a segment where shares can be traded only for compulsory delivery basis. It means Trade to Trade sharescannot be traded intraday. In this segment each share purchased or sold has to be taken delivery by paying full amount.

B. Directions to SEBI Registered Market Intermediaries
In respect of unauthenticated news circulated vide various modes by employees of intermediaries:

• i. Proper internal code of conduct and controls should be put in place.
• ii. Employees/other staffs of intermediaries not to circulate the news received by them in offices or through mail or any other mode without verification and without the approval of compliance officer.
• iii. Access to Blogs/Chat forums/Messenger sites etc. should either be restricted under supervision or access should not be allowed. Logs to be considered as records and to be in conformity with regulation governing the concern intermediary.

C. SEBI (Prohibition of Insider Trading) Regulations 2015:

• i. Disclosures under SEBI (Prohibition of Insider Trading) Regulations 2015: It is provided that disclosures may be maintained by the company in physical/electronic mode as per the prescribed format. Also that, code of practices and procedures for fair disclosure of Unpublished Price Sensitive Information (UPSI), shall be formulated and published (on companies official website), in conformity of stock exchanges.
• ii. Allowing Offer to Sale (OFS) and Rights Entitlement (RE) Transaction during trading window closure period: The Amendment made to the regulation vide gazette notification no. SEBI/LAD-NRO/GN/2020/23 dated July 17, 2020, provides for non-applicability of the trading window restrictions in respect of OFS and RE transactions carried out in accordance with the framework specified by the Board from time to time
• iii. Reporting to Stock Exchange Regarding Violations under the SEBI (Prohibition of Insider Trading) Regulations 2015 relating to Code of Conduct: The listed companies, intermediaries and fiduciaries where the concerned securities are traded, shall promptly inform the Stock Exchange(s) regarding violations relating to Code of Conduct (CoC) under PIT Regulations in prescribed form. Any amount collected for such violation shall be remitted to the Board for credit to the Investor Protection and Education Fund (IPEF) in prescribed manner./li>
• iv. Automation of Continual Disclosures under SEBI (Prohibition of Insider Trading) Regulations 2015: Decision for implementing the system driven disclosures for member(s) of promoter group and designated person(s) in addition to the promoter(s) and director(s) of company under Regulation 7(2) of PIT Regulations has been taken. Such system driven disclosures shall be published on the websites of respective stock exchanges with effect from October 01, 2020 by depositories and stock exchanges and shall be submitted separately from other disclosures submitted to stock exchanges.

Conclusion:

It is clear from the guidelines laid down in the master circular that, SEBI plays an effective role in keeping a close check over the activities of the financial intermediaries, stock exchanges, companies, depositories, fiduciaries and other ancillary institutions by establishing a code of conduct which safeguards the rights and interests of the investors, reduce malpractices related to the stock exchange, thus regulating the smooth relationship between the stock exchanges & investors, for healthy capital flow in Indian economic growth.

Regards,
Legal Team

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