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Sebi cracks down on insider trading: 10 facts on new guidelines

New York: Capital markets regulator Securities and Exchange Board of India (Sebi) on Friday said it would not go in for settlements in cases involving certain market violations such as insider trading, failure to make an open offer, fraud, and failure to redress customer complaints. A consent order settlement means that a suspected violator can pay a certain amount of money and be subject to some restrictions, but doesnt have to admit to, or deny, any transgression on its part. Heres a list of what the new strictures mean:

Companies will no longer be able to get away with settling privately with Sebi in cases involving insider trading, front running, fraud, unfair trade practices and even for consumer redressal. Earlier, companies or individuals could pay a certain amount and the matter would be closed. Now, that option is gone, and any case that Sebi goes after will be in the public sphere. Trade practices that cause substantial loss to investors will no longer be open to settlement. Repeat offences, where the violation has occurred within two years of an earlier consent order, will not be open to settlement. Where a company has settled twice year, it will not be eligible for another consent order for three years from the date of the last order. Where Sebi has already started an investigation, consent applications, or applications to settle without litigation, will not be entertained. Where an investigation is pending, a consent application will not be considered if it is filed after 60 days from the date of show cause notice being served. Sebi also set out rudimentary guidelines for determining the terms of a settlement. Among these is a minimum amount for each violation. The amount will also consider any penalty imposed by the adjudicating officer and order passed by a whole-time member of Sebi. The settlement amount will be increased in cases where the applicant has a prior record, or defaults. Settlements will be decided depending on what stage the case is at, the nature and gravity of the violation or default. It will also take into consideration the volume traded, price impact, net worth, profits made, nature of disclosure not made, and its impact, among other things. The settlement may also include disgorgement of profits made through the violations. Disgorgement is when the violator is mandatorily made to refund all the money it has made through breaking the law. Sebi will also set up a high-powered advisory committee (HPAC) comprising a retired judge of the High Court and three external members. The HPAC, or a panel of WTMs

may also increase or decrease the settlement amount in serious cases. It will retain the right to refuse to hear a case. If a consent application is rejected, there are no second chances: Sebi will not entertain any subsequent applications.

Story first published on: May 25, 2012 20:42 (IST)