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    Brokers cannot misuse clients’ securities: Ajay Tyagi, Sebi chairman

    Synopsis

    Tyagi’s comments come in the wake of the regulator's recent crackdown on Karvy Stock Broking.

    Ajay-Tyagi-2---BCCL
    He said it is impossible for the regulator to list out what can be “material information” which the regulator should mandate listed companies to disclose.
    Brokers cannot be allowed to misuse clients’ securities as rules clearly prohibit it, said Securities and Exchange Board of India (Sebi) chairman Ajay Tyagi. The regulator is also looking at improving the existing norms on related party transactions for companies and concerns over independent directors not being “truly independent” especially in promoter-dominated companies, he said.

    Tyagi’s comments come in the wake of the regulator's recent crackdown on Karvy Stock Broking for misusing clients’ securities by pledging them with banks and a NBFC (non-banking finance company) for raising funds for itself.

    “The regulations are very clear on what brokers can do with client securities.The regulations were made further clear in June 2019. So if brokers continue to misuse client securities, it cannot be allowed," Tyagi said on the sidelines of an event organized by Sebi and Organisation for Economic Cooperation and Development (OECD). “It cannot be anyone’s case even if these instructions were not so explicit that they can use clients’ securities for doing something of their own,” he said.

    Tyagi said although independent directors meet the regulatory requirement on paper, their independence in conduct and decisions are often under the cloud.

    The Sebi chief said use of complicated group structures and complex related party transactions increase the concern of siphoning of funds,money laundering and round tripping.

    “Increasing prevalence and use of company groups has brought several governance issues to the fore, especially on related party transactions..When such structures and transactions happen at a cross-country level, the lack of free information flow hinders monitoring and enforcement as well,” Tyagi said.

    He said it is impossible for the regulator to list out what can be “material information” which the regulator should mandate listed companies to disclose. His comments comes in the wake of the Infosys episode.

    “Companies and their boards ought to take a proper and prudent call on what is a material event and what is not and disclose accordingly. This is an extremely serious issue and any lapses by the corporates on such disclosures would only erode investors’ confidence,” Tyagi said.

    Sebi tried to adopt a mix of principle and rule based approach in its listing regulations, he said.

    “While this has helped to some extent, the issue of many companies adopting the tick-box approach on certain aspects of corporate governance remains a matter of concern,” Tyagi said.

    Protection of minority shareholders interest is crucial and even more critical in areas of related party transactions but they shouldn't misuse the special powers granted to them under specific provisions,the Sebi chief said.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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