SEBI Can Now Impose Fine On Market Infrastructure Institutions (MIIs) For Surveillance-Related Lapses

Rajesh Kumar

8 Jun 2024 10:00 AM GMT

  • SEBI Can Now Impose Fine On Market Infrastructure Institutions (MIIs) For Surveillance-Related Lapses

    The Securities and Exchange Board of India (SEBI) has issued a circular to address surveillance-related lapses at market infrastructure institutions (MIIs). MIIs such as stock exchanges, clearing corporations, and depositories may be fined which are found to be deficient in surveillance activities. These lapses include the implementation of decisions made during...

    The Securities and Exchange Board of India (SEBI) has issued a circular to address surveillance-related lapses at market infrastructure institutions (MIIs). MIIs such as stock exchanges, clearing corporations, and depositories may be fined which are found to be deficient in surveillance activities.

    These lapses include the implementation of decisions made during surveillance meetings, adherence to surveillance timelines, and timely reporting of surveillance-related activities. The severity of the disincentives is contingent upon the annual revenue of the MII and the frequency of lapses identified during a financial year.

    SEBI's circular categorizes surveillance-related lapses into three main areas. Firstly, any shortcomings in executing decisions taken during surveillance meetings, such as partial or delayed implementation, constitute lapses. Secondly, failure to adhere to agreed-upon surveillance activities within specified timelines is considered a deficiency. Thirdly, inadequate or delayed reporting of surveillance-related activities falls under the purview of lapses.

    Financial disincentives or fines imposed by SEBI vary depending on the annual revenue of the MII and the recurrence of surveillance-related lapses. For instance, the first instance of a lapse may attract a disincentive ranging from Rs 1 lakh to Rs 25 lakhs, based on the MII's annual turnover. Subsequent instances incur higher disincentives, with the third instance onwards potentially resulting in a penalty of up to Rs 1 crore for MIIs with an annual turnover exceeding Rs 1000 crore.

    Upon identifying surveillance-related lapses, SEBI provides the concerned MII with an opportunity to present its case before imposing any financial disincentive. MIIs are required to credit the imposed disincentives to the Investor Protection and Education Fund established under the SEBI Act, 1992, within 15 working days. MIIs must disclose details of any financial disincentives on their websites and annual reports.

    The circular does not apply to lapses with market-wide impacts, significant losses to investors, or threats to market integrity. Procedural delays or errors deemed minor by SEBI, such as minor delays in providing information or seeking extensions due to uncontrollable factors, may result in administrative proceedings rather than financial penalties.

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