Stock Market Manipulators, Offenders Will Be Soon Treated Like Criminals: Govt Wants Strict Action

As per people familiar with the matter, the government in consultation with the Securities and Exchange Board of India (SEBI) is considering to make amendments in the SEBI Act that may lead to criminal prosecution of market offenders.

New Act To Prosecute Market Offenders

As per the new act, the government is seeking to make it mandatory for the market regulator to prosecute certain kinds of offences.

As we speak today, the powers of SEBI are equivalent to that of a civil court. It passes penalty orders against entities that commit market offences. 

However, the regulator has to go through the regular courts if it wants to initiate criminal prosecution against any such market offender.

The aim behind the rule tightening is to create a greater deterrent against securities market fraud. This move is in line with the Companies Act, under which certain violations can’t be settled through penalties.

A person privy to the matter said that “In all developed countries, security market frauds like insider trading result in prosecution. Although SEBI has similar powers, the same have been used by the regulator very rarely. If the proposed changes are finalised, SEBI will be mandated to prosecute the serious market offenders.”

Prosecution Powers Exercised Only a Handful Times

In past times, it was not often that SEBI used its prosecution powers. As per the data of FY21, out of 1,763 cases in which the proceedings were initiated by the market regulator, only in three cases was the prosecution started.

In FY20, SEBI initiated action in 2,070 cases, of which only 10 involved prosecution, it added.

Notably, depending on the location of the accused the regulator can initiate proceedings against market offenders in any criminal court of the country.

But, due to delays in proceedings and higher threshold for evidence in regular courts, the market regulator has rarely chosen to exercise prosecution powers.