SEBI tightens conflict of interest norms for market entities

SEBI directed credit rating agencies to devise their policies for effective implementation of the guidelines by October 01

January 01, 1970 5:30 IST | India Infoline News Service
The Securities and Exchange Board of India (SEBI) issued guidelines for dealing with conflict of interest for investment/trading in securities by credit rating agencies (CRAs) and their employees involved in rating of securities.

The market regulator directed the CRAs to devise their policies and procedures for effective implementation of these guidelines by October 01, 2013.

“These guidelines will be applicable in case of investment/trading by CRAs and access persons connected to CRAs and in case of disclosures to all employees of CRAs,” SEBI said in a circular on Wednesday.

According to SEBI, the objective of the guidelines is to adopt best industry practices and systems by CRAs for managing conflict of interest in case of investment / trading in securities (except schemes of mutual funds) done by cras or their access persons.
SEBI in the circular defined “Access Persons" as officials of CRA appointed as chief executive or by any other designation (such as CEO/MD/President who are performing functions similar to those of the chief executive), the employees of CRA doing the function of analyst, or compliance, or heads of the departments or divisions or any other employee as decided by CRA and the members of the Rating Committee of the CRA.

SEBI said its new rules would cover transactions for purchase or sale of securities either individually or jointly or in the name of their dependents or as a member of HUF” (Hindu Undivided Family).

SEBI directed CRAs to adopt adequate systems, procedures and policies to ensure that they address conflict of interest while making their own investments in securities. The regulator also warned the CRAs, their employees and access persons not to take undue advantage of any price sensitive information that they may have about any company.

According to the guideline, access person have to now apply to the compliance officer for prior approval of transactions for purchase or sale of securities of the companies which have been rated or graded by the CRA or whose securities/instruments/facilities have been rated or graded by the CRA.

Detailing the procedure for transaction in securities by access persons SEBI said, “The compliance officer of the CRA shall apply to the chief executive of the CRA for such prior approval." Further, the CEO and compliance officer while considering the request for prior approval have to ensure that there is no conflict of interest. Also, such approvals, if granted, will be valid for seven working days from the date of approval.

As per the guideline employees and access persons of CRA have to disclose through consolidated statement holding of all securities within 30 working days from the end of the financial year.

The rating firms have to disclose details of purchase or sale transactions effected within seven working days from the date of transaction, SEBI said.

Any person who becomes an employee of the CRA, have to submit a statement of holding of all securities in respect of to the compliance officer or chief executive within seven working days of joining the CRA.

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