June 2019


Chartered Accountant


On 30th April, 2019, SEBI passed orders in the matter of the National Stock Exchange. The principal issue was the alleged preferential access accorded to some parties to the stock market order mechanism whereby they could profit and also allegedly giving them preference over other investors, brokers, etc. Further, there are two other orders passed by SEBI that deserve consideration. They effectively exhibit SEBIís new approach to widen the scope of the liability of persons associated with the capital market, especially of those connected with listed companies such as directors, auditors, key executives, etc.


These two orders deal with the alleged abuse of position by some people close to NSE whereby they profited from certain data preferentially and exclusively obtained from NSE which was used to develop products that were sold in the market. Worse, the implication that appears to be brought out is that these products enabled the users to profit at the cost of other investors.


The orders make stringent adverse comments and issue directions against the two groups of investors. The first group comprises those who were close to the NSE and which closeness was used to obtain and use NSE data exclusively. The second group consists of the exchange itself and its two key officials at the relevant time. SEBI found that the officials did not carry out the required diligence expected of them. The adverse directions are fairly stringent and harsh and if they acquire finality, have the potential to harm careers and reputations, especially of the involved key persons.


However, on appeal to SAT, the operation of these orders has been stayed as regards some of the key management persons. Despite the fact that the issues are in appeal because of the new approach of SEBI, we are reviewing these decisions because a very interesting approach has been taken in relation to the duties and liabilities of key management persons. The orders have wider implications and in a manner are cautionary for several groups who may be in a similar situation; they are, independent directors, non-executive directors, promoter directors and other entities associated with the capital markets. These entities often enter into profitable associations with their com


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