Why Did SEBI Impose a Rs 25 Lakh Penalty on BSE?

Mumbai, June 25 (NationPress) The Securities and Exchange Board of India (SEBI) has recently levied a penalty of Rs 25 lakh on BSE Ltd due to breaches regarding the dissemination of price-sensitive information by corporations, insufficient oversight of broker transactions, and failure to take appropriate measures. This action follows an examination of the stock exchange conducted from February 2021 to September 2022, which led to the issuance of a show cause notice.

The investigation by SEBI uncovered that BSE's system structure allowed paid clients and the internal listing compliance monitoring (LCM) team to access corporate announcements prior to their public disclosure on the BSE website.

SEBI noted that the data dissemination process was deficient, lacking necessary safeguards to guarantee simultaneous and equitable access for all stakeholders—an essential aspect for maintaining market integrity and preventing unfair informational advantages.

The findings concluded that BSE did not adhere to regulations requiring stock exchanges to ensure fair and transparent access for all users.

Furthermore, it was pointed out that BSE failed to implement a really simple syndication (RSS) feed, which could have reduced the risk of unequal access to corporate announcements.

SEBI also highlighted significant flaws in BSE's oversight of client code modifications, which should only occur in cases of genuine errors.

The exchange did not take disciplinary actions against brokers with a history of frequent modifications and inadequately monitored 'error accounts', raising concerns about potential misuse and lack of due diligence in trades involving unrelated institutional clients.

It was observed that BSE was merely obtaining confirmations from brokers regarding trades transferred to error accounts, which were later liquidated. Inspections for error account reviews among brokers were not conducted annually, and even when they were, BSE relied on the confirmations provided by those brokers.

SEBI's directive emphasized that as a first-level regulator, BSE must have internal controls to manage and handle corporate announcements to ensure compliance with its obligations.

It stated that everyone should have unrestricted, transparent, and fair access to information.

“The access to information about listed companies by BSE's LCM employees and its paid subscribers before it becomes available to general investors on the BSE website has severely compromised the principles of impartiality, transparency, and fairness in information dissemination from the first-level regulator BSE,” the order asserted.

“This situation encompasses numerous acts of omission, negligence, and a lackadaisical approach, which cannot be overlooked if the first-level regulator, entrusted with paramount duties of regulation and oversight, maintains such a lax regulatory stance that allows visible opportunities for system misuse,” the order concluded.