Enough Safeguards To Ensure SEBI’s Power To Tap Calls Is Not Misused: TK Viswanathan
A panel set up by the Securities and Exchange Board of India recommended in its report on fair market conduct that the regulator seek powers to tap phone calls to prevent insider trading and fraudulent trades.
TK Viswanathan, former law secretary and the author of the report, interacts with BloombergQuint on the issues.
Here are edited excerpts.
What’s the principal theme of your report?
SEBI wants to achieve a lot such as preventing fraudulent trades and insider trading, but it’s let down by lack of manpower. We’ve tried to fill the gaps and empower it wherever we could. Even the Supreme Court observed that SEBI needs to be more proactive.
The report highlighted that investor exposure in the equity market should be in consonance with their financials. What’s the thought process behind it?
How else will we or the SEBI catch insider trading? We need to corner them (fraudulent entities) and, in practice, this is the only way, else we’re helpless. We’ve suggested enhancing surveillance in the report, but we’ve moved cautiously. We will have to examine whether SEBI will be able to handle the issue of insider trading with this (the measures) or we’ll have to suggest something more drastic.
SEBI seems to be already moving to link investor exposure in equity to their net worth. But there is an argument that may not be right approach…
We have given our recommendations and it’s up to the SEBI to accept it. Maybe in its next meeting it’ll take this into account… It’s the regulator that must weigh in on it.
Would seeking of call data records and intercepting phone calls for surveillance not amount to breach of privacy?
No, SEBI will not have these powers directly. These powers are already there with a lot of other agencies such as Central Board of Direct Taxes. The request for phone tapping will go to the home secretary (on a case-to-case basis). It will be reviewed by a committee comprising the cabinet secretary mandated by Supreme Court. There’s a slim chance of power misuse. I was part of this committee when I was the law secretary, so I know it’s difficult for the power to be abused. It will be granted only in select approved cases.
What’s the thought process behind the committee widening the definition of fraud and insider trading?
It’s a decision made by the Supreme Court. The definitions are different from what is already understood in the India context. Business practices are becoming innovative so there are new types of frauds emerging, with which the market regulator needs to keep pace.