Regulations
SEBI Gags Staff: No Speaking to Media
Fear and distrust of the media now extends to regulators as well. One of the first actions after Mr Ajay Tyagi has taken over as chairman of the Securities & Exchange Board of India (SEBI), is a circular that effectively gags SEBI officers and bars them from talking to the media without prior permission. On 10th March, shortly after office hours, an email went to all SEBI officers from Mr Jayanta Jash, Chief General Manager in charge of Human Resources. It said: 
 
“Attention of staff members is drawn to regulation 53 of SECURITIES AND EXCHANGE BOARD OF INDIA (EMPLOYEES' SERVICE) REGULATIONS, 2001).
 
Contributions to the press
53. (1) No employee may contribute to the press without the prior sanction of the Competent Authority or without such sanction make public or publish any document, paper or information which may come in his possession in his official capacity.
(2) No employee shall except with the previous sanction of the (2) competent authority publish or cause to be published any book or any similar printed matter of which he is the author or not or deliver talk or lecture in any public meeting or otherwise.
Provided that no such sanction is required, if such broadcast or contribution or publication is of a purely literary, artistic, scientific, professional, cultural, educational, religious or social character.
 
Further, it is advised that staff members shall not meet or talk with media except with explicit permission of competent authorities. Violation of the above would be viewed seriously and may result in disciplinary action.”
 
A simple reading of Section 53 shows that it pertains to SEBI officers writing or publishing articles in the media or books. It does not and should not bar officers from speaking to the media. Is the new SEBI chairman extending the scope and application of the employee service regulations without proper clearances? There are two other issues here. First, it goes against the spirit of transparency that the government under Prime Minister Narendra Modi has promised. But worse, a regulatory body is only as good or effective as its ability to gather market intelligence and remain a jump ahead of scamsters and market manipulators. 
 
Over the years, every SEBI chairman who has lodged itself in the imposing SEBI Bhavan, has systematically worked at cutting off all contact with various stakeholders. SEBI officials rarely meet investors, and now, its officials are barred from meeting the media without prior permission. Interestingly, in the days when the prime minister himself and his entire cabinet including various ministries interact directly with the public, India’s financial regulators wish to remain in a cocoon. The insurance regulator can’t be seen in social media while the Reserve Bank of India and SEBI merely push out information but do not engage. It remains to be seen how SEBI intends to engage with the media over the next three years, under a new chairman. 
 
Moneylife wrote to SEBI Chairman Ajay Tyagi for his response and even followed up with his communications head, but we have received no response. 
 

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COMMENTS

Silloo Marker

7 months ago

The new Chairman seems to have been given specific instructions about curtailing contacts with the media by some undisclosed authority above him. Lack of transparency is dangerous as it undermines the basic principles of democracy.

REPLY

kumarajaysingh

In Reply to Silloo Marker 3 weeks ago

kumarajaysingh@rediffmail.com 9950321327 fraud in sebi itself

S.S.A.Zaidi

7 months ago

let us not give it a saffron color. Saffron is as good as any other color. The point raised I'd that of control and transparency .with so much control being exercised the transparency will b the victim and this is what this article nightlights if I have understood correctly. Pls don't bring in such factors in our comments that deflect and obscure the main issues
Thanks

Navneet

7 months ago

Dear Roy Aranha, if this is "Saffron" surge, then, what would you prefer, Islamization ? Or, perhaps, Westernization (as in, a lost generation) ?
Let me share this with you, I filed an RTI for nationality details of Sonia, Rahul, Priyanka Gandhi, all I got a response from the then UPA/Congress Govt. in Center was - it is a matter of national security, hence, cannot be revealed !
So, is this the kind of transparency and democracy you want for all of us ?
I guess, all you need is a real hands-on experience of Dictatorship, please be my guest at my family's rented residence in Saudi Arabia, where, you will live under the fear of death at any moment. Or, visit my cousin brother, who lives in China, and then, you will come to know that, even you web usage is being monitored.
In-case you feel like being my guest, just give me a call and arrange for your tickets to Riyadh, the rest you can be assured of will be an excellent experience of life for you!

Roy Aranha

7 months ago

well orchestrated plan of controls from the top of the saffron surge , dictatorship slowly the country is undergoing a quiet emergency , transparency is coloured only in words and public announcements

REPLY

Navneet

In Reply to Roy Aranha 7 months ago

Dear Roy Aranha, if this is "Saffron" surge, then, what would you prefer, Islamization ? Or, perhaps, Westernization (as in, a lost generation) ?
Let me share this with you, I filed an RTI for nationality details of Sonia, Rahul, Priyanka Gandhi, all I got a response from the then UPA/Congress Govt. in Center was - it is a matter of national security, hence, cannot be revealed !
So, is this the kind of transparency and democracy you want for all of us ?
I guess, all you need is a real hands-on experience of Dictatorship, please be my guest at my family's rented residence in Saudi Arabia, where, you will live under the fear of death at any moment. Or, visit my cousin brother, who lives in China, and then, you will come to know that, even you web usage is being monitored.
In-case you feel like being my guest, just give me a call and arrange for your tickets to Riyadh, the rest you can be assured of will be an excellent experience of life for you!

Is SEBI Going Slow on Collective Investment Schemes?
In early March, the Supreme Court of India (SC) disposed of a 2013 petition filed by a non-government organisation (NGO) called Humanity Salt Lake, asking for a proper investigation into chain-money schemes or illegal chit funds or Ponzi schemes. The Court took on board a submission by the Securities & Exchange Board of India (SEBI) that it has referred over 1,000 cases to other appropriate agencies for further probe, since the investigation did not fall under its purview. The petition made it to newspapers, mainly because the SC bench headed by the chief justice took exception to celebrated advocate Prashant Bhushan (who appeared for the NGO) attempting to keep the public interest litigation (PIL) pending. 
 
Earlier, the SC had issued a notice to the Centre and SEBI asking for the status of 1,538 cases, based on the charge that the government, specifically SEBI, was not doing enough to protect people from unscrupulous Ponzi operators. In response, SEBI told the Court that it has passed interim orders against 299 entities, and over 1,000 cases that did not fall under its regulatory purview were transferred to other regulatory agencies. 
 
First, let us get some perspective on this issue. Indians lose the maximum money to unregulated multi-level marketing (MLM) firms, Ponzi schemes, dubious collective investment schemes (CIS), chain-money schemes and fake chit funds. The sums are staggering—they range from Rs49,000 crore in the case of PACL (Pearls), to thousands of crores in the case of Saradha, Rose Valley and other schemes and a few hundred crore even in unknown companies. Financial literacy in India is abysmal and people are quick to part with hard-earned savings to ‘trusted’ friends and relatives who themselves are conned by the glib and rehearsed sales pitch of dubious finance schemes. Once the Ponzi has played out and the marketer has siphoned all the money, recovery is almost impossible. There are multiple state and Central laws that deal with the issue. Multiple regulators and the economic offences wings (EOWs) of the police at various states end up handling these cases without enough manpower or training. This is true even after SEBI was asked to regulate CISs that have raised over Rs100 crore (or from 50 persons). 
 
Thousands of Ponzis are proliferating in every Indian state and their victims run into tens of millions. The EOWs usually rely on depositor protection legislation promulgated by various states which combine civil and criminal remedies. But litigations last well over a decade or two; a lot of time is wasted on the maintainability of petitions under such state Acts. States also try to bring Ponzi and MLM schemes under the Prize Chits and Money Circulation Schemes (Banning) Act of 1978, but with little success, except in Andhra Pradesh.
 
Moneylife Foundation is pushing hard to give more teeth to the Maharashtra Protection of Interest of Depositors Act (MPID) and has received a very positive response from the chief minister’s office. In fact, work on the amendments to the Act has already been undertaken. 
 
While the problem is gigantic, it is a fact that regulators continue to play pass-the-parcel. Even the Reserve Bank of India (RBI), which regulates chit funds and non-banking finance companies (NBFCs), systematically pushes all cases of companies that are not registered with it to the state EOWs when it ought to crack down on such companies as soon as they are brought to its notice. It has also studied the various statutes to come up with best practices. 
 
The apex court itself has set up a committee under Justice RS Lodha to direct the liquidation and distribution of PACL’s assets; but it is unclear if even a fraction of the Rs49,000 crore raised by this Ponzi and transferred overseas will be recovered. In this case, it is the judicial system that allowed  Nirmal Singh Bangoo to amass wea  and the north-eastern states. 
 
In this context, it is a pity that a PIL that made it to the Supreme Court and had a celebrated activist advocate representing it, did not lead to a macro assessment of the situation and concerted action to crack down on fraudulent schemes before they cheat people. I received a whistleblower’s letter, apparently written by a SEBI insider, with a detailed account with internal memos and file notings of how there is considerable pressure on regional directors at the regulator to conclude investigation in just two months under ex-chairman UK Sinha. 
 
There were verbal instructions to close cases or refer them to other agencies in large numbers. The letter provides data to show 88.9% increase in closed cases in 2015-16. The documents show that Kolkata alone closed as many as 698 cases in the first 11 months of 2015-16 and had just eight officers in charge of CIS along with other work. Similar numbers, tables and charts are provided for all regional offices of SEBI. At the same time, the number of cases taken up for action is woefully small. The whistleblower alleges that after 2014, SEBI’s top brass quickly delegated responsibility for deciding to lower level functionaries and closures are, often, based on verbal instructions and impractical deadlines. 
 
These are serious allegations which, at the very least, suggest a great reluctance to take on dubious Ponzis and CISs, most of which have powerful linkages with politicians and celebrities who endorse their products. According to this whistleblower, SEBI has been at pains to dispose of cases as being outside its jurisdiction following the SC’s stinging observations in the Alok Jena vs Union of India case (order dated 9 May 2014) in connection with a massive Ponzi scheme that flourished in Orissa. 
 
The Court said, “There is yet another aspect to which we must advert at this stage. This relates to the role of the Regulatory Authorities. Investigation conducted so far puts a question mark on the role of regulatory authorities like SEBI, Registrar of Companies and officials of RBI within whose respective jurisdictions and areas of operation the scam not only took birth but flourished unhindered. Suffice it to say, that the scam of this magnitude going on for years unnoticed and unchecked, is suggestive of a deep-rooted apathy if not criminal neglect on the part of the regulators who ought to do everything necessary to prevent such fraud and public loot.” 
 
It is extremely heartening that some officers inside SEBI are agitated enough about the ‘public loot’, to have compiled a detailed analysis of how SEBI is systematically dumping nearly 1,500 plus cases. These are passed off to agencies that have nowhere near the resources or powers of investigation, search, seizure and action that SEBI has. With the SC having summarily disposed of the PIL filed by Humanity Salt Lake, we have lost a huge opportunity to ensure that the victims of such dubious schemes have a fighting chance for recovering some money through timely investigation. Worse, thousands of new scamsters will continue to rob millions of new victims every year and literally walk away free.
 

User

COMMENTS

Prakash Bhate

7 months ago

Can companies legally use their CSR funds to sponsor advertisements against such schemes on TV and in newspapers? If so, someone (ML?!) should explore this option.

lalit

7 months ago

It may be noted that all the plantation schemes that were started in late 90'too were declared as CIS schemes by the govt,out of which some have repayed and some have vanished ,in such cases even the courts / EOW take there sweet time to give the judgement.
Also the list of investors should be available with the courts / EOW since many of the investors in such scheme invest with the help of the agents / distributors who alsodoes not know the status of the company.
In such cases the courts / eow /other govt agencies should contact the investors,since some of them may have shifted , or expired,or dont know what to do with the investment made.
My request to money life is that they should take this matter as well so that gullible investors can file their claims for recovery of the principal amount.

mahesh

7 months ago

DEAR ALL,
PL. SAVE GULLIBLE INVESTORS/DEPOSITORS; GET THEM MONEY BACK; TAKE IT RELIGIOUSLY; PROSECUTE ALL TYPES OF WRONG DOERS INMY COUNTRY; LET ALL OF US BE AFRAID OF NON-ABIDING THE LAWS AND PL. PL. PL.; DO NOT GRANT REGISTRATIONS TO SUCH CIS/MLM PROPOSALS AND MAKE A VERY SRINGENT CHECK LIST WHEN THEY APPLY AND CHECK CORRUPTION,IF ANY, AT THE TIME OF THEIR REGN. ITSELF PL. PL.

Ansar Ali

7 months ago

All the regulatory body showing that they are well wisher of poor investor or they apply their all power to refund their hard earned money. But not a single person or investor benefited through them. Money is freezed or blocked from company to regulatory. Ultimately public has no benefit. So govt should do something for public. Rules and regulations are not enough. Public 's opinion must be heard. Legal tussle is not a solution. Government have to think company side. They are also creating job for many people. Regulators have no idea about a people who lose their job. So govt should think about job creator... Please convey my msg to Honor able Prime minister Modi jee. My painful prayer to you please please do think about many many poor people 's hard earned money.

Vaibhav Dhoka

7 months ago

AS history goes in India there are multi-regulators and there is lack of coordination. Everyone throws ball in another goal and none acts. SEBI awaits RBI to act,when one approaches EOW of police they will direct you to SEBI or bankers.All regulators will show they are acting on complaint but truth is vice versa.Only finance ministry under Hon'ble Prime ministers directives will act.

N.Hanumanta Rao

7 months ago

The Supreme Court must pass stringent orders and put the cheaters in jail until the money is recovered and paid to the investors.

Samuel C S

7 months ago

Not to forget, the HOD of CIS department; R S Srivatava, IRS, was hand picked by U K Sinha. CIS is the only department in SEBI that was allowed by U K Sinha to take its own enforcement actions (contrary to the practice in all other departments of SEBI). So Srivastava is both police and judge in matters related to CIS in SEBI. Howzzzzat???

Now, Manipulation in Currency and Commodities Markets Too
In June 2015, Moneylife published the first letter from an anonymous whistleblower on manipulation at the National Stock Exchange (NSE). The letter, and two subsequent ones, triggered a chain of events: a Rs100-crore defamation suit against us by the NSE; a detailed investigation by the market regulator’s technical advisory committee (TAC) which confirmed the whistleblower’s charges; regulatory action to impound part of NSE’s revenues and investigation to fix responsibility; sweeping changes in NSE’s top management and, finally, NSE’s admission of wrongdoing in its draft red herring prospectus.
 
On 14 February 2017, the whistleblower sent a detailed fourth letter addressed to Securities and Exchange Board of India (SEBI); a copy was mailed to me. The closely typed, 13-page letter, with technical details and names, identifies loopholes in NSE’s systems architecture that remain unplugged even after the wide-ranging SEBI investigation. More worryingly, it shows how a few large traders, with high-frequency trades (HFTs), are ripping off huge profits by exploiting currency derivatives (especially contracts for the USD-INR pair) and commodity markets which the whistleblower says continue to operate in a ‘regulatory vacuum’.
 
With a new chairman at SEBI, a new managing director at the NSE, and the government fully apprised about issues of manipulation in NSE, we will wait to see if there is any action on this report. Meanwhile, here are the key issues raised this time by the whistleblower. 
 
Currency Trading Manipulation
A big new disclosure is about the manipulation of currency derivatives which are also regulated by the Reserve Bank of India (RBI). He says, “for most contracts traded in India, the price discovery tends to be in India, during Indian working hours, except for currency pairs such as USD-INR. In case of currency pairs, especially in emerging market currencies, the price discovery happens in global financial capitals such as London, Singapore and Hong Kong. The USD-INR pair is traded on the Reuters trading platform. The interbank spot fx market is by far the largest platform where spot currency is traded. Since its sheer size is much larger than the futures market, the spot market is often the place where price discovery occurs. Banks also price NDF (non-deliverable forwards) on any currency including USD-INR using the spot price as the starting point for generating their quotes.”
 
The whistleblower alleges that a couple of global HFT firms (a specific global firm with Indian operations is named along with a previously named firm which is being investigated) access price/data feeds which are prohibited for non-bank participants for Indian trades. This gives them a huge two-second information advantage, allowing them to operate on miniscule price changes, that are exploited through large trading volumes which are, sometimes, as high as 30%-40% of the entire USD-INR futures volume, on any given day. The letter informs regulators about how his allegation can be verified by checking the open positions of that firm and low inventories. 
 
He says, one foreign firm alone has made profits of anywhere between Rs200 million to Rs300 million (2013-14) in the very first year that it began to use such prohibited data feeds in India. This global firm has faced allegations and investigation in overseas markets as well. The whistleblower wonders why surveillance systems of both, RBI and SEBI, are never able to capture what is being done by this global firm and another one which is already under investigation. 
 
Old Problems at NSE Remain with Small Changes 
Following the SEBI investigation, the average order response time at NSE’s co-location has gone down from the order of around two milliseconds to approximately 150x00 microseconds, depending on various factors. But, he says, the “advantage of speed is not only in absolute terms but always in relative terms.” So, he says, a select few traders still get to calculate real-time latency across multiple gateways and then route all orders via the fastest gateway. The whistleblower alleges that NSE continues to drag its feet about introducing basic transparency measures such as allowing PTP (point to point connectivity) at the co-location. He says, without PTP, it is almost impossible for SEBI to catch preferential access to a select few and it means that the “Exchange can pretty much do whatever it likes so long as it is not blatant enough to be observed.” The motive, according to him, is to support their profit objectives “without looking at the market-wide consequences.” Does this mean that, apart from individual collusion, there is an institutional issue as well? SEBI will need to investigate. The letter has a long and technical narrative on what can be done to fix the problem. 
 
There are also issues of disclosure by exchanges and adherence to SEBI’s rules. For instance, he says, NSE does not publish “latency encountered at co-location,” despite a clear SEBI circular. While the BSE (Bombay Stock Exchange) publishes these numbers real-time, NSE publishes average latency across the quarter! “In an era of micro seconds, what usefulness is provided by publishing quarterly average latency to the market is beyond comprehension. It is unfortunately a reflection of the lip service to the spirit of compliance which exchanges do even to SEBI directives,” he says.
 
Market Abuse through Spoofing/Flashing Orders 
The whistleblower details how a few firms are working around the rules that were framed to prevent order spoofing (creating the illusion of demand/price by placing a large number of orders and modifying or cancelling them rapidly to confuse other traders by whipping up a froth of artificial trading volumes). Without going into technical details in the letter, the whistleblower makes a pertinent point when he says, “It is strange that the exchanges are not able to notice this (manipulation through spoofing or cancelling orders) as a discernable pattern in their tick data and haul up firms which are trying to act in this manner. Either they simply do not care or they wish to permit the same and not raise red flags on purpose.” 
 
He says that there is time-stamped data available for an auditor to “check which firms are engaged in this practice and then match their trade pattern in the scrips where they flash orders.” He accuses both the national exchanges of granting favourable access to some, or creating impediments for others, including grant of connectivity. One feels confident that SEBI’s TAC will want to investigate these revelations.
 
Commodity Exchanges and Regulation 
According to the letter, the commodity exchanges have the least regulatory oversight and need urgent attention. He comes back to the ‘dark fibre’ issue (flagged off in his second letter), which seems to have been ignored in the corrective action so far. This issue concerns large telecom carriers which are the billing companies for providing connectivity to algo traders. Although NLD (national long distance) licence-holders are required to have complete ownership of the telecom equipment, in practice, actual networks are owned by unlicensed vendors and the carrier only acts as a billing agent. These vendors raise invoices in the name of ‘link optimisation’ for installing devices and dark fibre paths to ‘speed up’ links to the exchange. It should be easy for SEBI to verify which firms have been paying money to unlicensed vendors for services, says the whistleblower.
 
Interestingly, he says, telecom firms with NLD licences that are disallowed by NSE because they do not have certain equipment (and their vendors providing ‘speed links’) are operating on commodity exchanges and have a big market share. There are firms providing dark fibre links to commodity exchanges quite openly, for inter-exchange connectivity. Shockingly, he says, some firms provide different speeds of connectivity based on what they are paid. All this becomes a matter of serious concern as SEBI is set to permit options trading in the commodities exchanges. 
 
I have shared the whistleblower’s letter with former SEBI chairman UK Sinha and several SEBI officials, top bureaucrats in the finance ministry, the RBI governor and some key officials at the NSE. NSE wrote to say that the “matter is under consideration” and it has been advised to “restrict any outside communication, in respect of matters disclosed in the DRHP (draft red herring prospectus),” hence, it is “unable to provide any response at this point of time.” We will watch how SEBI and the government deal with this information.

User

COMMENTS

Manish Shah

2 months ago

Plain and simple all of them are corrupt.

Ravish Singh

7 months ago

I feel people/ firm if proved guilty needs to be punished severely because they have cheated and looted the money of firm/people who believe in fair play market.

Ravish Singh

7 months ago

I feel people/ firm if proved guilty needs to be punished severely because they have cheated and looted the money of firm/people who believe in fair play market.

Ravish Singh

7 months ago

I feel people/ firm if proved guilty needs to be punished severely because they have cheated and looted the money of firm/people who believe in fair play market.

Ravish Singh

7 months ago

I feel people/ firm if proved guilty needs to be punished severely because they have cheated and looted the money of firm/people who believe in fair play market.

Ravish Singh

7 months ago

I feel people/ firm if proved guilty needs to be punished severely because they have cheated and looted the money of firm/people who believe in fair play market.

Ravish Singh

7 months ago

I feel people/ firm if proved guilty needs to be punished severely because they have cheated and looted the money of firm/people who believe in fair play market.

AlphaTrader

7 months ago

We all know who the suspects are. AlphaGrep securities aka way2wealth securities && tower research.

KAVIRAJ B PATIL

7 months ago

This would have been exhaustively highlighted in business channels (TV) if they wanted to show real news. But there has not been a whisper. If NSE continues to dodge the issue, the wheels will come of their IPO. Probably the big investors will then use their knives on the culprit.
I remember how NSE once tried to harass an employee who wanted to quit by using a whole lot of dirty tricks.

T.c. Shivswamy

7 months ago

This is only a tip of the iceberg. What about electronic currency markets such as BITCOIN and other nearly173 underworld currencies with no regulatory control which are playing havoc.Bitcoin has beaten even gold and dollar markets and some of our own high-tech start ups are used to convert Black Rupees into BItcoin and trade them . So also commodity markets which are manipulated on the global markets. All this ends up as Maya Bazaar of Money.How are you control all this.

REPLY

Rajan Vaswani

In Reply to T.c. Shivswamy 7 months ago

Bang on target. RBI still only issues advisories. Each gullible investor who enters, ensures the others benefit from the higher valuation.

Arunkumar A Vijayan

7 months ago

A very big thank you to ML and Suchetaji for sharing such irregularities boldly.

RAVI RAM PV

7 months ago

“matter is under consideration” - classic Govt response. Sad.

But, one way learnt ways things happen! Thanks for sharing!!

Parimal Shah

7 months ago

'Jab niyat men khot ho to supervision sirf naam ke vaste hai' - when the desire to supervise is lacking supervision is only for namesake.

Karthik Bharathi

7 months ago

As a retailer, i couldnt even understand many terms used. How SEBI, exchanges expect us to be aware of such issues. Thanks ML for striking the bell at the right time. hope it reaches SEBIs ears.

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