Skip to main content

SEBI now looks to curb benami deals

SEBI now looks to curb benami deals
After its clampdown on shell companies, Sebi is turning its glare on 'benami trading'.The market regulator is trying figure out ways to pull up perpetrators who indulge in insider trading and share price manipulation through 'layering' of fund flows. This is an age-old technique of moving money as loan from one company to the next — in a chain of nine to ten entities — before the last outfit receiving fund buys or sells shares.
These layers of companies — many of which are normal operating business entities and not shell firms — are used to mask the identities of men behind the trades and obfuscate the true nature of the transaction. The matter was raised last week by Sebi wholetime member Madhabi Puri Buch at a meeting that was attended by officials of stock exchanges, a few senior officials of Sebi and members of financial services industry.
"It is tougher and more complicated than cracking down on shell companies. Such transactions for insider trading have been going on for years. Sebi wants to find out how it can build a solid case against such offenders," a person aware of the discussions told ET.
In 'layering', most of the companies and individuals in the chain are money mules who lend their identities, bank account, and demat trading account.The regulator is believed to have come across instances of suspicious fund movement of unsecured loans through multiple companies and individuals.
"Investigating these transactions is tedious, time consuming. In many cases, the money flow appears like part of normal business activity. But there would be regulatory suspicion if a person acting as a mule and having a salary of ?75,000 cuts deals worth crores from loans without collaterals..," said another person familiar with the subject".
Besides acting on privileged information, a promoter or acquirer can use layered companies to push up price in order to make it unattractive for shareholders to tender stocks in an open offer; or, it can be done to rig up price before placing shares to investors at a high valuation," said the person. A Sebi committee is doing a comprehensive review of Fraudulent and Unfair Trade Practices (FUTP) regulations and is looking at all aspects of price manipulation.
This has been a challenge... Typically, when trading happens Sebi goes after people who have done the trading. Price manipulation happens though benami trading. So, how do you get to the real person? There are no easy answers," said a source. ET's email to a Sebi spokesman went unanswered.
FUTP rules were among the first few regulations framed after Sebi was formed. It was last reviewed in 2003 and thereafter small amendments were carried out.  The latest review on fair market conduct is being done by a Sebi panel under the chairmanship of former Union law secretary TK Viswanathan. At last week's meeting one of the committee members told Sebi officials about specialised software and algorithms which could make enforcement easier.
While Buch and senior officials of Sebi may strongly feel about such corrupt market practices and are keen to minimise them, the regulator is likely to take its time in formulating an action plan.First, a sudden crackdown in a choppy market may not go down well with the government which has been repeatedly attributing the recent volatility in stock prices to global factors. Second, Sebi has to build cases that can stand legal scrutiny and make sure its actions don't appear ham-handed.
The Economic Times, New Delhi, 12th February 2018


Popular posts from this blog

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

New money laundering norms stump jewellery sector

New money laundering norms stump jewellery sector Dealers with turnover of Rs 2 crore and above covered; industry says threshold too low The central government has notified the money laundering rules for the gems and jewellery sector with immediate effect. Now, any entity deals in precious metals, precious stones, or other high-value goods and has a turnover of Rs 2 crore or more in a financial year will be covered under the Prevention of Money Laundering Act, 2002 (PMLA, 2002). The limit of Rs 2 crore would be calculated on the basis of the previous year’s turnover, said the notification. The directorate general of goods and service tax intelligence has been appointed under the Act. Sources said the government’s move to apply the PMLA to the jewellery sector was a fallout of income-tax raids on jewellers soon after demonetisation last November, when it was found that they sold gold and jewellery at a huge premium and accepted old currency notes as payment. The notification, issued on Augus…

Confusion over branded food GST

Confusion over branded food GST The GST Council's statement over the weekend on applying tax on branded food items has left most of the trade confused.

Even though the Council has not changed the rates on food -0 per cent on unbranded stuff and 5 per cent on brands -many small traders who didn't levy GST earlier said they could come under the 5 per cent slab after the clarification.

While they predicted some increase in consumer prices, large players said they can absorb GST in many ways and keep prices steady.

"Trade is confused and hence on behalf of our chamber, we have asked our members to go ahead and charge 5 per cent GST," said Sushil Sureka, general secretary of the Ahilya Chamber of Commerce and Industry in Indore.

The statement clarifying the application of GST came after some businesses were found deregistering their brands and selling under corporate brand name without paying tax, after the Council exempted unbranded food from the new all-encompassing indirec…