| Sections 12 and 12A of the Sebi Act, 1992 specify various market intermediaries who ought to be registered and regulated by Sebi. However, funnily enough, the Act itself does not define the scope of any intermediary's role. For instance, the Act does not define what is a mutual fund, a collective investment scheme, a stock-broker, a sub-broker, or any other intermediary for that matter. |
| For a few intermediaries, the Indian government wrote rules to define the concept. However, the practice of writing rules has now been done away with and regulations made by Sebi tend to directly regulate and govern the intermediaries without actually defining the specific activity that would amount to a person being the specified intermediary. |
| Against this backdrop, the concept of "investment advisor", a class of intermediaries that the Act wants Sebi to regulate, poses an interesting challenge. In an era where anybody and everybody has a view on where the stock market index is headed, and proudly professes such views, the impact of the advice too cannot be discounted. |
| The Indian Constitution guarantees to every citizen freedom of speech and expression subject to reasonable restrictions. It has always been a touchy issue for the regulator to deal with dissemination of information in the media. |
| Long ago, Sebi had started speaking to the Press Council of India to work out a code of conduct for journalists, but not much came of it. The print media has been completely overtaken by the electronic media and that too has posed immense complications in regulating fair comment and free speech on television. In what appears to be an attempt to provoke debate, Sebi issued a few orders against some commentators on market price, trying to establish lack of consistency between the commentators' public statements and dealings by companies with which they are associated. I am associated in challenging some of these orders and therefore will avoid comments on merits. However, the short point here is that there already exist regulations that deal with unfair market practices, and one does not need to spend enormous taxpayer funds to set up a registration and regulation procedure. |
| Every person, who is already within the regulatory purview of Sebi, is governed by a Code of Conduct, the breach of which has criminal implications. Besides, only such class of intermediaries have direct links and connections with the investor. |
| Mutual funds regularly send out mailers and material that provides advice on how unitholders should invest their funds. Brokers send out reports and mailers every day. |
| Merchant bankers deal with clients and provide investment advice. Each such class of intermediaries has to adhere to the code of conduct that governs them, and there are more than adequate laws and wide-ranging powers in Sebi's hands to deal with any misdeeds on their part. |
| Therefore, the real challenge is not in relation to people who are already registered with Sebi in some capacity or the other, but with unregistered persons who proffer investment advice. |
| Here, the key would be to see whether the advisor gets a pecuniary benefit out of the action upon his advice. There is already a body of law in the regulations that regulate portfolio managers. This could be used as a tool to regulate investment advisors who provide advice for a fee. |
| The author is a partner of JSA, Advocates & Solicitors. The views expressed here are his own somasekhar@jsalaw.com |
Explore Business Standard