Sebi should seek power to tap phone calls: Panel on fair market conduct

Experts raise privacy concern; committee recommends codes of conduct to deal with insider trading

A committee on fair market conduct has suggested that market regulator, Securities and Exchange Board of India (Sebi), should seek powers to tap telephones and other electronic communication devices to check insider trading and other frauds.

Currently, Sebi has the power to only ask for call records, which includes numbers called and the duration of calls made. If the recommendation is implemented, Sebi will be able to listen in on the calls, as well as intercept other forms of electronic communication.

According to the recommendations of the report of the Committee on Fair Market Conduct, headed by former law secretary T K Viswanathan, “Currently there are several methods of electronic communication apart from telephone calls which are fairly widely used… interception of electronic communication should also be covered in the powers being sought”. The report was submitted on August 8.

“The committee recommends that Sebi may seek direct power to intercept calls but ensure proper checks and balances for use of the power by necessary amendment in the relevant laws,” it added.

Some experts welcomed the suggestions of the committee.

R S Loona, managing director of Alliance Law, said, “White-collar crimes are serious. It is very difficult to prove violations such as insider trading. I am of the view that the powers to intercept or record calls should be given with certain checks and balances. Some higher authority should authorise call recording.”

Others, however, feel that such powers — already vested in the police and investigating agencies such as the Central Bureau of Investigation — might be draconian if extended to regulators.

Sandeep Parekh, founder of Finsec Law Advisors and former Sebi executive director, said the move would be extreme, without any parallel anywhere in the world. “You can’t give these powers to financial regulators,” he said.

The move comes even as the debate over privacy has gathered steam in recent times. The Supreme Court in an August 2017 judgment ruled privacy to be a fundamental right. A debate over privacy and Aadhaar is still pending, with a Supreme Court judgement awaited in the matter.

The committee also dealt with other issues such as benami accounts and insider trading. It has suggested changes to existing regulations to better prosecute malpractices. For example, it said the scope of regulations on fraud should not just cover intermediaries, but also their employees. It has also recommended the inclusion of a specific provision to better deal with manipulation of accounts.

The report also made a number of recommendations on insider trading. Among them, is the creation of two separate codes of conduct. One would set minimum standards on dealing with insider information by listed companies. The other would set standards for market intermediaries and others who are handling price-sensitive information.

The committee has also suggested that companies should maintain details of immediate relatives of designated persons who might deal with sensitive information. There should also be information on people with whom the designated person might share a material financial relationship or who share the same address for a year.

“Such information may be maintained by the company in a searchable electronic format and may be shared with Sebi when sought on a case-to-case basis,” it said.

The committee also considered the issue of front entities that lent their names or trading accounts, to others. It has recommended the inclusion of a new sub-section within the Sebi Act, 1992, which would specifically prohibit devices, schemes or artifices employed for manipulating the books of accounts or financial statements of a listed company. Benami trading should also be deemed fraudulent if it leads to manipulation, the report said.