Monitoring, periodic reports and defaulter database envisaged.
With an aim to check frauds and help it probe suspected fraudulent activity, market watchdog Sebi may prescribe a Code of Conduct for key executives of market players such as brokerages and merchant bankers.
Sebi is also considering asking market intermediaries to notify one or more key executives to be held responsible for any violation of norms, so that the entire firm does not face the risk of regulatory actions.
Other market players which could need to follow these guidelines include portfolio managers, mutual funds, depositories, custodians and rating agencies.
Sources in the know said the move follows growing concerns over some employees indulging in activities like fraud against clients, front-running, circular trading and manipulating share prices through rumour mongering.
The regulator also wants to put in place a mechanism to counter data tampering and data stealing by staff for the benefit of rivals or other entities, sources said. At times, only a few key officials are involved in frauds, but the entire company faces probe and regulatory risks, sources said. Adding that the regulator is looking into ways for safeguarding the interest of the innocent staff and overall business interests of the entities.
Besides the investors, market players also lose in terms of reputation, regulatory action and, at times, market share from any fraud committed by their staff, a Sebi official said.
The regulator has already got positive feedback from market players on the need to prescribe a code of conduct for key employees at various intermediaries, he added.
A Sebi-appointed committee, comprising representatives from various market intermediaries, in its representations has also suggested the need for such a Code of Conduct. The regulator might consider issuing broad guidelines, which every intermediary would have to follow while framing the code of conduct for their employees, the official added.
Periodically, market players would need to inform Sebi about compliance with the code, while the regulator will check from time to time on the status. These guidelines, along with a pending proposal for a common defaulter database for all market players, would help to a great extent in checking fraud and in investigations of market manipulating activities, sources said.
The database would provide a one-stop reference point for all market players and make it easy for them to beforehand identify a person or institution having defaulted in the past. The database is being proposed to be set up on the lines of CIBIL, a repository of credit information of all commercial and consumer borrowers in the country, for the benefit of banks and other lenders.
