Code of Conduct and Institutional Mechanism for Prevention of Fraud and Market Abuse

By its Circular dated March 3, 2021, SEBI has decided that the requirements contained in the PIT Regulations relating to code of conduct (‘Code’) and institutional mechanism for prevention of fraud and market abuse (‘Institutional Mechanism’) will be applicable to stock exchanges, clearing corporations and depositories (collectively, Market Infrastructure Institutions or ‘MIIs’). Accordingly, MIIs will be required to undertake the following with immediate effect:

i.     formulate a Code to regulate, monitor and report trading by their designated persons and immediate relative of designated persons towards achieving compliance with the PIT Regulations, by adopting the minimum standards set out in Schedule C to the PIT Regulations (in addition to Schedule B in case the MII is a listed entity and already within the purview of the PIT Regulations). The Managing Director (MD)/ Chief Executive Officer (CEO) of the MII will be obligated to frame such Code and the board of directors of the relevant MII may ensure compliance by the MD/ CEO in this regard;

ii.    identify and designate a compliance officer to administer the Code, and in consultation with such compliance officer, the board of directors of the MIIs must specify the designated persons to be covered by the Code on the basis of their role and function in the organisation and the access that such role and function would provide to unpublished price sensitive information in addition to seniority and professional designation and will include the position/ designation as specified in Regulation 9(4) of the PIT Regulations;

iii.  put in place an Institutional Mechanism covering the following: (a) adequate and effective system of internal controls to ensure compliance with the regulations and circulars issued by SEBI from time to time to prevent fraud or market abuse by the MII or its designated persons and immediate relatives of designated persons; (b) review of compliance with this Circular by the regulatory oversight committee at least once in a financial year; (c) formulation of written policies and procedures for inquiry in case of suspected fraud or market abuse which ensure maximum fairness and transparency; (d) inquiry by the MII upon becoming aware of any illegal or unethical practices or transactions of suspected fraud or market abuse and prompt intimation thereof to its board of directors; (e) effective whistle blower policy to enable stakeholders, including employees to freely communicate their concerns about illegal or unethical practices and report instances of fraud or market abuse or any suspicion of fraud or market abuse; and

iv.   take necessary steps to put in place systems for implementation of this Circular, including necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above and disseminate the same on their website and communicate to SEBI the status of implementation through their monthly development report.

Published In:Inter Alia - Quarterly Edition - March 2021 [ English Chinese japanese ]
Date: March 31, 2021