SEBI's recent circular introduces a framework for imposing financial penalties on Market Infrastructure Institutions (MIIs) for surveillance-related shortcomings. This move, effective from July 1, 2024, aims to enhance the integrity and security of the securities market.
Role and Responsibilities of MIIs
MIIs, encompassing entities like stock exchanges, clearing corporations, and depositories, play a crucial role in overseeing the securities market. With trading activities and strategies becoming more complex, SEBI underscores the significance of MIIs in detecting and preventing market abuses to maintain investor confidence and market integrity.
Detailed Analysis
• Surveillance Activities: MIIs are mandated to monitor various market activities and participant behavior, including trading, margining, settlement, and demat transactions. The framework stresses timely reporting of suspicious activities to SEBI and the implementation of preemptive measures guided by the regulator.
• Financial Disincentives for Lapses: The framework introduces financial penalties for MIIs based on the severity and frequency of surveillance lapses. Penalties are structured according to the MII's total annual revenue and the number of lapses detected within a financial year.
• Implementation and Compliance: SEBI allows the concerned MII to present its case upon identifying a surveillance lapse. If financial penalties are imposed, the MII must credit the specified amount to the Investor Protection and Education Fund (SEBI–IPEF) within 15 working days. Transparency and accountability are ensured through mandatory disclosure of penalties on MIIs' websites and in their annual reports.
• Exceptions and Administrative Procedures: Minor procedural lapses are exempted from financial penalties and are instead addressed with administrative actions like warnings. These include small delays in information submission, promptly corrected errors, and uncontrollable delays.
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