DNA Mumbai

Date Of Publication:

Tuesday, Aug 13, 2013

Unregistered chit funds, multi-level marketing companies or those raising deposits without registering themselves as collective investment schemes (CIS) would be considered as fraudulent and unfair trade practice.

The Securities Exchange Board of India, in its board meeting on Monday, approved the proposal to declare illegal mobilization of funds without obtaining a certificate under the SEBI (Collective Investment Schemes) Regulations, 1999 as a fraudulent and unfair trade practice (FUTP).

“It has been decided to amend the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. This amendment has been made to impose deterrent adjudication penalties on unregistered CIS entities mobilizing money,” said the regulator in a press release.

SEBI in last few years has gone all out against companies which have been illegally raising funds under various investment schemes. The regulator has recently passed orders against Rose Valley Real Estate & Construction, MPS Greenery Developers, Osian’s Connoisseurs of Art Pvt Ltd, Saradha Realty, etc.

The regulator has also decided to expand the regulatory framework of Sebi FUTP regulations to include front-running activity — which involves trading ahead on confidential information before some big institution places the order.

The amendment was much needed as the current regulations only covered action against front running by intermediary institutions and did not specify action against individuals indulging in front running.

The regulator also accepted the recommendations of independent consultant Oliver Wyman for increasing the market participation by mobilizing household savings into capital market assets, increasing organizational efficiency and oversight of listed companies, among others.