Sebi orders restriction on transmitting ‘unauthenticated news'

Capital market regulator has ordered restriction on transmitting ‘unauthenticated news’ by brokers and wealth managers on blogs and mobile phones — mainstay of the trading community — in an effort to prevent stock manipulation through rumours.The Securities and Exchange Board of India circular, which comes as an ‘advice to intermediaries’, says broking firms will have to ensure that staff don’t circulate rumours, or unverified information, obtained from client, industry or any other sources.They will also have to restrict their employees from accessing blogs and messenger sites. “It is a fact that market rumours can do considerable damage to the normal functioning and behaviour of the market and distort the price discovery mechanisms,” Sebi said in a circular posted on its website.“Due to lack of proper internal controls and poor training, employees of such intermediaries are sometimes not aware of the damage which can be caused by circulation of unauthenticated news or rumours.”Many companies, including the ADAG companies such as RCOM and Reliance Infra, have complained to the regulator that unscrupulous elements in the market were spreading rumours to pull down the stocks. ICICI Bank had complained to the regulator during the Lehman Brothers blow-up in 2008 that bears were hammering the stock through rumours.But a regulatory probe did not find such manipulation. “It will help reduce fire sale of shares based on speculative rumours and also bring about best practices across broking houses of all sizes,” said Akil Hirani, managing partner of law firm Majmudar and Company Intermediaries have to put in place a proper internal Code of Conduct and controls for their employees. Logs for any usage of blogs and chat forums will be treated as records and will have to be maintained by intermediaries.“There have been growing instances of small, gullible investors being enticed by stock market intermediaries into buying stocks without any justification or background information supporting the recommendation,” said Satco Securities CEO ST Gerela, a former executive at the BSE’s surveillance department. Any investment tips offered by unknown persons or entities through different modes of communication, like SMS and emails, should be verified, before taking an investment call. Brokers should put in place a proper system, where their clients can verify the authenticity of the tips through research reports or by directly communicating with analysts tracking the company, said Mr Gerela.Broking houses will also have to ensure that any market-related news received by their employees, either in their official or personal mail, should be forwarded to clients only after the same has been approved by its compliance officer. If an employee fails to do so he or she would be liable for actions, the regulator said.