SEBI bans off-market negotiated deals

In a bid to bring more transparency in share transactions, the Securities and Exchange Board of India (SEBI) on Wednesday banned off-market negotiated deals, including cross deals, in equities and debt and said such deals would be allowed only on screens of stock exchanges just like any other trade. The SEBI Committee on Negotiated Deals, which met today, said such deals avoid transparency and do not contribute to price discovery, affecting the investors. The decision would come into effect from the next settlement, SEBI said in a statement here. Negotiated deals, which either have a value of Rs 2500000 or volume of 10,000 shares, were earlier, permitted by SEBI at prices not formed through stock exchanges and order making mechanism. But the deals had to be reported to the stock exchanges within 15 minutes of making the deal. “Now negotiated deals should be executed on the screens of the exchanges in the price and order matching mechanism of the exchanges like any other normal trade,”said a SEBI official. SEBI also decided not to permit negotiated deals in respect of listed corporate debt securities and all such trades would have to be executed on the stock exchanges as in the case of equities. The move is in line with the worldwide trend of moving away from telephone based debt market to screen-based trading system of exchanges, in order to impart greater transparency, better price discovery and reduction in transaction cost, it said. However, this decision would not apply to government debt securities and money market instruments, which are under the regulatory jurisdiction of the Reserve Bank of India (RBI), it added. Experts said negotiated deals were done secretly with investors and stock exchanges getting information only after such deals are struck. “Usually the price at which deals are struck and the quantity of shares surprise investors. There was no transparency. As a result, investors had suffered losses several times,” said a broker.