SEBI has introduced a beta version of its settlement calculator to estimate indicative settlement amounts for settlement proceedings. Entities can settle securities law violations either by admitting or denying charges and paying a settlement amount. The calculator lets applicants input details about violations, regulatory history and include details of SEBI actions and ongoing proceedings.

Settlement terms may include settlement amount and non-monetary terms like business activity suspension, management changes, or securities lock-in. SEBI retains discretionary power to determine the suitability of cases for settlement.

Three panels

To aid in this decision-making process, SEBI has set up three committees: an Internal Committee (IC), a High-Powered Advisory Committee (HPAC), and panel/s of three Whole Time Members (WTMs).

The HPAC plays a crucial role in recommending settlement terms and ensuring the effectiveness of the entire system. The indicative amount of the settlement shall not be less than ₹3 lakh for the first-time applicant and ₹7 lakh for others. The settlement procedure involves the IC proposing terms, which the HPAC reviews. The HPAC requests revisions if needed and may refer the application back to the IC. Subsequently, the HPAC’s recommendations are presented to a panel of WTMs for consideration and approval. The panel may accept or reject these recommendations, providing detailed reasons for their decision.

Since the introduction of settlement procedures in 2007, SEBI received 5,373 applications. Of these, 2,420 applications were settled, resulting in an amount of ₹633.69 crore. Additionally, 1,189 applications were rejected.

While significant progress has been made in streamlining the settlement proceedings, it is much below its potential. To accelerate the adoption of the settlement mechanism, SEBI could enhance awareness similar to financial literacy and investment campaigns. Taking cues from the US SEC, SEBI could highlight the benefits of cooperation with its enforcement division.

US SEC model

The US SEC illustrates instances where individuals and entities cooperated, resulting in no penalties imposed against them. The enforcement division maintains a dedicated webpage on the US SEC website, which could serve as a model for SEBI to educate and encourage cooperation among market participants. This approach may particularly encourage settlement for minor violations.

Another effective strategy could involve SEBI disclosing data on various settlement proceedings. Similar to the US SEC, which categorises enforcement actions by types (e.g. broker-dealer violations, insider trading, market manipulation), this could provide insights into SEBI’s settlement process.

Notably, the US SEC settles more than 98 per cent of its enforcement cases, showcasing settlement mechanisms’ effectiveness and potential benefits in regulatory frameworks.

India may adopt norms to expedite the settlement process, enhancing ease for market participants and regulators and curbing intentional delays. The regulator has already rationalised the settlement period to 30 days instead of the earlier 15 days, with a possible extension of up to 60 days.

Additionally, remittances are now facilitated through a dedicated payment gateway to enable faster processing and avoid delays associated with traditional payment methods. The most important pillar of the settlement process is the HPAC. The strong composition of this committee reinforces the effectiveness of the entire system.

To establish stringent and uniform standards for accepting or rejecting settlement cases, objective standards could be set for both the HPAC and WTM panel. Decisions to accept or reject should be codified for future decision-making to ensure uniformity and objectivity. Furthermore, past incidents of violations should not influence or prejudice current matters.

Panda is Assistant Professor at Indian Institute of Management (IIM), Raipur and Kohli is AGM at National Institute of Securities Markets (NISM), Mumbai. Views expressed are personal

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