SEBI Slaps Rs 25 Lakh Fine on BSE Over Negligence and Regulatory Violations

The Securities and Exchange Board of India (SEBI) on June 25 imposed a penalty of ₹25 lakh on BSE Ltd., the country’s oldest stock exchange, citing failures in maintaining impartiality, transparency, and fairness in information dissemination. While the monetary fine may not turn heads on its own, the nature of the violation touches upon foundational aspects of market integrity.

The SEBI passed the order after considering the findings related to an inspection conducted between February 2021 and September 2022, along with subsequent responses of the BSE. It was found that the stock exchange’s system architecture allowed both its internal listing compliance team and paid clients to access corporate announcements before they were made public. This premature access to price-sensitive information not only undermined fair play but potentially tilted the playing field in favour of select participants.

The data dissemination process at the BSE also lacked safeguards to ensure simultaneous and equal access to all stakeholders, thus potentially hurting market integrity. “This case involves multiple acts of omissions, laxity and negligence with a certain amount of lethargic approach which cannot be allowed to be exonerated if the first level regulator having paramount duties of regulation and oversight shows such approach of lax regulation leaving visible scope for misuse of its systems,” the order said.

Though no disproportionate gain to BSE or financial loss to investors was established, the regulator stressed that such systemic gaps put the sanctity of the exchange’s regulatory role at stake. The requirements of providing equal, transparent, and fair access to the investors are compulsive and not facultative; hence, there is no room for any negligence, the market regulator said.

The market watchdog has also found lack of due diligence on the part of BSE towards monitoring of client code modifications, which can be used with the mala fide purpose by brokers. There were instances where institutional to institutional client code modifications between two unrelated entities have been done and not penalised by the BSE, which is in violation of SEBI’s provisions, the regulator said.  

Client code modifications, meant to correct genuine errors, were seemingly left unsupervised, raising the risk of misuse. Client code modification refers to the process of altering a client's unique identification code after a trade has been executed, typically to correct errors or mistakes made during order entry.

BSE was also found to have displayed laxity and negligence with respect to not supervising norms with regard to client code modifications, the market regulator said in its order. The order follows closely on the heels of another major development where NSE has reportedly offered ₹1,388 crore to settle its controversial co-location and dark fibre cases. These cases, too, stem from negligence and inadequate oversight, signaling a troubling pattern in the functioning of market infrastructure institutions (MIIs).

At a time when India's capital markets are scaling new heights, attracting record levels of investor participation and global interest, such lapses serve as a stark reminder. With trillions of rupees flowing through these digital highways daily, there is an urgent and inescapable need to strengthen the governance, transparency, and oversight mechanisms of MIIs.