SEBI has recently amended the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (PFUTP Regulations) which has come into effect from February 01, 2019. The amended PFUTP Regulations incorporates several recommendations laid down in the Committee on Fair Market Conduct Report, published on August 08, 2018 (Report). One of the changes in the PFUTP Regulation includes expansion of the definition of “dealing in securities” The scope of “dealing in securities” has been broaden to include acts which are knowingly designed to influence trading decisions of investors or any activities undertaken to assist such acts. Further, for greater clarity, the PFUTP Regulations has also been amended to modify the list of activities that can be deemed to be manipulative, fraudulent or an unfair trade practice under Regulation 4(2). For instance, with respect to “Dealing in counterfeit securities”, the proviso added to Regulation 4(2)(h) will now safeguard innocent investors who may deal in counterfeit securities or fraudulently issued securities in a bonafide manner. Such acts of purchase/sale cannot be equated to manipulative, fraudulent or unfair trade practices. The PFUTP Regulations have also been amended to incorporate the word ‘knowingly’ in Regulation 2(1)(b), 4(2)(a), 4(2)(f), 4(2)(r), and 4(2)(s). As recommended in the Report, the inclusion of the word “knowingly” will now allow the possibility of excluding inadvertent or accidental trades of innocent investors from being classified as manipulative, fraudulent or an unfair trade practice.
The amendments have broaden the scope of individuals and entities that will now be covered under the provisions of the PFUTP Regulations and at the same time, provisions have been inserted into the PFUTP Regulations to protect the bonafide actions of innocent investors which should not be equated to manipulative and fraudulent practices. However, the interpretation of the word ‘knowingly’ made by the courts will also determine the fate of the securities fraud jurisprudence in India. Overall, the amendments are a move in the right direction for the development and promotion of the securities market.
