India's securities market regulator SEBI is reportedly considering easing the stringent 'fit and proper' criteria that currently apply to stock brokers and other market intermediaries, according to media reports. This potential regulatory development could signal a significant shift in how the regulator approaches the qualification and oversight of market participants.

Current Regulatory Framework

The 'fit and proper' criteria serve as fundamental requirements that stock brokers and market intermediaries must meet to obtain and maintain their operational licenses. These standards typically encompass various aspects of an entity's financial health, operational capabilities, and compliance track record. The criteria form a cornerstone of SEBI's regulatory framework designed to maintain market integrity and protect investor interests.

Potential Impact on Market Intermediaries

Any relaxation of these criteria could potentially affect how existing and prospective market intermediaries operate within India's securities market. Stock brokers, in particular, may find it easier to meet regulatory requirements if the reported changes materialize. The adjustment could also influence the competitive landscape among market intermediaries by potentially lowering barriers to entry or compliance.

Regulatory Considerations

While the specific details of the proposed changes remain undisclosed, any modification to the 'fit and proper' criteria would likely require careful consideration of market stability and investor protection concerns. SEBI's approach to such regulatory adjustments typically involves balancing the need for market accessibility with maintaining appropriate oversight standards.

The reported consideration of easing these criteria comes at a time when India's securities market continues to evolve, with increasing participation from retail investors and growing market volumes. However, without official confirmation from SEBI or detailed information about the proposed changes, the exact scope and timeline of any potential modifications remain uncertain.

The Securities and Exchange Board of India (SEBI) has accused current and former executives at major consulting firms EY and PwC of breaching insider trading rules in connection with Yes Bank's 2022 share sale. The regulatory action, detailed in a November notice reviewed by Reuters, also implicates executives from private equity firms Carlyle Group and Advent International for sharing unpublished price sensitive information.

Investigation Details

SEBI's investigation focused on suspicious movements in Yes Bank's shares ahead of a July 2022 share offering. During this transaction, Carlyle and Advent acquired a combined 10% stake for $1.1 billion. The bank's shares opened 6% higher the day after the deal was announced on July 29, 2022.

The regulator alleges that two executives at PwC and EY, along with five family members and friends, made unlawful gains by trading in Yes Bank shares prior to the public announcement. Most of the accused individuals continue to serve at their respective firms.

Scope of Alleged Violations

The show cause notice identifies violations across multiple categories:

Compliance Failures at Consulting Firms

SEBI's notice highlights significant compliance deficiencies at both consulting firms. Ahead of the share offering, Advent hired EY for tax advisory services and feedback on Yes Bank's management, while EY Merchant Banking Services was separately engaged by Yes Bank for valuation work. Simultaneously, PwC was retained by both Carlyle and Advent for tax planning and due diligence services.

EY's Compliance Issues

The regulator found that EY failed to place Yes Bank on a sufficiently broad "restricted list" - a roster of companies whose shares firm executives are prohibited from trading. While staff directly involved in the transaction faced trading restrictions, others with potential access to sensitive information did not, violating requirements for pre-clearance before trading.

SEBI has specifically asked Rajiv Memani, EY India's chairman and CEO, and the firm's chief operating officer to explain why penalties should not be imposed. The regulator noted that EY's internal trading policy stated: "No restriction was ever imposed on trading or investing in listed companies with which EY was engaged for advisory, consulting, valuation, investment banking or corporate finance services (other than audit)."

PwC's Regulatory Shortcomings

In PwC's case, SEBI determined that the firm lacked a "restricted stock list" for advisory and consulting clients, representing a fundamental gap in compliance infrastructure required under Indian securities regulations.

Regulatory Context and Next Steps

This show cause notice represents SEBI's initial step following completion of its investigation. The accused individuals and their companies are currently preparing responses to address the allegations. If the charges are upheld, they could face monetary penalties or trading restrictions under Indian securities regulations.

The case marks a rare instance where senior executives at global consulting and private equity firms face insider trading accusations related to a capital raising transaction. This regulatory action occurs amid increased capital raising activity by Indian companies and SEBI's intensified crackdown on market manipulation and insider trading violations in recent years.