Sebi's probe in the WhatsApp leak case has revealed that prima facie insider information was put out over social media in the case of Axis Bank
Mumbai: The Securities and Exchange Board of India (Sebi) on Wednesday passed directions against Axis Bank Ltd and asked it to conduct an internal inquiry into the suspected leak of its June quarter financial results.
Sebi, which is carrying out a probe of suspected leaks, held that prima facie (based on first impression) it seems that inside information had been leaked in the case of Axis Bank.
The regulator arrived at the conclusion based on the accuracy of the leaks and the fact that the financial results for quarter ending June 2017 found their way to WhatsApp groups a day after the results had been finalised.
Axis Bank in an emailed statement said that it has working closely with SebI during the course of preliminary examination. “The Bank adheres to highest norms of governance and reiterates its commitment to adequacy of processes, systems and controls, particularly to prevent unauthorized access to UPSI," said Rajesh Dahiya, executive director (corporate centre) at Axis Bank. “The bank will work with Sebi and the best experts in the field to investigate the matter and will take action as appropriate" Dahiya added.
“It prima facie appears that the financial results of Axis Bank for quarter ended June 2017 were finalized by July 24, 2017, which was before circulation of WhatsApp message on July 25, 2017," whole-time Sebi member G. Mahalingam said in the order.
Financial figures pertaining to the quarterly results of Axis Bank were either identical or matched closely with the figures that were in circulation prior to its official announcement of the results, Mahalingam observed in the order.
The regulator, however, added that the source of the unpublished price sensitive information (UPSI) cannot be ascertained at this moment.
The bank was asked to conduct an internal inquiry of the people who were involved in preparing the financial results and their dissemination on the public domain. The bank would need to conclude the investigations within three months and submit its report to the regulator. The bank has also been asked to strengthen its processes to prevent leak of information.
“It is a new trend and untravelled path for Sebi. A lot will depend upon investigation process identifying source/origin of the leakage of some information and from a policy angle, how companies can stop it," said Sumit Agrawal, founder and partner, Suvan Law Advisors.
This comes after the regulator on 22 December conducted searches of 31 brokers and analysts in Mumbai, Delhi and Bengaluru, in connection with the leak of earnings and price-sensitive information before they were made public.
Under Sebi’s Listing Obligation and Disclosure Requirement (LODR) and Prevention of Insider Trading (PIT) regulations, price-sensitive information needs to be uniformly disclosed through stock exchange platforms. Possession and circulation of unpublished price-sensitive information violates PIT regulations.
“Since there can be several potential sources of such leak, both internal as well as external (due to outside service providers) to the company, it will be interesting to see as to what safeguards the company had put in place to protect such leak. Unfortunately, the contractual non-disclosure, confidentiality obligations can potentially be breached and hence continuous monitoring may get critical in such matters," said Tejesh Chitlangi, a partner at law firm IC Universal Legal.
Given that Sebi passed directions against the bank based on accuracy of data leaks, more such orders could be in the offing. The regulator has found more instances of accurate leaks.
In seven out of 12 companies whose corporate results were leaked, the information was very similar to their actual earnings, Ajay Tyagi, chairman of Sebi, said on the sidelines of an industry event organised by the National Stock Exchange earlier this month.
The issue surfaced on 17 November, when a Reuters report identified 12 companies whose second quarter earnings were being circulated in private WhatsApp groups. Nearly half of these companies were part of Nifty 50 index.
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