04 June 2009

US SEC's reputation in tatters

In a rather shocking news last month (based on an investigation begun in 2008), three officers of the enforcement department (division) of the US market regulator, SEC, appeared to have committed insider trading on stocks which were being investigated. Here is the report of the Inspector General of the SEC with the names of the three employees covered.

"Our investigation revealed that the Commission lacks any true compliance system to monitor SEC employees' securities transactions and detect insider trading. In addition the OIG found that there is a poor understaning and lax enforcement of the Rule 5 reporting requirements."

I have always supported the rather harsher restriction which has been imposed on SEBI employees against any direct trading of securities by them. SEBI employees are only permitted to have an exposure to equities through mutual funds and trades by immediate family too need to be approved. While a regulation does not restrict wrong doing, just as the penal code does not prevent murders, The Indian conduct rules do however permit holding of equities bought before employment with SEBI began. I have always subscribed to this harsher standard for a securities regulator.

The employee code does not apply to members of the Board of SEBI and it is high time such a code was drafted for them as well.

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