SEBI slaps Rs 25 lakh penalty on BSE for granting early access to corporate disclosures

The Securities and Exchange Board of India (SEBI) has imposed a Rs 25 lakh fine on the Bombay Stock Exchange (BSE) following an inspection that uncovered unequal access to corporate disclosures. The probe, spanning February 2021 to September 2022, revealed that BSE’s system architecture allowed paid subscribers and internal compliance teams to view corporate announcements before they were made public, a breach that undermines market transparency.

It was alleged that prior to September 2023, its system architecture allowed the listing compliance monitoring team (LCM) and the paid subscribers to access corporate announcements before they were made available to all viewers on its website. Further, it alleged that till the time ordinary investors manually browsed announcements and information on each update there was potential for Algos to “read such machine readable corporate announcement/information pushed to paid clients.”

SEBI’s detailed 45-page order highlighted that such early disclosures potentially provided unfair advantages to certain market participants.

The Securities Contracts (Regulation) SECC (Stock Exchange and Clearing Corporations) Regulations, 2018, which require stock exchanges to provide equitable and transparent access to all users, were broken by BSE, according to SEBI.

It also pointed out that the BSE failed to set up a really basic syndication (RSS) feed, which would have reduced the possibility of unequal access to company filings. SEBI held that such corrective action was only done after the examination revealed shortcomings, even if the exchange later created a time gap to remedy the matter.

Additionally, SEBI flagged weaknesses in BSE’s oversight of broker code modifications. Poor internal controls in this area raised red flags about possible misuse, either through unauthorized trading or identity manipulation, further threatening equitable access and fair trade principles.

As part of the ruling, SEBI directed BSE to strengthen its systems to eliminate information asymmetry, ensure rigorous control over broker code activity, and abide strictly by disclosure norms. Failure to comply may invite further regulatory penalties and damage the exchange’s credibility.

In the ruling, Santosh Shukla, SEBI's quasi-judicial authority, mentioned that stock exchanges play a crucial role as the initial line of supervision when managing materially price-sensitive information concerning listed firms and their securities. He argued that BSE has demonstrated carelessness and laxity in failing to enforce standards regarding client code modifications.