Settlement is the “last action in the transfer of ownership including the actual exchange of securities or money.” The transaction is deemed complete upon settlement since all parties’ responsibilities have been satisfied. In the context of securities, settlement entails the transfer of the securities to the beneficiary, often in return for (or concurrent with) the payment of money, to satisfy contractual obligations, such as those resulting from the trading of securities. Currently, a central securities depository is where settlement is most often conducted. The settlement date in the US is typically 2 business days, or T+2 after the deal is made for marketable equities and 1 day after the trade is performed for listed options and government securities.
The rights of the buyer are contractual and hence personal after the exchange and before settlement. The rights of the buyer are in danger in the case of the vendor’s bankruptcy since they are purely personal. After settlement, the buyer owns the securities and has proprietary rights. Delivering securities to complete deals is known as settlement. By transforming personal rights into property rights, it shields market players from the danger of their counterparties’ default.
The Settlement Regulations expanded the range of legislation covered by the settlement process. According to the 2014 Regulations, only the SEBI Act of 1992, the Securities (Regulation) Act of 1956, and the Depositories Act of 1996 might be the subject of settlement procedures. Currently, under the Settlement Regulations, settlement processes can be started about “the relevant provisions of any other legislation to the degree it is managed by the Board and applicable rules and regulations adopted thereunder,” in addition to the aforementioned laws. The definition of “securities legislation” in Regulation 2(1)(e) of the Settlement Regulations reflects this.
Persons against whom any specified proceedings have been initiated, are pending or may be initiated, may submit an application to SEBI in the form specified in Part-A, along with the application fee prescribed in Part B and any necessary undertakings and waivers specified in Part C of Schedule-I. This application process has been outlined in Regulation 3. Such an applicant is obliged to provide accurate disclosures about the claimed failures in his application. If the applicant’s application is rejected because it does not meet the criteria of the Settlement Regulations, the applicant will have 15 days to make the necessary changes.
By Regulation 4, any application for the initiation of settlement procedures related to a specific proceeding now before SEBI must be submitted within 60 days of the day the show cause notice was served; otherwise, SEBI would not consider the application. However, if an application is not submitted within the allotted 60 days but does so before the 120-day period has passed, relief has been made available. SEBI may consider such an application if it determines that there was a valid reason for failing to submit it on time, and it must be accompanied by the prescribed fee, which will increase by 25%. It would be important to point out that this provision would not apply to cases that are already being heard by the Securities Appellate Tribunal or any other court.
Several variables that have been listed under Schedule II may be taken into account to determine the settlement conditions in line with the Settlement Regulations. The following, among others, may be among the aforementioned factors:
- Behaviour of the applicant during the stipulated inquiry, audit, inspection, or procedure;
- the applicant’s participation if a group of people is accused of committing the claimed default;
- alleged defaults’ type, seriousness, and consequences;
- whether or whether the applicant has previously been the subject of a securities law violation proceeding;
- the magnitude of the applicant’s earnings or losses to investors, as well as any injury;
- procedures that have been implemented since the claimed default to reduce slipups or defaults in the future;
- offered by the applicant is a compliance schedule;
- Economic gains accruing to any individual as a result of non-compliance or delayed compliance;
- requirements required to prevent future non-compliance by the same or another individual;
- settlement of investor claims overpayment of money owed to them or transfer of securities to them;
- any additional enforcement actions that have been taken for the same infraction against the applicant;
- any other elements required by the circumstances and facts of the case.
After being satisfied with the payment of the settlement sum and the non-monetary commitment offered, SEBI shall issue an order of settlement under Regulation 23.
The idea of secret settlement of proceedings has also been established by SEBI by Regulation 19. Such applicants who agree to give considerable help in the investigation, inspection, inquiry, or audit, to be launched or ongoing, against any other person about a breach of securities laws, have been granted this privilege of confidentiality.
Under a new savings provision in Regulation 34, notices of settlement that have been issued as well as applications that have been submitted and are pending under the 2014 Regulations shall be regarded to have been filed and dealt with in line with the Settlement Regulations.
Schedule-I deals with the application form and its obligatory ancillaries, which must be completed and filed to advance settlement negotiations. The perusal of Schedule-I demonstrates that SEBI has taken care to provide a thorough and transparent procedure, whereby individuals who are interested in starting settlement procedures are, from the outset, made aware of the compliances that would be required.
The application procedure and the determination of the settlement amount are covered by the rules listed in Schedule II. The variables that would be important to take into account have also been comprehensively stated by SEBI. There would be no element of arbitrariness in the process, it is obvious.
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