The Hindu Business Line : SAT sets aside SEBI order in UBS Sec case

THE Securities Appellate Tribunal (SAT) today set aside the SEBI order of May 17, 2005 debarring UBS Securities Asia from issuing participatory notes for one year.

The two-member tribunal comprising Mr C. Bhattacharya and Mr R.N. Bhardwaj, said: "We do not find any reason to uphold the orders issued by the market regulators under the SEBI Act... We also do not find there is violation of SEBI (Foreign Institutional Investors) regulations."

SEBI can appeal in the Supreme Court against the SAT order.

Also, it is not clear whether UBS can immediately return to the market, as more regulatory clearances are required before it can issue Indian offshore derivative instruments.

The SAT order said that SEBI order only speaks of some delay and non-furnishing of information by UBS.

There was some delay by UBS in furnishing information, but it was not required to maintain information regarding the top five investors, the tribunal said.

"Instead of invoking the provisions of Section 11B and Section 11 (4), we find Section 15A could have been handled in the instant case more appropriately where there is an exact provision of delay in the submission of information," the 70-page order said.

The SAT also said that the SEBI order was punitive in nature and went against the spirit of Section 11B.

As 40 per cent of UBS Asia's business income comes from the derivatives market, the ban on participating and rolling over existing participatory notes would mean great loss of income, it was said.

Such a loss could even be permanent because the client, after switching allegiance to another FII, may not come back to UBS.

The tribunal said that the `know your client' (KYC) requirements of the SEBI were vague and had not been defined anywhere by the market regulator.

During the hearing, when the tribunal asked the SEBI to define what it meant by KYC, it was not clarified by the SEBI as it only reiterated what was mentioned in the SEBI order.

The tribunal further said that the SEBI did not have a clear and explicit understanding of KYC requirements.

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