SEBI directs BSE to allow inspection of files under RTI; stock exchange disregards directive a second time

Yogesh Mehta, a former member broker, has for over three years been demanding information with respect to market making by the BSE. He says this resulted in a cost of nearly Rs90 crore and benefitted just a handful. The stock exchange will not cooperate, saying that it is not a public body and that the information is confidential
Both the National Stock Exchange (NSE) and he Bombay Stock Exchange (BSE) have been adamant about their stance on the Right to Information Act and have resisted the attempts by activists to get information. However, in a recent case, the public information officer at the Securities and Exchange Board of India (SEBI) has directed the BSE to allow an RTI applicant to inspect files. Even as the BSE continues to try its best to obstruct the move, activists believe this is a good start.

The appellate authority at SEBI has issued the same directive twice, in favour of the applicant seeking documents relevant to the BSE's market-making activities. But the BSE denies being a 'public authority' subject to the RTI and refuses to see any public interest in the matter.

Describing the documents sought as 'confidential', the BSE replied to one of SEBI's letters saying, "The BSE has consistently been of the view that it is not a public authority. Disclosure of such information shall cause serious harm, injury and prejudice to the interest of BSE, which does not outweigh any public interests in any matter."

SEBI had slapped BSE with a show-cause notice in November 2009, for engaging in market making without acquiring approvals from the regulator. Market making is artificially creating volumes in the derivatives segment, which infuses liquidity. Market makers quote both 'buy' and 'sell' for a financial instrument or commodity, hoping to make a profit on the trade.

Yogesh Mehta, a former member broker of the BSE, had filed a complaint against the BSE over market making in 2008. According to Mr Mehta, the BSE's stint with market making cost the bourse Rs85crore-Rs90 crore, and he alleged that only a handful of persons profited from the process.

After SEBI hauled the BSE, Mr Mehta filed an RTI application with the market regulator in January 2011, seeking documents relevant to this matter. SEBI directed the BSE to provide the documents, but the BSE refused to see any 'public interest' in this matter and refused to comply with the order.

The BSE said it was not a 'public authority' and went on to outline the duty of the principal information officer (PIO) of SEBI, saying, "The PIO of SEBI is required to grant information which is available to him. Procuring the information sought by the applicant and then making it available is not envisaged under the RTI Act."

Unconvinced with the BSE's reply, Mr Mehta appealed to SEBI again. In an order dated 1 March 2011, Prashant Saran, in the chair of the appellate authority, directed the BSE to allow the appellant to inspect the files. "If an applicant keeps demanding inspection of documents, it is better for the respondent to allow inspection… to avoid appeals alleging that not everything was disclosed," he said.

A sulking BSE then allowed the inspection, but it refused to disclose information related to the third party, that is the BSE in this matter between Mr Mehta and SEBI. Mr Mehta wrote to SEBI alleging that the BSE was uncooperative and that he was being provided information in a piecemeal fashion.

The BSE then filed an appeal with the Central Information Commission (CIC), challenging the order passed by Mr Saran, and thus, Mr Mehta's request for inspection of all files was dismissed.

Mr Mehta again wrote to SEBI, citing several court rulings in disparate cases, which said that mere filing of appeal does not amount to a 'stay', without a formal prohibitory order, requesting for spot inspection of files.

Though the appellate authority observed that the precedents cited by Mr Mehta did not apply to the present case, it directed the BSE again 'to provide whatever information had already been offered, as well as any other information… other than the third party information under consideration of the honourable CIC… free of cost within 15 working days." This order was issued on 30th June.

But BSE is taking its time and has not reverted to Mr Mehta on this. "They have not said anything about granting inspection, though much time has passed," Mr Mehta said. "I will wait for a few more days, and then I will go for a second appeal in Delhi."

Clearly, the fight isn't over yet. But SEBI directive in favour of the applicant has opened up a new field, which gives the RTI activists a reason to hope.