Introducing Securities Class Action Plan

While it is possible that the experience in India may be different, and that investors end up realising better recoveries from securities class actions, such an outcome is unlikely. Moreover, in addition to the low levels of recovery, in the US, most of the settlement amounts are paid by insurance companies that issue director and officer (D&O) policies.

Because the D&O market is still evolving in India, investor recoveries are likely to be limited further, at least initially.

Some have argued that the possibility of a securities class action deters violation of securities laws and, thus, helps protect investors.

However, this may be true only in theory, since settlements are paid by D&O insurance, potentially reducing the consequences to corporations of misrepresentations and violations of the law.

In conclusion, based on the data from thousands of US settlements over the last decade, it is reasonable to assume that introducing securities class actions and introducing broker in India will do little to protect investors or help them recover a meaningful fraction of the losses suffered. More likely, we would see a potential expansion in the market for D&O insurance ? and a proliferation of lawsuits.

Thus, from a policy perspective, it may be better to expend resources to improve Sebi?s capabilities in monitoring and investigating financial disclosures by firms in order to improve the quality of public disclosure by firms.

A well-funded, proactive regulator, with a proven ability to punish perpetrators of securities fraud, is more likely to be a more effective means to ensuring investor protection than the introduction securities class action.

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