Column : Great job, Mr Bhave
Sebi’s latest attempt to ask companies to come clean on off-market deals is aimed at preventing promoters from transferring shares, either from their legitimate or undisclosed holding firms, to market operators, as part of a strategy to rig stock prices. Also, the move will make for transparent transactions in which shares are privately placed with institutional investors. Since few promoters in this country believe in transparency—many of the bigger groups don’t even disclose the price at which they conclude acquisitions as though it has no relevance to the company’s financials—some mandatory disclosures on the pricing of Qualified Institutional Placements (QIPs) were needed. And investors should be happy that the market is getting cleaned up. While it is true that investors should be careful about where they’re putting their money, promoters cannot be pardoned for manipulating share prices. And Sebi has done a good job of banning four companies for rigging their stock prices.
But if regulators are to work, they have a right to autonomy as has been asserted by Bhave. While no Sebi chief may have been removed in the past, it would be naive to think that they cannot be pressured if they are not pliable enough. We all know what happens to those who do not fall in line. Coming as it does against the backdrop of RBI also expressing concerns at its autonomy being eroded, with the Financial Stability and Development Council replacing the High Level Committee on Financial Markets, the Sebi chief’s point is well-taken. RBI had been concerned that the FSDC, to be headed by the finance minister, will give it overriding powers when it comes to inter-regulatory disputes.
The Sebi chairman has also expressed his concern at the idea of merging regulators’ funds with the central government’s Consolidated Funds of India, saying regulators would find it hard to be independent if they are dependent on the executive for funds. Once again, the control-hungry bureaucrats in North Block want to be calling the shots; what they should be doing is supplementing Sebi’s earnings adequately so that the capital markets watchdog can afford the best legal expertise and surveillance systems. Sebi needs to be able to enlist the services of top lawyers so that it can prosecute and punish effectively.
RBI has not succeeded in convincing the finance ministry that the governor should be the head of the FSDC, and not the finance minster, but the incoming Sebi chief must fight for autonomy because otherwise he will not be able to continue the good work that the capital markets regulator has been doing in unearthing cosy connections between promoters and operators, and much more. At a time when skeletons are tumbling out of every closet, we simply cannot afford to have any aspersions being cast on Sebi. Otherwise, foreign investors, who are already somewhat unsettled by the series of scams, will not want to invest in the country, no matter how attractive the India growth story. It’s in the government’s interest to have a clean capital market—after all, it has a big share in terms of its investments in public sector stocks.