The ticker at Sebi Bhavan

Font Size

Print

Feedback

Email

Discuss

: The new boss at Sebi Bhavan, the imposing headquarters of the Securities & Exchange Board of India (Sebi), the capital market regulator, has already begun making his presence felt. Chandrasekhar Bhaskar Bhave, who has returned to Sebi after a fruitful stint as the head of the country’s first and largest depository—National Securities Depository Ltd (NSDL)—is typically someone who lets his bat do the talking. And so it has been in the first few days since he took charge on February 18.

One of the first moves by Sebi under Bhave was a fresh attempt to tighten the insider trading rules, often seen as leaving enough scope for manipulation despite periodic tinkering. And the first major statement from the market regulator, after its first board meeting under Bhave, has set the tone for some major reforms.

Sebi’s decision to constitute a panel to explore ways of collapsing the time between an initial public offer (IPO) hits the market and lists for trading strikes at the heart of the primary market problem, something which the new Sebi chief has had enough opportunity to examine from close quarters both in his earlier stint as the senior executive director in charge of primary markets at Sebi and also as NSDL boss.

There have been enough episodes recently in the grey market where investors had burnt their fingers after playing in the unofficial market and then finding the stock list below par. The grey market has been a menace which rears its head from time to time, depending on market buoyancy. Of late, whenever a high-profile IPO comes along, frenetic activity begins in the grey market, with astronomical unofficial prices often taking a heavy toll on investors.

The basic reason why the market still exists is because there still is enough time between the IPO and the listing. The panel Sebi has now constituted will take stock of the mechanics of how this time can be shortened, and how the existing stock exchange and broker infrastructure can be used for this.

The new Sebi chief, at his maiden press conference after the first board meeting, admitted candidly that the huge reforms achieved in the secondary market—where settlements which took over a month to complete have now moved to a T+2 regime—have not been backed by enough on the primary market side. Clearly, the grey market is an anachronism, and if left unchecked, can cause enough damage if it spills over to the secondary market, post-listing.

Alongside this problem, another issue which has once again come to the fore in the context of recent IPOs is the aspect of aggressive—read unduly high—pricing of IPOs. Yes, issuers can argue in some cases that if the pricing was unnecessarily high, the issues would not have been oversold multiple number of times, but the problem of pricing remains an issue. This is certainly not to suggest a return to the days of regulated pricing of issues, but there is a case for more disclosures in terms of how the pricing of an issue can be justified by the issuer and the merchant bankers. One hears of enough cases of issuers nudging merchant bankers to raise the price of IPOs.

While Sebi has reiterated time and again that pricing cannot be its responsibility, better disclosure in pricing could certainly arm investors with sufficient information not to burn their fingers. If investor protection is Sebi’s primary job, this qualifies as an important part of it.

The cost of intermediation is another area which Sebi seems to have focused on, and the reduction of fees for filing of offer documents of issues and mutual funds is a step in the right direction. Costs and access for investors will come down. Eventually, such measures will increase retail participation in the capital market.