The Securities and Exchange Board of India is legitimately worried about the furious and often indiscriminate rise in stock prices. It is also correct in attempting to prevent companies from manipulating public sentiment by planting favourable news reports about new orders, collaborations, export deals and/or plans to increase prices. But when SEBI asks steel companies to inform the regulator before increasing their prices, one wonders if it is going too far. It is indeed true that steel stocks have seen a huge upward movement and probably a great deal of manipulation as well. One also expects that a regulatory decision pertaining to companies in one industry segment ought to be extendable to companies in other segments in similar circumstances. For instance, pharma and auto ancillary stocks have also seen a great deal of volatility and speculation. Ought these companies report their price hike plans to the regulator before making public announcements What about bank stocks Should they be asked to inform the regulator before changing deposit and lending rates Clearly, SEBIs order is absurd and unworkable. Worse, such demands will only encourage the better companies to delist from stock exchanges and go private. Thats because such reporting requirements dont distinguish between the shady industrialists who align themselves with market operators and those who follow good governance practices. SEBI should instead focus on those who release and disseminate false information, including, if necessary, the media.
Another order of a similar nature is SEBIs decision to ask stock exchanges to shift 200 scrips from the rolling settlement to the trade-for-trade (T-for-T) segment. This means that brokers have to settle trades in these scrips themselves and they would not be provided clearing facilities by the exchange. The exchange will only monitor the settlement and brokers are expected to report the trades immediately. Absurdly enough, the National Stock Exchange did not provide clearing facilities to the T-for-T segment, although the Bombay Stock Exchange did so. Sources connected with the decision say that the total turnover in these scrips was under Rs 10 crore and the regulators intention was to prevent manipulation in these low priced, illiquid scrips by discouraging trading in them. However, because of the lack of clarity in conveying its intentions, the order led to chaos when investors traded in scrips. Panicky brokers were forced to track down buyers and sellers around the country to ensure delivery and payments as applicable. In the process, many of them spent more money on long distance calls than the brokerage they earned. The NSE has now introduced clearing facilities to the trade-to-trade segment from September 16. But ill-planned actions such as these cause turmoil in the markets, which SEBI would do well to avoid.