With the Securities and Exchange Board of India (Sebi) completing 25 years, the regulatory body is now focussing on keeping pace with the advancements in the capital market. Chairman
UK Sinha, who has been at the helm for over two years, tells Ira Dugal and Ashish Rukhaiyar that Sebi will do what it takes to bring retail investors to the market. He also wants to bring to book market manipulators with a strengthened Sebi Act. Excerpts:
Where does Sebi as an institution stand right now? What are the big challenges ahead in the next couple of years?
Sebi has evolved as a very mature and responsible organisation in the last 25 years. Compared to the old trading systems, we have seen a complete change. We did not have anonymous order matching systems, depositories, dematerialisation, We had problems related to risk management systems and settlements. Many of the things that Sebi did was ahead of the rest of the world. In the last 10 years, Sebi has concentrated on surveillance systems, which is one of the best in the world. This has helped Sebi minimise attemtps to manipulate the system. Our enforcement actions have also improved. Having said that, we are now focussing on 3-4 key areas. The first focus area is to ensure that in this age of technological advancement, we can have a risk management system that is keeping pace with it. Second challenge is to upgrade the risk management systems by way of policy or framework. Our third focus area is to attract retail investors in the market. For this, we are improving the mechanism for grievance redressal and arbitration, apart from increasing the number of investor awareness meets.
What are the key changes that you want in the current Sebi Act that will help you in regulating the market more effectively?
I think the government is convinced that without waiting for a final view on Financial Sector Law Reforms Commission (FSLRC), the Sebi Act needs to be strengthened. There are 3-4 areas where we need quick support from the government in Parliament. When we pass an order imposing any penalty, the recovery process is very slow. We have not been empowered to recover. We have to go to some other agencies and file a case. It takes years to recover. We have not been able to recover more than Rs 100-150 crore worth of penalties. This is worrying. We have requested the government to empower us. And we have not asked for anything that is not available to others. We have asked for similar powers like that of the Competition Commission of India (CCI) or the Income-Tax Department. We have also sought government support for accessing call data records, which is useful for establishing certain offences. Currently, we do not have powers to freeze bank accounts and also calling for production of data, records, computer printouts and databases. In our discussions, we have been assured by the government that these are genuine requests from Sebi.
Corporate governance has been high on Sebi radar. There was a discussion paper last year, proposing to regulate salaries of the top brass of listed entities, putting an end to superior affirmative rights and preferential rights to a certain set of investors. How have market players reacted to it?
By and large, the corporates are not happy about this. Academicians and those representing investor associations have been supportive. But before going ahead with any action on this matter, we will engage the corporates again to find out their main concerns. We will also wait for the government to pass the Companies Bill, which has several proposals in this regard. We would first like to understand what is the intent of Parliament about these measures. So, final action on the proposed measures will take some time.
The recent past has brought to the fore the importance of regulatory jurisdiction. What are your views on this?
Under the Sebi Act, Section 11 (A)(A) gives us jurisdiction of collective investment schemes. While such schemes have been defined, there are several exemptions like nidhis, chit funds and co-operatives, which are regulated by the respective state governments. NBFCs and company deposits are also exempted. In this background, it becomes very difficult to establish if someone is doing a legitimate or illegitimate activity because they can say that are registered with some other agency or the state government. This is what is creating a problem as all our orders are subject to judicial review. So, first we have to establish that the entity is engaging in CIS and not any other activity. The government has to take a clear-cut jurisdiction decision.
Are you looking at a further review of the IPO process? What is the status of the safety net proposal?
Safety net will take some time as we have got some very strong reactions. While some are strongly opposed to it, there are others who are strongly in favour. Our current regulations provide for a voluntary safety net and some of the issues have taken recourse to that. But due to the measures that we have taken, merchant bankers are coming under pressure. They realised that if they don’t do their homework clearly, Sebi will pull them up. This is a result of the safety net proposal.
How do you intend to take care of the financials of Sebi at a time when it is looking at strengthening and expanding its systems and reach?
We will have to add numbers in both surveillance and investigations. And these will be well-qualified group of professionals that is expensive. In the last two years I have added around 125 professionals. We will have to add a few more. We have started opening local offices to reach retail investors that will also add to the cost. But we will not land up in a situation where we have spent too much and are running short of funds. I will be the last person to ask the government for funds. Sebi’s entire independence is dependent on financial independence. I cannot compromise on that. If we reach a situation where we cannot meet our mandate, then the country should be better prepared to raise our fees.
