The chairman of the Securities and Exchange Board (Sebi), UK Sinha, has warned corporates that malparactices in the market will turn out to be awfully costly for them.
?I would like to say that people had better be alert because we don?t want to do unpleasant things,? Sinha told FE in a wide ranging interview.
The Sebi chief, who took charge in mid February, added that while participants may have been able to ?get away with something in the past?, they better be careful now. Sebi?s surveillance, according to him, was generating many more alerts now.
?By December, we hope to have the best surveillance system in the world,? he asserted.
The housekeeping will come in very useful, as the Indian capital market is expected to expand massively through this financial year and beyond with the government aiming to make it the main source to raise funds to finance its $1trillion bill for infrastructure development.
Sinha said it was equally important that CEOs tightened their internal controls. ?In the past you could get away by saying that the operator or the broker was the culprit and we are not responsible. But today we will be able to track whether somebody from the company was involved or was a beneficiary,? Sinha said.
His no-nonsense approach comes at a time when Sebi has sharply improved its conviction rate for market related offenses mixing them with strong evidence that is standing scrutiny in securities appellate tribunal. In the last decade, the Indian markets have become one of the most efficient in the world and the regulator has finalised a system where deterrence will be the key for companies to stay in line instead of having to hand out punishment.
?Given a choice we prefer deterrence,? said the chairman.
Among other initiatives, the Sebi chief is hopeful that foreign non-institutional investors would soon be able to invest in the Indian markets through mutual funds.
?We have prepared a scheme and sent to government and the Reserve Bank of India (RBI). I suspect that it should happen soon since there are not too many issues, except for procedural issues like transfer of money or KYCs, but we are familiar with such details since we have been dealing with FIIs,? Sinha said.
He believes that, if successful, this scheme might eliminate the need of foreign institutional investors (FIIs) using Participatory Notes (PN) to buy Indian equities. ?People come in through the PN route primarily because they find it difficult, for the amount of money that they want to invest, to open a separate sub-account or to open an FII account. For them it?s easy to come through this route. If the scheme becomes successful the need for PNs will go away,? Sinha explained.
In the meanwhile, the regulator is addressing concerns on PNs by extracting disclosures from FIIs as to the end beneficiary.
?Whenever there is a transfer, Sebi has the right to know. We have given them time till June to provide the information on a regular basis so that it becomes part of our database,? the Sebi chairman said.
Even otherwise, he said, the regulator has the right and an agreement with FIIs to provide information for any investigation. Moreover, the regulator has also made it clear to FIIs that only if it is a broad-based entity would it be permitted to trade through a proprietary book.
?The overwhelming force is behind having a broad-based portfolio and our approach, at this stage, is to first ensure that they start doing this because even for this they are raising difficulties,? Sinha pointed out.
Speaking on changes required to kickstart the domestic mutual funds industry, the Sebi chief observed that it was a matter of concern that small ticket money wasn?t coming in and that sales of mutual funds in smaller towns had dropped.
?We have to take measures to incentivise the sale of mutual funds,? Sinha said adding that the regulator was awaiting the suggestions of a committee set up for the purpose of reviving the industry. Sinha should know, as before moving into Sebi tower, he was chairman of UTI MF, India?s oldest and fourth largest fund.
The regulator would also like to see more transparency in information and some analysis of the fund?s performance as also make available to investors the track record of the fund managers.
In the meantime, the regulator will launch an investor education and awareness plan. Sebi is also planning to provide investors with better diclosures for the IPO market. ?Apart from the track record of the merchant bankers, there should be information about prices and P/E ratio of the stock relative to the benchmark or peers,? the chairman said.
The regulator believes that distributors need to be regulated because the same distributor was selling a variety of products. ?Today the regulation of distributors activity and obligations is rather loose. But since this is a matter that requires consultation with other regulators we have started the process,? the chairman said.
