Regulators SMILE

Updated: Apr 30 2004, 05:30am hrs
The Securities Market Infrastructure Leveraging Expert (SMILE) task force, prompted by the inadequacies exposed by the public sector share offerings in March, is a much-needed effort. Its mandate is to review existing capital market infrastructure, processes and skills and suggest ways to ensure that they are in line with the future needs of a fast growing market. SMILE will examine equity, debt and derivative markets as well as existing trading platforms, settlement systems, depositories, registrars, investment bankers and other intermediaries. While there are many aspects of market infrastructure that merit fresh reflection, the setting up of SMILE must not be allowed to hold back long-pending decisions based on the recommendations of earlier committees. After all, the Securities and Exchange Board of Indias effort to ensure top grade market infrastructure is an ongoing process that was, in fact, accelerated under chairman GN Bajpai.

For instance, at the end of November 2003, SEBI announced a Strategic Action Plan (SAP) for 2003-04 aimed at making the Indian securities market a benchmark for the globe. The SAP specifically planned to examine structural, systemic and operational issues in distinct capital market segments: Investors, markets intermediaries and the regulator. Had SAP been on course, it would have covered many issues that are now assigned to the SMILE task force. For instance, in November 2003, SEBI took credit for constituting the Central Listing Authority (CLA), based on recommendations made a year earlier. The CLA is still not operational. Had it been functioning, it may have played a useful role in checking the quality of initial public offerings queueing to tap the primary market. Similarly, a significant reduction in dematerialisation charges is imperative to increase the number of depository participants, who are a key infrastructure provider. Although two separate committees have deliberated on this issue, a decision is still pending. The SEBI (Ombudsman) Regulations were also notified before November 2003, but the regulator is still trying to figure out how to finance its activities. According to media reports, SEBI plans to raise money from unpaid mutual fund dividends to pay for the Ombudsmans infrastructure, but that implies further delay in initiating its activities. The Electronic Data & Information Filing and Retrieval System is another initiative started under SAP in mid-2003; but its many glitches have rendered it an embarrassment rather than an achievement. Finally, SEBI released timeline benchmarks for all its activities involving public interface; these too have hardly ever been followed. Clearly, there are many issues where SEBI needs swift internal restructuring and action rather than the advice of an external committee. Hopefully, it will begin to tackle all of them without waiting for SMILE to complete its deliberations.