While stock markets went into a tizzy in October 2008, and recovered its bearings, one thing that came out strikingly was the role of the regulator and key intermediaries in the equities markets. Most of the market participants, the brokers, the overseas investors and mutual fund investors have come to praise the role the regulators have essayed.

And why not, through the entire meltdown when the foreign investors were pulling funds out of the equity markets, when the mutual funds industry was facing redemption pressure and when the markets were edgy thanks to the Satyam Computers fiasco, there was no systemic crisis. The systems and the processes held on and the markets functioned as they were supposed to.

And, now that much of the storm is over, executives at the Securities & Exchange Board of India (Sebi), are not taking it easy. According to a high ranking Sebi official, there is a team of people within the organisation is coming up with a detailed articulation of a mission and vision statement. This is expected to build direction for Sebi and make it proactive instead of being reactive. “With this, the old criticism that the Sebi is like the archetypal cop who comes to the crime scene the last, will also be done away with,” says another senior official.

As of now, Sebi, which was established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992, has a preamble that describes the basic functions. It states, “…to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto.” While this sets out the role for the regulator, it is seen to be limiting.

Other market regulators like the Securities Exchange Commission (SEC) in the US and Financial Services Authority (FSA) in the UK have more elaborate explanations of their roles and their vision. The SEC says, “The mission of the US Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” The website then, in a very simple manner, goes ahead to articulate its role, functions and also the various departments and functions.

The FSA on the other hand is more elaborate and even has a business plan in place. “We summarise our statutory objectives and principles of good regulation in three strategic aims: 1) promoting efficient, orderly and fair markets, 2) helping retail consumers achieve a fair deal; and 3) improving our business capability and effectiveness.”

Details of these aims are presented in the FSA’s business plan.

Soon, it is expected that the Indian stock markets regulator would also be articulating these factors. And chairman CB Bhave is steadily being seen to be making progress towards creating Sebi into a robust regulator of international class and repute.

And, some of the changes have started to emerge strongly since he took over as chairman. The year 2008 saw the introduction of currency futures, the year also saw the regulator come out with a code of conduct for its own employees.

The currency futures introduction was a landmark move as it required two different regulators like the Sebi and the Reserve Bank of India (RBI) work closely to bring out a service.

The code was articulated for, “avoiding conflict of interest for the members of the board and ensure that members conduct their duties in the manner that does not compromise their ability to accomplish its mandate or undermine the public confidence in the ability of members to discharge their responsibilities.” Sebi has also started placing the minutes of its meetings on its website. This indicates the intention of getting things to be more transparent.

The regulator has been sharp in catching market malpractices like front running, where informed intermediaries, like fund managers, brokers or institutions use prior information and make illegal profits from the markets.

And, since its introduction in April 2007, the consent order mechanism has been seen to resolve disputes in a fast manner. Over 250 cases were settled in 2008 and 90 in the first three months of 2009. According to the consent order mechanism, the accused agrees to pay for the damages without accepting or denying the guilt. “There has been some amount of criticism over this mechanism, but as you would see, it is a faster manner of getting things done. Otherwise the time taken to settle disputes can be extremely long,” says the senior Sebi executive.

Now, while these systems are coming into place, Bhave is also putting in place a crack team to handle initiatives. “One can get hints on his thinking pattern from this,” says a senior member of the broking community.

Sebi now has a whole time board member Prashant Saran who has huge experience in regulations and has worked with the RBI. Prior to this assignment, he held the position of chief general manager in the RBI and was heading the Department of Banking Operations and Development (DBOD). With the regulator role getting more complex and international in nature moreover there would be increasing overlaps with the central bank, a key person who understands these becomes paramount. Saran, then fits into the scheme of things perfectly as he knows how the central bank functions and has a strong regulatory background as well.

Then the appointments of the two new executive directors – Kavasseri Narayanan Vaidyanathan, and Jitendra Nath Gupta. Both of these EDs are extremely well qualified and have strong credentials.

KN Vaidyanathan, is an alumnus of the IIM Ahmedabad and was associated with Morgan Stanley and was the CEO of Alchemy Capital. He has a strong hang of the investment scenario from an institutional point of view and moreover from an overseas investors perspective as well. He was also a member of various committees including Sebi committee on guidelines for investing abroad and Sebi committee on depository implementation among others.

JN Gupta has held senior positions in State Bank of India, Grasim Industries and Indo Gulf Fertilisers. He briefly worked with the capital market regulator between July 1994-1996. Gupta is a B.Tech in electrical engineering from IIT, Kanpur, and has degrees like CAIIB and Certified Financial Analyst (CFA) under his belt. He would be able to understand things from the corporate perspective as well.

So with an ‘ace’ team coming into place, the regulator is set to bring in more transparency to the markets, bring in more proactive products and ensure that the environment for investments is of global standards. And, there is a lot to be done on this front.

The development of a strong secondary market for corporate debt is one such big priority for the regulator and then there are other opportunities for bringing in world class products. Already, interest rate futures are expected to be made available to the Indian public in matter of weeks.

So Indian and overseas investors can now expect a safer and cleaner market environment in the days to come. And, like a market expert observed, Bhave will do this in phased and steady manner, so that not many sensibilities are shaken and the market absorbs the change effectively.