SEBI to revamp IPO process to check price manipulation

The market regulator is considering expediting the clearance of IPO offer documents. It is also in the process of implementing regulation for centralised KYC for making the process easy

New Delhi: Market regulator Securities and Exchange Board of India (SEBI) today said it is looking at revamping the initial public offering (IPO) norms and putting in place a common KYC (know your customer) regulation for financial sector intermediaries, reports PTI.

“Whenever we find instances of violation (IPO norms), we will take deterrent action. It also calls for a relook at our entire IPO process. So we are doing that as well,” SEBI chairman UK Sinha told reporters on the sidelines of an ANMI event here.

He said very soon a regulation for centralised KYC would be put into place for making the process easy. “We have decided to have a thorough review of our risk management system as the current system is more than 10 years old,” Mr Sinha said.

Earlier this year, SEBI had decided to introduce a new short and simple form for IPO investors for increasing retail participation in the stock markets.

In the first half of the current fiscal, 30 companies have raised funds totalling over Rs5,000 crore through IPOs.

Sources in the know of the move say that the market regulator is considering expediting the clearance of IPO offer documents. Companies have a one-year time to come out with public offers from the date of SEBI clearance.

Mr Sinha further said that SEBI takes quick, effective and non-discriminatory action in case of market manipulation.

Speaking on the occasion, NSE chairman and managing director Ravi Narain said, “We want to have more products. But we are not interested in speculative products. However, any product which manage volatility and eliminate systems risk are welcome.”

Mr Sinha said the cost of trading has gone up in the country and that SEBI has taken up the issue with the government.

“It is now time for having a re-look at the Securities Transaction Tax (STT). SEBI has taken it up with government,” he said.

The government had introduced STT in 2004 on transactions in different types of securities. The rate presently varies from 0.025% to 0.25% depending upon the type of security traded and transaction—whether sale or purchase.

Mr Sinha further supported the call for bringing the investments of EPFO (Employees Provident Fund Organisation) and retirement fund to the stock market.

“I would recommend that we engage the labour leader and the trustees of such fund to tell them how the market functions,” he said.

Echoing similar view, Mr Narain said, “We should look at the New Pension Scheme (NPS) and Employee Provident Fund to increase participation in the markets.”

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Equity schemes net Rs210 crore in October

Equity funds record net inflow for three months in a row though the figure is drastically lower in October

The equity mutual fund schemes have enjoyed net inflows for the third successive month but inflows have tapered off drastically. According to statistics available from industry body Association of Mutual Funds in India (AMFI), equity funds witnessed a net inflow of Rs210 crore during October. As compared to the last month, which saw equity inflows of Rs1,440 crore, October inflows registered a 85% drop. The entire addition came from existing schemes. There were no additions from new fund offers. This has taken the overall net inflows in FY11-12 to Rs2,820 crore against a net outflow of a massive Rs18, 424 crore during the same period last year.

This small positive inflow belies the mood prevailing among investors and the marketplace. The market is in a volatile mode (the Sensex had gained 10% in the previous month) and a lot of buying and selling of mutual funds happened even as investors looked to directions. This is reflected in the fact that while equity inflows were Rs3,734 crore during the month, there as a huge redemption of Rs3,524 crore leading to a net inflow of only Rs 210 crore.

The heartening aspect is that a lot of investment is happening through systematic investment plans even through a depressed market. Earlier, money used to flow in only in a rising market.

The breakup for various funds for October 2011, available from the Association of Mutual Funds of India, indicates that there was an inflow of Rs8,288 crore from income funds, balanced funds saw a net inflow of Rs12 crore, liquid/ money market funds had an inflow of Rs32,745 crore, gilt funds had an outflow of Rs252 crore, gold ETF funds received a net inflow of Rs455 crore, whereas other ETFs saw an outflow of Rs191 crore, and fund of funds investing overseas had an inflow of Rs20 crore. The aggregate for October 2011 for all categories of mutual funds has been a net inflow of Rs41,287 crore. The aggregate for equity funds for 2011-12 has been an inflow of Rs3,285 crore till now.
One of the reasons for the net equity inflows consecutively in the last two months may be because mutual fund houses are leaving no stone unturned to keep distributors in good humour. Asset Management Companies (AMCs) are paying a higher upfront fee to distribution subsidiaries of foreign and private banks nowadays to drive ‘exclusive sales’ of their schemes, mainly equity schemes. This commission is in addition to the upfront and annual trail fees that mutual funds pay distributors for selling their schemes.

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COMMENTS

Vikas Gupta

5 years ago

The Funds mobilised by the Banks distributors is lethal for Mutual Fund Industry. Everbody in the industry knows that most of the Funds mobilised by the Banks is of very short duration. The banks only complete their targets. When they are in Special Understanding with another AMC or for NFO they redeem their Depositors earlier investments & go for new Understandings. Its always a win win situation for Banks & their staffs as Banks get handsome Commissions alongwith other Benefits such as Foreign Trips while their staff completes their targets, Gets Appraisals, Incentives cash as well as in the form of Gifts such as Foreign trips. While its a total loss for AMCs, Investors & Mutual fund industry too. AMCs have to give EXTRA Commissions to these Banks along with other incentives, which make a dent into their earnings & the purpose for which all the drama had been created i.e. AUM gets eroded in a very short span of time. The investor is always at the receiving end. First , The mutual Fund Schemes are missold to him, then he suffers Exit load & Finally, The schemes didn't perform well due to higher Expanse ratio burden due to these Banks. Even other investors of the same schemes had to bear some effect of these Redemptions & Higher Expanse Raio due to these Banks.
I am quite surprised to see that neither AMFI nor SEBI takes any action against these National Distributors for their Pro Investor Activities.

Advocate seeks to be impleaded in the SEBI appointment case

Mumbai based advocate had filed a petition requesting the SC to include him in the SEBI chairman’s appointment case as he wants to highlight the regulator’s alleged failure in addressing insider trading matters

In an interesting twist to the writ filed by S Krishnaswamy (former Chief of the Indian Air Force) and other eminent citizens, a Mumbai based advocate has filed an intervention petition seeking to implead himself in the case (writ no 392 of 2011). The writ alleges that the finance ministry has changed the composition of the search-cum-selection committee for appointment of the chairman and whole time members of the Securities & Exchange Board of India (SEBI) in order to be able to influence the selection process. The writ also questions a decision to drop a proposal to extend the term of ex-Chairman CB Bhave and the two members from three years to five years.

Interestingly, Advocate Debashish Nath, who practices in the Mumbai High Court wants to intervene, allegedly to highlight how SEBI does not act against ‘insider trading’ by certain corporate houses – specifically, India’s biggest private sector company Reliance Industries Ltd (RIL). SEBI has been conducting an investigation into the alleged insider trading by Reliance Industries and from time to time there have been media reports suggesting that the company may file consent proceedings and end up paying the biggest ever payment under SEBI’s settlement terms.
 
The advocate has attached correspondence under the Right to Information (RTI) Act that he had filed to seek information on insider trading. He says that SEBI had rejected his request for information and also dismissed an appeal filed against the decision.
 
The impleadment application goes back to the year 2000 when S Gurumurthy, had complained to SEBI about insider trading and a preferential issue by Reliance (prior to the division of assets between the Ambani brothers). The application then fast-forwards to 2011 and the letters written by Dr KM Abraham alleging that the incumbent SEBI chief UK Sinha was under pressure from the finance minister to go easy on investigation into specific corporate houses.

Adv Nath refers to a news report in The Economic Times dated 16 October 2010 which reported that Reliance made a profit of Rs500 crore through the sale of 18.04 crore Reliance Petroleum shares in November 2007. He goes on to point out that, the SEBI act provides for criminal prosecution and a fine of Rs25 crore going up to three times the illegal profit earned from insider trades.

He then cites the insider trading action against Raj Rajarathnam who was tried and sentence to a prison term and fine for insider trading. Adv Nath’s claim for impleading himself in the writ petition is the allegation that the present SEBI chairman UK Sinha is protecting corporate houses, by not discharging his duties and is protecting “corporate houses” who indulged in insider trading.

It remains to be seen if the Supreme Court is willing to entertain this intervention petition and allow Nath to be party to the case. Nath was not immediately available for comments.

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COMMENTS

Nagesh Kini FCA

5 years ago

It is hard to understand why SEBI always chooses the soft option of 'settlements' when it is empowered to levy heavier penalties.
The US penalties of long internment and fines running into millions of $ for Rajrathanam, Ponzi and Ponzi and other accuseds are the only remedy however high the culprits may be. Here the the 'bigger' the person lower are the punitives.
It is high time the watch dog bares its teeth instead of merely growling. Sooner the better.

Dr Vaibhav G Dhoka

5 years ago

The SEBI appointment case should converted to SCRAP SEBI litigation.The ordinary investor is fed up for ongoing DAILY scams at SEBI.

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