SEBI’s sordid double standards

SEBI’s rejection of MCX-SX’s application to start equity trading, not only stifles much-needed fresh thinking, competition and innovation, but draws attention to SEBI’s own sordid ethical standards

That the Securities and Exchange Board of India (SEBI) rejected MCX Stock Exchange's (MCX-SX) application to launch the equity segment was no surprise. Nor is the MCX-SX's decision to fight back. The regulation of demutualised bourses remains a contentious issue, despite being referred to several committees. But it is obvious that the narrow and illiquid Indian capital market urgently needs to get rid of a score of defunct, parasitic, regional bourses and permit fresh thinking, competition and innovation which MCX-SX can inject. Whether this happens or not will be decided by the courts, but there are some intriguing angles to the entire controversy.

For starters, does India, whose economic growth is attracting so much foreign attention, support entrepreneurship, or do we secretly revel in discrediting our own success stories? Will we ever support open competition or cripple businesses on the whims of self-serving netas and babus?

On 31st August, MCX launched the Singapore Mercantile Exchange (SMX). It should have been a proud moment, but the domestic war with SEBI cast a dark shadow. On 23rd September, SEBI rejected MCX-SX's application to launch equity trading saying it was 'not fit and proper' and 'dishonest' to boot. Isn't it ironical that India, which ranks a low 84th on Transparency International's corruption perception index, took the high moral ground, to discredit a management that Singapore, which ranks No 3 in terms of transparency, found fit enough to launch its first international, pan-Asian derivatives exchange? Singapore is not alone. MCX runs the multi-asset, multi-access Bahrain Financial Exchange. It is in the process of setting up multi-asset exchanges in Mauritius and Botswana (called Bourse Africa). It also successfully launched, and handed over, the Dubai Gold and Commodity Exchange.

There are domestic successes as well. The flagship Multi Commodity Exchange (MCX) is by far the market leader in commodity derivatives; MCX-SX was a leader in currency derivatives (jointly regulated by SEBI); it runs the National Spot Exchange Ltd which trades agricultural commodities; the Indian Energy Exchange which trades electricity and IBS Forex, is its inter-bank forex exchange platform. No other exchange group has achieved so much so fast in a competitive environment. And there are no reports of other regulators having problems with MCX either.

None of this mattered to the SEBI's whole-time member, while rejecting the case of MCX-SX with 68 pages of hair-splitting.

He found that MCX and Financial Technologies were 'acting in concert'. He discovered that the warrants issued to promoters (for the value they sacrificed by shrinking promoters' capital to meet SEBI's norms) had economic value even though such warrants earned no dividends, have no voting rights and cannot be converted into shares unless SEBI rules change. It is almost as if SEBI knows that its ridiculously low 5% cap on individual shareholding will have to be increased to the 15% or 26% that is permitted in the commodity and currency derivatives markets. Were that to happen, MCX's promoters would legitimately want to convert warrants and enhance their holding. SEBI wants to kill any such possibility.

Interestingly, the National Stock Exchange (NSE), an opaque and secretive, virtual monopoly basked in high valuations that were possible because the regulator gave it plenty of time for equity dilution without imposing the restriction it did on MCX-SX. But MCX-SX was systematically cornered.

First, SEBI allowed NSE to subsidise currency derivatives through the high fees charged in the equity segment. MCX-SX suffered huge losses, while the Bombay Stock Exchange (BSE) simply shut its currency derivatives segment within two months. The newly launched USE (United Stock Exchange) is also boasting market leadership without a revenue model. Neither the Reserve Bank of India (RBI) nor SEBI bothered to explain how they permitted a fourth currency derivatives exchange whose high trading volumes translate into direct losses since, like the NSE, it does not collect transaction charges. What happens when its net worth slips below Rs150 crore? USE must be hoping the Competition Commission will rescue it by ruling in favour of MCX-SX on NSE's predatory pricing.

When the loss-making MCX-SX was denied permission to launch new segments, it couldn't possibly find new investors and was forced to reduce capital to meet SEBI norms. Stunningly, the idea allegedly came from JN Gupta, SEBI's executive director in charge of secondary markets, who used to be a commodity trader in Kazakhstan before returning to SEBI. The SEBI order simply ignores Mr Gupta's role in 'misleading' MCX-SX into opting for capital reduction.

If SEBI had higher regulatory standards than Bahrain, Singapore and Dubai, its action against MCX-SX would have somehow seemed plausible. SEBI's actions appear malicious when we see how the same regulator buried the cases against the National Securities Depository Ltd (NSDL) in the IPO (initial public offering) scam of 2006, in order to absolve chairman CB Bhave of taint or even constructive liability in that scam (he was chairman of NSDL then). The SEBI board went so far as to discredit a two-member committee of its own board directors and declared their orders 'void'. In the process, it also ignored a legal opinion by Justice JS Verma, one of India's most respected Chief Justices of the Supreme Court.

In throwing the rulebook at MCX-SX, SEBI is essentially saying, "show me the person and I will show you the rule."

Why would SEBI be so determined to finish off MCX-SX? MCX has openly accused it of favouring NSE whose high valuation is at a serious risk (not to mention the stunning salaries of its top three executives) when up against a serious competitor. Remember, MCX has beaten NSE in every segment where they have been in direct competition: commodities, currency and energy.

Then there are the personal relationships. When CB Bhave was desperate to leave SEBI in the early 1990s, under chairman DR Mehta, NSE gave him a berth at NSDL. Mr Bhave was thus in the happy position of writing the statute that ensured that the depository was not entirely under SEBI regulation; he used it to his advantage to expand into other areas without seeking SEBI approval.

It may be clever to ensure that rules and ethical standards are flexible enough to be twisted at convenience. But sadly, it makes for very dubious regulation.




7 years ago

The only person who disagrees with the bias issue seems to be Monika Halan in today's Mint, besides NSE/NSDL spokesperson Ajay Shah. See Monika's piece which seems to directly attack Sucheta Dalal's views: "Those that attempt to manage news do so in a manner that creates impressions."
Coming from her, who has lot of credibility, Sucheta should write a proper rebuttal based on facts. Gaurav


K B Patil

In Reply to Gaurav 7 years ago

On reading Gaurav's comments, I visited the link and read Monika Halan's article. Except saying some goody goody things about the GRREAT Mr. Bhave, she has done nothing to rebut Ms. Sucheta Dalal. I was quite annoyed about the wishy washy article in Mint and promptly commented in Mint about what I thought of the article.


In Reply to Gaurav 7 years ago

Hey Gaurav. Thanks for this posting. And you see to be right about her target. Unfortunately, I don't write rebuttal's to what other journalists think or their seemingly guileless rhetorical questions. I write articles based on facts. That requires homework not some strange agenda.
regards Sucheta


In Reply to Gaurav 7 years ago

Is this Monica Halan the same person who used to work for Outlook and was famous for her highest paid ULIPs schemes? Off course later she did an about turn.
@Gaurav...I think if Monica has the guts to name names of journalist that are writing against her 'favorite' babus, then it would be apt for Sucheta to write.

Chandresh Shah

7 years ago

This hard hitting article on MCX-SX would have touched many raw nerves in the babudom. We as a country should be ashamed of such malpractices, Excellent. Keep it up


7 years ago

the article exposed the relationship between nse and some officers of sebi. So far I have not saw any irruglaraties, violation and dishonesty by mcx in commodities trading. Even RBI and FMC has not found any problem with the worikng of MCX. The government and its insistution should go by procedure and they should remember that law is above the all.


7 years ago

there should br some regulator to regulate SEBI.


7 years ago



7 years ago

1. Calling RSEs as parasite is highly condemnable and without any facts and figures. No PSU Bank has subscribed to their equity though many of them are still profit making and dividend paying. lets not beat somebody because he is weak and may be because i am capable of beating only him . . . .
2. Salary structure of the employees is an internal matter and it is better left to the stake holders. commenting about it makes us think that there may be some element of a jealousy factor creeping in. when it comes to compensation, only perfomance matters. If the perfomance is not upto the mark, let the shareholders ask the question. not us.
3. Competition in all forms are most welcome as long as people play by the rule. it helps the investor and brings the cost down for the customer.


kishore ghiya

In Reply to Naga 7 years ago

Shri naga, i am thankful to you for agrreing to competition, the new small entrants will play by rule or they will be thrown out by the persons who invested or dealt with them.
RSE have been defunct because of monopoly of two big exchnages and actually they are very much in the market by becoming brokers of two big exchanges the correct word is that because of sebi policy they have become slaves of bse and nse and not having money power to lobby.
Delhi stock exchange is trying since last 2 years to start trading at national level but it can only be done if they are given national level status and who is stopping ofcouse mr bhave and mr ravinarayan, they cannot stand competition.all rses are daily trading and their percentage of delivery based volume is much higher than main brokers of nse who are busy making money in margin funding. A broker who turns money lender and earn heavy interest.You wnat this big brokers to give you investor service pl forget it their margin funding income and properitory income is mindboggling and theeir LAMBE HATH unless they are chopped nothing will happen.
Brokers who do properitory trading their names must be put on nse websites and honest fii and mutual fund manager will be first to balck list then and in one year most of their retail investors will leave them to genuine service provider broker.A small neighbourhood chit will be easily exposed and will go out of business. But relaince power ipo lead managers for riggin up grey market and then killing new investor gets no penalty why because biradari apnewala hai na.
kishore ghiya mob 982527857

K B Patil

7 years ago

The audacity and partisan behaviour of Mr. Bhave is astounding. Some good news is that MCX is fighting back. When MCX does start the exchange, that will be a resounding slap for Mr. Bhave.


7 years ago

dear madam, the list of misdeeds is long...
how to control them, can cbi do something ?
or it will be brother vs brother

why not MCX acquire defunct RSE which are available in quantity
or acquire derecognised RSE and get it recognised

ur comment on defunct SE is because of sebi's inaction in issuing exit order to already derecogniised 5 SE , must be big boss expecting something to issue / sign exit order

Why SEBI board is silent and not taking action for not implementing its decision taken on its board meeting held on 4-12-2008 (RSE Exit)

Why it took 2-3 year to come out with exit policy? Sebi is supposed to be ready with solution/ answer what if any SE fail to demutualise or get derecognised or opt for derecognition but big boss was sleeping ?

Why RSE demutualised though no business model need be investigated specially when Chidambaram, then FM said where is the need for 3rd SE

new investors got struck...? or circus of sebi...(demutualised SE) why any one put money when there is no liquidity as well business model?

bse investors got struck already 4 years but no listing, no self listing inspite of 10n cr paidup capital ?

NSE vs other RSE (15% vs 5% limit per investor) is it fair ?

May be SEBI is planning to make century (100 rank) in Transparency International's corruption perception index .....keep it up sebi ...we indians r proud of u r braking record after records and creating new records

hope cbi will wake up... or will it be brother vs brother


7 years ago



7 years ago

we make corrupt cricketer Md.Azaharuddin MP and kill RTI activists as a usual practice this is Shining India of 21st century.

i salute the spirit of India.......


7 years ago

friends-when Suresh Kalmadi can easily escape any inquiry from PM or or Soniya madam(and can move and take equal adjacent seat to them even after total exposure of CWG-then every one like Bhave can be spared-only thief remained are common street theives who thefts to get bread for hungry kids and which are beaten badly and bravely by police-Mera Bharat Mahan(sirf corruption me)baki sab me Barbad-god dont give next birth to me in such corrupt country



In Reply to Roopsingh 7 years ago

SEBI is one of the worst regulator ,otherwise how can they allow brokers to charge such a high interest and why they can't force brokers to pay interest on clients' credit amount.I expect moneylife to take up this issue


In Reply to Roopsingh 7 years ago

Kalmadi! my dear this is time for "earn money a lot and give a share for safty"
But shame on us we people can not decieve to earn.

v subramanian

7 years ago

A lot of misdeeds of Bhave, SEBI chairman, is getting exposed in the media. But the government does not seem to care about these revelations. Probably people in the government are taken care of by Bhave.


7 years ago

Bhave if has any decency should resign. Power corrupts and absolute power corrupts absolutely. He escaped as NSDL chairman for his ommissions and commissions and has been hand in glove with NSE top brass and it is I scratch your back and you scratch mine with them. why then the transaction costs on NSE are the highest in the world. NSE makes super profits, to pay their arrogant bosses multi crore salaries at the cost of investors.


7 years ago

It seems and observed that SEBI is notg protecting Small Investors but it helps particulat exchange and particular set of brokers.

1. Lot of insider trading , every can see it but SEBI is not able to find any single case

2. Brokers doing lot of wrong to investors.i.e. selling their demat socks by misusing POA, Lot of delay payment charges(strange if investor makes 1 day delay broker charges 18% interest but broker using investors' money without paying anything), many unexplained charges ,misuse of properietory trading, Bogus research report to distribute stock,warehousing of stock

list is endless but SEBI not able to do anything. In fact many brokers earn more by default payment charges rather than brokerage. Why can't SEBi ask brokers to pay interest to client for their credit balance?

Sebi put control on distributors' commision but ultimately big brokers are getting big commission fromAMC under various schemes and expenses reimbursement format



In Reply to Rahul 7 years ago

Dear friend-i lost a big amount due to wickedness of my earlier broker India infoline who used to charge illegally 18% and 24% per annum but who used to pressure for selling after 5 days-(it clearly means they were not funding the account holder-and this Kamineys used to levy interest from day one-this is total looting of investor-and they sold my stocks at least rates of 17000 levels-(i kud have 1.5 lacs at present rates)-but these people are hand in gloves with SEBI-and continue their loting interupptedly-i closed my account with them when i felt helpless-but now i have 3 accounts with 3 different brokers-and i feel it is a better in many ways-if one makes harrasment at the critical juncture-we can shift to other broker and avoid losses-i have learned a hard lesson of investing and trusting only one broker-so my advice is that dont stick to one but have some spare broking point-you may take services of BMA wealth creators or Share khan and kick off this bastard India infoline


7 years ago

C.B.Bhave seems to be a great lobbyst, so he is protected from every failure and like suresh kalmadi, is sticking to his chair shamelessly.

Why are group mediclaim policyholders being pampered by insurers?

Call it corporate muscle power or lure of future business, insurers still bend over backwards to take care of group insurance policies

Most group insurance policies enjoy numerous perks like maternity, post-natal care, pre-existing ailments, dental and ophthalmic care. The icing on the cake is continuous coverage of cashless facility even at high-end hospitals in metro cities. The new concept of cashless facility restricted only at preferred provider network (PPN) hospitals by PSU (public sector undertaking) insurers is only for individual policyholders.

This is unbelievable considering that group insurance losses have been more than individual insurance losses. According to a report by the Comptroller and Auditor General (CAG), between 2006 and 2009 four PSU insurers suffered a loss of Rs417 crore on individual mediclaim policies and Rs622.49 crore on group mediclaim policies.

Segar Sampathkumar, deputy general manager, New India Assurance, said, "In the past, there used to be cross-subsidy given to corporates because of high value business from property insurance. With de-tariffing, the premiums have fallen and hence it is impossible to underwrite group health insurance at low premiums. They are now increasing at 30% to 40% this year. We are adding caps to specific coverage, co-payments and the coverage itself is now shrinking. Corporates are realising the reasoning behind the changes."

According to industry sources, despite the recent hike in premiums, group insurance polices continue to bleed insurers. It is easier to put loading on group insurance rather than individual policies. If PSU insurers made arbitrary increases to individual premiums, they could afford the cashless facility at high-end hospitals, but it will not solve the source of problem which is inflated charges by some high-end hospitals. "We are trying to correct the system that is in the interest of the policyholder. If there is a high charge from hospitals, it will reduce the sum assured for the policyholder and may not cover another illness in the same year," Mr Sampathkumar added.

Sudhir Sarnobat, co-founder and director of Medimanage Insurance Brokers, said, "If the claims ratio is adverse, insurers hike group insurance premiums at renewals. However, PSU insurers will offer some discount if the group insurance contract agrees to restrict cashless to hospitals that are part of their PPN.

Currently, the insured group has a choice of going either for PPN or other hospitals. The existing group insurance policies are not touched by insurers for restricting cashless at PPN hospitals, probably because it is the corporate sector where the premium can be hiked if the claims ratio is adverse."
"One way to curb the losses for the insurer is to have a 'Gate-keeping' model. A policyholder wanting to go to a big hospital without real requirement is a misuse of insurance. The need to go to a big hospital only arises because of ailment that cannot be treated at a smaller hospital. The tendency to go for the best hospital without a real need, just because the insurance company is paying for it, is a misuse of insurance," he pointed out.

Talking to the media at a CII insurance summit earlier this week, Dr Ravindra K Kaul, chairman and managing director of Oriental Insurance Co Ltd, said that the cashless facility is still allowed by PSU insurers at non-PPN hospitals for emergency and accident cases.

The four PSUs chose to control the losses ahead of other insurance companies; otherwise, the claims trend would put the fate of the entire health insurance industry at peril. PPN network will save at least 20%-25% on their losses, which will help the customers in the long run in terms of premiums not shooting through the roof.

Mr Sarnobat said, "Current churning in the market will make life very difficult in the short term for all the parties involved, but once this phase passes, we are sure that the changes would have a long-term effect and would help the consumer." He explained that the focused network with negotiated rates would improve the commercial feasibility of insurance and improve the quality and service delivery of hospitals. "Once the losses are tamed, the journey is always upward in value and what is currently happening with the health insurance industry in India marks the beginning of this," he said.

Another point that needs to be considered is that premiums of most health insurance companies have not risen at the pace of medical inflation. Medical inflation is one of the reasons for creation of the divide between claims and premiums earned, so health insurance essentially remains quite affordable and inexpensive. Thus buying a health insurance policy for yourself and your family even now seems a very good idea.



samar mahapatra

7 years ago

Admission in high end hospitals for even minor ailment are driven by Consultants who get a cut from the hospitals.There are also known inducements to Corporate Group officials to patronize expensive hospitals, till recently.If TPAs as gatekeeper are allowed to act such, much of the profligacy could be curbed.Do planned hospitalizations get cleared first by the TPA, expected to give authorization , before process?

Rubber Board to offer financial aid to small scale growers

Kottayam: The Rubber Board today said it will provide financial assistance for formation of rubber producers' societies (RPSs) and self help groups (SHGs), reports PTI.

The scheme is intended to develop the small holding sector, which is responsible for the lion's share of natural rubber production in the country. The scheme will enable the socio-economic development of poor farmers and their families, an official spokesman said.

It is aimed at promoting a group approach for effective modernisation and improvement of the natural rubber sector, as an individual approach is not practical due to the large number of such holdings, he said.

The rate of assistance offered under the scheme is Rs6,000 for new RPSs and Rs3,000 for SHGs.

Such SPSs/SHGs would be provided 150 budded stumps and 200 metres of budwood at either 50%% of the cost finalised by the board, or Rs2,500 per RPS/SHG, whichever is less, to raise nurseries.

Fifty per cent of the actual expenditure, or Rs5,000, whichever is less, would also be granted to these RPSs/SHGs for conducting medical camps, he said.


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