After the happy smiles and beating the gong to merge two regulators, comes the real impact at the people level: anger, resentment and objections by SEBI's employee association
The real problem in the merger of Securities and Exchange Board of India (SEBI) and Forward Markets Commission (FMC) is one of accommodating lateral appointments in SEBI at senior levels.
Recruitment in SEBI usually happens at the entry level and there are lateral inductions as well, usually on deputation from other services, under a procedure laid down by the SEBI Employee Service Regulations. Over the past two decades, SEBI’s powers and terms of employment has made it an extremely attractive destination for those on deputation, especially since there is the hope of extending their service by qualifying to become a Whole Time Member (WTM) of the SEBI board. Another rarely discussed attraction is that SEBI now enjoys humungous power with almost no accountability or supervision because less than half a dozen Members of Parliament (MPs) either understand or care about capital market issues.
The big grouse today is the process followed by SEBI for absorbing FMC employees. We learn that there are three writ petitions have been admitted in Bombay High Court by different sections of FMC employees against, what they allege, is an unfair selection process. SEBI had appointed a Selection Committee to shortlist the FMC employees to be taken by it, and the decision of this Committee had been communicated by SEBI to the government.
The government notification of 22 September 2015 says that appointments of FMC employees at SEBI would be upon the same terms and conditions of service, as they would have held under the FMC, had it not been transferred and vested with SEBI.
Now SEBI had selected 15 permanent FMC staff out of total 41 employees and seven persons who were on deputation at the commodities regulator. After the government notification, the 15 permanent employees of FMC have been deputed to SEBI for a period of two years. The seven who were on deputation have been told that they can join SEBI for a maximum of six months.
Now here is where the problem begins. Of these seven employees, SK Mohanty, Director at FMC, has been appointed as Executive Director (ED) in SEBI. VC Chaturvedi, a Director in FMC has been appointed as a General Manager and Vishal Nair, a Joint Director at FMC has been appointed as Deputy General Manager (DGM). Others are appointed as Manager and Assistant General Manager (AGM). One Nagendra Parakh, who was a whole time member at the FMC, suddenly finds himself demoted to the level of DGM at SEBI — what is shocking is that he has been a long time SEBI executive with long experience during the development phase of the market regulator.
Among those who have gone to court include, Atul Verma, a director at FMC, who had earlier applied for the post of ED and is allegedly aggrieved by the elevation of Mr Mohanty.
SEBI officials are equally upset, since they see their promotion avenues affected. The SEBI Employees Association has asked that the market watchdog’s employees must be protected in the merger process, especially when taking persons on deputation. The Association has also raised the issue of appointing an Executive Director. At present, there are seven EDs in SEBI of whom, four are permanent SEBI staff, one is on contract and two are on deputation from the Indian Police Service (IPS) and Indian Economic Services (IES). This, they say has led to stagnation at SEBI since its own staffers are denied the opportunity to be considered for the post of Executive Director.
Even more demoralising for them is the practice, started by various SEBI Chairman of bringing their own favourites as EDs. SEBI officers point out that, M Damodaran brought in RK Nair from Corporation Bank, who later went on to become Member of Insurance Regulatory and Development Authority (IRDA). Mr Damodaran also brought in Sandeep Parekh as ED for Law. CB Bhave brought in KN Vaidyanathan and JN Gupta from the industry. The ED in charge of the legal department, J Ranganaikulu, was a SEBI employee, who resigned and became a contract employee to fulfil the norm of 50% EDs from outside SEBI.
The current Chairman, UK Sinha has brought in Gyan Bhushan from IES and RK Padmanabhan from IPS as EDs.
Some former SEBI officials say that this practice has allowed SEBI to become a fully Chairman-centric organisation controlled by one person, since senior officials in the rank of ED, are on short-term contracts and owe their tenure and their allegiance to just one man, the Chairman. In fact, the tenures of the past two Chairmen has seen a churning of ED appointments after their tenure ended. This is not healthy for a watchdog organisation with phenomenal powers.
SEBI officials also complain that there is no need for SEBI to look outside, when its own employees have become a talent pool for other regulatory bodies. For instance, a former SEBI ED is currently posted at the Competition Commission of India, one SEBI executive was a Member at the FMC and another is Acting Chief Executive of Mauritius Financial Services Commission.
However, this argument could also be used against the SEBI Employees Association, since some would argue that such churning is healthy for the regulatory environment. But the comparison that SEBI officials make is with the Reserve Bank of India (RBI), which, until Dr Raghuram Rajan came in as Governor, did not allow any lateral entrants except at the topmost levels.
The SEBI Employee Association wants SEBI "to show confidence in its own officers by doing away with the practice of filling up of 50% of the posts at ED level through Deputation/ Contract". They have argued that this is not in accordance with the SEBI Employee Service regulations and is contrary to arguments in favour of merit and suitability.