The domestic market is likely to witness a gap-up opening on hopes that central banks across the globe will do more to prop up their economies. The lead was given by the Japanese central bank that cut key interest rates to near-zero levels and reiterated its move to buy additional assets to boost the economy. US Federal Reserve also said earlier that it would take additional steps to spur the economy. The US markets ended higher overnight as service industries grew higher-than-expected to 53.2 in September from 51.5 earlier. The Asian markets were trading on a higher note this morning, boosted by the Bank of Japan’s initiatives to aid the economic growth. The SGX Nifty was 46.50 points higher at 6,221.50 compared to its previous close of 6,175.
The market started on a soft note on negative global cues on Tuesday. Fluctuating between the red and green, it ended near the lowest point of the day. Cautiousness prevailed ahead of the quarterly earnings season, set to begin next week. The market was in a narrow range at noon below the neutral line and tumbled sharply to end near the day's low. However, the benchmarks were above their crucial levels of 20,400 and 6,100 respectively.
The Sensex ended 68.02 points (0.33%) lower at 20,407. The index touched a high of 20,560 and a low of 20,383 during the session. The Nifty shed 13.65 points (0.22%) to close at 6,145. It touched an intraday high-low of 6,188 and 6,118, respectively.
The US market ended higher on Tuesday on higher than expected services industries data and hopes that the Federal Reserve, like the Japanese and Australian central banks, will take new steps to boost the economy. The ISM index rose to 53.2 in September from 51.5 earlier. Investors’ confidence was also boosted by the Bank of Japan’s move on Monday.
The Dow rose 193.45 points (1.80%) to 10,944. The S&P 500 rose 23.72 points (2.09%) to 1,160. The Nasdaq rose 55.31 points (2.36%) to 2,399.
Markets in Asia were trading in the green on the Bank of Japan’s economy-boosting measures announced on Tuesday and the Australian central bank’s move to keep interest rates steady.
The Hang Seng was up 1.41%, Jakarta Composite was up 0.83%, KLSE Composite was up 0.46%, Nikkei 225 was up 1.29%, Straits Times was up 1.06% and Taiwan weighted was up 0.91%. The Chinese market is closed for the entire week.
The Institute of Chartered Accountants of India (ICAI), on Tuesday said it is seeking power to take action against erring firms.
This is the first time, the ICAI has decided to recommend the Union government that power to act against firm be given to the institute after necessary amendments in the Act.
SEBI’s knockout punch to mutual fund distributors in August 2009 has left a trail of tribulation across all intermediaries in the mutual fund industry. We put together the actions and their impact to highlight why even a raging bull market has failed to enthuse the fund industry
The Securities and Exchange Board of India (SEBI) abolished entry loads in August 2009, in what it thought was an investor-friendly move. But consider how a slew of thoughtless actions that followed this move have bludgeoned the mutual fund industry and every one of its intermediaries until assets under management are dwindling rapidly.
The starting point was of course, the distributors who were suddenly left without a business. Without fees, it made no sense for them to dish out free advice, while investors, who were unused to paying for advice, weren’t willing to start now. SEBI couldn’t care less, beyond regulators loftily pronouncing that “distributors must charge customers” and “investors must learn to pay”.
When a few hundred crore rupees began to be pulled out, SEBI swung into action to make the situation worse. It started its infamous turf battle with the insurance regulator to stop mutual fund assets flowing to unit-linked-insurance products. The result: legislation that put the finance ministry in charge of sorting out squabbles between regulators. Also, hundreds of distributors have shut shop and are looking for alternative business avenues.
In July 2009, just before the ban on entry loads, SEBI exempted micro SIP investments upto Rs50,000 from having to submit PAN numbers. This translated into higher volumes under SIP without any significant addition to the overall Assets Under Management (AUM) of fund companies. An unintended consquence was that Registrar & Transfer Agents (RTA) were burdened with additional work and no commensurate increase in income.
In December 2009 came a circular asking for stricter and more detailed Know Your Customer (KYC) documentation for “prevention of money laundering”. This happened when SEBI realised that some mutual funds did not even know their customer and were entirely dependent on distributors not even RTAs.
This triggered huge documentation efforts between RTAs and channel distributors — the top 20 distributors account for 4.78 lakh unique investors with a minimum of three documents (a/c opening, KYC, PAN ) consisting of 65–180 pages each (4.78 crore records). While the process was being completed, commissions to the tune of Rs100 crore were withheld, angering the distributor community even further.
Interestingly, all this was left to a few RTAs to handle — it is interesting that the entire capital market boom since 1990 has not led to increased competition in the RTA segment — Karvy remains the dominant player, with three or four others picking up the rest. SEBI has never tried to find out why this business does not attract more participants.
Incidentally, SEBI’s fatwa meant that to comply with KYC norms, old and inadequate customer data, with older funds such as UTI Mutual Fund had to be obtained afresh, with identification (photo, phone and address) and put in a standard format for easy access. We learn that RTAs coped with this by procuring third-party screening software to aid in this process.
In March 2010 SEBI decided to attack trail commissions and permit investors to change distributors without a no-objection certificate. It decided that in case of any change in the broker code, no trail commission would be paid to both brokers — the one who lost a customer as well as the one who gained a customer. This immediately triggered a virtual war to grab customers by hook or by crook — it only led to RTAs being choked by reams of paper requesting a change in broker code. The apparent lack of clarity between SEBI and the industry body Association of Mutual Funds in India (AMFI) didn’t help matters either. The misinterpretation of the rule unleashed trading in customer data. Only after AMFI issued a subsequent clarification did the volumes subside.
Many other proposals introduced by SEBI, such as shrinking of NFO allotment time from 30 days to five days or extending the ASBA facility to mutual funds, although for the benefit of investors, led to confusion because the industry and intermediaries were never given enough time to set up robust implementation processes.
One example is SEBI’s decision in June 2010 to switch from AMFI certification for mutual fund distributors to certification by the National Institute of Securities Management (NISM) which has been set up by SEBI and is now scouting for revenue opportunities. The certification leads to the issue of a certification number or code. Since older IFAs (independent financial advisors) are unlikely to get an NISM code, it has created an additional process for fund intermediaries to manage NSIM and AMFI codes.
In August 2010, SEBI asked all fund houses to facilitate smoother shift of mutual fund units between two demat accounts. This not only meant that AMCs would have to shoulder additional costs, but it would also increase activity at the RTA’s end. Various participants have pointed out discrepancies in this system, with several intermediaries submitting their own challenges in dealing with the requirement in its current form. Similarly, in order to check fraudulent activities by some distributors, SEBI asked fund houses not to accept third party cheques for mutual fund subscriptions. This is under implementation, requiring fund branches to track investor applications with investor cheques to corroborate the investment.
SEBI followed this with a killer blow to the distributor community, when it introduced tedious and intrusive know your distributor (KYD) norms. These didn’t go down well at all with some distributors, who felt they were being treated like common criminals, particularly questioning the extent of verification as demanded by SEBI. Moneylife’s article on this matter (see here: http://www.moneylife.in/article/78/9202.html) generated significant interest from the distributor community.
The problem is that each time SEBI introduced a change, without enough thought or discussion, the industry began to invest in systems and processes, only to have the regulator move on to another change. Or worse, the investment was wasted because investors were unimpressed by the change.
One good thing that has come out of all this mess is the facility of consolidated account statements on a monthly basis. This service provides the investor with the ability to track his mutual fund investments across all fund houses under a single roof. This may also reduce the costs and efforts at the RTAs’ end as it will eliminate the need for daily confirmations.
With SEBI mulling more regulatory changes for the industry, any move without involving the industry participants will only create more headaches for all the players in the industry.
What is needed today to solve the problems of the poor is not so much esoteric technology but first and foremost clear logic as to where the problems lie. Most poor get deprived of what they should get because of corruption, and not lack of identity
The UID programme has been launched without any legal and constitutional sanction for it as yet. In the name of the poor, a huge amount of money is being spent.
And, in spite of severe criticism from rights organisations including warnings by eminent academicians such as Nobel Prize winner Amartya Sen, no action of reviewing the project has been taken.
The main argument of the UID that it will help plug leakages in NREGA and PDS is fallacious.
Consider these two videos from the ground:
(MREGA corruption video)
(Villagers expose corrupt dealer)
The first video shows how the supervisor who is in charge of the NREGA programme takes a bribe to mark the attendance of the workers.
It is not that the workers don't have a form of identification. They do have a job card. Their work does not fetch them anything unless their attendance is marked, and for that they have to depend on the supervisor. And the supervisor asks a bribe for it. UID or for that matter no amount of identification can solve this problem.
Consider the second video which is about PDS. Here the ration shop owner charges more money for the grain. Here too, lack of identification is not the problem, and hence UID will be of no good to solve this problem.
If one goes by estimates done by various sources, the leakage in the government schemes due to fake cards is about 8% to 10% - a miniscule part of the whole lot of leakages. In the case of PDS for instance, most leakages do not take place at the last mile as per the UIDAI hypothesis; instead it is the big corrupt sharks who are involved in siphoning grains before they reach the ration shop itself.
Thus, it is clear that not enough study is conducted by UIDAI in concluding that lack of identification is the real problem. No wonder, there was no independent impact assessment study of what the UIDAI project can lead to, which if done, the above problems would have been revealed. This begs the question - is the amount to be spent on UIDAI in the name of plugging of leakage of government aid justified?
A cost-benefit analysis would have given the right answers.
Jean Dreze, who conceived NREGA, has said that the UID project is a security project camouflaged as a welfare initiative.
The examples shown above reveal that the UIDAI project will not be able to plug other than minor forms of leakages from the government aid programmes; further, that too at huge costs and many other negative fallouts.
Also, some of the technological choices made by the UIDAI project may just be not the best ones available, but in fact could be counterproductive.
A recent report based on a multi-year study by the US-based National Research Council states that biometrics are inherently unreliable for authentication as a replacement for other forms of authentication.
The reasons given are as follows:
First of all, biometric authentication is called "inherently probabilistic." That is, the match between sample and master record will always include some uncertainty - no matter how good a sample, the sensor reading the sample and the information technology system matching the sample to a master record.
Among the reasons for that uncertainty is the nature of biometric identifiers themselves. Human bodies and the features on them aren't necessarily constant over time.
Also, biometric identifiers, while difficult to duplicate on the body of another person, are still available for surreptitious collection through fingerprint gathering, as per the report. It concludes that an imposter could be detected by a human operator administering the biometric authentication system, but that "significantly constrains remote or distributed applications of biometrics."
The report doesn't dismiss the possible usefulness of biometric authentication, however, noting that in combination with other methods, it can augment security at least in applications "where user cooperation can be inferred."
Interestingly in the case of UIDAI, none of the above cases apply. Specifically, the human operator says the ration shop owner administering the biometrics in the case of UIDAI should be considered an adversary as he would himself have interest in stealing the biometrics of the ration card holder.
Further, he operates in a remote area where what he does is not visible to the authorities unlike say in a setting such as an international airport.
Thus, he could probably design a number of ways of beating the authentication process of biometrics. It is precisely these kinds of use case scenarios that haven't been thought through thoroughly by the UIDAI folks.
Another argument given by the UIDAI authorities is that of inclusion, and that 120 million migrants have no form of identity.
Consider the following scenario: A genuine migrant with his home town from Azamgarh moves to Delhi and goes to a bank there for a loan. Since his permanent address is not Delhi, banks could deny him a loan. In fact, instead, he might be put on a terror watch list. Is there a guarantee that his UID won't be used against him, in fact to exclude him rather than for inclusion?
All the above issues point out that Aadhaar is using lack of identity as a myth to justify its spend. Remove the myth and Aadhaar stands bare, without any justification other than mainly as a national security project and for purposes of targeted marketing, linking data, tracking and surveillance, and yes, some amount of convenience due to easy check of one's identity.
What is needed today to solve the problems of the poor is not so much esoteric technology but first and foremost clear logic as to where the problems lie. Most poor get deprived of what they should get because of corruption, and not lack of identity. The bull of corruption needs to be taken by the horns and not by the tail which Aadhaar tries to do.
Secondly, the poor should be made aware of their rights, and empowered to tackle corruption. As is shown in the two videos (linked above), if at all technology should be used, it should be stealth cameras which should be given to the poor free; instead Aadhaar fetters the poor by taking their biometrics.
(The author has a B Tech from IIT Bombay, and a PhD from Columbia University, New York. He currently runs a start-up, Teknotrends Software Pvt Ltd that does cutting-edge work in the area of network security).