The Machinations, Controversies and Tinkering That Mark SEBI’s Top Job
Chairman Ajay Tyagi’s tenure at the Securities and Exchange Board of India (SEBI) will perhaps end in a couple of months; but the ugly jousting for the job appears to have begun in earnest. Or, that is what a provocative post by Dr Subrmanian Swamy, economist and parliamentarian, seems to suggest. 
 
Dr Tyagi’s appointment own appointment was uncontroversial, but not without incident; he was given a five-year term that was inexplicably cut to three uneventful and deliberately low-profile years, extended by six months.
 
As the government’s selection committee gets set to select a new chairman, its members could do well to read books by two former chairmen, UK Sinha (2019) and GN Bajpai (2018) about their respective tenures at SEBI. To understand why SEBI is immensely powerful today but does not enjoy investors’ confidence, you need to read what they have chosen to print and the bigger issues that find no mention at all in the two books. 
 

The raison d’être of Mr Sinha’s book, Going Public: My Time at SEBI may be to put on record how he was hounded with five public interest litigations (PILs) filed against his appointment. They alleged that his appointment was mala fide and the process rigged to give him the job. One of the PILs was backed by eminent personalities including a super cop, an air marshal and a former CBI chief; another that ended with a hard-hitting Supreme Court (SC) order in his favour was filed by an activist and former tax official. This background is important at a time when the selection process is on, especially if Dr Swamy’s allegation has any merit. 
 
Mr Sinha has pulled his punches and avoids naming names (Moneylife has published) a more-hard hitting account of the SC order in his favour). But his book creates a formal public record of the dubious machinations behind important appointments of the UPA (United Progressive Alliance) period going back to previous appointments as well. 
 
Mr Sinha writes that before CB Bhave was appointed, the PMO (prime minister’s office), took the unusual step of releasing a detailed note to the appointments committee “saying how Mr M Damodaran, the previous SEBI chairman, had done a good job and he ought to have been given an extension. But in view of the objections of the finance minister, the PM approved the appointment of another candidate.” This distanced PM Manmohan Singh from the decision, but exposed the weakness of his regime and how finance minister (FM) P Chidambaram called the shots. 
 
 
Mr Sinha also records the controversy over how SEBI, under Mr Bhave, had handled the investigation into NSDL (National Securities Depository Ltd) (which Mr Bhave had headed), even though he was technically ring-fenced from the investigation. The SEBI board had controversially declared the findings of its own board committee ‘non est’ and had humiliated Mohan Gopal, a well-known jurist and SEBI board member. According to the book, a PIL filed in the SC by Mr Gopal is still pending hearing!
 
 
Mr Sinha says the attacks against him began soon after he responded to a SC query by indicating that the SEBI board’s NSDL decision would be re-evaluated. The first salvo was a highly publicised letter written by KM Abraham, SEBI member, claiming political pressure to stymie SEBI action against the Sahara group and Reliance, insinuating that Mr Sinha was behind it. 
 
For those who are interested, the supreme court order is more hard-hitting (before and after some remarks against the petitioner were expunged) about the lobbies behind the litigation. Advocate Harish Salve, for the petitioner told the Court, “The writ petition is not maintainable because it is not filed in public interest. In fact, the writ petition has been filed as surrogate litigation on behalf of an individual who was very anxious to continue as Chairman, SEBI, namely Mr. C.B. Bhave.” And that the prayers indicated that “as soon as Mr. Sinha's appointment was declared void, Mr. Bhave would continue as a Chairman.” Incidentally, CB Bhave and two whole-time members, including Mr Abraham, were granted a five-year term within months of their appointment for three years.
 
All this is important because the appointment as market watchdog is not an end in itself—like being conferred a title or winning an award. The incumbent then has to serve the interests that ensure the appointment. 
 
But Mr Sinha’s rather timid book makes no mention of this or the big elephant of his tenure—the hugely influential and stunningly arrogant National Stock Exchange (NSE) and its many machinations. Regulatory capture by the NSE was complete during Mr Bhave’s tenure and most of Mr Sinha’s six long years that ended in 2017. 
 
While it is understandable that no chairman would admit to regulatory capture, Mr Sinha’s book is also silent about the Multi-Commodity Exchange (MCX), the bruising competition between the three exchanges (NSE, MCX and the Bombay Stock Exchange), the rise and fall of Jignesh Shah and the high frequency trading (HFT) scandal. Ironically, it was during his tenure that NSE was finally nailed on the HFT issue due to the diligence of SEBI’s technical advisory committee. As far as the book is concerned, none of this even happened!
 
Instead, the long court battle with the Sahara groups is showcased as the centrepiece of his tenure. In fact, Sahara was not even under SEBI’s regulatory watch except for seeking permission to list the bonds of two real estate entities on the stock exchange. SEBI, indeed, did a splendid job in the long litigation, punctuated by Subrata Roy’s media outbursts and full-page advertisements calling the regulators a ‘sarkarigunda’. 
 

Interestingly, GN Bajpai’s book, A Game Changer’s Memoir, which is also about his tenure as SEBI chief, has nothing on the growth of the NSE into the most dominant player in the capital market. Mr Bajpai was NSE’s non-executive chairman before being appointed SEBI chairman. But NSE itself was under a cloud over its advanced lending and borrowing mechanism (ALBM) a quasi-badla mechanism that came under scrutiny after the 2001 crash. 
 
Mr Bajpai’s book is much more readable and written in a story-telling manner. He portrays himself as the sole hero and even puts a spin on failures as visionary actions ahead of his time. He was, indeed, punctual, open, keen on human resources and worked to imbibe several good practices from abroad. These include introducing a book-building process for subscribing to IPOs (initial public offers), making allotment fast and seamless and pushing the Reserve Bank of India (RBI) to improve its system (this was done with a lot of help from NSE and Dr RH Patil’s goodwill in the RBI, but is not mentioned) to crunch the settlement cycle to T+2. Since he took over in the aftermath of a major scam, it was also easier to push for an amendment to give SEBI more powers and to push brokers to settle a long pending dispute over broker fees. 
 

He attempted to introduce many practices from developed markets; some succeeded and others failed. SEBI’s corporate reporting and filing system, EDIFAR (electronic data information filing and retrieval system) was turgid and eventually failed; the real-time inter-market surveillance systems (IMSS) to detect or curb rampant price manipulation was junked by Mr Bhave who got a new system; but rampant price manipulation remains unchecked. 
 
After NSE proved that it could conduct nationwide trading on a single screen and became the dominant exchange within a year of existence the death of regional exchanges was inevitable. Yet, Mr Bajapi’s tenure and that of some other SEBI chiefs saw an inordinate amount of time creating wasteful new exchanges (Indonext trading platform, and Inter-connected Stock Exchange of India) as an alternative to regional exchanges. Instead, they ought to have focused on investors whose money was invested in companies listed exclusively on regional exchanges and is lost forever. The failed central listing authority was another waste of time when it was clear that India was moving towards a two-Exchange system. 
 
MAPIN, a biometric identification system forced on the market without adequate focus on privacy or security, was eventually shut down and no, it is not correct to compare it with an equally controversial Aadhaar, which Mr Bajpai does. 
 
The biggest expectation from SEBI under him was to investigate and act against corporate houses—many of the names behind the K10 stocks that Ketan Parekh manipulated—and bring them to book. The joint parliamentary committee (JPC) had specifically mandated SEBI to do so. But every corporate got away and either failed on its own or continued its manipulative ways.
 
Notably, neither book dwells on investor protection and grievance redress, which ought to be the touchstone of capital market regulation. Is it any wonder that investors have little confidence in the regulator and continue to lose money?
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    COMMENTS

    kpushkar

    4 weeks ago

    Very interestingly selective memory in all the cases.. they are all paid by me .. ordinary tax payer and shareholder..
    No accontability .. more so for Bhave

    adityag

    4 weeks ago

    Can't wait for Tyagi's book to come out. What fun!

    hamungel

    4 weeks ago

    Sad to know what well-educated , well-to-do and well-paid people will do for a few dollars more.

    mahesh.bhatt

    4 weeks ago

    There should be mechanism to pay back fines taken from Companies who have been caught like Reliance Petrochemical Ltd Rs844 cr but investors got raw deal for no fault of theirs & were not reimbursed to RIL merged & share conversion ratio was bad for investor we lost 60000/ with 10 years plus investment & got few shares n booked losses Rgds Mahesh Bhatt

    parmarassociate

    4 weeks ago

    How Chiefs of Publuc Institutions are maligned by, within the Institutions honch-notch.😧😧😧

    mantrisuresh1

    4 weeks ago

    Great brief.

    SEBI asks investment advisers to choose between sale or advice
    Investment advisers can either distribute financial products or advise on them to investors, but cannot do both, as per Markets regulator SEBI.
     
    The move will be applicable from October 1. The Securities and Exchange Board of India has amended the Investment Advisers Regulations and covers any person who advises clients on purchase, sale, investment or portfolio management in securities for these entities who is called an investment adviser.
     
    SEBI has stipulated segregation of services. At present, advisers carry out both advisory and distribution services and there is no segregation.
     
    Individual investment advisers can no longer advise and distribute investment products simultaneously. They will have to chose between one of them and seek a registration with SEBI for that.
     
    As the fees or commission varies based on the nature of products, an investment adviser is likely to recommend a product which gives the maximum incentive on distribution. Invariably, clients are advised where the fees are more and this goes against the best interest of clients and gives rise to a conflict of interest a situation which SEBI is addressing.
     
    The SEBI amendment also restricts the adviser's family - spouse, children and parents- from providing distribution services to a client receiving advisory services.
     
    The segregation isn't limited to individuals alone. Non-individual advisers, including companies and limited liability partnerships, must segregate clients at a group level for investment and advisory services.
     
    As per the SEBI norms, the same client cannot be offered both kind of services through a non-individual adviser's group entities. A holding, subsidiary, joint venture or associate company of an adviser can only provide one type of service to such client. Non-individual advisers must maintain an arm's-length relationship between their advisory and distribution functions by rendering services through a separate department or division.
     
    The certification is governed by SEBI and a person is restricted from providing such services unless they have a certificate of registration.
     
    The amendment also makes it mandatory for a non-individual investment adviser to introduce client level segregation between advisory and distribution activities. It also introduces a revised net worth criteria for individuals and corporate persons.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    DineshA

    4 weeks ago

    Moneylife advisory was only advising so what necessitated the change in your format?

    MT

    4 weeks ago

    They keep selling and advice “For Educational purpose” only

    SEBI revises shareholding limit for exchanges in IFSCs
    In a bid to streamline the operations of international financial services centres (IFSC), the Securities and Exchanges Board of India (SEBI) on Thursday said that it has revised the eligibility and shareholding limit for stock exchanges desirous of operating in IFSCs.
     
    In a circular, the regulator said that based on the internal discussions and consultations held with the stakeholders, it has been decided to amend clause 4 (1) of SEBI (IFSC) Guidelines, 2015.
     
    Under the revised framework, any Indian recognised stock exchange or a bourse of foreign jurisdiction may form a subsidiary to provide the services of stock exchange in IFSC wherein at least 51 per cent of paid up equity share capital is held by such exchange and remaining share capital may be offered to any other person, whether Indian or of foreign jurisdiction.
     
    Further, such person will not at any time, directly or indirectly, either individually or together with persons acting in concert, acquire or hold over 5 per cent in the exchange, subject to applicable law.
     
    The SEBI circular also said stock exchanges, depositories, banking company, insurance company and commodity derivatives exchange of Indian or foreign jurisdiction have been allowed to acquire 15 per cent stake in such an exchange operating in an IFSC.
     
    The amended clause originally said: "Any Indian recognised stock exchange or any stock exchange of a foreign jurisdiction may form a subsidiary to provide the services of stock exchange in IFSC where at least 51 per cent of paid up equity share capital is held by such exchange and remaining shares may be offered to any other recognised stock exchange, whether Indian or of foreign jurisdiction."
     
    Commenting on the amendment, Sonam Chandwani, Managing Partner at KS Legal & Associates said: "The amendments are strides in the right direction by limiting the ownership of companies to five per cent of the paid-up equity share capital in Indian bourses in IFSC, except those specifically mentioned in the circular."
     
    "Such streamlining of IFSC operations are likely to ease the burden on all the stakeholders involved and keep the leash in the hands of the Indian stock exchanges," she said.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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