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
) 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?