Reforms undertaken by SEBI

This post is intended to underscore reforms undertaken by Securities and Exchange Board of India (SEBI) and glimpse of the organization

 

SEBI, the country’s financial market watchdog, has to be responsive to the needs of three groups, which constitute the market:

• the issuers of securities
• the investors
• the market intermediaries.

Though SEBI has enormous power, there is an appeals process to create accountability. There is a Securities Appellate Tribunal (SAT) which is a three member tribunal where grievance can be filed against SEBI. A second appeal lies directly to the Supreme Court.

SEBI was headed by Mr Meleveetil Damodaran for a period of 3 years from 2005 to 2008 before which he had headed the IDBI Bank. He belongs to the Indian Administrative Service, Manipur-Tripura cadre. He has been succeeded as chairman of SEBI by Chandrashekhar Bhaskar Bhave.

 

C B Bhave who was appointed as chairman of (SEBI) in February 2008 was heading National Securities Depository Limited (NSDL). He was instrumental in setting up NSDL. He also served as independent director on board of two listed companies – PSU CMC (now part of the Tata group) and Avaya Global Connect. He is an electrical engineer and 1975 batch IAS officer.

As shown in the diagram above, Mr Damodaran has taken enough measures in secondry market to bring it to fairly efficient level. But primary market is still has a lot of scope for improvement and I believe that Mr bhave, during his tenure, will improve primary market considerably.

  

Notable reforms by SEBI

 

·      Quick movement towards making the markets paperless, Introduction of rolling settlement on T+2 basis 

·      Direct Market Access:  This reform relieved Foreign Institutional Investors (FII’s) from front running problem. Front running, which is rampant in the Indian stock market, happens when a trader profits from information of large institutional orders. He profits from the price spurt or fall that takes place due to an institution buying or selling in a stock.

In DMA, the broker’s infrastructure is bypassed. But the trade and settlement obligations and risk management compliance involving payment of margins and exposure limits — arising from the orders and trades in the DMA terminal will continue to apply to the broker. 

·      Refunds through Electronic Clearing Scheme:  Till recently, refunds in public issues were sent only through post/ registered post, which had time and cost implications for investors. SEBI has decided to extend the facility of electronic transfer of funds, viz, ECS to public issue refunds also. This will ensure faster and hassle free refunds to investors.

 ·     Introduction of optional grading of IPOs: SEBI Board has granted in principle approval for introduction of optional “grading” of public issues by unlisted companies by credit rating agencies registered with SEBI. IPO grading would not be mandatory. It would be solely at the option of the issuer company. SEBI will not certify the assessment made by the grading agency. The grading is intended to be an independent and unbiased opinion of the concerned agency. The grading would be a one-time exercise and would only focus on assisting the investor particularly Retail Individual investors, in taking an informed investment decision.

·      Tightening of Corporate governance norms At least half of the members in the director board must be independent directors if the chairman is the executive director of the company and at least one-third should be independent, if the chairman is non-executive director.

 ·    Removal of entry load by mutual funds to investors who apply without intermediately.

·      Approval of seven new products in derivatives such as mini contracts, options in futures, longer dated options and currency futures and options.

·      Introduction of short selling and stock lending and borrowing for investors opting for short-term gains

·      Increase in the retail-quota in IPOs to 35 per cent from the earlier 25 per cent

·      Investors to receive interest till shares are allotted to them in IPO

·      Ceiling on expenses charged by index funds brought down, in order to encourage investors to look at low cost products