Needed: a grand vision for Sebi

The Securities and Exchange Board of India (Sebi) chairman M Damodaran takes over the reins with the distinct mandate to write a turnaround strategy for the markets regulator.

Market sources say Sebi has allowed itself to be overtaken by its problems, with the result that successive chairman have never been able to dedicate themselves fully to drawing up a unified vision for the markets.

The regulator's biggest task on hand is to restore speedy implementation of the rules in the rule book. Over the years, Sebi has decidedly slackened on this count.

According to the Handbook of Statistics, published by Sebi in November 2004, the regulator had been able to take action in only 174 cases in 2003-04 as against 257 and 143 cases in the two previous years.

Its track record of successfully obtaining indictments in the courts is not very enthusiastic; it has not been able to obtain a single conviction in a insider trading case in the courts.

Part of the problem, market sources say, with Sebi's palpable lack of oversight in the markets is that it is understaffed and ill-equipped to handle its mandate.

Former Sebi chairman G N Bajpai had initiated the process of building up a cadre of executives within Sebi, but still the top policy-making echelons are filled with people on deputation from government services.

Though there is no doubt, market sources say, that such officials bring a wealth of expertise into their tenure, the fact however remains that lack of a deep understanding of the capital markets hampers their functioning.

Moreover, these officials cannot bring a vision and strategy into the job, which is the most critical element in a developing regulatory body.

Lack of an overarching vision for the markets shows up in the lack of consistency in the interpretation of laws, as also in the need to tinker with rules and regulations ever so often.

Sebi needs quality staff to man its supervision and surveillance desks. These skills can not be imported or built overnight. Only after an official has spent some time looking at trading patterns, can he develop the skill to spot an odd movement.

Indeed, a few stock brokers had told Business Standard some time back that despite being glued to their screens the whole day, they couldn't make out patterns of alleged insider trading in bank stocks.

Though Sebi has a Stock Watch system which sends out alerts on suspicious trading patterns, there is no alternative to a human interface.

As prominent brokers have said, apart from ensuring the integrity of the markets, the regulator has also to focus itself on structural changes in the capital markets, especially on tying up the loose ends.

At last count, there were 23 stock exchanges, 665 registered foreign institutional investors, 9,368 brokers and 12,815 sub-brokers.

Even with the recent initiative to assign a unique identification number and store all investor-related data in the database, there is scope to do much more, market sources concur.

Damodaran is a very strong-willed person and has the uncanny ability to distance himself from problems and quick-fix solutions, people who have worked with him at UTI and IDBI say. The markets now expect him to pull Sebi out of the sick bay.