U K Sinha, new chairman of the Securities and Exchange Board of India (Sebi), says he has a three-pronged strategy for handling the securities market — intensification of investor education, simplification of processes and strong deterrents, with effective surveillance mechanisms, for manipulators. In an interview with Santosh Tiwari, he talks on how he intends to do these. Edited excerpts:
Sebi has set up a committee to address the problems of the mutual fund (MF) industry. There has been a suggestion to go back to the one-cheque system. How do you see the way forward?
MF sales have come down. There is also a geographical concentration. We are worried about it. In this background, we have set up this committee, to look at how the spread of MFs can be increased. Whether single cheque or not, I can’t comment just now. The committee is looking into all these aspects. We want the spread of mutual funds and we will be alive to the need for incentive. The committee will find out the best possible solution. My feeling is that they will finish this job in another four-five weeks.
The finance minister announced liberalisation of norms for direct participation of foreign investors in MFs. When are the guidelines expected?
Those Budget announcements were based on the recommendations of the working group set up by the finance ministry in July last year. We have given our scheme to the government and to the Reserve Bank and we are discussing it with RBI. The consultations will be over very soon and the scheme made operational.
You have hinted that nobody would be spared if there is evidence of market manipulation or insider trading. How will you achieve this?
Yes, we are not going to tolerate that. Wrongdoers will be punished, howsoever big. We have earmarked a very sophisticated technological initiative on surveillance and that has now been put in place.
The first phase has been implemented and there are two other phases, to be completed by December. In all sorts of manipulation, we will be getting alerts. At times, I find companies devote the maximum time on business growth and spend less and less time on financial statements and internal control and that is the problem. The distinction I am making is that there are companies which do it deliberately; others have not concentrated on their internal control. In either case, the moment it comes to our notice, we will act.
Manipulation in IPOs has emerged as a major concern.
There are two aspects. One, if there is manipulation, are we acting? The answer is, yes. Second, the IPO process itself. We have done two things. One is to make the forms and disclosure very simple and investor-friendly, and relevant to investors.
A very large volume of information is given but nobody is able to understand that and it doesn’t serve any purpose. We’re trying for structured information relevant to the issue and in a manner that can be understood. This is one part.
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The second part is, we are trying to make more disclosures. For example, the track record of the merchant bankers in various issues handled in the past, the price at which the issue is being sold and its comparison with peers. We’re working on these. These steps will encourage investors and investor associations to analyse the worth of a particular issue in comparison to the price and in comparison to peers. This is one aspect. The second is to give them forms in a very simple way and we are also looking at changes in the ICPR regulations.
For the IPO process and forms, another group has been formed and my guess is that in another four-five weeks, they will give their report.
What about the takeover code?
It has gone to the board twice and members felt they needed to consult and understand more. We have started the consultation and so has the government. I am hopeful that in the next meeting of the board or whenever there is a meeting, we will be able to take a final view.
Retail participation in the stock market and other market-related instruments has gone down substantially in recent months. How are you planning to improve market participation?
One, we will go for a programme of investor education in a big way, perhaps a very weak area for us. Second, whether in applying for an MF or an IPO or in the secondary market, the process part is very complicated and outdated. I have set up a group to make the forms simple. Second, I would like to give the investors comfort that, yes, wrongdoers will be punished and there will be prompt action. The third part is improving the processes.
On the infrastructure debt fund, the finance ministry has said the process would start from June. What will be Sebi’s role?
We have proposed that this be done through the MF route. We will have a separate chapter, separate section, beginning with the infrastructure debt funds. We have already formulated a detailed scheme and sent it to the government.
I believe the government will have consultations and there are indications that it is also serious on implementing it very early. We have prepared the scheme and now it’s a question of consulting various stakeholders. Then we will put it in the public domain and implement it.
There had been instances in the past when sectoral regulators had serious conflict. How do you see the situation now?
Globally, people have realised after 2008-09 that co-operation is required. Here, too, while we have many instances of excellent regulatory coordination, one or two matters could not be resolved and finally the government had to come with an amendment in Parliament.
There is a law, and that has helped create a feel among regulators that they’d better coordinate. In the past three months in which I’ve been here, I find the urgency to understand each other much better compared to what I’d seen when I was in the ministry. It is much better now.
Any other priority area for taking action?
In all our areas of activities, we have started a dialogue. The point I’m making is whether it is private equity, venture capital or PMS or regulation of distributors, we have started with a fresh thinking and a fresh challenge to ourselves. Many of these will require consultation, which is the right thing to do.
What about entry of pension funds in the market?
The decision has to be taken at the government level but it would have been a great thing for this country and the workers of this country if allowed.