Sebi probe against UBS was a quick one

Convictions by regulator gather pace

The Securities and Exchange Board of India (Sebi) order against UBS Securities Asia Pvt Ltd on the stock market crash of May 17 last year is the fastest ever investigation conducted by the securities watchdog.

In 2003, Sebi had launched an investigation into the abnormal rise in banking scrips. While various brokerages were issued notices and details sought from them regarding their transactions in bank scrips, neither any brokerage has been brought to book nor has any proceeding been launched against them.

However, in the last one year, Sebi has been unusually active in banning brokers, suspending licenses and pulling up market intermediaries for violation of regulations. The rate of such convictions have been at least four per day.

Major orders passed this year against some prominent entities number around 20, while orders are issued against almost daily against smaller entities. But all of these pertain to investigations which have been launched at least three years back and belong to events dating even further back.

In 2004, close to 300 orders were passed against various market intermediaries as former chairman G N Bajpai sought to reduce the backlog of cases which had piled up over the years.

Sebi took a year for the UBS order to be passed, and this is a fairly fast progress considering the regulator's record in the past.

It usually takes a longer time for the capital market watchdog to sift through the information which it receives both from the exchanges as well the entities being investigated. In the current investigations against those suspected to be involved in the market crash, as many as 12 entities are under the scanner.

However, in the case of UBS, a point to be noted is that Sebi did not get the entire information that it has sought from the entity.

The punishment given to the brokerage house has been more for not co-operating with the regulator in its investigations rather than any actual disruption of the market on that fateful day.

The only information obtained by Sebi with regard to UBS market transaction on May 17 was that it had taken substantial exposures in the cash and futures market and was a substantial seller in the spot market on that day.

This is also unprecedented since the regulator usually waits for information before it takes any action against an entity. This is the first time that a market intermediary has been pulled up on the basis of information not forthcoming.