'The securities market is close to maturity'

Q&A/ G N Bajpai

Excerpts:

How do you view the market in recent months? Are you concerned with the volatility?

As a regulator, I cannot have a view on the level of the markets. However, my team and I are on high alert. It is also important to realise that not every rise and fall in the market is necessarily market misconduct.

What we do on a continuous basis is to get data, analyse it and if there appears to be a likelihood of misconduct, take proper action. Otherwise, the regulator will start interfering with market forces, which is not its role.

What about the stock exchanges? Why should Sebi have to intervene when stock exchanges are supposed to be the first line of defence?

We have a real-time stock watch system that throws up alerts; any unusual movements are captured. In fact, many of the alerts don't mean anything. But the stock exchanges monitor these alerts carefully. Apart from the machine element, there is the human element that checks through all data alerts to see if there is something suspicious.

But you have started calling for data only recently.

We keep calling for data and analysing it. And as and when there is something for us to take note of, in order to proceed with, or to notify, we do that. The first alert is sounded by the stock exchanges.

If they see anything unusual, they deal with it. They report it to us only when they find that it is beyond their province or they find it necessary to report to the regulator.

Is it possible for the exchanges to slip-up anywhere or withhold information?

Why would they do that? They are designated self-regulatory organisations with certain duties and responsibilities. We keep reviewing their functioning on an ongoing basis: there are inspections every year.

But ever since the market has been rising at the pace not considered normal, we have been holding regular weekly meetings with the exchanges, where we review the market and, depending on what is necessary, we take action. Every unusual movement is watched "" both by the exchanges and the regulator "" and appropriate action is taken after analysing the data.

How do you tackle the rumours and misleading reports driving the markets?

My belief is that the Indian securities market is on the last leg of its journey to maturity. Once the market matures, these things will automatically reduce substantially. Issuers, investors and intermediaries will start to look at the markets based on authentic data and then take a view. But whenever there is any serious damage we immediately take action.

Has the participatory notes issue been resolved? What about allowing hedge funds direct entry into India? What is your main concern?

We are working on a concept paper on allowing hedge funds to be registered in India. The main concern is the investment management practices of hedge funds. Over time, these have raised concerns in certain quarters of the world "" even the US is looking at them.

Therefore, we, as a regulator, would certainly like to find out whether it suits our markets. This is essential to maintain the efficacy and integrity of our markets.

Once we complete that, we will consult the market participants and then, based on the feedback, take a view and finally go to the Board with the recommendations. A particular idea or thought that has not found favour at one point of time need not be useless for all time.

Do global pension funds have any issues?

No pension fund has come to me with any issues. Some of them are registered here directly and they can also operate as a foreign institutional investor (FII) or a sub-account.

What's the issue about qualified institutional buyers (QIBs) paying margin money or a part of the amount for initial public offer applications....

The Board has taken a consensus on this and the reason is that QIBs cannot withdraw their bids. They can only move the price band, which is allowed to everybody. This is in consonance with the situation in the secondary markets, where we do not charge margin from institutional investors or FIIs.

Once they have made a commitment, they stand by it. There's no case of a default. Once I do not allow them to withdraw their bids then there is no issue.

Are there any other issues related to QIBs?

QIBs have a problem with the delivery versus payment system. Now you cannot ask them to pay money in advance. For what? They need some securities, which one cannot give. So we have found a middle path that satisfies all parties.

What about the issue of exaggerated oversubscription figures?

I do not think that is a big issue. My role is to keep the market functioning. If I start picking holes in small matters, I will be blocking the working of the exchanges. I can make sure that the reported exaggeration in oversubscription figures does not reach the levels that it has so far. It has really not hurt the market.

After all, Oil and Natural Gas Corporation (ONGC) was oversubscribed six times. This has happened not only for the public sector undertakings this year; it's been happening right since 1999. But we have taken note of it.

You are in the process of formulating a vision strategy for Sebi.

We have decided that we must have some clear path, what we want to do, where we want to reach. We will be holding a review meeting at the end of this week to formulate it. Last year, we spelt out our strategy and this year we have to update it. Many things have changed, many things have rolled on, and many new things have to be added.

You have been at this position for two years. What has been your experience? Do you think the job is tougher than you thought, or easier?

I wouldn't say that. I apply myself enthusiastically to any job I undertake. So I am here, enthusiastically tackling the problems that arise day-to-day and even hour-to-hour.