A new chairperson takes charge of the Securities and Exchange Board of India (Sebi) today. Mr U K Sinha comes to Sebi in challenging times, when “governance deficit” is the new buzz word both in corporate India and in the field of regulation. He also collects the baton from a predecessor who has left behind a mixed track record of good governance and avoidable controversy. The world has changed and so has Sebi in the past two decades. Today, Indian markets have matured and are more integrated with world markets. This demands greater alertness to events and trends and increased finesse as well as sensitivity on Sebi’s part in dealing with emerging issues. Sebi must be able to display this in its regulatory actions, in its dealings with another regulator and in resolving a dispute between two regulated entities. Though a regulator is not required to win a popularity contest nor will its actions ever satisfy all, it is equally true that efforts should be made not to keep critical issues on the boil for a long time, so that resolvable issues do not turn into intractable ones, which necessitate settlement only in the courts. In the current context, regulatory coordination has become more important than before and it will remain so henceforth. There is no fun in always going to the court to resolve regulatory disputes. Coordination, rather than confrontation, always yields sustainable benefits. It enhances the image of a regulator.
In the absence of a viable domestic institutional investor class, the Indian securities market has been totally driven by foreign institutional investors (FIIs). This is far from healthy. A mature stock market should have multiple classes of investors with varied preferences. Domestic mutual funds are in the doldrums. In the interest of the Indian securities market, Sebi must help revive the industry and infuse life into it. Even as Sebi makes investor protection its catechism, it must demonstrate its sensitivity to the needs of industry. In the past, Sebi has been able to implement critical reforms in the securities market with ease only because it was able to carry the market along with it.
The fate of the report of the committee on takeover regulations, which included the recommendation on the 100 per cent takeover offer, announced with much fanfare is not yet known. The Sebi board had postponed the decision twice. This paper had welcomed the report’s recommendations, but had cautioned that its implementation may not be easy. Similarly, no action could be taken on the Bimal Jalan Committee report. It is an important report and the Sebi board should deliberate on this quickly. Reports often lose their validity and contemporaneity if kept on the back burner for a long time.
Sebi has introduced a system of consent orders. It is a useful system that helps Sebi take relatively quick action and reduce the backlog of actionable cases. But it is important to maintain uniformity in consent orders. For similar offences, the penalty must be uniform. For this, the people who are entrusted with dispensing the orders must be well equipped with the knowledge of the securities market and jurisprudence. The regulatory role of stock exchanges in a demutualised scenario is not clear, nor is the purpose of preserving all 20 stock exchanges. Corporate governance is critical for the market. But it is not always apparent if Sebi or stock exchanges have demonstrable measures for the improvement of governance standards of listed companies. Equally, Sebi must always ensure that governance is working well within Sebi and that the Sebi board has the depth of expertise and diversity of experience and functions like an effective board.