 "Birds rest on the logo of the Securities and Exchange Board of India (SEBI), India's market regulator, installed on the facade of its head office building in Mumbai")
The Securities and Exchange Board of India (Sebi) has decided to reduce the number of listed companies on the BSE (formerly Bombay Stock Exchange) and the National Stock Exchange (NSE). The move follows an off-site meeting of Sebi’s top team last month where several focus areas were discussed, including reduction of listed companies which have been suspended.
Sebi chairman U K Sinha said more than 3,000 companies were listed on regional exchanges for which exit plan has been spelt out. Of these, 511 have opted to upgrade and get listed on main bourses.
On BSE and NSE together, there are 1,200 listed companies which have been suspended for more than seven years. Sebi plans to enable an exit option for shareholders of these companies. “We will ask stock exchange concerned to appoint third party firms to determine the valuation of these firms to provide an exit to shareholders,” said Sinha.
If promoters don’t pay investors the determined price, then they would face the risk of being barred from entering the capital market for up to 10 years. They would also not be allowed to be directors in companies. About 5,400 companies are listed on the BSE and NSE.
Sebi has many other priority areas for 2016-17. One of them is to take action against auditors of companies involved in manipulation, or other violations, if there is substantial proof of the auditor’s involvement. So far, Sebi was only able to recommend the Institute of Chartered Accountants of India to take action against such auditors. “The 2014 amendment to the Sebi Act gives us powers to take action against auditors too,” Sinha added. Once implemented, this would be another deterrent for capital market manipulators.
Regulating high frequency trading (HFT) or algo trading, which accounts for 40 per cent of the volume in equity and derivative markets, to protect the integrity of the markets and create a level-playing field is another priority area for Sebi.
Sebi will finalise new set of norms to tighten algo trading, aimed at fair access to market data of exchanges. Options that are under consideration include action on two parts. The first would be to remove the speed advantage that algo traders in co-location facilities enjoy and the second would be to create a level-playing field in information dissemination such as tick-by-tick trading data between algo and manual trades.
Sebi will release a discussion paper on algo trading soon. Penalties for violating algo norms would be raised substantially. Sebi is finalising explicit guidelines to ban manipulative algorithm trading strategies.
The regulator is also working on separate queues for co-location players’ orders and non-colocation players’ orders so that those who enjoy speed advantage due to physical proximity to the exchange’s server should not use tick-by-tick orders of the whole market.
Another option that Sebi is evaluating is to split bulk orders of high frequency traders or introduce a delay. Co-location facilities for commodity exchanges for the time being is ruled out.
Among market participants, mutual funds and domestic institutions have emerged as strong counterbalance to foreign investors, said Sinha. Foreign portfolio investors’ holding of the free float came down from 21.35 per cent in March 2015 to 21 per cent in March 2016. In the same period, mutual funds’ holding went up from 4.81 per cent to 5.79 per cent, while that of other domestic financial institutions grew from 6.72 per cent to 7.97 per cent.
Sinha said people shopping online is a much higher number. Hence, a committee under Nandan Nilekani has been set up to finalise norms for allowing buying and selling of mutual funds on technology platforms, including e-commerce websites such as Amazon and Flipkart.
The committee will meet on May 30.
The committee will decide the responsibility and liability of the e-commerce player and the structure of the entity to deal in funds. This trading will be linked with Aadhaar for KYC (know your customer) purpose and their registration and regulation procedures are also being discussed.
SEBI’S PLAN FOR 2016-17
Sebi chairman U K Sinha said more than 3,000 companies were listed on regional exchanges for which exit plan has been spelt out. Of these, 511 have opted to upgrade and get listed on main bourses.
On BSE and NSE together, there are 1,200 listed companies which have been suspended for more than seven years. Sebi plans to enable an exit option for shareholders of these companies. “We will ask stock exchange concerned to appoint third party firms to determine the valuation of these firms to provide an exit to shareholders,” said Sinha.
If promoters don’t pay investors the determined price, then they would face the risk of being barred from entering the capital market for up to 10 years. They would also not be allowed to be directors in companies. About 5,400 companies are listed on the BSE and NSE.
Sebi has many other priority areas for 2016-17. One of them is to take action against auditors of companies involved in manipulation, or other violations, if there is substantial proof of the auditor’s involvement. So far, Sebi was only able to recommend the Institute of Chartered Accountants of India to take action against such auditors. “The 2014 amendment to the Sebi Act gives us powers to take action against auditors too,” Sinha added. Once implemented, this would be another deterrent for capital market manipulators.
Regulating high frequency trading (HFT) or algo trading, which accounts for 40 per cent of the volume in equity and derivative markets, to protect the integrity of the markets and create a level-playing field is another priority area for Sebi.
Sebi will finalise new set of norms to tighten algo trading, aimed at fair access to market data of exchanges. Options that are under consideration include action on two parts. The first would be to remove the speed advantage that algo traders in co-location facilities enjoy and the second would be to create a level-playing field in information dissemination such as tick-by-tick trading data between algo and manual trades.
Sebi will release a discussion paper on algo trading soon. Penalties for violating algo norms would be raised substantially. Sebi is finalising explicit guidelines to ban manipulative algorithm trading strategies.
The regulator is also working on separate queues for co-location players’ orders and non-colocation players’ orders so that those who enjoy speed advantage due to physical proximity to the exchange’s server should not use tick-by-tick orders of the whole market.
Another option that Sebi is evaluating is to split bulk orders of high frequency traders or introduce a delay. Co-location facilities for commodity exchanges for the time being is ruled out.
Among market participants, mutual funds and domestic institutions have emerged as strong counterbalance to foreign investors, said Sinha. Foreign portfolio investors’ holding of the free float came down from 21.35 per cent in March 2015 to 21 per cent in March 2016. In the same period, mutual funds’ holding went up from 4.81 per cent to 5.79 per cent, while that of other domestic financial institutions grew from 6.72 per cent to 7.97 per cent.
Sinha said people shopping online is a much higher number. Hence, a committee under Nandan Nilekani has been set up to finalise norms for allowing buying and selling of mutual funds on technology platforms, including e-commerce websites such as Amazon and Flipkart.
The committee will meet on May 30.
The committee will decide the responsibility and liability of the e-commerce player and the structure of the entity to deal in funds. This trading will be linked with Aadhaar for KYC (know your customer) purpose and their registration and regulation procedures are also being discussed.
SEBI’S PLAN FOR 2016-17
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Higher penalty, tighter norms for high frequency trades
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New products like options and indices in commodities derivatives by year-end
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Allowing comexes and stock exchanges to enter in each others’ areas at a later stage
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Eight more arbitration centres would be opened up in the country to sort out investors’ grievances
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New NISM campus at Rs 325 crore investment coming up at Panvel near Mumbai to be inaugurated by PM in October
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Higher responsibilities for exchanges to monitor compliance by listed firms
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Norms for rating agencies would also be tightened
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Plan to reduce number of listed firms by 4,200 on national and regional exchanges
- A committee under Nandan Nilekani to finalise norms for allowing mutual fund sales on tech platforms, including e-commerce websites such as Amazon and Flipkart
