Gone are the days of All India radio and Doordarshan monopoly. In this age of roaring social media and ferocious U-tubers, Securities and Exchange Board of India (SEBI)’s attempt(s) of hiding information is spilling more beans, its U-turns on its own decisions are raising more doubts, its lackadaisical approach in regulatory strictures is raising more suspicion and its approach of gaining news headlines through superficial penal actions is making it more unpopular. Let us discuss some of its recent decisions.
U-Turn on co-location scam: Exoneration of National Stock Exchange, Mrs. Chitra Ramakrishnan, Mr. Ravi Narain and others in co-location case due to lack of evidence has made everybody suspicious. (Moneylife magazine has elaborated this story in detail.) It smacks of foul play. SEBI has taken U-turn to facilitate IPO of NSE. It’s nobody’s guess as to who will benefit the most out of NSE IPO. Are these beneficiaries helping SEBI Chairperson in tiding over the catastrophic jolt to her career? Are there more skeletons lying in SEBI cupboard which are known only to Chitra Ramakrishnan and Ravi Narain. Chitra and Ravi have been stalwarts of stock market and nothing has been hidden from this duo. It is being rumored that a corporate giant of India has been behind Hindenburg expose against SEBI chairperson and therefore he had been served a whopping fine and debarment within few days of this expose. The corporate didn’t make any effort to move SAT against SEBI order.
Consultation Paper on Merchant Bankers: On August 28, 2024, SEBI circulated a draft consultation paper regarding modifications in the rules governing operations of merchant bankers. The capital market regulator has proposed to hive off operations such as private placements, M&A and restructuring for unlisted companies from merchant business activities. This will create a divide and dislocation between merchant activity business. Similarly, it has raised earning barrier for survival of license. The discussion paper says that ‘the registration granted to a merchant banker shall be cancelled… if it fails to… earn a revenue of at least Rs. 25 crores in three immediately preceding financial years, on a combined basis, from permitted activities.’ As per Moneycontrol, almost 100 merchant bankers will lose their license, if this provision is implemented. The entry barriers to merchant banking business been increased five to ten times. Such restrictive measures are against healthy competitions and will serve the purposes of giant merchant bankers only. You must have seen that the burden of compliance converted many stock brokers into franchisee of big broking houses eating away 30 percent of their margin. (Mostly, the franchisee gets 70 percent of the brokerage revenue from its broker).
The gimmick of action on guest experts and anchors: SEBI’s action on guest experts and anchors of business channels looks like a gimmick. If you go through the order of SEBI on guest experts/anchors, you will find that money trail, stock market positions and monetary benefits played critical role in arriving at a decision. The guest experts, anchors and correspondents were penalized. No action was taken against the editor or the channel owner. The security market regulator didn’t take into account the position taken in grey market through dabba trading, nor did it think that monetary benefits could be in other forms as well. The pretention of ignorance is taking a toll on SEBI’s reputation. The open secret that the security market sharks seldom take money into their own account, is known to everybody except SEBI.
Freezing of bank account is a mockery in itself: And the simplest of all. Whenever SEBI takes decision against anyone, it freezes bank accounts with immediate effect. What a joke? Is it promoting cash transactions? Its intention of stopping outflow of money during investigation period may be right but the method is trivial. Investigation process is time taking. It may take several years. What is the means of survival for person with frozen account? Where would he go? When a broker with frozen account wrote to SEBI Chairman, he got a blunt reply that SEBI didn’t stop from opening new bank account. But PAN level freeze results into freezing of newly opened bank account within three months. Is this not known to SEBI? If there is a way to get sustenance allowance through SAT, why is it known only to the expensive advocates. If intentions of SEBI would have been clear, it could have mentioned the provision of sustenance allowance in its order/direction itself.
Market is a forward-looking dynamic place. Transparency is key to its integrity. SEBI should infuse rationality and transparency in decision making to showcase its integrity. Market has no place for lethargy. SEBI should not act as a lagging regulator. It must keep pace with rapidly changing market environment.
