In the eight months since taking over as chairman of the Securities
and Exchange Board of India, UK Sinha
has taken measured steps on some policies relating to the capital market.
Sinha, a former civil servant who had earlier worked in the finance ministry as
joint secretary in charge of the capital markets and external commercial
borrowings division besides a stint as CEO of UTI
Mutual Fund before joining Sebi, spoke to ET NOW's George
Cherian on a range of issues. Excerpts:
You have undertaken to overhaul various functions within Sebi and also the organisational structure. What led to this thinking and also, how is the plan progressing?
We believe that regulators must also do a serious amount of introspection about the impact they have created. I am reminded of what the Persi Mistry Committee had recommended that there should be a regulatory impact assessment.
Unless any regulator looks at introspection and also at how it performed with regard to its functions and tasks, there may be the view that we are doing very well and we did not look at ourselves. So accountability and impact assessment is what were at the back of our minds.
Sebi is perhaps the first regulator in the country to introspect in this serious a manner by trying to engage an outside consultant. We have also been influenced by the fact that after the global developments, many of the major companies are thinking on similar lines.
We have also set up an international advisory board. We are possibly the first regulator in the country to work in this direction. We have got a group of eminent people - practitioners, regulators and academics- with whom we will interact every six months. We will discuss new developments in the world and how to tackle them.
Investor faith in Indian equity market is possibly the lowest among any country in Asia. What are you doing to address that?
If you look at the Asian market, wherever investor interest has gone up substantially, it has happened primarily on the back of pension money. So, my first case is that it's very difficult for me and you or anybody to reach out to every household in the country to collect savings.
Wherever there is a pool of money, which represents household savings, and if that pool is brought into the market, then the market will pick up. It is also relevant from the point of view of foreign versus domestic institutions. Domestic institutions have to be strengthened to provide a counter balance to the foreign investor.
Foreign investors are welcome but to depend substantially on them and not develop our domestic market is perhaps not a good strategy. If you have noticed the insurance industry has been able to get more money than the mutual fund industry and that has provided a good counter balance.
Regional stock exchanges aren't faring too well with all of them barely seeing any trading. How long will it be before exit guidelines for these exchanges are issued? Also, what's the progress with the Jalan Committee report?
This is something we must have behind our backs very soon. There are historical reasons and some political and social reasons behind creating so many exchanges but now that we have a national system of trading and anonymous trading, many of them find that their existence is seriously challenged. Sebi came out with some policy in 2008 but it has not worked.
You have undertaken to overhaul various functions within Sebi and also the organisational structure. What led to this thinking and also, how is the plan progressing?
We believe that regulators must also do a serious amount of introspection about the impact they have created. I am reminded of what the Persi Mistry Committee had recommended that there should be a regulatory impact assessment.
Unless any regulator looks at introspection and also at how it performed with regard to its functions and tasks, there may be the view that we are doing very well and we did not look at ourselves. So accountability and impact assessment is what were at the back of our minds.
Sebi is perhaps the first regulator in the country to introspect in this serious a manner by trying to engage an outside consultant. We have also been influenced by the fact that after the global developments, many of the major companies are thinking on similar lines.
We have also set up an international advisory board. We are possibly the first regulator in the country to work in this direction. We have got a group of eminent people - practitioners, regulators and academics- with whom we will interact every six months. We will discuss new developments in the world and how to tackle them.
Investor faith in Indian equity market is possibly the lowest among any country in Asia. What are you doing to address that?
If you look at the Asian market, wherever investor interest has gone up substantially, it has happened primarily on the back of pension money. So, my first case is that it's very difficult for me and you or anybody to reach out to every household in the country to collect savings.
Wherever there is a pool of money, which represents household savings, and if that pool is brought into the market, then the market will pick up. It is also relevant from the point of view of foreign versus domestic institutions. Domestic institutions have to be strengthened to provide a counter balance to the foreign investor.
Foreign investors are welcome but to depend substantially on them and not develop our domestic market is perhaps not a good strategy. If you have noticed the insurance industry has been able to get more money than the mutual fund industry and that has provided a good counter balance.
Regional stock exchanges aren't faring too well with all of them barely seeing any trading. How long will it be before exit guidelines for these exchanges are issued? Also, what's the progress with the Jalan Committee report?
This is something we must have behind our backs very soon. There are historical reasons and some political and social reasons behind creating so many exchanges but now that we have a national system of trading and anonymous trading, many of them find that their existence is seriously challenged. Sebi came out with some policy in 2008 but it has not worked.
We have again come out with an internal discussion paper. So
far, 17 of the regional SEs have got recognition and four haven't. These 17
exchanges have very little trading going on. And one out of these 17 has had no
trading for the last 10 years. We are trying to look at two important aspects.
One is how do we provide an exit to the companies and to the shareholders of
the companies that are listed only on that particular exchange.
The second is what happens to the assets and property of the stock exchange once we are sure that they are allowed to completely exit or fade away. We are trying to look at both from the legal aspect and from the point of view of fairness. My feeling is that what we did in 2008 has not worked. We are trying to combine our approach on regional stock exchanges along with the exchanges on Jalan Committee report because instead of having a policy which deals primarily with four out of 21 exchanges, it is better to have a policy for all of them.
On the issue of insider trading, how confident are you about your surveillance systems?
Over the period of the last three years, Sebi has been able to strengthen the surveillance system tremendously. We have invested heavily on technology and systems. We have now moved to a higher area called data warehousing and business intelligence.
So phase one of that has been implemented and next two phases are also in the process of being implemented in the given time frame. That gives Sebi a huge capability to have a look at any pattern about trading in any particular area. I would like to take this opportunity to tell people through you that we are watching very seriously.
Some of the good corporates, without realising that this is something that is not right or on the wrong side of law, have been indulging in this because somebody has advised them that this is alright to do. I would like to tell people that now our capability has enhanced. People should try and keep an eye on compliance and regulatory rules themselves.
All intermediaries and companies should look at their own systems. Once we find somebody on the wrong side, we will have no recourse but to take appropriate measures, a deterrent measure. Those who are not doing it deliberately, my message to them is that you should be ready to face the consequences of deliberate action. It is good for you to look at your compliance and legal systems. Spend some time and energy on that if you are the top management of the company.
Sebi's recent draft regulation on investment advisors has attracted criticism. Some are questioning the rationale behind the proposal of a self-regulatory organisation (SRO) for advisors. Others claim only mutual fund agents have been targeted as the draft exempts insurance brokers and advocates from compulsory registration. What is your response?
Very simple. If somebody's case is that there should not be any SRO, that Sebi should be regulating them directly, on this point my position is that we don't have the capacity. Even if we go down that path, it will take us years to create that capacity and we can't wait till then. The regulation of investment advisors and distributors and the conflict in both businesses is something which needs to be done. We are willing to accept suggestions but I suspect that there are certain segments which do not want any regulation to come in but I'm sorry. I cannot allow that.
The second is what happens to the assets and property of the stock exchange once we are sure that they are allowed to completely exit or fade away. We are trying to look at both from the legal aspect and from the point of view of fairness. My feeling is that what we did in 2008 has not worked. We are trying to combine our approach on regional stock exchanges along with the exchanges on Jalan Committee report because instead of having a policy which deals primarily with four out of 21 exchanges, it is better to have a policy for all of them.
On the issue of insider trading, how confident are you about your surveillance systems?
Over the period of the last three years, Sebi has been able to strengthen the surveillance system tremendously. We have invested heavily on technology and systems. We have now moved to a higher area called data warehousing and business intelligence.
So phase one of that has been implemented and next two phases are also in the process of being implemented in the given time frame. That gives Sebi a huge capability to have a look at any pattern about trading in any particular area. I would like to take this opportunity to tell people through you that we are watching very seriously.
Some of the good corporates, without realising that this is something that is not right or on the wrong side of law, have been indulging in this because somebody has advised them that this is alright to do. I would like to tell people that now our capability has enhanced. People should try and keep an eye on compliance and regulatory rules themselves.
All intermediaries and companies should look at their own systems. Once we find somebody on the wrong side, we will have no recourse but to take appropriate measures, a deterrent measure. Those who are not doing it deliberately, my message to them is that you should be ready to face the consequences of deliberate action. It is good for you to look at your compliance and legal systems. Spend some time and energy on that if you are the top management of the company.
Sebi's recent draft regulation on investment advisors has attracted criticism. Some are questioning the rationale behind the proposal of a self-regulatory organisation (SRO) for advisors. Others claim only mutual fund agents have been targeted as the draft exempts insurance brokers and advocates from compulsory registration. What is your response?
Very simple. If somebody's case is that there should not be any SRO, that Sebi should be regulating them directly, on this point my position is that we don't have the capacity. Even if we go down that path, it will take us years to create that capacity and we can't wait till then. The regulation of investment advisors and distributors and the conflict in both businesses is something which needs to be done. We are willing to accept suggestions but I suspect that there are certain segments which do not want any regulation to come in but I'm sorry. I cannot allow that.
What are your views on the consent mechanism that Sebi has
been using to settle cases? How has it worked so far?
It has worked. First of all, let me dispel any feeling in anybody's mind that this is something of a negotiation between Sebi and intermediaries. The law provides for it, the Sebi Act provides for the mechanism and it has withstood the test of time or legal scrutiny. We have some guidelines since 2007 on how to go about this. The criticism that you are referring to is the perception in the minds of the people that perhaps we have not been consistent.
Perhaps a person cannot predict if I have committed a crime or an offence like this, where will I end up, so there is lack of consistency. I would like to admit that to some extent this criticism is valid. We conducted an in-house study and we are ourselves of the view that there have been variations for similar cases.
The amounts we have been able to collect or charge people - the consented amount or the terms and conditions we have imposed have had variations, so right now, Sebi is in the process of tightening the consent mechanism and there are various issues.
For example, whatever we prescribe should be in the norms of legal scrutiny and whatever we prescribe has to be fair and equitable. We are looking at that area very seriously and we are consulting some outside experts so the entire consent mechanism is being re-looked. But as a mechanism, consent is good.
It has worked. First of all, let me dispel any feeling in anybody's mind that this is something of a negotiation between Sebi and intermediaries. The law provides for it, the Sebi Act provides for the mechanism and it has withstood the test of time or legal scrutiny. We have some guidelines since 2007 on how to go about this. The criticism that you are referring to is the perception in the minds of the people that perhaps we have not been consistent.
Perhaps a person cannot predict if I have committed a crime or an offence like this, where will I end up, so there is lack of consistency. I would like to admit that to some extent this criticism is valid. We conducted an in-house study and we are ourselves of the view that there have been variations for similar cases.
The amounts we have been able to collect or charge people - the consented amount or the terms and conditions we have imposed have had variations, so right now, Sebi is in the process of tightening the consent mechanism and there are various issues.
For example, whatever we prescribe should be in the norms of legal scrutiny and whatever we prescribe has to be fair and equitable. We are looking at that area very seriously and we are consulting some outside experts so the entire consent mechanism is being re-looked. But as a mechanism, consent is good.
Source: http://economictimes.indiatimes.com/opinion/interviews/some-big-companies-indulge-in-insider-trading-uk-sinha-sebi-chairman/articleshow/10774020.cms?curpg=3
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