Anyone raising money from investors must be regulated

Companies, mutual funds, venture funds, portfolio managers. The number and variety of entities raising money from the Indian investor has mushroomed in recent years, but regulations haven't kept up. The Securities Exchange Board of India Chairman, Mr U.K. Sinha, says his objective is to fill this vacuum.Henceforth, all entities raising money from domestic investors will be registered, without any exceptions.

Systemic risk

Speaking to Business Line on a visit to Chennai, Mr Sinha explained that this need was brought home during the market crash of 2008. “We found in 2008 that large pools of (retail) money were collected and used to play the market without anybody having any idea even about its dimensions. There was no clarity on how much money was being collected under private pools.”

This is why SEBI has made its recent moves to tweak regulations for portfolio managers and alternative investment funds as well.

“Now we have decided that alternative investments such as private equity, venture capital or hedge fund — anyone collecting private pools of money from investors, should be registered and information should be disseminated. This is necessary from a systemic perspective.” The earlier venture capital regulations for instance, never mandated that such funds needed to be registered with SEBI.

Why has the minimum investment limit for portfolio managers (Rs 25 lakh) or private equity funds (Rs 1 crore) set so high?

The idea seems to be to keep uninformed retail investors away from such vehicles.

Explains Mr Sinha: “We want to make sure that the uninformed retail investor invests only in mutual funds, where regulations are water-tight. In fact, we are looking at a hierarchy of regulations, in terms of stringency. At one end, there are vehicles such as mutual funds where one can invest even Rs 100 or Rs 500.

“At the other extreme, entities such as private equity, venture funds cannot collect less than Rs 1 crore per investor. These will be subject to light-touch regulations.”

SEBI says that the final set of regulations on alternative investment funds will be ready shortly.

Asked about what the regulator is doing to develop the corporate bond market, Mr Sinha replied that the problem with the corporate bond market was one of demand and liquidity. These have been impacted by many factors, including regulations governing the institutions who hold bonds.

On the supply side though, SEBI is working on expanding the suite of products. “Hedging and risk management for instance, was available for ten-year bonds and T Bills, but we were told that such products are required for intermediate bonds with two-year terms. We are planning to do it.”

Source: http://www.thehindubusinessline.com/markets/stock-markets/article3394492.ece