The Hindu Business Line : Police with care

A REGULATORY MOVE to build a database of capital market participants, using biometric techniques such as fingerprinting, has drawn the ire of some participants. The new regulation, notified as far back as November 20 and due to take effect from April 1, has surprisingly not been subject to the degree of scrutiny it deserves. Few doubt the motive of the Securities and Exchange Bureau of India in creating such a database and using it to evolve a unique identification number. Checking market shenanigans will become relatively easier if SEBI, or any other agency, is able to pinpoint the perpetrators on the basis of data already stored with it. It should be much more difficult for the habitual offender to resurface in another garb.

Clearly one of the objectives in creating the database is to make available to everyone (including investors) a blacklist of scamsters. That type of information is not available even in the more organised and better regulated banking sector, where attempts to exchange information among banks and the regulator on, say, defaulting borrowers have come unstuck partly because of the secrecy laws. The latest SEBI move appears particularly audacious considering that the financial sector as a whole does not have a common database on individual credit risks, so very essential at a time when every one is betting on retail lending for achieving profitability. If SEBI's goals are laudable, the means to achieving them have drawn criticism for a variety of reasons. Some market participants have termed the procedure as being intrusive and violative of their civil rights. Most objected to is fingerprinting of participants as also the requirement to register the extended family of the participants. A few experts have questioned the legal competence of the regulator to formulate the scheme; in their view the SEBI Act does not permit it. A more practical objection is that it is redundant. All market participants already have a dematerialised account with a depository participant and the same can be integrated into the central database.

It is unlikely that the new regulation will go through without a significant legal challenge. Many market participants, including those who have complied, expect SEBI to tone down the procedure. One way out may be to exempt those not immediately connected with the securities business on a day-to-day basis from having their fingerprints and other biometric details recorded. But certainly thecase for streamlining the procedures for collecting and analysing market data is strong. Of particular concern has been the inability of SEBI to use market intelligence in conjunction with the data. The weak spots of capital market regulation have been surveillance, investigation and in awarding punishment that will stand scrutiny at the appellate level. It is doubtful if these lacunae in capital market regulation will be plugged by embarking on an unprecedented collection of data.

More Stories on : Editorial | Regulatory Bodies & Rulings

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Police with care

In quest of fair globalisation

UK's experiment

Pakistanis turning away from jehad in Kashmir?

IPO feast

Private airlines