The Hindu Business Line : Setback for SEBI

THE SURVEILLANCE AND enforcement processes of the Securities and Exchange Board of India (SEBI) have suffered yet another blow with its order in the UBS Securities case overturned last week by the Securities and Appellate Tribunal (SAT). This is the latest in the series of cases involving prominent market participants in which the SEBI order has been overturned in the appeals process. SEBI, no doubt, had justifiable reasons to impose restrictions on UBS Securities, as the latter had consistently stonewalled requests by the regulator for information on its clients. But by using this non-compliance as a basis to punish UBS for triggering the crash on May 17 last year, and to impose a ban on it, SEBI weakened its case considerably. Had it not linked the two, it could have penalised UBS for non-disclosure of key information and an attempt to delay and subvert the regulatory process. If SEBI had confined its order to this aspect, it would have had a stronger case when UBS appealed to higher legal forums.

The Tribunal has also panned the SEBI order on the ground that the regulatory requirement on `know your client' is ambiguous. It argued that SEBI could have used its powers more effectively by pressing charges against UBS under another Section. Interestingly, the action against UBS was announced on the first anniversary of Black Monday in the Indian stock market; it was cited as the first of the measures against market participants who had played a role in triggering the decline in the broad indices that day. But while the timing of the announcement was noteworthy, no further charges have been pressed by SEBI as part of its investigations into the crash.

The repeated failure to make its orders stick in higher legal forums has only undermined SEBI's credibility. This is an issue that has to be addressed expeditiously. The case also highlights the need for SEBI to tighten and draft its regulations such that they provide it a better footing as it performs its crucial functions of surveillance and enforcement. Over the past decade, SEBI has focussed on making its regulatory framework comprehensive. Now is the time, perhaps, for it to tap the best available legal talent to impart greater clarity to key concepts in its various regulations.

The SAT decision also highlights yet again the need for SEBI to be able to counter the pressures imposed by the government of the day. While political compulsions come to the fore when the market declines sharply, rarely is such concern shown when the market is on an uptrend, and when the scope for excesses is greater. This had also, perhaps unwittingly, become somewhat characteristic of SEBI's functioning until recently, as its top brass routinely took an active interest in commenting on market levels, exhibiting concern only when equities went into a tailspin. However, the new leadership at SEBI has maintained a healthy detachment to market levels. It is evident that the regulator's focus should be on ensuring that the trading and settlement processes take place without a glitch. Only this will ensure that SEBI pursues errant players in both the bullish and bearish phases of the market.

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