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Mr Prakash Mani Tripathi, Chairman, JPC (second from right), with other JPC members at a photo session in the Capital on Thursday.

NEW DELHI, Dec 19

WHILE coming down heavily on the Securities and Exchange Board of India (SEBI) on its lapse, the Joint Parliamentary Committee (JPC) has suggested wide-ranging changes in the regulations of the capital market and also lent it voice for early corporatisation and demutalisation of stock exchanges.

In what would be pleasing to market players, the committee also said SEBI should ensure stability in regulations and do away with the ad-hocism as was evident in the flip-flop manner in which it dealt with the carry-forward system during an eight-year period from 1993-2001.

To being liquidity into the stock market, it suggested that SEBI should explore the desirability of "introducing a formal system of exchange-operated margin trading system."

Calling for a `definite policy' on short sales , the panel said, "it must seriously and expeditiously formulate a clear policy (on short sales) taking all aspects into account."

The JPC also called for refining the definition of various kinds of market misconduct such as price rigging, circular trading, creation of artificial market and insider trading to ensure that the indictors were clear and obvious.

Supporting the move towards a `T+1' settlement cycle from the present `T+3' system, the Committee, however, advised that the move should be preceded by the implementation of the Real Time Gross Settlement system (RTGSS), which is to be completed by March 2003.

It also suggested that SEBI should look into the feasibility of imposing some kind of restriction on stock lending by approved institutions (such as the Stock Holding Corporation) against the security of money deposited with them. Pointing out that bank loan against securities was capped at Rs 20 lakh per borrower, JPC said, "such anomalies seem to favour one section of brokers (short sellers) and create asymmetry in the financial system."

On corporatisation of exchanges, the panel noted that proposed unbundling of functions such as surveillance, risk management and clearing into separate subsidiary as proposed by BSE should not dilute the regulatory functions of SEBI vis-à-vis the subsidiaries.

The committee at the same time severely criticised SEBI stating that the regulator had failed to do its primary job detecting and eliminating irregularities. "It was the SEBI's job to ferret out the irregularities and defuse them before they blew up. This was the primary job of SEBI which they failed to do in time." At another place, it said, "SEBI's performance has fallen far short of the expectations reposed on it."

In this respect, it called for streamlining and intensifying the inspection procedures. "Checking irregularities and malpractices of stock brokers could be achieved through the solid instrument of inspection. SEBI should augment its staff if need be and progressively increase its coverage of inspection of brokers."

In this respect, it was pointed out that SEBI had done little in monitoring portfolio investment schemes of OCBs and other FII investments in the stock market despite that fact that Rs 50,000 crore was pumped into the market by FIIs since 1994.

However, the panel also softened its stance by stating that it agreed with SEBI's plea that it lacked sufficient powers at that time. The panel said that proper surveillance can be ensured if a holistic view were taken of the systems in both the exchanges and SEBI.

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