'Need different governance standards for big, complex groups'

The International Advisory Board of SEBI has suggested different governance standards for big and complex business groups with too many subsidiaries besides emphasising the need to address the gap in what is reported by auditors and what investors, across jurisdictions, expect.

The group comprising intelligentsia across the globe such as Viral Acharya (New York University Stern School of Business), Jane Diplock (Independent Director of Singapore Exchange Limited), Russell Loubser (former CEO of Johannesburg Stock Exchange), Arvind Panagariya (Professor of Indian Political Economy, Columbia University), Andrew Sheng (Chief Advisor, China Banking Regulatory Commission) and UK Sinha, Chairman, SEBI, held its fourth meeting on July 18 and 19.

The group also cautioned that the statutory regulator should not try to take on everything on its own and should use market forces. It was proposed that to begin with disclosures made under different regulations may be integrated to the extent possible so as to reduce the number of times the same disclosure is required to be made by an individual. It said, “system driven disclosures may be taken up gradually in the medium to long term to significantly help in monitoring compliance even while reducing the burden of compliance on individuals.

On crowd funding, the IAB urged SEBI to undertake more detailed study and address issues such as adverse selection (ideas rejected by VC/PE) lack of mechanism to express bearish sentiments through short sale, lack of liquidity, fraudulent conveyance in crowd funding and the likelihood of equity bubbles.

The IAB suggested that funding of infrastructure projects could be done by institutional deepening-which in turn could be achieved by regulatory reforms, such as relaxing portfolio restrictions on pension and insurance funds as well as private equity and venture capital funds, and the like. It was suggested that specifically the regulation and tax should be neutral between debt vs. equity.

The advisory board observed that capacity building and transition issues need to be given highest priority. It also felt that principles recommended by FSLRC, such as transparency and consultation in regulation making, cost-benefit analysis, that should be adopted by the regulators.

The group discussed High Frequency Trading (HFT), market fragmentation, need for market making to provide liquidity, risks related to sudden outflow of FPI money, retaining investors through economic cycles, professionalization of intermediation industry, optimum regulations and financial literacy under challenges Facing Securities Markets

The IAB was constituted by SEBI in September 2011 to bring in and discuss global experiences and emerging developments and challenges. The meetings were attended by all wholetime members and executive directors of SEBI.

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