Risk management and making the markets and investments more robust in terms of disclosures and ensuring easy liquidity for investors is top of the agenda for Securities and Exchange Board of India Chairperson Madhabi Puri Buch.

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The rampant oversubscriptions that some companies on the SME IPO board have been receiving and listing gains that are in several multiples of their issue price are on the radar of the regulator which is working on more disclosure to address issues of manipulation at the IPO and trading levels.

Their small IPO sizes and low free float made it relatively easy to manipulate both at the IPO level and at the trading level. “I think as a first step we are clear that some more disclosures are needed in terms of the risk factors,” said Buch, in a freewheeling chat with woman journalists in Mumbai.

The regulator was working with market intermediaries and advisors, analysing the data available to understand the dimension of the problem, she said.

Rich valuations

SEBI has also taken cognizance of the run-up in valuations of some segments of the markets, especially in the small and mid-cap space. The overstretched valuations had earlier prompted the regulator to mandate stress testing by mutual funds to gauge how fast they would be able to convert their holdings into cash if they were faced with unusual redemption pressure or there was a market collapse.

There are pockets of froth in the small and mid-cap space in the equity markets that has the potential to become a bubble and burst affecting investors, Buch said. She said that apart from the mandated stress testing and disclosure of key metrics, mutual funds would also have to put in their own risk management policies in place to safeguard the interests of investors.

Buch is also promoting T+0 settlement trade cycle that will go live by the end of this month and instantaneous settlement that is scheduled for next year, both on a voluntary basis.

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According to Buch, assets such as crypto, that offered anonymity, tokenisation and instant liquidity had the potential to wean away investors from regulated markets. Settlement cycles that could offer instant cash and small ticket investments that enabled an investor to buy a small part of a big asset were essential to compete against such assets that operated outside regulated markets. Small and medium REITs and ₹250-SIPs were steps in this direction, she added.

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