SEBI, the stock market regulator, has completed 25 years since it emerged as a concept in 1988. The Prime Minister and Finance Minister along with a galaxy of dignitaries are participating in its silver jubilee function later this week. It was time for stocktaking with the regulator. U.K. Sinha, SEBI Chairman, shared his perspective on how the regulator had fared and the challenges before it.

Excerpts from the interview:

SEBI emerged as a body only in 1992. Why is it celebrating its silver jubilee now?

In the annual budget for 1987-88, the then Prime Minister and Finance Minister — Rajiv Gandhi, announced the formation of SEBI as a regulator to look after capital markets. The notification was issued in April 1988, so it was created as an institution in 1988. The chairman and a board were appointed and it started its work.

The Government issued an ordinance in January 1992 based on the July 91 Budget announcement, after which SEBI became a statutory body and the act was passed in April 1992. The journey, therefore, began in 1988. That is how we complete 25 years. Our maths is not wrong!

SEBI has been handling one scam after another — from the Harshad Mehta to Bhansali to Ketan Parekh to IPO scam to vanishing companies, up to the latest Sahara crisis. You have been in fire fighting mode continuously. Has that left you time and energy to tackle other things that clamour for attention?

To understand the short sequence that you have narrated, look at the countries outside India. Is India the only country facing this crisis or have there been others? You will discover, if you look at the 25 years period, there have been humongous developments that affected all major markets all over the world from Japan to the US to Hong Kong.

You’ll find that even in 2012 there have been developments and scams involving billions of dollars. The short point that I am making is that managing and regulating capital markets globally are a challenge. And that is only growing. If you come back to India, just look at the 25 year period before SEBI came in or even the World War II period — and look at the type of mishaps we had.

There were huge problems with cotton traders and gold trading. There were several mistakes that happened. So, to say that after SEBI was set up, there were a lot of problems is a very wrong interpretation. We have been able to act very proactively in minimising the impact of these scams even if we were not able to prevent it.

Secondly, when SEBI was created in 1988, it had very minimal powers. It was granted some more powers when it became a statutory body in 1992 and got a few more powers in 2002 such as the power to impose penalty up to Rs 25 crore, to call for records, we had a multi-member appellate tribunal, etc.

The powers, responsibilities and duties have increased over a period of time. Between each of these crises, it has also been true that there have been some learning, the Government and Parliament have tried to empower SEBI, so that we are able to tackle issues more and more.

Again, you might get the impression that things go wrong only in India, then the Parliament wakes up and we are empowered. If you look at the US, after the 2008 crisis, they had to come out with the Dodd Frank Act. If you look at that Act, many of the features are already there in the SEBI Act.

We have gone beyond and provided for many things. Having said this, there are always opportunities and occasions to improve.

It is not peculiar to India. Capital market is evolving continuously and the challenges are huge.

You were UTI chairman earlier. Have you addressed the biggest grouse you may have then had against the regulator, after you became SEBI chairman?

My personal expectation as a citizen and as a person connected with capital markets is that whatever the regulators do, they should be transparent. And they should have effective consultation.

Any regulation, any change is now done after we have wide and extensive consultations. Whether it is the Takeover code or the Jalan Committee recommendations, or issues relating to primary, secondary markets, are discussed with our advisory committees (headed by outsiders). This is one change that I have brought.

We have been able to ensure that we have regular interaction with industry bodies and associations and we have a freewheeling discussion. The quality of our decision has improved as a result.

Coming to the ‘grouse’, it will be improper to give a specific example. But even if I had an example in mind, things would have taken a different form then, if there had been consultations with the stakeholders.

Many times, SEBI introduces a regulation and then later on issues a number of clarifications. Why are regulations not tested on a certain set of intermediaries like how soap is test-marketed in a select area?

You have given a good example, a valid example from the commercial world. This cannot be done in the world of law. Can you for example, say a criminal will be hanged, and let us first try it in Mumbai, test it here and then apply it everywhere. Do you think it is valid? Do you think it is the right thing to do?

Kindly understand that law making has a constitutional involvement. You have to follow it for every person in the country. In the commercial world, in scientific research or in drug testing, this (testing) would be the right thing to do. But here we are dealing with live people who have constitutional rights.

As a counter to this, we have to consult every one. The mistake that regulators occasionally make is that they may think they know everything. They behave in a paternalistic manner. That is a mistake. With all humility, I say, we try to avoid it.

SEBI is criticised for its delays in orders in many cases. What is being done to speed up decision making?

This observation is partially correct. We have not reached a level when we can say that we are able to dispose of cases in an ideal way. Whenever we feel something is serious, interim orders have been issued.

But there have been cases where the final orders have not been passed even 3 years after the passing of interim orders. This is not right. I have told my people that this is not done.

I do concede that in passing a final order, we can further improve. All I can claim is that in the last 25 years, we are improving. But I accept that this is not good enough. But please appreciate that whatever SEBI does, has to be within the confines of the law — in the investigation process, before we pass an order. For instance, many other country regulators have access to call records and intercepts. We don’t have that.

For companies which do not meet the deadline relating to minimum public shareholding, what will be the consequences?

The companies which are not meeting the deadlines will be in violation of the listing guidelines, ICDR (Issue of Capital and Disclosure Requirements) regulations, SEBI Act and other rules. This can have serious repercussions. The consequences will follow. I can only give you two clues.

It is not the fault of the minority shareholder. It is the fault of the promoter. So the consequences shall befall them.

If there have been some efforts taken by companies to meet the minimum public shareholding, then we will assign some weightage for that. If, for instance, some companies were at 5 per cent public shareholding, have come now to 15 per cent, showing its intention to comply, then the quantum of penalty will be different.

On Sahara issue, how …

I will not be able to discuss any individual cases.

There is a perception that the ‘big fish’ have managed to get away in ‘insider trading’ cases and it is only the small fish that get trapped by SEBI. What is your response?

You are being unfair to SEBI. I am not naming individual cases, or corporates, but you can look at our track record. Even those involved in the biggest corporations, we have passed orders against them in the last six months. It hasn’t happened in the past.

Secondly, there was also a worry in the minds of many people — and a valid worry — that the consent mechanism might be misused to help large corporates. That was the feeling in the market. Our main focus has been transparency.

We have come out with our rules under which certain offences cannot be ‘consentable’. These cannot be negotiated. Insider trading is on top of that list and it is not consentable. I have blocked that route.

>raghavendrarao.k@thehindu.co.in

>vageesh.ns@thehindu.co.in

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