The presence of strong regulatory institutions is essential for protecting investors and establishing an equitable, efficient and transparent securities market. While the stock market regulator SEBI, has played an important role in the fast-paced development of the domestic market over the last three decades, protecting investor interests, there have been some instances where the actions, or absence thereof, of the regulator have come under scrutiny.

For instance, in the NSE colocation scam, the tardiness of the regulator in passing an order has been questioned. And, in the recent Adani-Hindenburg episode failure on part of SEBI to check alleged stock price manipulation has been criticised. The recent report of IOSCO (International Organisation of Securities Commissions) reviewing the adherence of regulators of 55 countries to its main principles is, therefore, timely. It comes as a relief that, with respect to the IOSCO’s five core principles — clear and objectively stated responsibilities, operational independence and accountability, adequate power and resources, clear and consistent regulatory processes and skilled and reliable staff — the Indian regulator scores reasonably well. That probably explains how our stock market weathered disasters such as the global financial crisis and the pandemic-led meltdown, well.

On the second principle, which lays down that a regulator should be free from external political or commercial ‘interference’, it could be argued though that SEBI still has some way to go. This norm is significant as it can bring the credibility of a regulator under a cloud. The review has flagged a few chinks in the domestic statute in this area. One, according to Section 16 of the SEBI Act, 1992, the market regulator is bound by the Centre on questions of policy, but not in operational, supervisory or other functions. More important, the Centre’s decision is final in all matters pertaining to the regulator. While, SEBI may not be consulting the Centre on all policy decisions in practice, the provision does undermine the regulator’s independence. It may be a good idea to review this in the context of similar provisions in the regulatory frameworks of other countries. Two, top positions in SEBI are political appointments. Three, the SEBI Board includes two government officials. As the report suggests, the government appointing the top officials is not a concern if there are clear rules on the processes to be followed in candidate selection. Similarly, clearly defining the role of Centre’s nominees to the SEBI Board could help.

The IOSCO report has lauded SEBI for being well-funded by the fee it levies on stock market transactions. Less dependence on the government or other institutions for running its operations would enable SEBI to operate independently. It is just as well that the officials of SEBI have been provided legal protection to ensure that no action can be taken against them for actions carried out in good faith.