Standing up for the small guy

Mr C. B. Bhave took over at the helm of SEBI when the Indian stock market was going through one of its most turbulent phases. But he steered the market through the 2008 crash and the subsequent recovery adroitly, all the while pursuing a relentless agenda of making investing a safer experience for Indian public.

Mr Bhave's mettle was, however, first tested in 2009, when he took on the mutual fund behemoths by banning entry loads on new funds. His reasoning was simple; why should investors bear the cost that mutual funds incurred in selling their products? He did not backtrack despite the furore raised by distributors or the declining mutual fund inflows. The move to facilitate trading of mutual funds through exchanges was one of the ways suggested to the beleaguered fund industry to tide over this slump.

SEBI-IRDA stand-off

Next, it was the turn of the insurance industry to come under the scanner. In 2009, SEBI banned 14 life insurers from launching fresh ULIP products without prior approval. The regulator's contention was that since these were equity market investments, akin to mutual funds, they should be under its jurisdiction. A slugfest between IRDA and SEBI followed that finally ended with the Finance Ministry intervening to issue ordinance giving IRDA jurisdiction over ULIPs. But the multitude of changes subsequently made in these instruments have worked in investors' favour.

The regulator did not stop there. The portfolio management industry that was functioning with a set of very loose rules was also asked to pull up its socks and specific rules were laid down on minimum investment, fee charged by portfolio managers, periodic reporting, and so on. A code of conduct was issued for investor associations and guidelines issued on activities that market intermediaries could outsource.

Foreign institutional investors were also made to toe the line. When it was known that FIIs were lending shares abroad enabling short-selling, this practice was ingeniously stemmed by simply asking the external investors to report the list of shares lent by them and publishing the same on the SEBI website.

Again, asking FIIs with opaque structures to broad-base, and pulling up Barclays Capital and Societe Generale for misreporting facts regarding onward issue of P-notes were other instances where the regulator proved steadfast in his zeal to clean up the Indian capital market.

MCX-SX skirmish

One issue where Mr Bhave came across as rather obstinate was in the MCX-SX imbroglio. This exchange was denied permission to start trading in equities on the ground that it did not comply with the MIMPS (Manner of increasing and maintaining public shareholding) norms for stock exchanges and for entering into buy-back agreements that were seen as an attempt to work around the regulations.

Perhaps the regulator recognised that blind adherence to MIMPS provisions would deter any serious investors from acting as an anchor investor in a new stock exchange.

Instead of slamming the door on the proposal for stock trading, the promoters' predicament could have been better appreciated and they could have been told to reduce their stake over a specified period and then re-approach the regulator. A re-look at the ceilings laid down by MIMPS regulations also appears warranted.

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