There are not too many markets in the world that have even gone to T+2 system. But, we have to keep our options open. We still don’t have the ability to transfer money as fast as one would desire. Unless we have an efficient payment system, we can’t do this.
We get a lot of feedback from overseas investors that given the time zone differences, T+1 will be a challenge for them. At this stage, the issue of T+1 is not in the realm of consideration.
You are prescribing a net worth for investors in the derivatives segment.
Actually, it is not yet a Sebi position. We have discussed the issue with the exchanges. Soon after I joined (Sebi), we got a lot of complaints on mis-selling... As long as the market was going up, everything was fine, but the fall on 21-22 January changed the scene. We requested the stock exchanges to look into the issue of mis-selling. Is there any mis-selling by the brokers and if that is happening what kind of precaution do we need to take? We have put out suggestions of stock exchanges for the wider community. One of the suggestions is that before an investor takes position in the highly leveraged derivatives market, the broker should be asked to make sure the client has certain net worth.
What is the logic behind asking FIIs to offer a margin for their cash transactions? Not too many markets insist on this.
It’s probably a misconceived position that not many markets impose margin on institutions. In fact, there are not too many markets which make any distinction between institutions and retail investors. Typically, the limits to positions that a broker can take—irrespective of whether the broker is transacting on behalf of a retail investor or an institutional investor—is fixed on the basis of his capital.
What we are doing is not novel. Given what has been happening around the world, it is not possible for us to assume that the institutional investors will not fail. Institutions can fail and I think the risk management mechanism should be uniform for all investors. Institutions have some practical difficulties and, as we go along, we will take those into account.
How many Sebi orders have been set aside by the Securities Appellate Tribunal (SAT)? Are you looking at the loopholes?
I am yet to look at exact percentages, but my impression is that, in percentage term, Sebi is doing well, but we have lost some high-profile cases. I think we should use these examples for the purpose of educating ourselves as to how should our orders be structured to ensure that they pass the scrutiny by higher courts. Our people should be trained in writing proper orders, appreciating the evidence and interpreting provisions of law.
Where is the problem—your investigation or legal department?
One needs three things so that the order becomes an appropriate quasi-judicial order. You must appreciate the evidence correctly; the interpretation of law must be sound; and finally, the order must be reasoned properly. In all these three areas we need to strengthen our ability.
Some amount of reversal by the higher courts should be taken in one’s stride as even high court orders are turned down by the Supreme Court.