BackSebi may double fees for some stock market activities
Regulator had said last month that its board had accepted a proposal on raising fees without affecting investors
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Mumbai: Stock markets regulator plans to double the fees for market intermediaries, money-raising activities and other capital market transactions.
Two top officials at the Securities and Exchange Board of India (Sebi) said that regulatory fees for activities such as filing of public issue offer documents, takeover and buy-back offers, and the launch of mutual fund (MF) schemes could be increased by as much as 100%, and from early as this month.
This will be the first increase in Sebi’s fees since its inception in April 1992.
Last month, Sebi said in a statement that in an effort aimed at strengthening the regulator’s finances, its board had accepted the proposal of a committee that regulatory fees from market participants be increased, without affecting public investors. Sebi is yet to announce details of the increase. The two officials, neither of whom wanted to be identified, confirmed that the increase would be across the spectrum of capital market activities that currently attract regulatory fees.
The head of an investment bank took a dim view of the proposal and said it didn’t make sense at a time when the business of financial intermediaries is shrinking.
The regulator had “ ₹ 5,500 crore from Sahara" on which it would earn interest, could impose stiffer and more proportionate penalties on offenders rather than fining them “ ₹ 5-10 lakh", get land free or cheap from the government, develop it and lease it out for rental income, or better use the investor education fund towards which market participants contribute, added this person, who asked not to be identified.
Sebi and the Sahara group fought a bruising legal battle over an unauthorized public issue by the latter’s companies, and the regulator is now tasked with returning the money to investors (whom it is not able to find).
In February, Mint reported that Sebi had formed a special panel to control expenses. Based on the proposals of the special panel, the Sebi board approved the fee hike and the budget for fiscal 2015. A detailed circular on the fee hike is likely to be issued shortly.
The markets regulator last revised its fees six years back in 2008, but it was a downward revision by 50-90% to encourage capital market activities.
According to the extant rules, the filing fee for public issues varies from ₹ 25,000 (for issues less than ₹ 10 crore ) to ₹ 3 crore (for issue sizes equal to or over ₹ 25,000 crore). For buy-back offers the fee ranges from ₹ 1 lakh to ₹ 3 crore (for buy-back of securities worth more than ₹ 5,000 crore). For rights issues, it ranges from ₹ 25,000 to ₹ 5 lakh.
For MFs, Sebi charges a registration fee of ₹ 25 lakh and, additionally, all fund houses are required to pay an annual service fee of ₹ 2.5 lakh (for net assets under management of up to ₹ 500 crore) to ₹ 7.5 lakh ( for net assets above ₹ 10,000 crore). Apart from these, fund houses also pay fees for offer documents, which vary from ₹ 1 lakh to ₹ 50 lakh. For takeover offers, the fee varies from ₹ 1 lakh to ₹ 3 crore, depending on the size of the deal.
In the past year, Sebi opened new offices, increased its headcount and launched promotional campaigns to improve investor awareness—in the process running up a revenue deficit.
According to a Sebi board note dated 24 December 2013, the regulator revised its income estimate for 2013-14 down to ₹ 350.11 crore from the ₹ 359.08 crore expected in April 2013. The total expenditure estimate was revised up to ₹ 479.10 crore from ₹ 467.18 crore. The deficit estimate rose consequently to ₹ 128.99 crore from ₹ 108.1 crore for the year.
Echoing the sentiments of the investment banker, Siddharth Shah, chairman of the BSE Brokers Forum, said the industry is already weighed down by high indirect costs and isn’t in a position to cope with an increase in fees.
The head of a large financial services conglomerate, who asked not to be identified, pointed to the exit of retail investors from MF schemes and said: “Since 2007-2008 folios have come down by 60-70%. The logical way of managing finances is to control expenses rather than increasing fees. This is not the right time."
“It is nice to say that you are expanding your network and surveillance to serve investors, but in reality, how much will it help?," this person asked.
Though primary market issuances are yet to make a comeback, secondary markets, which often act as a cue for the primary market, have risen sharply since February.
Since 13 February, the 30-share bellwether index of BSE, the Sensex, has risen 11.68% or 2,358.14 points to 22,551.49 as on Wednesday.
The index has risen partly on expectations of a business-friendly Bharatiya Janata Party government coming to power after the general election in April and May, and if that happens, stock market activity, including initial public offerings, could increase.
“I hope that intermediaries survive for at least six-eight months more. The actual bull run will start after that and this may make up for the high-fee regime," added the financial services executive.
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