Stock-market regulator Securities and Exchange Board of India (Sebi) has made it easier for its employees to leave and find jobs elsewhere in an effort that is aimed, ironically, at attracting better talent. Following the revision of rules, entities regulated by Sebi, such as mutual funds, brokerages, share registrars, merchant bankers, foreign institutional investors (FIIs) and depositories, do not need to take the regulator’s permission before hiring any of its employees.
Sebi has been focusing on hiring people with the right qualifications and experience to man its functions. It recently recruited management graduates from top schools such as the Indian Institutes of Managements.
The finance industry is facing a shortage of executives: apart from existing brokerages, investment banks and fund houses expanding, new ones are setting up shop in India. Wall Street investment banks Lehman Brothers and Goldman Sachs have recently opened full-fledged offices in the country.
FIIs, the dominant players in India’s stock markets, too need a constant supply of analysts and other executives. In this background, it is unlikely that executives at any level will join an organization that has significant exit barriers such as the ones Sebi did.
The new rules regarding employees have been put in place to attract talent, said an executive at Sebi who did not wish to be identified. Sebi employs around 500 people across various departments.
In demand: Stockbrokers watch their screens during trading at a brokerage house in Mumbai. Sebi employees or those who work closely with Sebi are sought after by foreign financial-services players, as they are the best people to interpret the rules and regulations and the fine print.
According to the earlier rules, instituted in 2006, companies wishing to hire people from Sebi had to apply to the market regulator in writing. And Sebi staff could seek employment with these companies only after they produced a letter from the market regulator saying that it had no objections to them joining the firm in question.
“Typically, foreign financial services players prefer to hire Sebi employees or those who work closely with Sebi, as they are the best people to interpret the rules and regulations and the fine print,” said V.R. Narasimhan, chief compliance officer (CCO) at Kotak Asset Management Co. Ltd, a former Sebi employee himself.
Other Sebi executives occupy similar positions at various other firms: for instance, R. Mohan, CCO at India Infoline Securities Pvt. Ltd, a domestic brokerage, and P. Basu, the chief administrative officer at DSP Merrill Lynch Ltd, are also Sebi alumni.
“Executives working for Sebi’s primary and the secondary market divisions are always on the radar screen of brokerages and other capital market intermediaries,” said another official at a Sebi-registered entity, who did not wish to be identified.
In an effort aimed at ensuring its executives do not misuse their position, Sebi has, however, retained a rule that says its employees have to seek its written permission and provide details such as the manner in which they received a job offer from the company in question and whether they have handled any cases related to it. All employees will now have to seek this permission from the chairman. The rules say that the chairman will respond within 90 days.
Among the rules dropped is one that said trainee employees leaving Sebi within two years of joining it would have to refund their pay, stipend and allowances.
However, the regulator has retained some of the rules. Thus, employees who go to work for a company regulated by Sebi will still not be allowed to represent it in any dealings with the market regulator for two years. And an executive who leaves Sebi for a company regulated by it, will again have to seek the market regulator’s permission before switching, within two years from originally leaving Sebi, to another firm regulated by it.
These rules had become significant exit barriers, said an executive at Sebi who did not wish to identified. “Those who went out, tried to work around the rules by taking up the job of an advisor or consultant to companies,” he added.