Securities and Exchange Board of India (Sebi) chairman C.B. Bhave has set a scorching pace for reform in the few months he has been at the helm of the market regulator. In the primary market, he has introduced investor-friendly measures such as ensuring that the money for subscription to a public or rights issue is deducted from an applicant’s account only if he gets allotment. He has also said he will compress the time between an initial public offering and its listing, so that investors get an exit option as early as possible.
In the secondary market, Bhave has allowed direct market access to institutional investors, which will be of great help in allowing algorithmic trading.
More recently, as Mint reported in three stories from Friday to Tuesday, he has indicated that reforms are on the anvil for the qualified institutional placement, or QIP, market and for securities lending. In a falling market, the pricing rules for QIPs need to be changed. Securities lending and borrowing is perhaps the last building block of our market structure that needs to be put in place and, unfortunately, the rules regarding borrowing of securities are too rigid. While reports indicate that Sebi is making the process flexible, it should also extend the scheme to stocks other than those with derivatives. Finally, Sebi is reforming its administrative set-up and processes, such as splitting its administrative and judicial wings.
Several other areas also need urgent attention. One is the export of our futures markets. The rising volumes of Nifty futures trading in Singapore are the result of the restrictions on participatory notes here. Market conditions have changed substantially since then and Sebi needs to address this. Among other concerns, the rules for issue of warrants to promoters are susceptible to misuse and the loopholes need to be plugged. The regulator’s investigation wing undoubtedly needs to be strengthened too.
The good news is that at last we have a regulator who understands the markets and, as the proposed reform of the stock lending process illustrates, is not afraid to change the rules if they don’t work. Listening to the market and putting the investor at the centre of processes should be the twin goals of all capital market reform.
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