CB Bhave has played an important role in transforming the country’s capital markets, being involved in setting up the National Stock Exchange and in pushing through the process of dematerialization of securities. That experience should help as he takes up his job as the country’s top market regulator.
Much remains to be done. Bhave will have to build a culture of trust—rather than one of confrontation—with market participants. A collaborative approach is needed, and he would be wise to seek inputs from men of repute in the markets. He would also do well to set the bar high on standards within the Securities and Exchange Board of India (Sebi). That most Sebi decisions are overturned by higher authorities does not speak very highly of the professional competence of Sebi investigators.
Apart from organizational matters, other urgent tasks await him. He will have to complete the process of allowing investors in participatory notes to come in “through the front door” and lay down clear guidelines for eligibility. He’ll have to walk a fine line to ensure that our capital markets are not exported abroad—it’s no coincidence that volumes in Nifty futures in Singapore have picked up ever since the restrictions on P-notes. The primary market is going through a rough patch and Sebi will have to see whether the price discovery system for IPOs is truly fair. Bhave will have to decide if the system of allowing institutional investors to put in merely 10% of the application money upfront is being misused. He will have to deal with the grey market. The nexus between unscrupulous promoters and brokers needs to be broken.
In the futures market, the new chief will have to examine whether it makes sense to include many relatively illiquid stocks. Lacunae in the proposed stock borrowing and lending system need to be fixed, such as the seven-day limit and the non-inclusion of stocks that don’t have a presence in the futures segment. Measures to augment liquidity need to be considered, such as over-the-counter derivatives or allowing programme trading or, as the finance minister has suggested, increasing the minimum free float for stocks. Importantly, the regulator will need to reach out to investors, educating and assuring them about the benefits of participating in the capital markets.
Finally, he should set Sebi on the path of replacing the current system of excessively rule-based supervision by regulation based on principles. That is one of the recommendations of the high-powered expert committee on making Mumbai an international financial centre, of which Bhave was a member.
What should be the top priorities for the new Sebi chief? Write to us at firstname.lastname@example.org