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Drumbeat: Ad Buzzaar
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Monday, June 29, 1998
Market regulation is faulty
G S Patel
The recent tempestous happenings in the capital markets have glaringly revealed the chink in the armour of the regulatory mechanism, doing an irreparable damage to the confidence of the investors in the solvency, integrity and fairness of our stock exchanges. The crux of the problem was vividly highlighted by the report of M/s Price Waterhouse prepared under the USAID and submitted to the SEBI last year where it is candidly stated that the regulatory focus of SEBI has side-stepped the retail investors and the current focus is entirely institution-oriented. It has gone on to say that India does not have a delivery market. Other than a few institutional trades, volume of business belongs to speculators and arbitragers. Mere strengthening of the Investors' Protection Fund and the Trade Guarantee Fund may help to avoid systemic failure but does not lead to market discipline which is the need of the hour. If proper market discipline is enforced through imposition of heavy fines and penalties on roguetraders and smooth functioning of the exchange ensured, it may not be necessary to have a recourse to such funds which should be tapped only in extreme circumstances. Even though SEBI is not endowed with full powers which it should enjoy as the apex body, all the same in the emerging scenario it must employ all means to enforce market discipline. It should act as a bull dog which bites rather than as a poodle which purrs. There is an urgent need for integration of all stock exchanges through electronic linkages, harmonising of trading and settlement system, pursuit of common policies and practices in the conduct of business in all the stock exchanges. In the chequered history of the stock exchanges, the governing boards of exchanges have time and again failed the nation and have not acted in a responsible and constructive manner or with any foresight to prevent crisis from occuring or to tackle such situation promptly. Some of the members of the board themselves play on the markets andare caught in crisis situation. They do not set a good example in market discipline. On the contrary permissive environment is allowed to prevail, margins are levied arbitrarily and not even properly collected and laxity in administration is tolerated. SEBI will have to look closely into the functioning of various stock exchanges. Inspection of their functioning will have to be made more frequent and deficiencies noticed in the inspection will have to be rectified promptly. The regulatory function of SEBI, like the government departments does not end with the issue of circulars and notifications only. SEBI has to ensure that the matters stipulated therein are properly complied with.n Surprise inspection of the books of the brokers, whether domestic or foreign, and the audit of their operations will have to be done more frequently than done hitherto. The necessity to curb, by SEBI, excessive speculation, rampant malpractices and occurance of security-related offences will have to emphasisedagain and again. SEBI will have to stay focussed in this area. We shall have to strengthen the resource base of domestic financial institutions and mutual funds to absorb the deliveries effected by either the FIIs or the big operators in times of such emergencies or even otherwise to neutralise the volatile conditions and ensure stability in the markets.The author is the former chairman of Unit Trust of India. Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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