SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) - TOUGH BUT INEFFECTIVE REGULATOR - SERIOUS ISSUES OF INVESTORS' PROTECTION, MARKET VIGILANCE AND MARKET MANIPULATION
The Securities and Exchange Board of India (SEBI) was constituted in early 90's to bring in regulation and development of the capital market and also to protect the interest of the investors.
Significant Achievements:
SEBI has been able to bring out very significant achievements in the field of technical up gradation of the market, improved transparency, introduction of latest capital market products and to provide a detailed legal and regulatory framework for regulations of market intermediaries, insider trading, takeover code and several other similar areas including a feather in their cap in introducing de-materialization of shares and transparent trading through a national electronic network. The concept of Unique id and tracking of all trades at the end of investor are highly appreciable.
Stock Exchanges:
SEBI has also brought out significant changes in ownership, management and regulation of stock
exchanges. SEBI has however, not been able to find out a solution to issue of non working regional stock exchanges and OTCEI. The investors in companies which are exclusively listed only on these exchanges are severely suffering without any action at the end of SEBI. SEBI has also miserably
failed to act and provide a proper ownership and management framework to the existing operating stock exchanges and has permitted the disinvestment, even in the favour of nonresident foreign
investors, without responding to the question as to how can a regulator (stock exchange) can be privatized or listed?
Market Manipulation:
The capital market administration is undertaken by SEBI with the help of several committees. These committees are primarily represented by concerned market intermediaries and vested interests. The independent professionals, academics, media and intellectuals are in great minority. This has resulted into bring in a regulatory framework which on the face of it looks very dynamic and modern but actually failed miserably on the basic requirement of investors' protection. For example:
Primary Market:
The primary market regulation has permitted issuance of shares with free pricing and by disclosing various risk factors. Several requirements of book runners, lead book runners, underwriting and
similar other requirements have been provided, but without any effective result. SEBI initiatives and
prescriptions have increased the cost of raising capital from about 2 to 3 percent to 10 to 15 percent of the amount raised from the public. The public issue of less than Rs. 100 crore has become enviable, due to unnecessary restrictions, regulations and mandatory intermediaries.
Free Pricing:
There are several studies conducted by the ICAI, ANMI and several other intellectual groups,
which clearly indicate that more than 85% of the public issues are so heavily priced that most of the investors loose 50% to 75% of the invested amount in a matter of few days to few months, without any significant changes in company fundamentals. There are only few exceptional issues by real genuine promoters, who had undertaken issues at realistic prices providing reasonable return to investors.
SEBI has completely failed to analyze and understand the manipulated practice undertaken by the promoters to jack up expectations from the corporate in the investors' mind manipulating valuation, profits and top line, without bringing in adequate value. In large number of cases the funds are diverted or misused, without any action on the part of SEBI or any other regulator. There is complete freedom to an open loot by grey market operators and licensed intermediaries from the issue proceeds. Pre dated transactions, buy back commitments, stop gap bridge loan to complete the
issue and then diversion are open secrets in most of the issues but no action. SEBI even permit public issue by tax defaulters, promoters under investigations or under criminal prosecution and companies with clearly manipulated accounts and financial statements. Due diligence by merchant bankers is only a farce.
Secondary Market: The secondary market position is precarious and in a large number of cases several miscreants are manipulating the prices of various scrips and shares. No action is seen at the end of SEBI or any of the stock exchanges, at the time when manipulation is going on. There are large number of cases which are registered after few days or few months, a number of which are also compromised by SEBI in their consent scheme. SEBI and stock exchanges openly permitted
code changes up to 2% and prescribed nominal fee (penalty) for breach. No action is taken on open
manipulation either on failing officials or on manipulators. There are large number of market manipulators and insider traders which are active in the Indian market places and in spite of complete access to the entire trading mechanism and even knowledge about who is buying, who is selling, and on what price and of what quantity, that neither SEBI nor stock exchange working under their active guidance are able to nab the culprits in time and stop the manipulation when investors are suffering. SEBI only undertake a detailed long drawn investigation, followed by very ineffective penalty or
consent fee. Confidential market information is freely available to market manipulators, which is unduly used by them against the interest of the investors.
SEBI Need to Act
The Securities and Exchange Board of India need to rise up and take effective and efficient action so that the faith of the investors can be revived.
Significant Achievements:
SEBI has been able to bring out very significant achievements in the field of technical up gradation of the market, improved transparency, introduction of latest capital market products and to provide a detailed legal and regulatory framework for regulations of market intermediaries, insider trading, takeover code and several other similar areas including a feather in their cap in introducing de-materialization of shares and transparent trading through a national electronic network. The concept of Unique id and tracking of all trades at the end of investor are highly appreciable.
Stock Exchanges:
SEBI has also brought out significant changes in ownership, management and regulation of stock
exchanges. SEBI has however, not been able to find out a solution to issue of non working regional stock exchanges and OTCEI. The investors in companies which are exclusively listed only on these exchanges are severely suffering without any action at the end of SEBI. SEBI has also miserably
failed to act and provide a proper ownership and management framework to the existing operating stock exchanges and has permitted the disinvestment, even in the favour of nonresident foreign
investors, without responding to the question as to how can a regulator (stock exchange) can be privatized or listed?
Market Manipulation:
The capital market administration is undertaken by SEBI with the help of several committees. These committees are primarily represented by concerned market intermediaries and vested interests. The independent professionals, academics, media and intellectuals are in great minority. This has resulted into bring in a regulatory framework which on the face of it looks very dynamic and modern but actually failed miserably on the basic requirement of investors' protection. For example:
Primary Market:
The primary market regulation has permitted issuance of shares with free pricing and by disclosing various risk factors. Several requirements of book runners, lead book runners, underwriting and
similar other requirements have been provided, but without any effective result. SEBI initiatives and
prescriptions have increased the cost of raising capital from about 2 to 3 percent to 10 to 15 percent of the amount raised from the public. The public issue of less than Rs. 100 crore has become enviable, due to unnecessary restrictions, regulations and mandatory intermediaries.
Free Pricing:
There are several studies conducted by the ICAI, ANMI and several other intellectual groups,
which clearly indicate that more than 85% of the public issues are so heavily priced that most of the investors loose 50% to 75% of the invested amount in a matter of few days to few months, without any significant changes in company fundamentals. There are only few exceptional issues by real genuine promoters, who had undertaken issues at realistic prices providing reasonable return to investors.
SEBI has completely failed to analyze and understand the manipulated practice undertaken by the promoters to jack up expectations from the corporate in the investors' mind manipulating valuation, profits and top line, without bringing in adequate value. In large number of cases the funds are diverted or misused, without any action on the part of SEBI or any other regulator. There is complete freedom to an open loot by grey market operators and licensed intermediaries from the issue proceeds. Pre dated transactions, buy back commitments, stop gap bridge loan to complete the
issue and then diversion are open secrets in most of the issues but no action. SEBI even permit public issue by tax defaulters, promoters under investigations or under criminal prosecution and companies with clearly manipulated accounts and financial statements. Due diligence by merchant bankers is only a farce.
Secondary Market: The secondary market position is precarious and in a large number of cases several miscreants are manipulating the prices of various scrips and shares. No action is seen at the end of SEBI or any of the stock exchanges, at the time when manipulation is going on. There are large number of cases which are registered after few days or few months, a number of which are also compromised by SEBI in their consent scheme. SEBI and stock exchanges openly permitted
code changes up to 2% and prescribed nominal fee (penalty) for breach. No action is taken on open
manipulation either on failing officials or on manipulators. There are large number of market manipulators and insider traders which are active in the Indian market places and in spite of complete access to the entire trading mechanism and even knowledge about who is buying, who is selling, and on what price and of what quantity, that neither SEBI nor stock exchange working under their active guidance are able to nab the culprits in time and stop the manipulation when investors are suffering. SEBI only undertake a detailed long drawn investigation, followed by very ineffective penalty or
consent fee. Confidential market information is freely available to market manipulators, which is unduly used by them against the interest of the investors.
SEBI Need to Act
The Securities and Exchange Board of India need to rise up and take effective and efficient action so that the faith of the investors can be revived.
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