That soaring feeling

The next level. That’s where G.N. Bajpai, chairman of the Securities and Exchange Board of India (SEBI), wants to take the capital market, in terms of efficiency and trading benchmarks. Now that the BSE Sensex has broken the 6000-point barrier without a trace of a scam, it seems we are ready for this. In the new year, SEBI plans to launch Indian Depository Receipts (IDRs), introduce Straight Through Processing (STP), improve the T+2 trading settlement system and introduce new hedging instruments for the debt market.

Of these STP, if understood as a single point electronic processing of transactions, is set to take off very quickly. This facility is already available to institutional investors, and with the BSE having introduced electronic contract notes recently; it can be extended to the entire market. IDRs, will allow foreign companies to list depository receipts on Indian bourses, giving investors an opportunity to invest in international groups. This has been discussed for nearly a decade, but could have dangerous consequences. IDRs must not once again allow dubious MNCs stick Indian investors with expensive depository receipts. We have only to look at the bulk of Indian GDRs listed overseas in the mid-’90s to see the danger of indiscriminate IDR listing. On the other hand, SEBI’s plan to permit the International Finance Corporation and Asian Development Bank to list their debt paper here is an important step towards broad-basing the debt market.

On the supervisory front, the soaring stock indices will keep the regulator on its toes. SEBI needs to keep strict surveillance and offer dynamic risk management, swift investigation and stringent disciplinary action. But though SEBI has improved its performance in these departments it still has a long way to go. Its investigations into Scam 2000 are moving far too slowly and even the recent action of banning scamster Ketan Parekh for 14 years does not cover all his companies. Similarly, while it quickly banned Samir Arora, it has made little progress in investigating Alliance Mutual Fund’s role in his activities. The investigation into alleged price manipulation and insider trading by a large industry house has also been allowed to languish. This is a blot on SEBI’s copybook. Unless SEBI has the courage to act against powerful interests, it cannot hope to set global benchmarks as a regulator.