Regulatory practices in the Indian stock markets have always been a grey area. Though we have a regulator in place, time and again stock markets have witnessed scams and retail investors have been the biggest losers. We have already seen the ruckus of multi-crore National Spot exchange (NSEL) scam. The NSEL fiasco has highlighted the loopholes in India's regulatory and risk management systems. This is an important lesson for the regulators.
This scam completely eroded investor trust in commodity markets. Here an exchange had failed to discharge its duty in honoring contracts. This should have been the last thing that should have happened to the commodity market in India which is in a nascent stage.
In the case of NSEL, the investors were too lured by the promise of huge returns along with safety of capital. However, various unlawful activities took place. When the fraud was discovered, both government and Forward Market Commission indulged in the usual blame game, citing that none of them was regulator of NSEL. In this entire episode, the losers were investors. In the NSEL, there were 13,000 investors who are believed to have lost around Rs 56 bn. There are various such ponzi schemes which are offered to investors by their brokers and advisors.
However, it seems that the Security Exchange Board of India (SEBI) is taking some steps to help the small investors from such frauds. As per an article on Business Today - SEBI is making efforts to create public awareness about schemes that claim to offer, and also make them aware about the grievance redressal mechanism. SEBI is looking forward to expand its awareness programs through various platforms. The SEBI is particularly targeting to make investors aware about the schemes that offer doubling investments in few months.
In our various editorials, we have highlighted about scams that have impacted the shareholders wealth and why it is important for the SEBI to become more vigilant on this front. We believe this is good initiative taken by SEBI. Indian regulator has the history of being lax in dealing with issues of manipulation.
Apart from investor education, it's high time that risk management and regulatory policies are given due importance in India. What we need is a proactive approach. This will involve regular monitoring of such risks, due diligence checks and use of forensic data analytics. Further, higher accountability from the top management that also happens to be the main culprit in a lot of such cases. Hence, it would be worthwhile if SEBI takes more proactive steps to prevent such frauds and penalize the perpetrators of the frauds.