Do we need a better market regulator?

Thu, 23 May Pre-Open

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It is not that the Securities and Exchange Board of India (SEBI) does not have reasons to celebrate its Silver Jubilee. 25 years back, India's capital market regulator came into existence. Since then, it has given a much needed facelift to the Indian securities markets. From the days when securities had to be traded physically and badla system ruled the markets, we have come a long way. It is hard to imagine markets without shares in dematerialized form, faster settlements and electronic platform now. We have better regulations in place and a more evolved mutual fund industry. However, does that qualify SEBI as an ideal regulator?

Has SEBI always acted in the best interest of investors?

While SEBI's journey has been praiseworthy for many reasons, it is hardly the time for SEBI to rest on its laurels. We are still in the evolution phase as far as regulation of securities market is concerned. A lot needs to be done and the road ahead is full of hurdles. As far as challenges for SEBI are concerned, it needs to ensure enforcement of its policies. Particularly the ones that protect the interest of mutual fund investors and minority shareholders. This is crucial for gaining investor confidence. The areas that need special attention going forward include corporate bond markets and interest rate derivatives markets, curbs on insider training, law enforcement and effective corporate governance. Despite the best intentions, lack of power to bring the guilty to book has rendered the SEBI toothless on many occasions. Compare it with banking regulator Reserve Bank of India (RBI) and one can easily spot the difference in approach. Instead of bowing down to government pressure and the interest of too-big- to-fail banks, the RBI has also adopted an independent and prudent approach. The SEBI on the other hand has compromised on its duties as a regulator and on many occasions failed to curb malpractices in Indian capital markets.

Nevertheless, making mistakes and learning from them is a part and parcel of evolution cycle. With further use of technology and manpower resources, the SEBI can make a huge difference to the face of Indian economy. Better transparency and efficiency will ensure higher retail participation in the securities market. Not only will that make Indian capital markets less reliant on FIIs but also strengthen the India growth story. So we hope that SEBI will take learning from other regulatory agencies to make Indian capital markets one of the best regulated and most transparent in the world.