New Sebi chief Tyagi has to tackle challenges of digital age
MUMBAI: Ajay Tyagi, who takes charge as chairman of the Securities and Exchange Board of India (Sebi) on March 2, has his plate full. While some challenges he has to tackle have been around for long, like refunding the Sahara investors, some are of recent origin, like high-frequency trading. We look at some of the key challenges for the new chairman:
HIGH FREQUENCY TRADE
Sebi is trying to create a levelplaying field for small investors and large, sophisticated ones using algorithms that can potentially execute thousands of orders — high-frequency trading or HFT — in less than a second.
On August 5, Sebi released a discussion paper stating it was examining ways to check concerns on HFT. In his last press conference, Sinha said Sebi has appointed an external expert to recommend changes.
HFT orders, which was 65% of overall orders in the cash equity segment in 2011-12, rose to 94% in 2015-16, while HFT turnover as a percentage of overall turnover rose from 25% to 42%. In equity derivatives, HFT orders are up from 78% to 98%, and as a share of turnover, up from 22% to 56% in the same period.
COMMODITIES
In September 2015, the erstwhile Forward Markets Commission was merged with Sebi, making the latter the regulator for both equities and commodities. At its February 11 board meeting, Sebi allowed new participants to trade and hedge in commodity derivatives in a phased manner. Last week, Sinha said mutual funds will be the first category to enter commodity derivatives.
ORDER QUALITY
Last year, the Securities Appellate Tribunal (SAT) referred many Sebi orders back to the regulator. In 2016, nearly 30% of cases heard at SAT were remanded back to Sebi, against 20% and 9% in the previous two years. According to two people familiar with the regulator’s adjudication proceedings, officers at the regulator find it difficult to ascertain the exact amount of illegitimate gains made by defaulters in collective investment schemes (CIS).
REFUNDS
In2013, Sebiwasaskedtoregulate CIS, and it has since banned at least 150 illegal money-pooling schemes. Sebi orders CIS firms to discontinue their schemes, repay investors in three months and file a winding-up report. However, not even one CIS company has filed a report so far; not even for PACL Ltd, which owes ₹49,100 crore to 58 million investors.
Sebi usually has no clear way of identifying assets of these firms and recovering them. Often, promoters disappear once Sebi steps in. There are also shell companies that don’t keep records with the Registrar of Companies. Sebi typically follows up by initiating recovery proceedings by attaching the bank and demat accounts of promoters and related entities. But that is hardly sufficient.
SAHARA SAGA
In 2011, Sebi said two Sahara companies had collected around ₹25,000 crore through bonds illegally issued in 2008. On August 31, 2012, the Supreme Court directed Sebi to recover and refund money to investors with interest, which works out to be ₹40,000 crore. The value of deposits made by Sahara to Sebi so far is around ₹12,000 crore, according to a Sebi official. Besides, Sebi has managed to refund merely ₹80 crore so far, since only 13,000 investors were found to be genuine
STARTUP LISTING
While public listings of small and medium enterprises has seen some success, the same cannot be said of the startup platform introduced a year and a half back. There is much work to be done to help entrepreneurs raise money through stock exchanges easier.