‘We have started consultations on SIT recommendations’
Securities and Exchange Board of India (Sebi) Chairman UK SINHA believes the market regulator has strong systems to monitor capital coming through the participatory notes (P-note) route, though it will consider recommendations in this regard seriously. In an interview with Jayshree P Upadhyay and Samie Modak, the Sebi chief says the regulator plans nationwide road shows to draw companies to the new start-up platform, once the guidelines are announced. Edited excerpts:
How do you react to the tone of the special investigation team (SIT)’s report on black money? It seems to be quite critical of Sebi.
I won’t look at it that way. During our interactions with the SIT, it was very appreciative of the actions taken by us. The tax violations were brought to its notice by Sebi. Looking at it from the SIT’s point of view, it wants to ensure all loopholes in the system are
plugged. In that sense, whatever recommendations it has made, all agencies must take those very seriously.
The SIT pointed out Sebi should have more regulations to track the ultimate beneficiaries of P-notes. To secure this information, Sebi relies on data provided by the P-note issuer. Such agreements are contractual in nature. Is there a need to make the reporting of end-beneficiary to Sebi obligatory?
I do not agree that it’s contractual; it is in fact mandatory. There cannot be a contract between a regulator and an entity; it has to be a regulation. In 2014, we further tightened P-note norms through the foreign portfolio investor (FPI) regulations. The last level of P-note holder information is available with us and entities are obligated to provide it. However, Sebi is willing to further look into it. Following the SIT report, we have started a consultation process to make improvements.
There is a huge lobby that wants a complete ban on P-notes. Have you faced any such demand?
We haven’t met any such demand. The government, too, has consistently made this commitment in Parliament and clarified it has no
intention of banning P-notes.
Sebi has passed orders against entities for market manipulation and tax evasion. Do you think more comprehensive action is required by other agencies to check this menace?
Various agencies should coordinate in case of violations of different sections of the law. But a joint task force would not be very helpful or useful practically. Such manipulations take place in a very meticulous manner. So, to unearth these, we have to dig deeper. The main motive is tax avoidance and turning black money into white. So, there is a need for coordination. No agency should sit on its findings as if it is its monopoly.
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“Once we notify the start-up regulations, we plan to have road shows across the country”
In all these cases, the modus operandi is the same. What steps is Sebi taking to curb tax evasion through the exchange route? For a regulator, it is a continuous fight. I suppose some entities are manipulators by design. They are smart enough to find loopholes in regulations. When Sebi clamped down on initial public offering (IPO) manipulation, these entities started exploiting the global depository receipts (GDR) market. When the GDR loophole was plugged, they came to the secondary market. Now, as we speak, they might be looking at some other route. But I would like to reassure that our surveillance systems are strong and we would be able to track it. How is Sebi gearing up for the impending merger with the Forward Markets Commission (FMC)? We are going about it in a very systematic manner. Our teams are going into the working of the entire FMC framework, as well as the working of commodity exchanges and brokers. We are going to our board with certain changes in our regulations by the end of the month. We are committed to complete the merger by the end of September or the beginning of October. Was there pressure on Sebi to dilute the corporate governance norms pertaining to related-party transactions, for which the approval of twothirds of minority shareholders is required? Nobody can force Sebi. The idea of ‘majority of minority’ came from the draft Companies Act. In our draft discussion paper on corporate governance, we had provided for majority of minority. But when the final Companies Act was put in place, it became special resolutions. You know the law of the land; you cannot dilute that. So, we had to bring it to that level. The government has realised this is not practical and it is leading to disturbance in the working of corporates. So, it sought our comments. We recommended that the majority of the minority is the right thing. So, that’s our stance from the beginning. Some industry players have voiced concern that the new insider trading norms will kill Esop (employee stock ownership plan) as a tool to reward employees. Is Sebi planning to look at this? We have received several representations on this. We are taking a relook at Esop guidelines. Are you seeing a pick-up in IPOs? Has there been any change in the approach towards these offerings? I have received feedback that intermediaries and corporates are happy with the way Sebi is dealing with offer documents. There is no offer document (pending) for more than three months. So, we have made those improvements. Now, we are going for electronic IPOs, 100 per cent ASBA (applications supported by blocked amount) and the timeline is also being changed from T+12 to T+6. In the first three months of this financial year, the money raised through the primary market is already more than that raised in the entire 2014-15. There is more activity in the primary market than in the past. Retail investors have been completely kept out of the start-up platform. Do you think there should have been some leeway for them? These are companies (those seeking to list on the start-up platform) that are not in a position to meet the requirements for listing on the main exchanges. For that, you need a profitability track record. Some part of the money raised has to go towards asset creation. So, we are giving start-up companies a very special dispensation. They don’t need to have a profitability track record or tangible assets. You have to appreciate the fact that retail has to be protected from this. Retail, according to us, doesn’t have the wherewithal to examine those risks. You might argue ‘let them not list here; let them go to another part of the world’, which was happening. Sebi, in its wisdom, has decided we should allow them to be listed with certain safeguards. We are not preventing retail; we are protecting retail. Do you think the new start-up regulations will ensure Indian companies aren’t listed aboard? That has been the intention. Wealth is being created by the talent in India and the market is going outside. I cannot guarantee all of them will now list in India. Once we notify the regulations, we plan to have road shows across the country, along with some merchant bankers and exchanges. We have seen a number of new regulations during your tenure at Sebi. What are the areas that offer more scope for this? We have had two approaches: One, all major regulations were reviewed. Starting from the takeover code, insider trading regulations and mutual fund regulations, we have made changes. Plus, we also felt the economy has reached a stage in which some new types of regulations were also required. So, we came out with the research analyst regulations or the investor advisor regulations. There is a view that Sebi has gone too far, too soon. There is another view that it has gone too slow and it should have done more. These are matters for which there can be different point of view. Corporate governance has been an area in which we have concentrated a lot. We have made major improvements in that area, be it minimum public shareholding, related-party transactions, the role of independent directors or having diversity on boards by having a woman director.
“On Sebi-FMC merger, we are going to our board with certain changes in our regulations by the end of the month”
Are you happy with the progress of the SME platform? There are two exchanges that have SME platforms. One has a sizeable number and the other has a very small number. These are business calls by individual exchanges. As a regulator, we are happy as long as both are following the rules.