Sinha forms panels to address concerns on IPOs, mutual funds; warns local firms not following regulations
Retail investors occupy centre stage for capital market regulator U.K. Sinha,
but their protection need not rob the market of its growth, something a section
of market intermediaries says his predecessor C.B. Bhave had done.
“There has to be a market and then only you can protect the investors,” Sinha
said on Friday in an interview. “If there is no industry and no market, then
whom do you protect?”
Bhave is of the opinion that the industry could survive only when investors’
interest is protected.
The new chief of the Securities and Exchange Board of India (Sebi) is
preparing for the second stage of reforms in the primary as well as the
secondary market.
As the first step, he has instituted a few committees to look into issues
such as the procedures of initial public offerings (IPOs) and the impact of the
ban on the so-called entry fees on the Rs.
7 trillion mutual fund industry. Some of the committees are expected to submit
reports in as early as six weeks.
Sinha is also emphatic that he would continue Sebi’s battle again local firms
that are not following the rules of the game. Big companies can delay Sebi’s
decisions because they have financial muscle and can fight hard, but the
regulator will not be intimidated by them, he said.
“I would like people to know that be careful, Sebi is watching,” he said. “As
a regulator, I would put my energy more on deterrence rather than punishment, if
there is a choice.”
Sinha has taken charge at Sebi at a time when the regulator is handling a
number of critical issues, including the new takeover code and the ownership and
capital issue norms for market infrastructure institutions such as exchanges,
depositories and clearing houses.
He expects the new takeover code to be in place ahead of framing rules for
market infrastructure institutions on which a panel, headed by former Reserve
Bank of India governor Bimal Jalan, submitted a report last year.
Sinha said the proposal to change takeover norms has been discussed at the
Sebi board twice and will be finalized after government gives its
suggestions.
On another contentious issue, allowing MCX Stock Exchange Ltd (MCX-SX) to
trade in equities, he did not give a specific response as the case is being
legally fought, but said Sebi will encourage competition.
“One of the areas of worry today is lack of competition. We will take policy
measures to ensure that there is more competition,” he said. “Over the past
three years particularly, the competition in the exchange industry has become
concentrated. In some cases, a very high percentage of business is with one
exchange.”
Sebi did not allow MCX-SX equity trading as it found the exchange did not
fully conform with ownership norms.
In August 2009, Sebi had scrapped entry fees—an upfront commission paid by an
investor for putting money in a mutual fund scheme. Since then, the mutual fund
industry has been complaining about a decline in sales.
Sinha, who was then heading India’s fourth largest asset management firm, UTI
Asset Management Co. Ltd, had vehemently opposed the ban.
The idea behind setting up a committee to look into the affairs of mutual
fund industry is “to see how the growth of the industry can be accelerated, and
to arrest the decline”.
Stating that the geographical reach of the industry has shrunk, Sinha said he
will strive to “enhance the reach of the industry”.
Though many claim that the industry’s growth and reach have suffered
following the entry load ban, between August 2009 and March 2011, investors have
saved at least Rs. 2,500 crore in various
schemes. The gross inflow during this period was about Rs. 1.15 trillion.
“Despite the entry loan ban in 2010, gross inflows in equity funds touched a
three-year high,” a Morgan Stanley report in February said.
In a 5 May interview with AsianInvestor magazine, K.N. Vaidyanathan,
executive director of Sebi, said he wanted the fund industry to grow in terms of
muscle, and not fat. He also said asset management companies should grow
steadily but not at the cost of investors’ money.
At a Mumbai seminar in 2010, Bhave had criticized the industry for running
several schemes with suboptimal returns and launching one scheme after another
that provided incentives only to distributors, but confused investors and failed
to meet their expectations.
Sinha also plans to simplify disclosures made by firms in offer documents for
IPOs and follow-on public offers (FPOs). It may force merchant bankers to
disclose their track record in offer documents and clearly justify the pricing
of an issue in a more transparent way.
Pricing of IPOs and FPOs has always remained a major concern in India.
In September, while addressing a conference of Association of Merchant
Bankers of India, Bhave questioned the transparency of the merchant bankers
while pricing IPOs and FPOs.
“If you look at maximizing the price for promoters, then obviously you are
not looking after the interests of investors,” Bhave had said.
According to a Mint analysis, till the first week of May, 39 of the 56
IPOs that were launched during fiscal 2011 were trading below their offer
prices.
“We are discussing what better information we can provide to the investors on
pricing. For instance, if you are a merchant banker and you have done five
issues in the last one year, can we provide the track record of you on those
five issues?…For IPOs, can we disclose at a certain price...what is the price
earning ratio of the stock?” said Sinha.
He also wants to simplify other market-entry procedures such as opening a
demat account with a bank or an account with a brokerage to buy and sell
shares.
“When somebody is trying to get registered with a broker and trying to open a
demat account, I am told that there are 50 signatures required… All sorts of
assertions and all sorts of obligations are made,” he said. “Obviously it is
discouraging the retail investors. We would like to simplify that.”
Source: LiveMint
