Sebi active after CRB scam

The capital market regulator seems to have turned aggressive after the CRB Capital Markets scam. Securities and Exchange Board of India (SEBI) has started taking various rapid-fire actions against various market intermediaries – mutual funds, merchant bankers and corporates – to prove the point that it is a “vigilant” regulator. The list of action taken by the SEBI in the last three months is impressive * Over 120 merchant bankers were issued show-cause notices for various lapses including failure in meeting underwriting commitments this year. * Over half-a-dozen mutual funds were prevented from floating mutual fund schemes. The SEBI directive was that they should make their accounts clean before coming out with new schemes. * It has sought explanation from Hindustan Lever as to why the company purchased some eight00000 shares of Brooke Bond barely a month before the decision to merge the two companies was taken. * Morgan Stanley Mutual Fund was slapped a fine of Rs one00000 for various irregularities. * It has come out with a compendium of proposals for the primary market. The SEBI notice to Hindustan Lever about insider trading has now overshadowed the CRB scam and put the spotlight on SEBI initiatives in the capital market. This comes close on the heels of flak that it received over the CRB scam. In fact, history seems to be repeating itself. SEBI was caught napping in at least three cases when market buccaneers took investors for a ride and the regulator stepped in after the investors lost heavily. When hundreds of shady companies floated public issues in the 1994-96 period, SEBI initially failed to check the flood of such issues. However, when it tightened the primary guidelines, the number of companies floating the issues came down. A total of 1428 public issues were made in 1995-96. If the revised guidelines (which include dividend trackrecord and project appraisal norms) are applied to these issues, only 399 issues would have qualified to enter the market. This indicates that if SEBI had tightened the issue guidelines earlier, many of the dud issues which are now quoting much below the face value could have been avoided. Again, after raising money from the public the question of monitoring end-use of funds raised through public issues is yet to be tackled the same promoters, in collusion with brokers, rigged up the share prices two years ago. Gullible investors who were taken for a ride lost heavily in the price rigging exercise in around a dozen companies like Kamakshi Housing, Jyothi Resins and Ardeshir Cotton. However, SEBI action like impounding the auction proceeds came a bit late – like bolting the stable doors after the horses had fled. Then came the CRB scandal. Even though SEBI chairman has gone on record saying that he has taken action against CRB Mutual Fund, the findings of the Chitale report and SEBI’s own investigation before the CRB scam broke out had levelled several serious charges against CRB Mutual Fund. When the CRB Capital Markets which violated all the rules in the book was given a banking licence, SEBI kept quiet. After the scam broke out, SEBI asked half-a-dozen mutual funds not to launch schemes till they clean up their accounts. It also fined Morgan Stanley for violating MF guidelines. As a former senior SEBI official pointed out, so much time and efforts were taken to frame guidelines for various intermediaries like registrars, mutual funds and brokers and bring them under the SEBI purview. On top of this, the watchdog got enough teeth only recently and it was harmstrung by lack of adequate manpower added the official. With the CRB affair showing chinks in the armour of the Reserve Bank of India and the SEBI, a demand to regulate various regulatory bodies has already been made. S A Dave, former chairman of the Unit Trust of India (UTI) had recently gone on record saying the need for a senior regulatory body which can overlook the regulatory bodies directly monitoring market intermediaries. The argument is that a senior regulatory body could help ensure that the markets do not suffer due to the lack of coordination among regulators.